##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-Q


---

| | (Mark One)
| | ----------
| | [X]       

For the quarterly period ended September 29, 2002

OR



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

Commission File No. 000-27221



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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 SouthBothell, 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 October 27, 2002 was 24,787,229.



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TABLE OF CONTENTS



|                              |                                                                                               |                                         |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED BALANCE SHEET                
|                              |                                                                                               | CONDENSED STATEMENT OF OPERATIONS      
|                              |                                                                                               | CONDENSED STATEMENT OF CASH FLOWS      
|                              |                                                                                               | NOTES TO CONDENSED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK                            
|                              | ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES                                                   
|PART II. OTHER INFORMATION   
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 99.1                 



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VIXEL CORPORATION

INDEX TO FORM 10-Q FOR
 QUARTER ENDED SEPTEMBER 29, 2002



|                                                                                                                 | Page
|---------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                 |     
|Part I. FINANCIAL INFORMATION                                                                                    |     
|Item 1. Financial Statements (unaudited)                                                                         |     
|Condensed Balance Sheet as of September 29, 2002 and
 December 30, 2001                                          | 3   
|Condensed Statement of Operations for the three
 and nine months ended September 29, 2002 and September 30, 2001 | 4   
|Condensed Statement of Cash Flows for the nine
 months ended September 29, 2002 and September 30, 2001           | 5   
|Notes to Condensed Financial Statements                                                                          | 6   
|Item 2. Managements Discussion and Analysis
 of Financial Condition and Results of Operations                   | 9   
|Item 3. Quantitative and Qualitative Disclosures
 about Market Risk                                              | 23  
|Item 4. Disclosure Controls and Procedures                                                                       | 24  
|Part II. OTHER INFORMATION                                                                                       |     
|Item 2. Changes in Securities and Use of Proceeds                                                                | 24  
|Item 6. Exhibits and Reports on Form 8-K                                                                         | 24  
|Signatures                                                                                                       | 26  
|Certifications                                                                                                   | 27  

2



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##### Table of Contents






PART I.  FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS




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



|                                                                                                                                                                                                                | September 29,2002 |          | December 30,2001
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | -------- | ----------------
|                                                                                                                                                                                                                |                   |          |                 
|Assets                                                                                                                                                                                                          |                   |          |                 
|Current assets                                                                                                                                                                                                  |                   |          |                 
|Cash and cash equivalents                                                                                                                                                                                       | $                 | 4,948    |                 
|Short-term investments                                                                                                                                                                                          |                   | 14,311   |                 
|Accounts receivable, net of allowance for doubtful accounts
 of $215 and $389, respectively                                                                                                                     |                   | 3,864    |                 
|Inventories                                                                                                                                                                                                     |                   | 1,855    |                 
|Note receivable                                                                                                                                                                                                 |                   | 2,500    |                 
|Prepaid expenses and other current assets                                                                                                                                                                       |                   | 769      |                 
|                                                                                                                                                                                                                |                   |          |                 
|Total current assets                                                                                                                                                                                            |                   | 28,247   |                 
|Property and equipment, net of accumulated depreciation of $6,765 and $10,396                                                                                                                                   |                   | 2,401    |                 
|Goodwill and identifiable intangibles, net                                                                                                                                                                      |                   | 533      |                 
|Other assets                                                                                                                                                                                                    |                   | 227      |                 
|                                                                                                                                                                                                                |                   |          |                 
|Total assets                                                                                                                                                                                                    | $                 | 31,408   |                 
|                                                                                                                                                                                                                |                   |          |                 
|Liabilities and stockholders equity                                                                                                                                                                            |                   |          |                 
|Current liabilities                                                                                                                                                                                             |                   |          |                 
|Capital lease obligations, current portion                                                                                                                                                                      | $                 | 266      |                 
|Accounts payable                                                                                                                                                                                                |                   | 3,389    |                 
|Accrued liabilities                                                                                                                                                                                             |                   | 4,486    |                 
|Deferred revenue                                                                                                                                                                                                |                   | 822      |                 
|Accrued restructuring costs                                                                                                                                                                                     |                   | 334      |                 
|                                                                                                                                                                                                                |                   |          |                 
|Total current liabilities                                                                                                                                                                                       |                   | 9,297    |                 
|Capital lease obligations, net of current portion                                                                                                                                                               |                   | 39       |                 
|Accrued restructuring costs, net of current portion                                                                                                                                                             |                   | 397      |                 
|                                                                                                                                                                                                                |                   |          |                 
|Total liabilities                                                                                                                                                                                               |                   | 9,733    |                 
|                                                                                                                                                                                                                |                   |          |                 
|Commitments and contingencies                                                                                                                                                                                   |                   |          |                 
|Stockholders equity                                                                                                                                                                                            |                   |          |                 
|Common stock, $.0015 par value; 60,000,000 shares authorized;
 24,569,546 and 24,272,229 shares issued; 24,347,646 and 24,050,329 shares outstanding at
 September 29, 2002 and December 30, 2001, respectively |                   | 36       |                 
|Additional paid-in capital                                                                                                                                                                                      |                   | 157,242  |                 
|Stock-based compensation                                                                                                                                                                                        |                   | (235     | )               
|Notes receivable from stockholders                                                                                                                                                                              |                   | (3,745   | )               
|Treasury stock, at cost; 288,566 shares                                                                                                                                                                         |                   | (348     | )               
|Accumulated deficit                                                                                                                                                                                             |                   | (131,275 | )               
|                                                                                                                                                                                                                |                   |          |                 
|Total stockholders equity                                                                                                                                                                                      |                   | 21,675   |                 
|                                                                                                                                                                                                                |                   |          |                 
|Total liabilities and stockholders equity                                                                                                                                                                      | $                 | 31,408   |                 
|                                                                                                                                                                                                                |                   |          |                 

The accompanying notes are an integral part of
 these condensed financial statements.3



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##### Table of Contents






VIXEL
CORPORATIONCONDENSED STATEMENT OF OPERATIONS
 (IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)



|                                                            | Three Months Ended |        | Nine Months Ended
|----------------------------------------------------------- | ------------------ | ------ | -----------------
|                                                            |                    |        |                  
|                                                            | September 29,2002  |        | September 30,2001
|                                                            |                    |        |                  
|Revenue:                                                    |                    |        |                  
|Systems                                                     | $                  | 5,014  |                  
|Components                                                  |                    |       |                  
|                                                            |                    |        |                  
|Total revenue                                               |                    | 5,014  |                  
|Cost of revenue (1)                                         |                    | 2,543  |                  
|                                                            |                    |        |                  
|Gross profit                                                |                    | 2,471  |                  
|                                                            |                    |        |                  
|Operating expenses:                                         |                    |        |                  
|Research and development (2)                                |                    | 2,271  |                  
|Selling, general and administrative (3)                     |                    | 2,842  |                  
|Amortization of goodwill ( 2001 only) and other intangibles |                    | 109    |                  
|Amortization of stock-based compensation                    |                    | 117    |                  
|                                                            |                    |        |                  
|                                                            |                    | 5,339  |                  
|Restructuring costs and
adjustments                         |                    | (33    | )                
|Loss (gain) on sale of assets                               |                    | 10     |                  
|                                                            |                    |        |                  
|Total operating expenses                                    |                    | 5,316  |                  
|                                                            |                    |        |                  
|Loss from operations                                        |                    | (2,845 | )                
|Other income, net                                           |                    | 196    |                  
|                                                            |                    |        |                  
|Net loss                                                    | $                  | (2,649 | )                
|                                                            |                    |        |                  
|Basic and diluted net loss per share                        | $                  | (0.11  | )                
|                                                            |                    |        |                  
|Weighted-average shares outstanding                         |                    | 24,161 |                  
|                                                            |                    |        |                  



|(1) | Includes amortization of stock-based compensation of $2 and
 $5 for the three months ended September 29, 2002 and September 30, 2001, respectively, and $8 and
 $23 for the nine months ended September 29, 2002 and September 30, 2001, respectively.         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Excludes amortization of stock-based compensation of $3 and
 $6 for the three months ended September 29, 2002 and September 30, 2001, respectively, and $11 and
 $25 for the nine months ended September 29, 2002 and September 30, 2001, respectively.        
|   
|(3) | Excludes amortization of stock-based compensation of $114 and
 $272 for the three months ended September 29, 2002 and September 30, 2001, respectively, and $499 and
 $1,050 for the nine months ended September 29, 2002 and September 30, 2001, respectively.

