<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
   [X]         Quarterly Report Pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934

                 For the quarterly period ended October 1, 2000

                                       OR

   [ ]         Transition Report Pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934

                          Commission File No. 000-27221

                                VIXEL CORPORATION
             (Exact name of registrant as specified in its charter)


                  Delaware                                  84-1176506
        (State or other jurisdiction                     (I.R.S. Employer
      of incorporation or organization)                 Identification No.)


                         11911 North Creek Parkway South
                            Bothell, Washington 98011
                                 (425) 806-5509

  (Address, including zip code, of Registrant's principal executive offices and
                     telephone number, including area code)


     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     The number of shares outstanding of the Registrant's common stock, $.0015
par value, as of November 10, 2000 was 23,826,491.


<PAGE>   2
                                VIXEL CORPORATION

              INDEX TO FORM 10-Q FOR QUARTER ENDED OCTOBER 1, 2000
<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
Part I.  FINANCIAL INFORMATION

    Item 1.  Financial Statements

         Condensed Balance Sheet as of October 1, 2000 (unaudited) and
         January 2, 2000 (unaudited).................................................   3

         Condensed Statement of Operations for the three month and nine month periods
         ended October 1, 2000 (unaudited) and October 3, 1999 (unaudited)...........   4

         Condensed Statement of Cash Flows for the nine month periods ended
         October 1, 2000 (unaudited) and October 3, 1999 (unaudited).................   5

         Notes to Condensed Financial Statements (unaudited) ........................   6

    Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations...............................................   7

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk..............  22


Part II.  OTHER INFORMATION

    Item 2.  Changes in Securities and Use of Proceeds...............................  22

    Item 6.  Exhibits and Reports on Form 8-K........................................  22


Signature............................................................................  23
</TABLE>


<PAGE>   3
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                 VIXEL CORPORATION
                              CONDENSED BALANCE SHEET
                       (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                              October 1,       January 2,
                                                                 2000             2000
                                                             -----------       ----------
<S>                                                          <C>               <C>
Assets
    Current assets:
       Cash and cash equivalents                             $   40,878        $   16,706
       Short-term investments                                     7,788            44,650
       Accounts receivable, net of allowance for doubtful
          accounts of $512 and $250, respectively                 6,849             5,344
       Inventories                                                1,278             3,321
       Prepaid expenses and other current assets                  1,791             2,779
                                                             ----------        ----------
            Total current assets                                 58,584            72,800

    Property and equipment, net                                   7,525             6,915
    Goodwill and other intangibles, net                           2,220             3,838
    Other assets                                                    502               528
                                                             ----------        ----------
            Total assets                                     $   68,831        $   84,081
                                                             ==========        ==========

Liabilities and stockholders' equity
    Current liabilities:
       Current portion of long-term debt and
          capital leases                                     $    2,774         $   2,894
       Accounts payable                                           4,764             4,480
       Accrued liabilities                                        8,243             6,606
                                                             ----------        ----------
            Total current liabilities                            15,781            13,980

    Long-term debt and capital leases                             1,987             3,406
    Other long-term liabilities                                       -             1,000
                                                             ----------        ----------
            Total liabilities                                    17,768            18,386
                                                             ----------        ----------

    Commitments and contingencies
    Stockholders' equity:
       Common stock, $.0015 par value; 60,000,000 shares
          authorized; 23,730,805 and 23,213,588 shares
          issued and outstanding, respectively                       35                35
       Additional paid-in capital                               156,037           155,070
       Deferred compensation                                    (2,712)            (5,525)
       Notes receivable from stockholders                       (5,222)            (5,246)
       Treasury stock, at cost; 66,666 shares                      (50)               (50)
       Accumulated deficit                                     (97,025)           (78,589)
                                                             ----------        ----------
            Total stockholders' equity                           51,063            65,695
                                                             ----------        ----------
            Total liabilities and stockholders' equity       $   68,831        $   84,081
                                                             ==========        ==========
</TABLE>

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

                                       3
<PAGE>   4

                                VIXEL CORPORATION
                        CONDENSED STATEMENT OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                             --------------------------    --------------------------
                                              October 1,     October 3,     October 1,     October 3,
                                                2000           1999           2000           1999
                                             -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>
Revenue:
     SAN systems                              $   8,048      $   7,389      $  22,743      $  18,999
     Components                                     454          1,514          1,317         11,963
                                             -----------    -----------    -----------    -----------
         Total revenue                            8,502          8,903         24,060         30,962
Cost of revenue                                   5,428          6,255         16,267         21,928
                                             -----------    -----------    -----------    -----------
Gross profit                                      3,074          2,648          7,793          9,034
                                             -----------    -----------    -----------    -----------
Operating expenses:
     Research and development                     4,413          3,340         11,702          9,573
     Selling, general and administrative          4,197          3,660         12,834         10,324
     Amortization of goodwill
         and intangibles                            540            340          1,619          1,020
     Amortization of deferred
         compensation                               545          1,271          2,360          3,054
                                             -----------    -----------    -----------    -----------
         Total operating expenses                 9,695          8,611         28,515         23,971
                                             -----------    -----------    -----------    -----------

Loss from operations                             (6,621)        (5,963)       (20,722)       (14,937)
     Other income (expense), net                    777           (564)         2,286         (1,446)
                                             -----------    -----------    -----------    -----------
Net loss                                      $  (5,844)     $  (6,527)     $ (18,436)     $ (16,383)
                                             ===========    ===========    ===========    ===========

Net loss available to common stockholders     $  (5,844)     $  (6,576)     $ (18,436)     $ (16,532)
                                             ===========    ===========    ===========    ===========

Basic and diluted net loss per share          $   (0.25)     $   (1.36)     $   (0.82)     $   (4.18)
                                             ===========    ===========    ===========    ===========

Weighted-average shares outstanding              22,946          4,842         22,570          3,957
                                             ===========    ===========    ===========    ===========
</TABLE>


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

                                       4
<PAGE>   5
                               VIXEL CORPORATION
                       CONDENSED STATEMENT OF CASH FLOWS
                                (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED
                                                       ---------------------------
                                                       October 1,       October 3,
                                                          2000             1999
                                                       ----------       ----------
<S>                                                    <C>              <C>
Cash flows from operating activities
    Net loss                                           $ (18,436)       $ (16,383)
    Adjustments to reconcile net loss to net cash
       used in operating activities
         Depreciation                                      2,451            1,807
         Amortization of goodwill and intangibles          1,619            1,400
         Amortization of debt discount                         -              172
         Amortization of deferred compensation             2,360            3,118
         Amortization of debt issuance costs                  12               12
         Loss on disposal of property and equipment            -               34
         Changes in:
            Accounts receivable, net                      (1,505)          (1,759)
            Inventories                                    2,043             (353)
            Prepaid expenses and other assets              1,013             (148)
            Accounts payable and accrued liabilities         921            4,205
                                                       ----------       ----------
              Net cash used in operating activities       (9,522)          (7,895)
                                                       ----------       ----------