The accompanying notes are an integral part of
 these condensed financial statements.4



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VIXEL CORPORATIONCONDENSED STATEMENT OF CASH
 FLOWS(IN THOUSANDS)(UNAUDITED)



|                                                                           | NINE MONTHS ENDED
|-------------------------------------------------------------------------- | -----------------
|                                                                           |                  
|                                                                           | September 29,2002
|                                                                           |                  
|Cash flows from operating activities                                       |                  
|Net loss                                                                   | $                
|Adjustments to reconcile net loss to net cash used in operating activities |                  
|Depreciation                                                               |                  
|Amortization of goodwill (2001 only) and identifiable intangibles          |                  
|Stock-based compensation                                                   |                  
|Non-cash restructuring costs                                               |                  
|Gain on sale of assets                                                     |                  
|Changes in                                                                 |                  
|Accounts receivable, net                                                   |                  
|Inventories                                                                |                  
|Prepaid expenses and other assets                                          |                  
|Accounts payable and accrued liabilities                                   |                  
|Deferred revenue                                                           |                  
|Accrued restructuring costs                                                |                  
|                                                                           |                  
|Net cash used in operating activities                                      |                  
|                                                                           |                  
|Cash flows from investing activities                                       |                  
|Purchase of short-term investments                                         |                  
|Maturities of short-term investments                                       |                  
|Purchase of property and equipment                                         |                  
|Proceeds from sales of assets, net of transaction costs                    |                  
|                                                                           |                  
|Net cash provided by investing activities                                  |                  
|                                                                           |                  
|Cash flows from financing activities                                       |                  
|Receipt of payment on stockholder note receivable                          |                  
|Proceeds from issuance of note payable                                     |                  
|Principal payments on note payable                                         |                  
|Principal payments on capital lease obligations                            |                  
|Amortization of debt issuance costs                                        |                  
|Purchase of Treasury Stock                                                 |                  
|Proceeds from exercise of stock options                                    |                  
|                                                                           |                  
|Net cash used in financing activities                                      |                  
|                                                                           |                  
|Net decrease in cash and cash equivalents                                  |                  
|Cash and cash equivalents, beginning of period                             |                  
|                                                                           |                  
|Cash and cash equivalents, end of period                                   | $                
|                                                                           |                  
|Cash paid for interest                                                     | $                
|Equipment purchased under capital leases                                   | $                
|Use of prepaid expense in satisfaction of capital lease obligations        | $                
|Note receivable for sale of assets                                         | $                

The accompanying notes are an integral part of
 these condensed financial statements.5



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VIXEL CORPORATION




NOTES TO CONDENSED FINANCIAL
 STATEMENTS(Information for the three and nine months endedSeptember 29,
 2002 and September 30, 2001)(In Thousands, Except Share Amounts)(Unaudited)

NOTE 1.  BASIS OF PRESENTATION

The accompanying
 condensed financial statements as of September 29, 2002 and for the three and nine
 month periods ended September 29, 2002 and September 30, 2001 are unaudited; however,
 in the opinion of management, the interim data includes all adjustments, consisting
 only of normal recurring adjustments, necessary for a fair presentation of the results
 of operations, financial position and cash flows for the interim periods. Certain
 information and footnote disclosures normally included in annual financial statements
 prepared in accordance with accounting principles generally accepted in the United
 States of America 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 September 29, 2002 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 audited financial statements and notes thereto for the fiscal year ended December
 30, 2001 included in our Annual Report on Form 10-K, as amended, filed with the
 Securities and Exchange Commission on April 1, 2002.

Certain prior
 year amounts have been reclassified to conform to the 2002 presentation.

NOTE 2.  INVENTORIES

Inventories
 consist of the following:



|                                                | September 29,2002 |        | December 30,2001
|----------------------------------------------- | ----------------- | ------ | ----------------
|                                                |                   |        |                 
|Raw materials                                   | $                 | 3,932  |                 
|Finished goods                                  |                   | 1,693  |                 
|Less:   write-down to expected realizable value |                   | (3,770 | )               
|                                                |                   |        |                 
|                                                | $                 | 1,855  |                 
|                                                |                   |        |                 

NOTE 3.  GOODWILL AND IDENTIFIABLE INTANGIBLE
 ASSETS

In June 2001,
 the Financial Accounting Standards Board, or FASB, issued FAS No. 142, Goodwill
 and Other Intangible Assets which requires the company to discontinue amortization
 of goodwill as of December 31, 2001. We adopted FAS 142 during the first quarter
 of 2002 and ceased amortizing goodwill with a net book value of $369 as of the beginning
 of fiscal 2002. The adoption of FAS 142 resulted in reducing our net loss by $82
 and $246 for the three and nine months ended September 29, 2002; and reducing our
 basic and diluted net loss per share by $.01 for the nine months ended September
 29, 2002.

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The following
 table presents net loss and net loss per share for the three and nine months ended
 September 30, 2001 on a pro forma basis as if FAS 142 had been adopted on January
 1, 2001:



|                                                   | Three monthsendedSeptember 30,2001 |        | Nine monthsendedSeptember 30,2001
|-------------------------------------------------- | ---------------------------------- | ------ | ---------------------------------
|                                                   |                                    |        |                                  
|Net loss - as reported                             | $                                  | (5,598 | )                                
|Amortization of goodwill                           |                                    | 82     |                                  
|                                                   |                                    |        |                                  
|Net loss - as adjusted                             | $                                  | (5,516 | )                                
|                                                   |                                    |        |                                  
|Basic and diluted net loss per share - as adjusted | $                                  | (0.23  | )                                
|                                                   |                                    |        |                                  
|Weighted-average shares
outstanding                |                                    | 23,627 |                                  
|                                                   |                                    |        |                                  

Under the
 requirements of FAS 142, identifiable intangible assets will continue to be amortized
 over their useful lives. Current estimated amortization expense for the identifiable
 intangible assets is expected to be $436 and $55 for fiscal years 2002 and 2003,
 respectively. In conjunction with the sale of our storage area networking management
 software, SAN InSite, and related assets and resources, the net book value of the
 identifiable intangible assets relating to capitalized software costs was expensed.

Goodwill and
 identifiable intangible assets as of September 29, 2002 and December 30, 2001 consist
 of the following:



|                     | September 29, 2002 |       | December 30, 2001
|-------------------- | ------------------ | ----- | -----------------
|                     |                    |       |                  
|                     | GrossBookValue     |       | Net BookValue    
|                     |                    |       |                  
|Core Technology      | $                  | 2,183 |                  
|Capitalized Software |                    |      |                  
|Goodwill             |                    | 3,555 |                  
|                     |                    |       |                  
|Total                | $                  | 5,738 |                  
|                     |                    |       |                  

We are required
 to perform goodwill impairment tests on an annual basis and between annual tests
 in certain circumstances. Consistent with the requirements of FAS 142, we performed
 an impairment test of goodwill as of December 31, 2001. As of September 29, 2002,
 no impairment of goodwill has been recognized. There can be no assurance that future
 goodwill impairment tests will not result in a charge to earnings.