Cash flows from investing activities
    Purchase of short-term investments                   (12,116)               -
    Sale of short-term investments                        48,978            2,490
    Purchase of property and equipment                    (2,363)            (498)
                                                       ----------       ----------
              Net cash provided by investing
                 activities                               34,499            1,992
                                                       ----------       ----------
Cash flows from financing activities
    Proceeds from line of credit, net                          -            2,839
    Receipt of payment on stockholder note
       receivable                                             24                -
    Principal payments on long-term debt and
       capital leases                                     (2,249)            (860)
    Proceeds from exercise of stock options                1,420              387
    Proceeds from issuance of preferred stock, net             -              650
                                                       ----------       ----------
              Net cash (used in) provided by
                financing activities                        (805)           3,016
                                                       ----------       ----------
Net increase (decrease) in cash and cash
    equivalents                                           24,172           (2,887)
Cash and cash equivalents, beginning of period            16,706            3,841
                                                       ----------       ----------
Cash and cash equivalents, end of period               $  40,878        $     954
                                                       ==========       ==========

Cash paid for interest                                 $     459        $   1,652
Equipment purchased under capital leases               $     698        $   1,411
Issuance of detachable stock warrants                  $       -        $       9
Accretion of mandatorily redeemable stock              $       -        $     148

Noncash reclassification of long-term liability
    to current liability                               $   1,000.       $       -
</TABLE>


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



                                       5
<PAGE>   6
                                VIXEL CORPORATION

                     Notes to Condensed Financial Statements
                (Information for the three and nine months ended
                      October 1, 2000 and October 3, 1999)
                                   (Unaudited)

NOTE 1.  BASIS OF PRESENTATION

     The accompanying condensed financial statements as of October 1, 2000 and
for the three and nine month periods ended October 1, 2000 and October 3, 1999
are unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods. Certain information and
note disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the three and nine month periods ended
October 1, 2000 are not necessarily indicative of future financial results.

     Investors should read these interim statements in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto for the fiscal year
ended January 2, 2000 (audited) included in our Annual Report on Form 10-K, as
amended, originally filed with the Securities and Exchange Commission on March
31, 2000.

     Certain items in the October 3, 1999 financial statements have been
reclassified to conform to the October 1, 2000 presentation. These
reclassifications have no effect on net loss or per share amounts.

NOTE 2.  INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                   October 1,       January 2,
                                      2000             2000
                                   ----------       ----------
<S>                                <C>              <C>
Raw materials                      $    1,409       $   1,258
Finished goods                            709           2,628
Less:  write-down to
     expected realizable value           (840)           (565)
                                   ----------       ----------
                                   $    1,278       $   3,321
                                   ==========       ==========
</TABLE>

NOTE 3.  NET LOSS PER SHARE

     Basic net loss per share represents the net loss available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share represents net loss available to
common stockholders divided by the weighted-average number of common shares
outstanding including the potentially dilutive impact of common stock options
and warrants, and convertible preferred stock, and common stock subject to
repurchase. Common stock options and warrants are converted using the treasury
stock method. Basic and diluted net loss per share are equal for the periods
presented as potentially dilutive securities are anti-dilutive. The effect of
potentially dilutive securities totaling 4,415,879 and 17,505,332 shares for the
three and nine months ended October 1, 2000 and October 3, 1999, respectively,
were excluded from diluted net loss per share due to their anti-dilutive effect.

                                       6
<PAGE>   7

     The following table sets forth the computation of the numerators and
denominators for use in both the basic and diluted net loss per share
calculations for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                     Three Months Ended          Nine Months Ended
                                   -----------------------    ------------------------
                                   October 1,  October 3,     October 1,   October 3,
                                     2000         1999          2000          1999
                                   ----------  -----------    ----------   -----------
<S>                                <C>         <C>            <C>          <C>
Numerator:
     Net loss                      $ (5,844)     $ (6,527)    $ (18,436)    $ (16,383)
     Accretion of mandatorily
         redeemable convertible
         preferred stock                  -           (49)            -          (149)
                                   ---------   -----------    ----------   -----------
     Net loss available to common
         stockholders              $ (5,844)     $ (6,576)    $ (18,436)    $ (16,532)
                                   =========   ===========    ==========   ===========
Denominator:
     Weighted-average shares
         outstanding                 22,946         4,842        22,570         3,957
                                   =========   ===========    ==========   ===========
</TABLE>


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

     The following discussion should be read in conjunction with the condensed
financial statements in Item 1 of this Quarterly Report and with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K, as amended, originally
filed with the Securities and Exchange Commission on March 31, 2000.

     This document contains forward-looking statements that involve risk and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no obligation to update any of the forward-looking
statements after the date hereof to conform such statements to actual results or
to changes in our expectations.

     References to dollar amounts are in thousands unless otherwise specified.


                                       7
<PAGE>   8
                                COMPANY OVERVIEW

     We are a provider of comprehensive interconnect solutions for use in
storage area networks, or SANs. Our portfolio of Fibre Channel products,
including our SAN management software, switches, hubs and transceivers, is fully
interoperable and designed to perform in concert to address a wide variety of
data and storage needs.

     We derive substantially all of our revenue from the sale of SAN
interconnect products, including switches, hubs and transceivers. We currently
include our SAN InSite software with our switches and managed hubs and do not
sell this software separately from our other products. Our revenue includes SAN
systems revenue as well as component revenue. SAN systems revenue consists of
revenue generated from our SAN switches, hubs and transceiver products sold as a
result of selling our switches and hubs. Component revenue consists primarily of
revenue generated from the sale of our transceiver products to original
equipment manufacturers, or OEMs, for use in their products.

     We sell our products primarily to a limited number of customers. Compaq
Computer, Sun Microsystems and Avid Technologies represented 28.7%, 16.9% and
15.8% of revenue, respectively for the three months ended October 1, 2000.
Compaq Computer and Sun Microsystems represented 35.2% and 18.6% of revenue,
respectively for the three months ended October 3, 1999. No other individual
customer represented more than 10.0% of our total revenue in those periods.
During the three months ended October 1, 2000 and October 3, 1999, 19.2% and
11.0%, respectively, of our total revenue was derived from sales to distribution
channel customers. We plan to continue to expand our sales channels to include
systems integrators, value added resellers, or VARs, and additional distributors
in the United States and internationally.

     We generally recognize revenue at the time of product shipment, unless we
have future obligations for installation or when we ship product demonstration
units. Revenue from products shipped with future installation obligations is
recognized when we meet our future obligation. Revenue is not recognized on
demonstration units unless the customer ultimately purchases the unit, and the
related revenue is recognized at that time. Our agreements with our North
American distributors provide for price protection and for stock rotation based
on a percentage of shipments for the preceding quarter when an offsetting order
is requested. Revenue for these stock rotation rights is deferred until the
stock rotation period has passed. We provide an allowance for price protection
rights. We also maintain a reserve for product warranty costs based on a
combination of historical experience and specifically identified potential
warranty liabilities.

     Our gross profit as a percentage of total revenue is affected by the mix of
products sold, sales channels and customers to which our products are sold. Our
gross profit as a percentage of total revenue also is affected by fluctuations
in manufacturing volumes and component costs, manufacturing costs charged by our
contract manufacturers, new product introductions, changes in our product
pricing and estimated warranty costs. We expect that average unit selling prices
for our products will decline over time in response to competitive pricing
pressures, increased sales discounts, new product introductions by us or our
competitors and other factors. We seek to maintain gross profit as a percentage
of total revenue by selling a higher percentage of higher margin products and
reducing the cost of our products through manufacturing efficiencies, design
improvements and cost reductions for components.