NOTE 4.  RESTRUCTURING COSTS

During April
 2002, we adopted and implemented a restructuring plan to reduce our cost structure
 and focus on our InSpeed-based product development and sales. As a result of the
 plan, we recorded restructuring charges of $1.7 million.

The restructuring
 plan included a reduction of approximately 22% of our workforce across all departments.
 During the second quarter of fiscal 2002, the workforce reduction resulted in a
 charge of $393

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relating primarily to severance. During
 the third quarter of fiscal 2002, this amount was adjusted by $33 resulting in a
 net charge of $360 relating primarily to severance.

The restructuring
 plan included the write-off of property and equipment that was disposed or removed
 from operations and resulted in a charge of $400. The property and equipment consisted
 primarily of computer equipment and related software, production and engineering
 equipment, and office equipment, furniture, and fixtures. We also recorded other
 restructuring costs of $83 relating primarily to impairment of operating lease agreements
 for equipment and professional fees incurred in connection with the restructuring
 activities.

The restructuring
 plan included a charge of $899 for the consolidation of space within our Bothell,
 Washington corporate headquarters and our engineering facility in Irvine, California.
 This charge includes the cost associated with the idle facility space at these
 locations for the remainder of the lease terms.

The restructuring charges are summarized
 as follows:



|Category                                          | Total Charge |       | NoncashCharges |  | CashPayments |      | AccruedRestructuring Costsas of September 29,2002
|------------------------------------------------- | ------------ | ----- | -------------- |  | ------------ | ---- | -------------------------------------------------
|                                                  |              |       |                |  |              |      |                                                  
|Workforce reduction                               | $            | 360   |                |  | $            |     |                                                  
|Consolidation of excess facilities                |              | 899   |                |  |              |     |                                                  
|Impairment of long-lived assets and other charges |              | 483   |                |  |              | (400 | )                                                
|                                                  |              |       |                |  |              |      |                                                  
|Total                                             | $            | 1,742 |                |  | $            | (400 | )                                                
|                                                  |              |       |                |  |              |      |                                                  

Remaining
 cash expenditures relating to workforce reductions and operating lease agreements
 for equipment are expected to be paid through the fourth quarter of fiscal 2002.
 Amounts related to excess facilities space are expected to be paid over the respective
 lease terms through the first quarter of fiscal 2005.

NOTE 5.  SALE OF ASSETS

On April 15,
 2002, we closed a transaction with Fujitsu Software Technology Corporation, d/b/a
 Fujitsu Softek, involving the acquisition by Fujitsu Softek of our SAN management
 software assets, including our SAN management software, SAN InSite, associated
 intellectual property and key development team resources. Upon closing of the transaction
 we received $2.5 million and a note for $2.5 million, which is due and payable January
 15, 2003. In addition, we have the right to receive up to an additional $5.0 million
 from sales of Fujitsu Softek products based on SAN InSite during the four-year period
 after the closing. Net of associated costs and expenses, we recorded a gain on
 sale from this transaction of $4.5 million.

NOTE 6.  NET LOSS PER SHARE

Basic net
 loss per share represents the net loss divided by the weighted-average number of
 common shares outstanding during the period, excluding shares of restricted stock
 subject to repurchase. Diluted net loss per share represents net loss divided by
 the weighted-average number of common shares outstanding including the potentially
 dilutive impact of common stock options and warrants and shares of restricted 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 because the impact of common stock equivalents is anti-dilutive. Potentially
 dilutive securities totaling 5,980,587 and 5,470,980 shares for the quarters ended
 September 29, 2002 and September 30, 2001, respectively, were excluded from diluted
 net loss per share due to their anti-dilutive effect.

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NOTE 7. COMMITMENTS AND CONTINGENCIES

On November
 15, 2001, a securities class action was filed in the United States District Court
 in the Southern District of New York against the company, two of our officers and
 directors and certain underwriters who participated in our initial public offering
 in late 1999. The complaint alleges violations under Section 10(b) of the Securities
 Exchange Act of 1934 and Section 11 of the Securities Act of 1933 and seeks unspecified
 damages on behalf of persons who purchased our stock during the period October 1,
 1999 through December 6, 2000. On October 9, 2002, our officers and
directors were dismissed from the suit without prejudice, pursuant to an agreement
 extending the statute of limitations until September 30, 2003. We believe this suit
 is without merit and we intend to defend ourselves vigorously in this matter. Accordingly,
 we have not recognized any liability related to this claim.




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

The following
 discussion should be read in conjunction with the unaudited condensed financial
 statements in Item 1 of this Quarterly Report and with Managements Discussion
 and Analysis of Financial Condition and Results of Operations contained in our December
 30, 2001 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
 Commission on April 1, 2002.

This document
 contains forward-looking statements that involve risks 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.
 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 duty 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.

OVERVIEW

We provide
 comprehensive Fibre Channel-based technologies and products for data storage solutions
 and storage networking applications. Our offering consists of a variety of switch
 and hub products that connect computers to data storage devices in a network configuration
 and a switch-on-a-chip Application Specific Integrated Circuit, or ASIC,
 which can be embedded in a variety of data storage devices to enhance performance,
 improve availability, and increase the reliability of these devices. This new embedded
 switching technology can be sold in chip, blade or box form to original equipment
 manufacturers, or OEMs, for inclusion in their solutions. Our storage networking
 interconnect products are sold primarily as fully integrated switches and hubs through
 OEMs, integrators and value-added resellers.

During 2001,
 we used our expertise in Fibre Channel switching technologies to develop a switch-on-a-chip
 ASIC, or SOC. This SOC incorporates our InSpeedTM technology, which is an
 advanced switching architecture that results in a single chip capable of handling
 multiple Fibre Channel devices. This SOC can be embedded into storage enclosure
 devices such as redundant array of independent disks enclosures, tape libraries,
 network-attached storage environments and next generation storage systems to enhance
 the performance and scaling of these solutions as well as improve device availability
 and reliability. We are also using this SOC in Fibre Channel switches and blades
 that can be embedded by OEMs in their storage solutions. As part of our embedded
 storage switch strategy, we have licensed the manufacturing of our

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Fibre Channel switch SOCs and sell SOCs both
 direct to OEMs and through distribution partners. This technology can also be used to offer high
 performance, low cost switches for entry-level storage area networks, or SANs.

We derive
 substantially all of our revenue from the sale of Fibre Channel products, including
 SAN switches, hubs and embedded storage switch products. We also license certain
 technologies and receive royalty revenue and provide engineering services and receive
 service revenue. Systems revenue consists of revenue generated from our Fibre Channel
 products, embedded storage switch products, royalties and services. Historically,
 component revenue consisted primarily of revenue generated from the sale of transceiver
 products to OEMs for use in their products. However, during the second quarter of
 2001, we discontinued the manufacturing and selling of transceiver products.