                                       8
<PAGE>   9
                               RESULTS OF OPERATIONS

     The following table sets forth the percentage of total revenue represented
by selected items from the unaudited Condensed Statement of Operations. This
table should be read in conjunction with the unaudited Condensed Financial
Statements included elsewhere herein.

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED             NINE MONTHS ENDED
                                          -------------------------     -------------------------
                                          October 1,     October 3,     October 1,     October 3,
                                             2000           1999           2000           1999
                                          ----------     ----------     ----------     ----------
<S>                                       <C>            <C>            <C>            <C>
Revenue:
     SAN systems                                94.7%          83.0%          94.5%          61.4%
     Components                                  5.3           17.0            5.5           38.6
                                          ----------     ----------     ----------     ----------
         Total revenue                         100.0          100.0          100.0          100.0
Cost of revenue                                 63.8           70.3           67.6           70.8
                                          ----------     ----------     ----------     ----------
Gross profit                                    36.2           29.7           32.4           29.2
                                          ----------     ----------     ----------     ----------
Operating expenses:
     Research and development                   51.9           37.5           48.6           30.9
     Selling, general and administrative        49.4           41.1           53.3           33.3
     Amortization of goodwill
         and intangibles                         6.4            3.8            6.7            3.3
     Amortization of deferred
         compensation                            6.4           14.3            9.8            9.9
                                          ----------     ----------     ----------     ----------
         Total operating expenses              114.1           96.7          118.4           77.4
                                          ----------     ----------     ----------     ----------

Loss from operations                           (77.9)         (67.0)         (86.0)         (48.2)
     Other income (expense), net                 9.1           (6.3)           9.5           (4.7)
                                          ----------     ----------     ----------     ----------
Net loss                                       (68.8)%        (73.3)%        (76.5)%        (52.9)%
                                          ==========     ==========     ==========     ==========
</TABLE>


THREE MONTHS ENDED OCTOBER 1, 2000 COMPARED WITH THREE MONTHS ENDED
OCTOBER 3, 1999

     Revenue. Total revenue was $8,502 and $8,903 for the three months ended
October 1, 2000 and October 3, 1999, respectively. Our SAN systems revenue was
$8,048 and $7,389 for the three months ended October 1, 2000 and October 3,
1999, respectively. The 8.9% increase in SAN systems revenue in the third
quarter 2000 compared with third quarter 1999 was the result of increased sales
of our switch products.

     Component revenue was $454 and $1,514 for the three months ended October 1,
2000 and October 3, 1999, respectively. The primary reason for the decrease in
component revenue in the third quarter of 2000 compared with the third quarter
1999 is a result of the decision to discontinue further development of
transceiver products.

     Gross profit. Cost of revenue includes the cost to acquire finished
products from third party manufacturers of our products, expenses we incur
related to inventory management, product quality testing, customer order
fulfillment, and provisions for warranty expenses and inventory obsolescence.
Gross profit was $3,074 and $2,648 for the three months ended October 1, 2000
and October 3, 1999, respectively, representing 36.2% and 29.7% of total
revenue, respectively. The increase in gross profit reflects the


                                       9
<PAGE>   10
increase in SAN systems product revenue, which generally has higher gross
margins than component product revenue, in 2000 compared with 1999.

     Research and development expenses. Research and development expenses
consist primarily of salaries and related expenses for personnel engaged in the
design, development and sustaining engineering of our products, consulting and
outside service fees, costs for prototype and test units and other expenses
related to the design, development, testing and enhancement of our products.
Research and development expenses were $4,413, or 51.9% of total revenue, in the
three months ended October 1, 2000 compared with $3,340, or 37.5% of total
revenue, in the three months ended October 3, 1999. The $1,073, or 32.1%
increase in expenses during the three months ended October 1, 2000 was primarily
attributable to increased personnel, outside services and costs for prototype
and test units and other expenses related to the design, development, testing
and enhancement of our products. We believe that continued investment in
research and development is an essential element of our strategic objectives to
design quality products while reducing costs. As a result, we expect these
expenses to increase in the future.

     Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, commissions and related
expenses for personnel engaged in marketing, sales, customer service, finance
and information technology support functions, as well as professional fees,
provision for doubtful accounts receivable, trade shows and other marketing
activities. Selling, general and administrative expenses were $4,197, or 49.4%
of total revenue, in the three months ended October 1, 2000 compared with
$3,660, or 41.1% of total revenue, in the three months ended October 3, 1999.
The $537, or 14.7% increase in expenses during the three months ended October 1,
2000 was primarily attributable to additional personnel and related salaries and
expenses in sales, customer services and marketing, as well as increased
expenses related to marketing activities.

     Amortization of goodwill and intangibles. Amortization of goodwill and
intangibles for the three months ended October 1, 2000 and October 3, 1999 were
$540 and $340, respectively, representing 6.4% and 3.8%, respectively, of total
revenue. The increase is the result of an increase in the amortization of the
intangible assets capitalized in conjunction with our purchase of Arcxel
Technologies in February 1998.

     Amortization of deferred compensation. In connection with the grant of
certain stock options, we recorded deferred compensation of $9,753 during fiscal
1999. Deferred compensation is presented as a reduction of stockholders' equity
and amortized using an accelerated vesting method over the vesting period of the
options, which is generally four years. We amortized deferred compensation of
$545 and $1,271 for the three months ended October 1, 2000 and October 3, 1999,
respectively, representing 6.4% and 14.3%, respectively, of total revenue.

     Other income (expense), net. Other income (expense), net consists of
interest income, interest expense and other miscellaneous income or expense.
Other income, net was $777 for the three months ended October 1, 2000, which
consisted primarily of interest income and represented 9.1% of total revenue.
Other expense, net of $564 for the three months ended October 3, 1999
represented 6.3% of total revenue and consisted primarily of interest expense on
notes payable and capital lease obligations.

NINE MONTHS ENDED OCTOBER 1, 2000 COMPARED WITH NINE MONTHS ENDED
OCTOBER 3, 1999

     Revenue. Total revenue for the nine months ended October 1, 2000 was
$24,060, a decrease of $6,902, compared with $30,962 in the nine months ended
October 3, 1999. SAN systems revenue for the nine months ended October 1, 2000
was $22,743, an increase of $3,744 compared with $18,999 for the nine months
ended October 3, 1999. The 19.7% increase in SAN systems revenue in the nine
months ended October 1, 2000 compared with the prior year comparable period was
the result of increased sales of our switch products.

                                       10
<PAGE>   11
     Component revenue for the nine months ended October 1, 2000 was $1,317, a
decrease of $10,646, compared with $11,963 for the nine months ended October 3,
1999. Performance issues with our CD laser based transceiver products sold
primarily in 1997 were identified in late 1998 and early 1999, and we believe is
the primary reason for the 88.9% decrease in sales of our transceiver products
in the first nine months of 2000 compared with the first nine months of 1999.
For a more complete discussion of the performance problems with our
transceivers, see "Factors that may Affect Results of Operations and Financial
Condition - A component in our transceivers has experienced an abnormally high
failure rate, which has adversely affected and could in the future affect our
sales.

     Gross profit. Gross profit in the nine months ended October 1, 2000 was
$7,793, a decrease of $1,241, compared with $9,034 for the nine months ended
October 3, 1999. Gross profit as a percentage of revenue was 32.4% in the nine
months ended October 1, 2000 compared to 29.2% in the nine months ended October
3, 1999. The decrease in gross profit dollars reflects the decrease in component
revenue in 2000 as compared with 1999. Gross profit as a percentage of revenue
increased as a higher percentage of our revenue in 2000 resulted from SAN
systems products, which generally have higher gross margins than component
products.

     Research and development expenses. Research and development expenses were
$11,702, or 48.6% of total revenue, in the nine months ended October 1, 2000
compared with $9,573, or 30.9% of total revenue in the nine months ended October
3, 1999. The $2,129, or 22.2% increase in expenses during the nine months ended
October 1, 2000 was primarily attributable to increased personnel, consulting,
outside services and costs for prototype and test units and other expenses
related to the design, development, testing and enhancement of our products.

     Selling, general and administrative expenses. Selling, general and
administrative expenses were $12,834, or 53.3% of total revenue, in the nine
months ended October 1, 2000 compared with $10,324, or 33.3% of total revenue in
the nine months ended October 3, 1999. The $2,510, or 24.3% increase in expenses
during the nine months ended October 1, 2000 was primarily attributable to
additional personnel and related salaries and expenses in sales, customer
services, marketing and administration, as well as increased expenses related to
marketing activities.

     Amortization of goodwill and intangibles. Amortization of goodwill and
intangibles for the nine months ended October 1, 2000 and October 3, 1999 were
$1,619 and $1,020, respectively, representing 6.7% and 3.3%, respectively, of
total revenue. This increase is the result of an increase in the amortization of
the intangible assets capitalized in conjunction with our purchase of Arcxel
Technologies in February 1998.

     Amortization of deferred compensation. In connection with the grant of
certain stock options we recorded deferred compensation of $9,753 during fiscal
1999. Deferred compensation is presented as a reduction of stockholders' equity
and amortized using an accelerated vesting method over the vesting period of the
options, which is generally four years. We amortized deferred compensation of
$2,360 and $3,054 for the nine months ended October 1, 2000 and October 3, 1999,
respectively, representing 9.8% and 9.9%, respectively, of total revenue.

     Other income (expense), net. Other income, net was $2,286 for the nine
months ended October 1, 2000, which consisted primarily of interest income and
represented 9.5% of total revenue. Other expense, net of $1,446 for the nine
months ended October 3, 1999 represented 4.7% of total revenue and consisted
primarily of interest expense on notes payable and capital lease obligations.

                                       11
<PAGE>   12
                         LIQUIDITY AND CAPITAL RESOURCES

     Our principal sources of liquidity at October 1, 2000 consisted of $40.9
million in cash and cash equivalents, and $7.8 million in short-term
investments.

     Since inception, we have financed our operations primarily through the sale
of common stock and preferred stock with aggregate proceeds of approximately
$113.8 million. Additionally, we have financed our operations through capital
equipment lease lines, working capital credit facilities, notes payable and $6.9
million in net cash received from the sale of our laser diode fabrication
facility and gigabit Ethernet product line in 1998.

     Cash utilized by operating activities was $9.5 million in the nine months
ended October 1, 2000, and $7.9 million in the nine months ended October 3,
1999. The cash utilized in each of these periods was due to net losses, as well
as working capital required to fund our operations. Cash flows from investing
activities consisted of short-term investment transactions and capital
expenditures of $2,363 in the nine months ended October 1, 2000 and $498 in the
nine months ended October 3, 1999.

     The Company's initial public offering of 4.3 million shares of Common Stock
was closed on October 6, 1999 and the Company realized proceeds of $70.6
million, net of underwriting discounts and commissions and issue costs.
Subsequently, the underwriters exercised the over-allotment option of 645,000
shares of Common Stock and the Company realized proceeds of $10.8 million, net
of underwriting discounts and commissions and issue costs upon closing on
October 15, 1999.

     We believe that our existing cash, cash equivalent and short-term
investment balances will be sufficient to meet our cash requirements at least
through the next twelve months. However, we may be required, or could elect, to
seek additional funding prior to that time. Our future capital requirements will
depend on many factors, including our future revenue, the timing and extent of
spending to support product development efforts and expansion of sales, general
and administrative activities, the timing of introductions of new products, and
market acceptance of our products. We cannot assure you that additional equity
or debt financing, if required, will be available on acceptable terms or at all.

                          RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue, provides guidance for disclosures related
to revenue recognition policies and will be effective for our quarter ending
December 31, 2000. Adoption of the guidance on revenue recognition as provided
by SAB 101 may require us to restate revenue for previously reported periods.
Management is currently assessing the impact of SAB 101.

     FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

WE HAVE INCURRED SIGNIFICANT LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE
LOSSES, AND WE MAY NOT BECOME PROFITABLE.

     We have incurred significant losses since inception and expect to incur
losses in the future. As of October 1, 2000, we had an accumulated deficit of
$97.0 million. We cannot be certain that we ever will realize sufficient revenue
to achieve profitability. We expect to incur significant product development,
sales and marketing and administrative expenses, and we will need to generate
significant revenue to achieve and maintain profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability.

                                       12
<PAGE>   13
OUR OPERATING RESULTS ARE DIFFICULT TO FORECAST, MAY FLUCTUATE ON A QUARTERLY
BASIS AND MAY BE ADVERSELY AFFECTED BY MANY FACTORS, WHICH MAY RESULT IN
VOLATILITY IN OUR STOCK PRICE.

     Our revenue and results of operations have varied on a quarterly basis in
the past and may vary significantly in the future due to a number of factors,
many of which may cause our stock price to fluctuate. Some of the factors that
could affect our operating results include:

     -    the size, terms and fluctuations of customer orders, particularly
          large orders from a limited number of original equipment
          manufacturers, or OEMs;
     -    the timing of customer orders, a large percentage of which are
          generated in the last month of the quarter;
     -    our ability to attain and maintain sufficient reliability levels for
          our SAN interconnect products;
     -    the timing of the introduction or enhancement of products by us, our
          OEMs and our competitors;
     -    decreases in the prices at which we can sell our products;
     -    the mix of products sold, as our switches and hubs typically have
          higher margins than our transceivers, and the mix of distribution
          channels through which our products are sold; and
     -    the ability of our contract manufacturers to produce and distribute
          our products in a timely fashion.

     As a result of these and other factors, we believe that period to period
comparisons of our operating results should not be relied upon as an indicator
of our future performance. It is likely that in some future period our operating
results will be below our outlook, your expectations or the expectations of
public market analysts.

A COMPONENT IN OUR TRANSCEIVERS HAS EXPERIENCED AN ABNORMALLY HIGH FAILURE RATE,
WHICH HAS ADVERSELY AFFECTED AND COULD IN THE FUTURE AFFECT OUR SALES.

     Our GBIC transceivers manufactured prior to March 1999, and our GLM
transceivers manufactured prior to September 1999, incorporate a compact disk,
or CD, laser manufactured by a third party. We have observed, and some customers
have confirmed, that in certain applications our GBIC and GLM transceivers
manufactured prior to March 1998 that incorporate this CD laser have experienced
an abnormally high failure rate. Although we recorded a warranty reserve of $3.6
million in the fourth quarter of fiscal 1998 as a result of these problems,
there is a risk that this reserve will be inadequate to implement a remedy that
is satisfactory to our customers. Claims against us in excess of the amount of
our reserves could have a material adverse effect on our business and financial
condition. Partially as a result of this problem, Sun Microsystems and
Hewlett-Packard have stopped purchasing our transceiver products and we have
seen our component revenue decrease from $12.0 million for the nine months ended
October 3, 1999 to $1.5 million for the nine months ended October 1, 2000. We
anticipate that revenue from our GBIC and GLM transceivers will continue to
decrease as we have decided to focus our resources on our SAN systems products.
In addition, if we are unable to resolve these warranty issues to our customers'
satisfaction, or if failure rates in transceiver products increase, our
reputation and relationships with current and prospective customers could be
damaged and adversely affect the sales of all of our products.