We sell our
 products primarily to a limited number of customers. Hewlett-Packard Company and
 Avid Technology represented 60.4% and 12.4% of revenue, respectively, for the three
 months ended September 29, 2002. Sun Microsystems, Hewlett-Packard Company, formerly
 Compaq Computer, Avid Technology and Xyratex Technology Ltd, a contract manufacturer
 for Network Appliance, represented 21.2%, 19.5%, 11.1% and 10.8% of
revenue, respectively,
 for the three months ended September 30, 2001. No other individual customer represented
 more than 10.0% of our total revenue in those periods. While we are seeking to diversify
 our customer base, we anticipate that our operating results will continue to depend
 on volume sales to a relatively small number of OEMs. We may not be successful
 in our efforts to diversify our customer base and the loss of one of our key customers
 could significantly reduce our total revenue. During the three months ended September
 29, 2002 and September 30, 2001, 15.3% and 19.1%, respectively, of our total revenue
 was derived from sales to distribution channel customers.

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 manufacturer,
 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, reducing the cost of our products through manufacturing
 efficiencies, design improvements and cost reductions for components and leveraging
 our internal operations infrastructure.

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##### Table of Contents



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.



|                                                                  | THREE MONTHS ENDED |    | NINE MONTHS ENDED
|----------------------------------------------------------------- | ------------------ | -- | -----------------
|                                                                  |                    |    |                  
|                                                                  | September 29,2002  |    | September 30,2001
|                                                                  |                    |    |                  
|Revenue                                                           |                    |    |                  
|Systems                                                           | 100.0              | %  |                  
|Components                                                        |                   |    |                  
|                                                                  |                    |    |                  
|Total revenue                                                     | 100.0              |    |                  
|Cost of revenue                                                   | 50.7               |    |                  
|                                                                  |                    |    |                  
|Gross profit                                                      | 49.3               |    |                  
|                                                                  |                    |    |                  
|Operating expenses                                                |                    |    |                  
|Research and development                                          | 45.3               |    |                  
|Selling, general and administrative                               | 56.7               |    |                  
|Amortization of goodwill (2001 only) and identifiable intangibles | 2.2                |    |                  
|Amortization of stock-based compensation                          | 2.3                |    |                  
|                                                                  |                    |    |                  
|                                                                  | 106.5              |    |                  
|Restructuring costs                                               | (0.7               | )  |                  
|Sale of assets                                                    | 0.2                |    |                  
|                                                                  |                    |    |                  
|                                                                  | 106.0              |    |                  
|                                                                  |                    |    |                  
|Loss from operations                                              | (56.7              | )  |                  
|Other income, net                                                 | 3.9                |    |                  
|                                                                  |                    |    |                  
|Net loss                                                          | (52.8              | )% |                  
|                                                                  |                    |    |                  

THREE AND NINE MONTHS ENDED SEPTEMBER
 29, 2002 COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001

Revenue. Our Systems revenue and total revenue in the third quarter of fiscal 2002
 was $5.0 million, an 8.8% increase compared with Systems revenue and total revenue
 of $4.6 million in the third quarter of fiscal 2001. Our Systems revenue in the
 first nine months of fiscal 2002 was $14.5 million, an increase of 20.0% compared
 with $12.1 million in the first nine months of fiscal 2001. The increase in Systems
 revenue for the third quarter of fiscal 2002 compared with the third quarter of
 fiscal 2001 and for the first nine months of fiscal 2002 compared with the first
 nine months of fiscal 2001 was primarily a result of increased sales of our InSpeed-based
 products and our 2 gigabit-per-second, or gb/s, fabric switches. In the third quarter
 of fiscal 2002, these products represented approximately 74.2% of total revenue
 compared with approximately 17.5% of total revenue in the third quarter of fiscal
 2001. Total revenue in the first nine months of fiscal 2002 was $14.5 million,
 a decrease of 15.2% from $17.2 million of total revenue in the first nine months
 of fiscal 2001. This decrease in total revenue is primarily the result of discontinuing
 the manufacture and sale of our transceiver products during the second quarter of
 fiscal 2001. We have not recognized any Components revenue since that time.

Gross profit. Cost of revenue includes the cost to acquire finished products from a third
 party manufacturer of our products, costs we incur related to engineering services
 we provide, expenses we incur related to inventory management, product quality testing,
 customer order fulfillment, and provisions for warranty expenses and inventory obsolescence.
 The gross profit percentage in

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the first nine months of fiscal 2002 was 47.4%
 compared with 34.3% in the first nine months of fiscal 2001. The increase in gross profit as a percentage of revenue
 during the third quarter and first nine months of fiscal 2002 compared with the
 same periods last year is primarily due to increased higher-margin revenue resulting
 from sales of our Inspeed-based products, increased royalty revenue and a decrease
 in expense relating to provisions for obsolete inventory.

Included in
 cost of revenue for the first nine months of fiscal 2001 were provisions for excess
 and obsolete inventory and purchase commitments totaling approximately $3.1 million.
 These provisions resulted primarily from transitioning out of the manufacturing
 and sales of transceiver products and a reduction in future revenue forecasts.
 Inventory purchases and commitments are based upon future sales forecasts. To mitigate
 component supply constraints that have existed in the past, our contract manufacturer
 built inventory levels for certain components with long lead times and entered into
 certain longer-term commitments for certain components. Due to a sudden and significant
 decrease in demand for certain of our products, inventory levels exceeded our requirements
 based on sales forecasts through the end of fiscal 2001. The excess inventory charge
 was calculated based on the inventory levels in excess of demand for each specific
 product. Cost of revenue in the first nine months
 of fiscal 2001 was reduced by $800 as a result of the settlement of a patent infringement
 claim related to our GBIC transceivers for less than previously estimated.

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
 $2.3 million in the third quarter of fiscal 2002, a decrease of 38.6% compared with
 $3.7 million in the third quarter of fiscal 2001. As a percentage of revenue, research
 and development expenses decreased in the third quarter of fiscal 2002 to 45.3%
 compared with 80.3% in the third quarter of fiscal 2001. Research and development
 expenses in the first nine months of fiscal 2002 were $8.2 million, a decrease of
 27.5% compared with $11.4 million in the first nine months of fiscal 2001. As a
 percentage of revenue, research and development expenses decreased in the first
 nine months of fiscal 2002 to 56.7% compared with 66.3% in the first nine months
 of fiscal 2001.

The decrease
 in research and development expenses both in absolute dollars and as a percentage
 of revenue for the third quarter of fiscal 2002 and the first nine months of fiscal
 2002 compared with the same periods in fiscal 2001 is due primarily to a reduction
 in salaries and related expenses, and a reduction in depreciation expense. The
 sale of our SAN management software assets combined with the April 2002 restructuring
 plan resulted in a decrease in headcount devoted to research and development and
 the write-off of certain research and development related assets.

We believe
 that continued investment in research and development is an essential element of
 our strategic objectives to design quality products while reducing costs. We expect
 research and development expenses to continue to represent a significant portion
 of our overall operating expenses and to increase in the fourth quarter of fiscal
 2002 as compared with the third quarter of fiscal 2002 as a result of non-recurring
 engineering charges incurred in the development of our next generation ASIC products.

Selling,
 general and administrative expenses. Selling, general and administrative expenses
 consist primarily of salaries, commissions and related expenses for personnel engaged
 in marketing, sales, finance and information technology support functions, as well
 as professional fees, allowance for doubtful accounts receivable, and expenses related
 to various marketing activities. Selling, general and administrative expenses in
 the third quarter of fiscal 2002 were $2.8 million, a decrease of 3.4% compared
 with $2.9 million in the third quarter of fiscal 2001. As a percentage of revenue,
 selling, general and administrative expenses decreased in the third quarter of fiscal
 2002 to 56.7% compared with 63.9% in the third quarter of fiscal 2001. Selling,
 general and administrative expenses in the first nine months of fiscal 2002 were
 $8.3 million, a decrease of 29.2% compared with $11.7 million in the first nine
 months of fiscal 2001. As a percentage of revenue, selling, general and administrative
 expenses decreased in the first nine months of fiscal 2002 to 57.0% compared with
 68.2% in the first nine months of fiscal 2001.

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The decrease
 in selling, general and administrative expenses in both absolute dollars and as
 a percentage of revenue for the third quarter and first nine months of fiscal 2002
 compared with the same periods in fiscal 2001 is primarily due to a reduction in
 salaries and related expenses as a result of a reduction in the number of personnel
 engaged in sales, finance and information technology support functions combined
 with reduced levels of related expenses.

Amortization
 of goodwill (2001 only) and identifiable intangibles. Amortization of goodwill
 (2001 only) and identifiable intangibles in the third quarter of fiscal 2002 was
 $109, a decrease of 42.9% compared with $191 in the third quarter of fiscal 2001.
 Amortization of goodwill (2001 only) and identifiable intangibles in the first
 nine months of fiscal 2002 was $327, a decrease of 48.0% compared with $629 in the
 first nine months of fiscal 2001.

In accordance
 with FAS 142 we ceased amortizing goodwill at the beginning of fiscal year 2002.
 The amortization expense in the third quarter and first nine months of fiscal 2002
 represents the amortization expense related to capitalized core technology resulting
 from the acquisition of Arcxel Technologies in 1998.

We are required
 to perform goodwill impairment tests on an annual basis and between annual tests
 in certain circumstances. We performed an impairment test of goodwill as of December
 31, 2001 and concluded that goodwill was not impaired.

Amortization
 of stock-based compensation. Total amortization of stock-based compensation
 was $119 and $283 for the third quarter of fiscal 2002 and fiscal 2001, respectively.
 Of these amounts, $2 and $5, respectively, were included in cost of revenue. Total
 amortization of stock-based compensation was $518 and $1.1 million for the first
 nine months of fiscal 2002 and fiscal 2001, respectively. Of these amounts $8 and
 $23, respectively, were included in the cost of revenue. At September 29, 2002,
 unamortized stock-based compensation was approximately $235.

Restructuring
 costs. During April 2002, we adopted and implemented a restructuring plan to
 reduce our cost structure and focus on our InSpeed-based product development and
 sales. As a result of the plan, we recorded restructuring charges in the first nine
 months of fiscal 2002 of $1.7 million.

The restructuring
 plan included a reduction of approximately 22% of our workforce across all functions.
 The workforce reduction resulted in a charge of $360, net of
adjustments, relating primarily to severance.

The restructuring
 plan included the write-off of property and equipment that was disposed or removed
 from operations and resulted in a charge of $400. The property and equipment consisted
 primarily of computer equipment and related software, production and engineering
 equipment, and office equipment, furniture, and fixtures. We also recorded other
 restructuring costs of $83 relating primarily to impairment of operating lease agreements
 for equipment and professional fees incurred in connection with the restructuring
 activities.

The restructuring
 plan included a charge of $899 for the consolidation of space within our Bothell,
 Washington corporate headquarters and our engineering facility in Irvine, California.
 This charge includes the cost associated with the idle facility space at these
 locations for the remainder of the lease terms.

The restructuring
 charges are summarized as follows (in thousands):

|Category                                          | Total Charge |       | NoncashCharges |   | CashPayments |   | AccruedRestructuring Costsas of September 29,2002
|------------------------------------------------- | ------------ | ----- | -------------- | - | ------------ | - | -------------------------------------------------
|                                                  |              |       |                |   |              |   |                                                  
|Workforce reduction                               | $            | 360   |                | $ |             |   |                                                  
|Consolidation of excess facilities                |              | 899   |                |   |             |   |                                                  
|Impairment of long-lived assets and other charges |              | 483   |                |   | (400         | ) |                                                  
|                                                  |              |       |                |   |              |   |                                                  
|Total                                             | $            | 1,742 |                | $ | (400         | ) |                                                  
|                                                  |              |       |                |   |              |   |                                                  

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Remaining
 cash expenditures relating to workforce reductions and operating lease agreements
 for equipment are expected to be paid through the fourth quarter of fiscal 2002.
 Amounts related to excess facilities space are expected to be paid over the respective
 lease terms through the first quarter of fiscal 2005. The restructuring plan has
 reduced costs in all areas of our operations, favorably impacting cost of sales,
 selling, general and administrative expenses and research and development expenses.

Gain on
 sale of assets. On April 15, 2002, we closed a transaction with Fujitsu Softek,
 involving the acquisition by Fujitsu Softek of our SAN management software assets,
 including our SAN management software, SAN InSite, associated intellectual property
 and key development team resources. Upon closing of the transaction we received
 $2.5 million and a note for $2.5 million, which is due and payable January 15, 2003.
 In addition, we have the right to receive up to an additional $5.0 million from
 sales of Fujitsu Softek products based on SAN InSite during the four-year period
 after the closing. Net of associated costs and expenses, we recorded a gain on
 sale from this transaction of $4.5 million.

Other income,
 net. Other income, net consists of interest income, interest expense and other
 miscellaneous income or expense. Other income, net was $196 and $346 for the third
 quarter of fiscal 2002 and fiscal 2001, respectively. Other income, net was $564
 and $1.4 million for the first nine months of fiscal 2002 and fiscal 2001, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Since inception,
 we have financed our operations primarily through the sale of common stock and preferred
 stock with aggregate proceeds of approximately $115.1 million. Additionally, we
 have financed our operations through capital equipment lease lines, working capital
 credit facilities, notes payable, $6.9 million in net cash received from the sale
 of our laser diode fabrication facility and gigabit Ethernet product line and $2.2
 million in net cash received from the sale of our SAN management software assets.
 Our principal sources of liquidity at September 29, 2002 consisted of $5.0 million
 in cash and cash equivalents and $14.3 million in short-term investments. As a
 result of the sale of our SAN management software assets in April 2002, we received
 a promissory note for $2.5 million, and expect to receive the cash proceeds during
 January 2003. In addition, we may receive future proceeds of up to an additional
 $5.0 million based on the sale by Fujitsu Softek of SAN InSite-based products.
 However, we cannot be certain we will receive any future payments based on Fujitsu
 Softek sales.

Cash utilized
 by operating activities was $7.4 million for the nine months ended September 29,
 2002, and was due primarily to our operating loss, net of non-cash expenses. Cash
 provided by investing activities was $8.1 million and resulted from maturities of
 short-term investments of $18.3 million, $2.2 million received in conjunction with
 the sale of SAN management software assets, net of transaction costs, offset by
 $11.7 million of purchases of short-term investments and capital expenditures of
 $660. Cash used in financing activities was $820 and was primarily due to payments
 on capital leases, offset by proceeds from the exercise of stock options.

As of September
 29, 2002, we had an accumulated deficit of $131.3 million and have never been profitable.
 We reduced our work force during fiscal 2001 and did so again during the second
 quarter of fiscal 2002 through the sale of our SAN InSite software assets and by
 further aligning our resources to execute our strategies. We plan to grow our revenue
 base and to continue to control our expenses in order to achieve profitability.
 However, we cannot be certain that we will ever realize sufficient revenue to achieve
 profitability. Even if we do achieve profitability, we may not be able to sustain
 or increase profitability.

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 to
 eighteen 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 sales, general and administrative activities, the
 timing of

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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 June 2001,
 the FASB issued FAS No. 143 Accounting for Obligations Associated with the
 Retirement of Long-Lived Assets. The provisions of FAS 143 apply to all entities
 that incur obligations associated with the retirement of tangible long-lived assets.
 FAS 143 is effective for financial statements issued for fiscal years beginning
 after June 15, 2002 and will become effective for us commencing with fiscal year
 2003. We do not expect this accounting pronouncement to have a significant impact
 on our financial position or results of operations.