OUR OEMS HAVE UNPREDICTABLE ORDER PATTERNS, WHICH MAY CAUSE OUR REVENUE TO VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.

     Our OEMs tend to order sporadically, and their purchases can vary
significantly from quarter to quarter. Our OEMs generally forecast expected
purchases in advance, but frequently do not order as expected and tend to place
purchase orders only shortly before the scheduled delivery date. We plan our
operating expenses based in part on revenue projections derived from our OEMs'
forecasts. Because most of our expenses are fixed in the short term or incurred
in advance of anticipated revenue, we may not be able to decrease our expenses
in a timely manner to offset any unexpected shortfall in revenue. These order
habits cause our backlog to fluctuate significantly. Moreover, our backlog is
not necessarily indicative of

                                       13
<PAGE>   14
actual sales for any succeeding period, as orders are subject to cancellation or
delay by our OEMs with limited or no penalty.

THE LOSS OF ONE OR MORE KEY CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR REVENUE.

     Our success will depend on our continued ability to develop and manage
relationships with significant OEMs and resellers, as well as on the sales
efforts and success of these customers. Compaq Computer, Sun Microsystems, and
Avid Technologies represented 28.7%, 16.9%, and 15.8% of our total revenue,
respectively, for the three months ended October 1, 2000. Although we are
attempting to expand our base of OEMs and resellers, most of our future revenue
may come from a small number of customers.

    Our agreements with our customers do not provide any assurance of future
sales to those customers. For example:

     -    our OEMs and resellers can stop purchasing and marketing our products
          at any time;
     -    our OEM and reseller agreements are not exclusive and contain no
          renewal obligation; and
     -    our OEM and reseller agreements do not require minimum purchases.

     We cannot be certain that we will retain our current OEMs and resellers or
that we will be able to recruit additional or replacement customers. Many of our
OEMs and resellers carry or utilize competing product lines. If we were to lose
one or more OEMs or resellers to a competitor, our business, results of
operations and financial condition could be significantly harmed.

OUR SUCCESS IS DEPENDENT UPON ACCEPTANCE OF FIBRE CHANNEL TECHNOLOGY AND THE
GROWTH OF THE EMERGING SAN MARKET.

     Our SAN InSite management software, switches, hubs and transceivers are
used exclusively in SANs. Accordingly, widespread adoption of SANs is critical
to our future success. The market for SANs and related software, switches, hubs
and transceivers has begun to develop only recently and is evolving rapidly.
Because the SAN market is new, it is difficult to predict its potential size or
future growth rate. SANs are often implemented in connection with deployment of
new storage systems and servers. Potential end-user customers that have invested
substantial resources in their existing data storage and management systems may
be reluctant or slow to adopt a new approach, such as SANs. Our success in
generating revenue in this emerging SAN market will depend on, among other
things, our ability to:

     -    demonstrate the benefits of SANs and our SAN InSite management
          software, switch, hub and transceiver products to OEMs, resellers and
          end-users;
     -    develop, maintain and build relationships with leading OEMs and
          resellers; and
     -    accurately predict the direction of industry standards and base our
          products on those industry standards.

Our failure to do any of these activities would adversely affect our ability to
successfully compete in the emerging SAN market.

COMPETING TECHNOLOGES MAY EMERGE AND WE MAY FAIL TO ADOPT NEW TECHNOLOGIES ON A
TIMELY BASIS. FAILURE TO UTILIZE NEW TECHNOLOGIES MAY DECREASE THE DEMAND FOR
OUR PRODUCTS.

     During the last fiscal year, the development of competing technologies,
such as Ethernet IP, have been discussed as alternatives to SANs. If we are
unable to identify new technologies in a timely manner and efficiently utilize
such new technologies in our product development efforts, the demand for our
current products may decrease significantly and rapidly, which would harm our
business.

                                       14
<PAGE>   15
WE EXPECT THAT A GROWING PERCENTAGE OF OUR FUTURE REVENUE WILL BE DERIVED FROM
OUR SWITCH AND MANAGED HUB PRODUCTS AND OUR SAN MANAGEMENT SOFTWARE PRODUCTS,
AND OUR SUCCESS WILL DEPEND ON WIDESPREAD ACCEPTANCE OF THESE PRODUCTS.

     Our future success depends upon our ability to address the rapidly changing
needs of our customers by developing and introducing high-quality,
cost-effective products as well as product enhancements and services on a timely
basis and by keeping pace with technological developments and emerging industry
standards. If we do not successfully develop, introduce and market new products,
especially our switch and managed hub products, our revenue may decline. In
particular, our future revenue growth will depend on the success of new product
launches of our switch and software products and success of our current switch
and managed hub products. In addition, as we introduce new or enhanced products,
we will have to manage successfully the transition from older products in order
to minimize disruption in our customers' ordering patterns, avoid excessive
levels of older product inventories and ensure that enough supplies of new
products can be delivered to meet our customers' demands. To the extent
customers defer or cancel orders in expectation of new product releases, any
delay in development or introduction of new products could cause our operating
results to suffer.

BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM SALES OF
ENTRY-LEVEL HUBS AND TRANSCEIVERS, WE ARE DEPENDENT ON CONTINUED WIDESPREAD
MARKET ACCEPTANCE OF THESE PRODUCTS.

     We currently derive a significant portion of our revenue from sales of our
entry-level hubs and transceivers. Although we anticipate our transceiver
revenue will continue to decline, we expect that revenue from our entry level
hubs and transceivers will continue to account for a substantial portion of our
total revenue for the foreseeable future. If the market does not continue to
accept our entry-level hubs and transceivers, our revenue will decline
significantly. Factors that may affect the market acceptance of our products
include the continued growth of the market for SAN interconnect products, the
performance, price and total cost of ownership of our products, the
availability, functionality and price of competing products and technologies,
and the success and development of our OEMs and resellers. Many of these factors
are beyond our control.

COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PRICES AND SALES OF OUR PRODUCTS,
INCREASED LOSSES AND REDUCED MARKET SHARE.

     The markets for SAN interconnect products are highly competitive. Our
current competitors include a number of domestic and international companies,
many of which have substantially greater financial, technical, marketing and
distribution resources than we have. We expect that more companies, including
our customers, may enter the market for SAN interconnect products. We may not be
able to compete successfully against either current or future competitors.
Increased competition could result in significant price erosion, reduced
revenue, lower margins or loss of market share, any of which would have a
material adverse effect on our business, results of operations and financial
condition.