In August
 2001, the FASB issued FAS No. 144, Accounting for the Impairment or Disposal
 of Long-Lived Assets. The objectives of FAS 144 are to address issues relating
 to the implementation of FAS No. 121, Accounting for the Impairment of Long-Lived
 Assets and for Long-Lived Assets to Be Disposed Of, and to develop a model
 for long-lived assets to be disposed of by sale, whether previously held and used
 or newly acquired. Our adoption of FAS 144, effective December 31, 2001, has not
 materially impacted our financial position, results of operations or cash flows.

Effective
 May 15, 2002, we adopted FAS No. 145 Recission of FASB Statements No. 4, 44,
 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which
 is effective for all transactions occurring after May 15, 2002. FAS No. 145 requires
 gains and losses on extinguishments of debt to be classified as income or loss from
 continuing operations rather than as extraordinary items as previously required
 under FAS No. 4 Reporting Gains and Losses from the Extinguishment of Debt.
 Extraordinary treatment will be required for certain extinguishments as provided
 in APB No. 30 Reporting the Results of Operations-Reporting the Effects of
 Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
 Occurring Events and Transactions. FAS 145 also amends FAS 13 Accounting
 for Leases to require certain modifications to capital leases be treated as
 sale-leaseback and modifies the accounting for sub-leases when the original lessee
 remains a secondary obligor (or guarantor). Our adoption of FAS 145 did not materially
 impact our financial position, results of operations or cash flows.

In June 2002,
 the FASB issued FAS No. 146 Accounting for Costs Associated with Exit or Disposal
 Activities. FAS 146 addresses financial accounting and reporting for costs
 associated with exit or disposal activities and nullifies EITF Issue No. 94-3,Liability
 Recognition for Certain Employee Termination Benefits and Other Costs
 to Exit an Activity (including Certain Costs Incurred in a Restructuring).
 FAS 146 requires that a liability for a cost associated with an exit or disposal
 activity be recognized and measured at fair value when the liability is incurred
 versus on the date of the entitys commitment to an exit plan as required under
 ETIF 94-3. FAS 146 is effective for exit or disposal activities that are initiated
 after December 31, 2002.

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, most recently a net loss of $2.6 million for
 the three months ended September 29, 2002. As of September 29, 2002, we had an
 accumulated deficit of $131.3 million. 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. We cannot be certain that we ever
 will realize sufficient revenue to achieve profitability and even if we do achieve
 profitability, we may not be able to sustain or increase profitability.

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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 orders from a limited number
 of OEMs;                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | changes in
 general economic conditions and specific economic conditions in the computer storage
 and networking industries, including changes in spending levels for information
 technology products;
| 
| | the timing
 of customer orders, a large percentage of which are generated in the last month
 of each quarter;                                                                                          
| 
| | our ability
 to attain and maintain sufficient reliability levels for our products;                                                                                                                    
| 
| | our ability
 to develop and market new 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 and the mix of distribution channels through which our products are
 sold;                                                                                                   
| 
| | the ability
 of our contract manufacturer to produce and distribute our products in a timely
 fashion; and                                                                                             
| 
| | disruptions or downturn in general economic conditions as a result of a
terrorist activity, military actions or other armed conflict.                                                                  

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
 guidance, your expectations or the expectations of any public market analyst.

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 typical ordering practices cause our backlog to fluctuate
 significantly. Moreover, our backlog is not necessarily indicative of actual sales
 for any succeeding period, as orders are subject to cancellation or delay by our
 OEMs with limited or no penalties

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, resellers and integrators, as well as on the sales efforts and success of
 these customers. Revenue from Hewlett-Packard and Avid Technology represented 60.4%
 and 12.4% of revenue, respectively, for the three months ended September 29, 2002.
 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 OEM and
 reseller agreements are not exclusive and contain no renewal obligation;  
|- | ---------------------------------------------------------------------------------------
| 
| | our OEMs and
 resellers can stop purchasing and marketing our products at any time; 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 harmed significantly.

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Our success is dependent upon acceptance
 of our Fibre Channel technology and the growth of the storage market.

Our products
 are used exclusively in storage devices and SANs. Accordingly, widespread adoption
 of remote storage and SANs is critical to our future success. These markets are
 evolving rapidly, and it is difficult to predict their potential size or future
 growth rate. Our success in generating revenue in the markets will depend on, among
 other things, our ability to:



| | demonstrate
 the benefits of our embedded switch products and SAN switch and hub products to
 OEMs, resellers and end-users;                         
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | enhance our
 existing products and introduce new products on a timely basis to meet changes in
 customer preferences and evolving industry standards;
| 
| | 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 these markets.

Competing technologies 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.

Emerging technologies,
 such as Serial Attached Small Computer System Interface, or SAS, and
Serial Advanced Technology Attachment, or SATA, are potential competing alternatives to Fibre Channel in the
embedded storage market. 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.

We expect that a growing percentage of
 our future revenue will be derived from our InSpeed technology-based products, our
 SAN interconnect switch products, and royalties from technology development agreements
 with customers, and our success will depend on widespread acceptance of these products
 and technologies and our ability to manage transition from older product inventories.

Our future
 revenue growth will depend on the success of our new products and product launches
 by customers for which we have developed, or are developing, products under technology
 development agreements. In addition, as we introduce new or enhanced products, such
 as our InSpeed-based 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.

Competition in our markets may lead to
 reduced prices and sales of our products, increased losses and reduced market share.

Our embedded
 switches are targeted at a new and evolving market. As this market grows, we believe
 that other Fibre Channel switch providers may introduce
 products that compete with our InSpeed range of products. In addition, ASIC manufacturers
 and OEMs may choose to develop competing technology.

We may not
 be able to compete successfully in the SAN market. The market for SAN interconnect
 products is 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.

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For SAN interconnect
 switch sales, we compete primarily with Brocade Communications, McDATA and Qlogic
 Corporation. Our competitors continue to introduce improved products with lower
 prices, and we will have to do the same to remain competitive. Furthermore, our
 customers or larger companies in other related industries may develop or acquire
 technologies and apply their significant resources, including their distribution
 channels and brand recognition, to capture significant SAN market share.

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.
 We may not be able to develop, manufacture and market these new products or other
 product enhancements in a timely manner or in a manner that will 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 new 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 or development partners;                     
| 
| | 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 nine months to one year or
 more. This process is complex and often requires significant sales, marketing and
 management efforts on our part. The complexity increases 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,
 or we may never realize any revenue from these efforts, or recognize revenue when
 anticipated.

Failure to manage our OEM and reseller
 relationships and expand our distribution channels could significantly reduce our
 revenue.

We rely on
 OEMs and resellers, including Vitesse Semiconductor in the case of our InSpeed-based
 ASICs, to distribute and sell our products. Our success depends substantially on
 our ability to initiate, manage and expand our relationships with OEMs and resellers,
 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 and sell 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. Our failure to execute this strategy successfully could
 limit our ability to grow or sustain revenue. Many of our OEMs and resellers also
 sell products that compete with our products. We

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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.

The loss of Suntron, the failure to forecast
 accurately demand for our products or to manage successfully our relationship with
 Suntron would negatively affect our business.

We rely on
 Suntron Corporation, formerly K*Tec Electronics Corporation, an outside contract-manufacturing
 firm, to manufacture, store and ship our box and blade products. We share Suntrons
 manufacturing and assembly capacity with numerous companies whose needs may conflict
 with ours. If Suntron 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, assembly and sale of our products could
 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
 and assembly capacity by engaging 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 and assembly facility, would significantly harm our
 business, results of operations and financial condition.

Suntron is
 not obligated to supply products for us, except as may be provided in a particular
 purchase order that Suntron has accepted. We place purchase orders with Suntron
 based on periodic forecasts. While most of the materials used in our products are
 standard products, some are proprietary 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 Suntron 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 Suntron to rapidly achieve volume production. If
 we do not effectively manage our relationship with Suntron, or if Suntron 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 if we 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 our SOCs and several key components for our SAN products from single sources. In
addition to SOCs, we depend on single sources
 for other ASICs, card guides and our microprocessors. In addition, we license
 software from a third party that is incorporated into our switches and hubs. If
 we cannot supply our SOCs or SAN products due to a lack of components, or if we are unable to redesign
 products with other components in a timely manner, our business, results of operations
 and financial condition would be materially adversely affected.

If we fail to forecast accurately the
 demand for our products, it will negatively affect our business.

We use rolling
 forecasts based on anticipated product orders to determine our component requirements.
 As a result, our component requirement forecasts may not be accurate. 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. 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. Either of
 these occurrences would negatively impact our business and operating results.

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Undetected software or hardware defects
 could increase our costs and reduce our revenue.

Fibre Channel
 products frequently contain undetected software or hardware defects. 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 problems 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 and defects 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.

A component in a discontinued product
 line experienced an abnormally high failure rate, which adversely affected our sales
 and could in the future affect our operating results.

We observed,
 and some customers confirmed, that in certain applications our gigabit interface
 converters and gigabaud link modules transceivers manufactured prior to March 1998
 that incorporated a third party CD laser experienced an abnormally high failure
 rate. As a result of this problem, we recorded a warranty reserve of $3.6 million
 in the fourth quarter of fiscal 1998. Although we have settled claims by customers
 that purchased the majority of these products, there is a risk that additional claims
 could occur and that the total amount reserved may be inadequate to cover all potential
 claims. Claims against us in excess of the amount of our reserves could have a
 material adverse effect on our business and financial condition. We discontinued
 the manufacturing and selling of our transceiver products during the second quarter
 of 2001.

If we fail to successfully develop and
 maintain 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 Fibre
 Channel products. If we 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 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.

If we lose key personnel or are unable
 to 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, Stuart B. Berman, Chief Technology Officer,
 and Thomas Hughes, Vice President, Product Development. The loss of one or more
 of our senior management personnel could harm our sales or delay our product development
 efforts.

We believe
 our future success will depend in large part upon our ability to retain our 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. Some of our employees, including our Vice President of Worldwide
 Sales, 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 ASIC design
 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.

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

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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. The
 loss of the services of any of our key employees, the inability to retain
 qualified personnel or delays in or disputes related to hiring required
 personnel could hinder the development and introduction of and negatively impact
 our ability to sell our products.

We plan to increase our international
 sales, which will subject us to additional business risks.

Our revenue
 from international sales represented 42.4% of our total revenue for the three months
 ended September 29, 2002. We plan to expand our international sales, especially
 in Europe and Asia. Our international sales growth will be limited if we are unable
 to establish relationships with international OEMs, establish foreign operations,
 effectively manage international sales channels 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;
| 
| | longer sales
 cycles;                                                               
| 
| | difficulties
 in collecting accounts receivables;                                   
| 
| | reduced or
 limited protection of intellectual property rights; and                 
| 
| | political
 and economic instability.                                                

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 products
 are subject to U.S. Department of Commerce export control restrictions. Neither
 our customers nor we may export those products without obtaining an export license.
 These U.S. export laws also prohibit the export of our 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 our customers or we. 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 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.

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 Fibre Channel 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. We also depend on our competitors
 to support these same industry standards. The failure of these providers or our
 competitors 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,

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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
 of our documentation and other proprietary information. Our failure to protect
 our intellectual property rights adequately could have a material adverse effect
 on our business, results of operations and financial condition. Efforts to protect
 our intellectual property could be time consuming and expensive and could have a
 material adverse effect on 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 several
 factors, including but not limited to the following, some of which are beyond our
 control:



| | actual or
 anticipated fluctuations in our operating results;                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | losses of
 our key OEMs or reductions 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 by 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 capital stock.                                                                                                                                          

In addition,
 the stock market has recently 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.

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We may not be able to meet our future
 capital requirements, limiting our ability to grow.

We believe
 that our existing cash, cash equivalents and short-term investment balances will
 be sufficient to meet our capital requirements at least through the next twelve
 to eighteen 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. 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.

We may engage in future acquisitions
 that may dilute our stockholders and cause us to incur debt or assume contingent
 liabilities.

We may 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 may 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;              
| 
| | incorrect
 estimates made in the accounting for acquisitions;                                  
| 
| | risks associated
 with entering markets in which we have limited, if any, prior experience; and
| 
| | potential
 loss of key employees of purchased organizations.                                   

Our corporate offices and principal product
 development facility are located in regions that are subject to earthquakes and
 other natural disasters.

Our corporate
 offices in Bothell, Washington and our research facility in Irvine, California are
 located near major earthquake faults. We are not specifically insured for earthquakes,
 or other such natural disasters. Any personal injury or damage to the facilities
 as a result of such occurrences could have a material adverse effect on our business,
 results of operations and financial condition.

Our stockholder rights plan, certificate
 of incorporation and Delaware law could adversely affect the performance of our
 stock.

Our stockholder
 rights plan and provisions of our certificate of incorporation and the Delaware
 General Corporation Law could make it more difficult for a third party to acquire
 us, even if doing so would be beneficial to our stockholders. The stockholder rights
 plan and these provisions of our certificate of incorporation and Delaware law are
 intended to encourage potential acquirers to negotiate with us and allow our board
 of directors the opportunity to consider alternative proposals in the interest of
 maximizing stockholder value. However, such provisions may also discourage acquisition
 proposals or delay or prevent a change in control, which could harm our stock price.




ITEM 3.  QUALITATIVE AND QUANTITATIVE
 DISCLOSURE ABOUT MARKET RISK

We maintain
 investment portfolio holdings of various issuers, types, and maturities, the majority
 of which are commercial paper and government securities. These securities are generally
 classified as available for sale and, consequently, are recorded on the balance
 sheet at fair value.

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Our investment
 portfolio, with a fair value of $14.3 million as of September 29, 2002, is invested
 in commercial paper, government securities and corporate indebtedness that could
 experience an adverse decline in fair value should an increase in interest rates
 occur. In addition, future declines in interest rates could have an adverse impact
 on interest earnings for our investment portfolio. We do not currently hedge against
 this interest rate exposure.

All of our
 revenue is realized in U.S. dollars and is from customers primarily headquartered
 in the United States. Therefore, we do not believe we currently have any significant
 direct foreign currency exchange risk.




ITEM 4.  DISCLOSURE CONTROLS AND PROCEDURES



|(a) | Within 90
 days prior to the date of this report, Vixel carried out an evaluation, under the
 supervision and with the participation of Vixels management, including Vixels
 Chief Executive Officer and Chief Financial Officer, of the effectiveness
 of the design and operation of Vixels disclosure controls and procedures pursuant
 to Exchange Act Rule 13a-14. Based upon that evaluation, Vixels Chief Executive
 Officer and Chief Financial Officer have concluded that Vixels disclosure
 controls and procedures are effective.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(b) | There have
 been no significant changes in Vixels internal controls or in other factors
 that could significantly affect these controls subsequent to the date of their evaluation.                                                                                                                                                                                                                                                                                                                                                              




PART II.  OTHER INFORMATION




ITEM 2.  CHANGES IN SECURITIES AND USE
 OF PROCEEDS

Our Registration
 Statement on Form S-1 (No. 333-81347) for the initial public offering of our common
 stock became effective September 30, 1999. The initial public offering resulted
 in net proceeds to us of $82.8 million. Expenses related to the offering totaled
 approximately $1.4 million. Through September 29, 2002, the proceeds were applied
 to repay $12.3 million in debt, $6.4 million in capital lease obligations, $5.0
 million was used to purchase property and equipment, $0.6 million was used to pay
 expenses relating to our restructuring plan and $47.5 million was used for working
 capital and general purposes.