     For switch sales, we compete primarily with Brocade Communications and
McDATA, Qlogic Corporation. For hub sales, we compete primarily with Emulex
Corporation and Gadzoox Networks. For transceiver sales, we compete primarily
with Finisar, Hewlett-Packard and IBM. Although we do not believe that any other
vendor offers comprehensive SAN interconnect management software that directly
competes with ours, other vendors, such as Brocade and Gadzoox, provide single
point-device managers for either switch or hub products, but not across multiple
interconnect devices, including switches, hubs and transceivers. Our competitors
continue to introduce improved products with lower prices, and we will have to
do the same to remain competitive. Furthermore, larger companies in other
related industries or our customers may develop or acquire technologies and
apply their significant resources, including their distribution channels and
brand recognition, to capture significant SAN market share. Therefore, we may
not be able to compete successfully in the SAN market.

                                       15
<PAGE>   16
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.

     Given the product life cycles in the markets for our products, any delay or
unanticipated difficulty associated with new product introductions or product
enhancements could significantly harm our business, results of operations and
financial condition. Product development delays may cause our revenue to
decrease and the price of our stock to fall. We may not be able to develop,
manufacture and market new products or product enhancements in a timely manner
that achieve market acceptance. We also may not be able to develop the
underlying core technologies necessary to create new products and enhancements,
or to license these technologies from third parties. Product development delays
may result from numerous factors, including:

     -    changing OEM product specifications;
     -    difficulties in hiring and retaining necessary personnel;
     -    difficulties in reallocating engineering resources and overcoming
          resource limitations;
     -    difficulties with independent contractors;
     -    changing market or competitive product requirements; and
     -    unanticipated engineering complexities.

THE SALES CYCLE FOR OUR PRODUCTS IS LONG AND WE MAY INCUR SUBSTANTIAL
NON-RECOVERABLE EXPENSES AND DEVOTE SIGNIFICANT RESOURCES TO SALES THAT DO NOT
OCCUR WHEN ANTICIPATED OR AT ALL.

     OEMs and resellers typically conduct significant evaluation, testing,
implementation and acceptance procedures before they begin to market and sell
new solutions that include our products. This evaluation process is lengthy and
may range from six months to one year or more. This process is complex and may
require significant sales, marketing and management efforts on our part. This
process becomes more complex as we simultaneously qualify our products with
multiple customers. As a result, we may expend significant resources to develop
customer relationships before we recognize any revenue from these relationships.

FAILURE TO MANAGE OUR OEM AND RESELLER RELATIONSHIPS AND EXPAND OUR DISTRIBUTION
CHANNELS COULD SIGNIFICANTLY REDUCE OUR REVENUE.

     We rely on OEMs and resellers to distribute and sell our products. Our
success depends substantially on our ability to initiate, manage and expand our
relationships with OEMs, our ability to attract additional resellers and the
sales efforts of these OEMs and resellers. Our failure to manage and expand our
relationships with OEMs and resellers, or their failure to market our products
effectively, could substantially reduce our revenue and seriously harm our
business.

ANY FAILURE BY US TO SUCCESSFULLY EXECUTE OUR DISTRIBUTION STRATEGY WILL
NEGATIVELY IMPACT OUR REVENUE.

     Our distribution strategy focuses primarily on developing and expanding
indirect distribution channels through OEMs and resellers, as well as expanding
our field sales organization. Our failure to execute this strategy successfully
could limit our ability to grow or sustain revenue. Furthermore, as we expand
our sales to resellers, we may increase our selling costs as these parties
generally require a higher level of customer support than our OEMs. If we fail
to develop and cultivate relationships with significant resellers, or if these
resellers are not successful in their sales efforts, sales of our products may
decrease and our operating results would suffer. Many of our resellers also sell
products that compete with our products. We cannot assure you that our resellers
will market our products effectively or continue to devote the resources
necessary to provide us with effective sales, marketing and technical support.
Our failure to successfully manage our reseller relationships or their failure
to sell our products could reduce our revenue.

                                       16
<PAGE>   17
     In order to support and develop opportunities for our indirect distribution
channels, we plan to expand our field sales and support staff significantly. We
cannot assure you that this expansion will be successfully completed, that the
cost of this expansion will not exceed the incremental revenue generated or that
our expanded field sales and support staff will be able to compete successfully
against the significantly more extensive and well-funded sales and marketing
operations of many of our current or potential competitors. Our inability to
effectively establish our distribution channels or manage the expansion of our
field sales and support staff would have a material adverse effect on our
ability to increase revenue.

THE LOSS OF K*TEC, THE FAILURE TO FORECAST ACCURATELY DEMAND FOR OUR PRODUCTS OR
TO MANAGE SUCCESSFULLY OUR RELATIONSHIP WITH K*TEC WOULD NEGATIVELY AFFECT OUR
BUSINESS.

     We rely on K*TEC Electronics, an outside contract manufacturing firm, to
manufacture, store and ship our products. We share K*TEC's manufacturing
capacity with numerous companies whose manufacturing needs may conflict with
ours. If K*TEC is unable or unwilling to complete production runs for us in the
future, or experiences any significant delays in completing production runs or
shipping our products, the manufacturing and sale of our products would be
temporarily suspended. We have in the past experienced delivery problems based
on capacity constraints for production, test and material supply. If our product
volume requirements increase, we may find it necessary to augment our
manufacturing capacity by exploring new subcontract manufacturers. We may not be
successful in finding qualified manufacturers that meet our needs. An
interruption in supply of our products, or additional costs incurred to qualify
and shift production to an alternative manufacturing facility, would
significantly harm our business, results of operations and financial condition.

     On October 10, 2000, Kent Electronics announced that it had sold K*TEC
Electronics to Thayer-Blum Funding II LLC. K*TEC Electronics has assured us that
the sale will not affect its ability to meet our manufacturing needs. However,
we cannot be certain that K*TEC will continue to operate in the same manner as
before the sale or be able to meet our manufacturing requirements without
additional cost, or at all.

     K*TEC is not obligated to supply products for us, except as may be provided
in a particular purchase order that K*TEC has accepted. We place purchase orders
with K*TEC based on periodic forecasts. While most of the materials used in our
products are standard products, some are proprietary and/or sole-source and
require extended lead times. Our business will be adversely affected if we are
unable to accurately forecast demand for our products and manufacturing capacity
or if materials are not available at K*TEC to meet the demand. Lead times for
materials and components vary significantly and depend on the specific supplier,
contract terms and demand for a component at a given time. We also may
experience shortages of components from time to time, which could delay the
manufacture of our products.

     We plan to regularly introduce new products and product enhancements, which
will require that we coordinate our efforts with K*TEC to rapidly achieve volume
production. If we do not effectively manage our relationship with K*TEC, or if
K*TEC experiences delays, disruptions, capacity constraints or quality control
problems in its manufacturing operations, our ability to ship products to our
customers could be delayed and our competitive position and reputation could be
harmed. Qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If we are required to or choose to change
contract manufacturers, we may lose revenue and damage our customer
relationships.

WE MAY LOSE SALES IF OUR SOLE SOURCE SUPPLIERS FAIL TO MEET OUR NEEDS.

     We currently purchase several key components from single sources. We depend
on single sources for our card guides, our VCSELs, our application specific
integrated circuits, or ASICs, and our microprocessors. VCSELs are laser
components that maintain a high quality signal and consume a low amount of
power. ASICs are custom designed computer chips that perform specific functions
very efficiently. In addition, we license a software from a third party that is
incorporated into our switches and hubs. If we cannot supply products due to a
lack of components, or are unable to redesign products with



                                       17
<PAGE>   18
other components in a timely manner, our business, results of operations and
financial condition would be materially adversely affected.