ITEM 6.  EXHIBITS AND REPORTS ON FORM
 8-K



|(a) | Exhibits: |                                                                                                                        
|--- | --------- | -----------------------------------------------------------------------------------------------------------------------
|    | EXHIBIT   |                                                                                                                        
|    | NUMBER    | DESCRIPTION                                                                                                            
|    |           |                                                                                                                        
|    | 3.1 (1)   | Amended and
 Restated Certificate of Incorporation of Registrant (Exhibit 3.2)                                         
|   
|    | 3.2 (2)   | Certificate
 of Designation of Series A Junior Participating Preferred Stock (Exhibit 3.1)                             
|   
|    | 3.3 (1)   | Bylaws of
 the Registrant (Exhibit 3.4)                                                                                
|   
|    | 4.1 (1)   | Specimen Stock
 Certificate (Exhibit 4.1)                                                                              
|   
|    | 4.2 (1)   | Amended and
 Restated Investors Rights Agreement dated February 17, 1998 (Exhibit 4.2)                                
|   
|    | 4.3 (1)   | First Amendment
 to Amended and Restated Investors Rights Agreement dated February 17, 1998
 (Exhibit 4.3)            
|   
|    | 4.4 (2)   | Rights Agreement
 dated November 15, 2000, between the Registrant and Computer Share Trust Company,
 Inc. (Exhibit 4.1)
|   
|    | 4.5 (2)   | Form of Rights
 Certificate (Exhibit 4.2)                                                                              
|   
|    | 99.1      | Certification
of James M. McCluney, Chief Executive Officer and Kurtis L.
Adams, Chief Financial Officer               
|   

24



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|(1) | Incorporated
 by reference to designated exhibits to the Registrants Registration Statement
 on Form S-1 (SEC File No. 333-81347), declared effective on September 30, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Incorporated
 by reference to designated exhibits to Registrants current report on Form
 8-K filed with the Securities and Exchange Commission on November 17, 2000.        
|    |                                                                                                                                                                              
|(b) | Reports on
 Form 8-K:We filed the following reports on Form 8-K during the third quarter
 of 2002 and through the filing of this Quarterly Report:                           
|    |                                                                                                                                                                              
|    | (i)                                                                                                                                                                          

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##### Table of Contents






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
 13, 2002 | VIXEL CORPORATION                                                                                                                                
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|                          |                                                                                                                                                  
|                          | /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)

26



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I, James M. McCluney, certify that:



|1) | I have reviewed
 this quarterly report on Form 10-Q of Vixel Corporation;                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) | Based on my
 knowledge, this quarterly report does not contain any untrue statement of a material
 fact or omit to state a material fact necessary to make the statements made, in
 light of the circumstances under which such statements were made, not misleading
 with respect to the period covered by this quarterly report;                                                            
|  
|3) | Based on my
 knowledge, the financial statements, and other financial information included in
 this quarterly report, fairly present in all material respects the financial condition,
 results of operations and cash flows of the registrant as of, and for, the periods
 presented in this quarterly report;                                                                               
|  
|4) | The registrants
 other certifying officers and I are responsible for establishing and maintaining
 disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
 15d-14) for the registrant and we have:                                                                                                                                                                  
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|5) | The registrants
 other certifying officers and I have disclosed, based on our most recent
 evaluation, to the registrants auditors and the audit committee of the registrants
 board of directors (or persons performing the equivalent function):                                                                                                                                         
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|6) | The registrants
 other certifying officers and I have indicated in this quarterly report whether
 or not there were significant changes in internal controls or in other factors that
 could significantly affect internal controls subsequent to the date of our most
 recent evaluation, including any corrective actions with regard to significant deficiencies
 and material weaknesses.



| | /s/ James
 M. McCluney                
| | --------------------------------------
| |                                       
| | James M. McCluney                     
| | President
 and Chief Executive Officer

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##### Table of Contents



I, Kurtis L. Adams, certify that:



|1) | I have reviewed
 this quarterly report on Form 10-Q of Vixel Corporation;                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) | Based on my
 knowledge, this quarterly report does not contain any untrue statement of a material
 fact or omit to state a material fact necessary to make the statements made, in
 light of the circumstances under which such statements were made, not misleading
 with respect to the period covered by this quarterly report;                                                            
|  
|3) | Based on my
 knowledge, the financial statements, and other financial information included in
 this quarterly report, fairly present in all material respects the financial condition,
 results of operations and cash flows of the registrant as of, and for, the periods
 presented in this quarterly report;                                                                               
|  
|4) | The registrants
 other certifying officers and I are responsible for establishing and maintaining
 disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
 15d-14) for the registrant and we have:                                                                                                                                                                  
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|  
|5) | The registrants
 other certifying officers and I have disclosed, based on our most recent
 evaluation, to the registrants auditors and the audit committee of the registrants
 board of directors (or persons performing the equivalent function):                                                                                                                                         
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                            
|  
|6) | The registrants
 other certifying officers and I have indicated in this quarterly report whether
 or not there were significant changes in internal controls or in other factors that
 could significantly affect internal controls subsequent to the date of our most
 recent evaluation, including any corrective actions with regard to significant deficiencies
 and material weaknesses.



| | /s/ Kurtis
 L. Adams    
| | ------------------------
| |                         
| | Kurtis L.
 Adams        
| | Chief Financial
 Officer

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EXHIBIT INDEX



|EXHIBIT |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|NUMBER  | DESCRIPTION                                                                                                            
|        |                                                                                                                        
|3.1 (1) | Amended and
 Restated Certificate of Incorporation of Registrant (Exhibit 3.2)                                         
|       
|3.2 (2) | Certificate
 of Designation of Series A Junior Participating Preferred Stock (Exhibit 3.1)                             
|       
|3.3 (1) | Bylaws of
 the Registrant (Exhibit 3.4)                                                                                
|       
|4.1 (1) | Specimen Stock
 Certificate (Exhibit 4.1)                                                                              
|       
|4.2 (1) | Amended and
 Restated Investors Rights Agreement dated February 17, 1998 (Exhibit 4.2)                                
|       
|4.3 (1) | First Amendment
 to Amended and Restated Investors Rights Agreement dated February 17, 1998
 (Exhibit 4.3)            
|       
|4.4 (2) | Rights Agreement
 dated November 15, 2000, between the Registrant and Computer Share Trust Company,
 Inc. (Exhibit 4.1)
|       
|4.5 (2) | Form of Rights
 Certificate (Exhibit 4.2)                                                                              
|       
|99.1    | Certification
of James M. McCluney, Chief Executive Officer and Kurtis L. Adams,
Chief Financial Officer               
|       
|       



|(1) | Incorporated
 by reference to designated exhibits to the Registrants Registration Statement
 on Form S-1 (SEC File No. 333-81347), declared effective on September 30, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Incorporated
 by reference to designated exhibits to Registrants current report on Form
 8-K filed with the Securities and Exchange Commission on November 17, 2000.        

29