     We use rolling forecasts based on anticipated product orders to determine
our component requirements. Lead times for materials and components that we
order vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand for particular
components. As a result, our component requirement forecasts may not be
accurate. If we overestimate our component requirements, we may have excess
inventory, which would increase our costs. If we underestimate our component
requirements, we may have inadequate inventory, which could interrupt our
manufacturing and delay delivery of our products to our customers. Any of these
occurrences would negatively impact our business and operating results.

A DECREASE IN THE SELLING PRICES OF PRODUCTS WOULD REDUCE OUR REVENUE AND GROSS
MARGINS.

     As the markets for SAN interconnect products mature, it is likely that the
average unit prices of our products will decrease in response to competitive
pricing pressures, increased sales discounts, new product introductions by us or
our competitors or other factors. If our efforts to reduce the cost of our
products through manufacturing efficiencies, design improvements and cost
reductions, as well as through increased sales of higher margin products are not
successful, our revenue and gross margins will decline, significantly harming
our operating results and financial condition which may cause our stock price to
drop.

UNDETECTED SOFTWARE OR HARDWARE DEFECTS COULD INCREASE OUR COSTS AND REDUCE OUR
REVENUE.

     SAN interconnect products frequently contain undetected software or
hardware defects when first introduced or as new versions are released. Our
products are complex and problems may be found from time to time in our
existing, new or enhanced products. Our products incorporate components
manufactured by third parties. We have in the past experienced difficulties with
quality and reliability of components obtained from third parties and we could
experience similar problems in the future. In addition, our products are
integrated with products from other vendors. As a result, when problems occur,
it may be difficult to identify the source of the problem. These problems may
cause us to incur significant warranty and repair costs, divert the attention of
our engineering personnel from our product development efforts and cause
significant customer relations problems.

IF WE FAIL TO SUCCESSFULLY DEVELOP THE VIXEL BRAND, OUR REVENUE MAY NOT GROW AND
OUR STOCK PRICE MAY FALL.

     We believe that establishing and maintaining the Vixel brand is a critical
aspect of our efforts to maintain and develop strategic OEM and reseller
relationships, and that the importance of brand recognition will increase due to
the growing number of vendors of SAN interconnect products. Our failure to
successfully develop our brand may prevent us from growing our revenue, which
could cause the price of our stock to fall. We intend to increase our spending
on programs, including advertising campaigns and marketing events, to create and
maintain brand loyalty among our customers. If we do not generate a
corresponding increase in our revenue as a result of our branding efforts or
otherwise fail to promote our brand successfully, or if we incur excessive
expenses in an attempt to promote and maintain the Vixel brand, our business,
results of operations and financial condition may be materially adversely
affected. In addition, if our OEMs, resellers and end users of our SAN
interconnect products do not perceive our products to be of high quality, or if
we introduce new products or technologies that are not accepted by the market,
the value of the Vixel brand will decline and our business will suffer.


                                       18
<PAGE>   19
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE AND INTEGRATE QUALIFIED
PERSONNEL, WE MAY NOT BE SUCCESSFUL.

     Our success depends to a significant degree upon the continued joint
contributions of our senior management, including James M. McCluney, president
and chief executive officer, Kurtis L. Adams, Chief Financial Officer, Thomas
Hughes, Vice President, Product Development and Stuart Berman, Chief Technology
Officer. The loss of one or more of our senior management personnel could harm
our sales or delay our product development efforts. Additionally, some members
of our senior management team joined us only recently. Because of the limited
time in which our management team has been working together, we cannot assure
you that management will be able to work effectively as a team.

     We believe our future success will depend in large part upon our ability to
attract and retain highly skilled managerial, technical, sales and marketing,
finance and operations personnel. The loss of services of any of our key
personnel could have a negative impact on our business. Many of our employees
have only recently joined us. If we are unable to integrate new employees in a
timely and cost-effective manner, our operating results may suffer. We also need
to increase the number of technical staff members with experience in high-speed
networking applications as we further develop our product line. Competition for
these highly skilled employees in our industry is intense. Our failure to
attract and retain these key employees could have a material adverse effect on
our business, results of operations and financial condition.

     We are seeking additional sales and marketing personnel. Competition for
qualified sales and marketing personnel is intense and we might not be able to
hire the kind and number of sales and marketing personnel we are targeting.
Unless we expand our sales and marketing force, we may not be able to increase
our revenue or extend our brand awareness. We also have a small customer service
and support organization and will need to increase our staff to support new
customers and the expanding needs of our existing customers. Hiring customer
service and support personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of SAN interconnect products.

     The loss of the services of any of our key employees, the inability to
attract or retain qualified personnel in the future or delays in hiring required
personnel could hinder the development and introduction of and negatively impact
our ability to sell our products. In addition, employees may leave our company
and subsequently compete against us. Moreover, companies in our industry whose
employees accept positions with competitors frequently claim that their
competitors have engaged in unfair hiring practices. We may be subject to claims
of this type in the future as we seek to hire qualified personnel and some of
these claims may result in material litigation. We could incur substantial costs
in defending ourselves against these claims, regardless of their merits.

WE PLAN TO INCREASE OUR INTERNATIONAL SALES ACTIVITIES SIGNIFICANTLY, WHICH WILL
SUBJECT US TO ADDITIONAL BUSINESS RISKS.

     Our revenue from international sales represented 35.6% of our total revenue
for the three months ended October 1, 2000 and 31.4% for the three months ended
October 3, 1999. We plan to expand our international sales activities
significantly, especially in Europe and Asia. Our international sales growth
will be limited if we are unable to establish relationships with international
distributors, establish foreign operations, effectively manage international
sales channels, hire additional personnel and develop relationships with service
organizations. We cannot be certain that we will be able to establish, generate
and build market demand for our products internationally. Our international
operations will be subject to a number of risks, including:

     -    increased complexity and costs of managing international operations;
     -    multiple protectionist, conflicting and changing governmental laws and
          regulations;
     -    reduced or limited protections of intellectual property rights; and
     -    political and economic instability.

                                       19
<PAGE>   20
     These factors and others could harm future sales of our products to
international customers which would negatively impact our business and operating
results. To date, none of our international revenue has been denominated in
foreign currencies. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive and thus
less competitive in foreign markets. In the future, a portion of our
international revenue may be denominated in foreign currencies, including the
Euro, which would subject us to risks associated with foreign currency
fluctuations.

     Our SAN interconnect products are subject to U.S. Department of Commerce
export control restrictions. Neither we nor our customers may export those
products without obtaining an export license. These U.S. export laws also
prohibit the export of our SAN interconnect products to a number of countries
deemed by the United States to be hostile. These restrictions may make foreign
competitors facing less stringent controls on their products more competitive in
the global market than are we or our customers. The U.S. government may not
approve any pending or future export license requests. In addition, the list of
products and countries for which export approval is required, and the regulatory
policies with respect thereto, could be revised. The sale of our SAN
interconnect products could be harmed by our failure or the failure of our
customers to obtain the required government licenses or by the costs of
compliance.

WE MAY NOT BE ABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, LIMITING OUR ABILITY
TO GROW.

     We believe that our existing cash, cash equivalent and short-term
investment balances will be sufficient to meet our capital requirements at least
through the next twelve months. However, we may need, or could elect, to seek
additional funding prior to that time. If we need to raise additional funds, we
may not be able to do so on favorable terms, or at all. Further, if we issue
equity securities, existing stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders. If we cannot raise funds on acceptable terms, we may
not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated funding
requirements.

OUR PRODUCTS MUST COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT
REGULATIONS, AND IF WE CANNOT DEVELOP PRODUCTS THAT ARE COMPATIBLE WITH THESE
EVOLVING STANDARDS, OUR BUSINESS WILL SUFFER.

     The market for SAN products is characterized by the need to support
industry standards as they emerge, evolve and achieve acceptance. To remain
competitive, we must continue to introduce new products and product enhancements
that meet these industry standards. All components of a SAN must utilize the
same standards in order to operate together. Our products comprise only a part
of an entire SAN and we depend on the companies that provide other components,
many of which are significantly larger than we are, to support industry
standards as they evolve. The failure of these providers to support these
industry standards could negatively impact market acceptance of our products.

     In addition, in the United States, our products must comply with various
regulations and standards defined by the Federal Communications Commission and
Underwriters Laboratories. Internationally, products that we develop also will
be required to comply with standards established by authorities in various
countries. Failure to comply with existing or evolving industry standards or to
obtain timely domestic or foreign regulatory approvals or certificates could
materially harm our business.

OUR INTELLECTUAL PROPERTY PROTECTION MAY PROVE TO BE INADEQUATE WHICH COULD
NEGATIVELY AFFECT OUR ABILITY TO COMPETE.

     We believe that our continued success depends on protecting our proprietary
technology. We currently rely on a combination of patents, copyrights,
trademarks, trade secrets and contractual provisions to establish and protect
our intellectual property rights. In addition, we also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to and distribution


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<PAGE>   21
of our software, documentation and other proprietary information. Our failure to
protect our intellectual property rights could have a material adverse effect on
our business, results of operations and financial condition. We cannot be
certain that the steps we take to protect our intellectual property will
adequately protect our proprietary rights, that others will not independently
develop or otherwise acquire equivalent or superior technology or that we can
maintain any of our technology as trade secrets. In addition, the laws of some
of the countries in which our products are or may be sold may not protect our
products and intellectual property rights to the same extent as the laws of the
United States or at all.

THIRD-PARTY CLAIMS OF INFRINGEMENT OF THEIR INTELLECTUAL PROPERTY RIGHTS COULD
ADVERSELY AFFECT OUR BUSINESS.

     In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We occasionally
receive communications from third parties alleging patent infringement, and
there always is the chance that third parties may assert infringement claims
against us. Future patent infringement disputes, with or without merit, could
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. We cannot be certain that the
necessary licenses would be available or that they could be obtained on
commercially reasonable terms. If we fail to obtain these royalty or licensing
agreements in a timely manner and on reasonable terms, our business, results of
operations and financial condition would be materially adversely affected.

OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.

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

     -    actual or anticipated fluctuations in our operating results;
     -    losses of our key OEMs or reduction in their purchases of our
          products;
     -    changes in financial estimates by securities analysts;
     -    changes in market valuations of other technology companies;
     -    announcements by us or our competitors of significant technical
          innovations, contracts, acquisitions, strategic partnerships, joint
          ventures or capital commitments;
     -    additions or departures of key personnel; and
     -    future sales of common stock.

     In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.

WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT MAY DILUTE OUR STOCKHOLDERS AND CAUSE
US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.

     We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, products or technologies in the future. If we make any
future purchases, we could issue stock that would dilute existing stockholders'
percentage ownership, incur substantial debt or assume contingent liabilities.

     These purchases also involve numerous risks, including:

     -    problems assimilating the purchased operations, technologies or
          products;
     -    unanticipated costs associated with the acquisition;
     -    diversion of management's attention from our core business;
     -    adverse effects on existing business relationships with suppliers and
          customers;

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<PAGE>   22
     -    incorrect estimates made in the accounting for acquisitions;
     -    risks associated with entering markets in which we have no or limited
          prior experience; and
     -    potential loss of key employees of purchased organizations.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

     Substantially all of our cash equivalents and investment securities are at
fixed interest rates and, as such, the fair value of these instruments is
affected by changes in market interest rates. However, all of our cash
equivalents and investment securities at October 1, 2000 mature within one year.
As a result, we believe that the market risk arising from our holdings of these
financial instruments is immaterial. In addition, all of our sales are made in
U.S. dollars and, consequently, we believe our foreign currency exchange rate
risk is immaterial. We do not have any derivative instruments and do not engage
in hedging-transactions.

                           PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     The Company's Registration Statement on Form S-1 (No. 333-81347) for its
initial public offering of its Common Stock became effective September 30, 1999,
covering an aggregate of 4,945,000 shares of Common Stock, including the
underwriters' over-allotment. A total of 4,945,000 shares of the Company's
common stock was sold at a price of $18.00 per share to an underwriting
syndicate led by BancBoston Robertson Stephens, Inc., Bear, Stearns & Co. Inc.
and Needham & Co., Inc. The Offering commenced on October 1, 1999 and closed on
October 15, 1999. The initial public offering resulted in gross proceeds of
approximately $89.0 million, of which approximately $6.2 million was applied
toward the underwriting discount. Net proceeds to the Company were $82.8
million. Expenses related to the offering totaled approximately $1.4 million.
Through October 1, 2000, the proceeds were applied to repay an 8.69% promissory
note and accrued interest due to Western Digital totaling approximately $2.0
million, a line of credit borrowing totaling $2.8 million and a note payable to
a bank of $7.5 million. In addition, $2.2 million was used to repay capital
lease obligations, $2.4 million was used to purchase property and equipment and
$16.8 million was used for working capital and general corporate purposes. The
Company has invested the remaining net proceeds in short-term, investment grade,
interest-bearing securities.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

<TABLE>
<CAPTION>
     Exhibit
     Number          Description
     -------         -----------
<S>                  <C>
     3.1 (1)         Amended and Restated Certificate of Incorporation (Exhibit 3.2)

     3.2 (1)         Bylaws (Exhibit 3.4)

     4.1 (1)         Form of Registrant's Common Stock Certificate

     27.1            Financial Data Schedule

     (1)  Incorporated by reference to designated exhibits to Company's
          Registration Statement on Form S-1 (SEC File No. 333-81347), declared
          effective on September 30, 1999.

(b)  Reports on Form 8-K:

     The Company filed no reports on Form 8-K during the reporting period.
</TABLE>

                                       22
<PAGE>   23
                                   SIGNATURES

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

Dated:  November 15, 2000          VIXEL CORPORATION
                                   (Registrant)

                                   /s/  Kurtis L. Adams
                                   ---------------------------
                                   Kurtis L. Adams

                                   Chief Financial Officer, Vice President of
                                   Finance, Secretary and Treasurer
                                   (Authorized Officer and Principal
                                   Financial and Accounting Officer)


                                       23
<PAGE>   24
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number             Description
-------            -----------
<S>                <C>
3.1 (1)            Amended and Restated Certificate of Incorporation (Exhibit 3.2)

3.2 (1)            Bylaws (Exhibit 3.4)

4.1 (1)            Form of Registrant's Common Stock Certificate

 27.1              Financial Data Schedule

(1)  Incorporated by reference to designated exhibits to Company's Registration
     Statement on Form S-1 (SEC File No. 333-81347), declared effective on
     September 30, 1999.
</TABLE>