<PAGE>   1



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



                                    FORM 10-Q

 (Mark One)

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

                  For the quarterly period ended April 2, 2000

                                       OR

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

                          Commission File No. 000-27221



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


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


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

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


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


        The number of shares outstanding of the Registrant's common stock,
$.0015 par value, as of May 12, 2000 was 23,640,229.


<PAGE>   2

                                VIXEL CORPORATION

               INDEX TO FORM 10-Q FOR QUARTER ENDED APRIL 2, 2000

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
Part I.  FINANCIAL INFORMATION

    Item 1.  Financial Statements

        Condensed Balance Sheet as of April 2, 2000 (unaudited) and January 2, 2000          3

        Condensed Statement of Operations for the three month periods ended
        April 2, 2000 (unaudited) and April 4, 1999 (unaudited)                              4

        Condensed Statement of Cash Flows for the three month periods ended
        April 2, 2000 (unaudited) and April 4, 1999 (unaudited)                              5

        Notes to Condensed Financial Statements                                              6

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

    Item 3.  Quantitative and Qualitative Disclosures of Market Risk                        19

Part II.  OTHER INFORMATION

    Item 2.  Changes in Securities and Use of Proceeds                                      20

    Item 6.  Exhibits and Reports on Form 8-K                                               20

Signature                                                                                   21
</TABLE>



                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                  April 2,       January 2,
                                                                   2000             2000
                                                                 ---------       ---------
                                                                (unaudited)
<S>                                                             <C>              <C>
Assets
   Current assets
       Cash and cash equivalents                                 $  51,757       $  16,706
       Short-term investments                                        5,533          44,650
       Accounts receivable, net of allowance for doubtful
          accounts of $269 and $250, respectively                    6,221           5,344
       Inventories                                                   1,857           3,321
       Prepaid expenses and other current assets                     2,328           2,779
                                                                 ---------       ---------
              Total current assets                                  67,696          72,800

   Property and  equipment, net                                      7,548           6,915
   Goodwill and other intangibles, net                               3,299           3,838
   Other assets                                                        519             528
                                                                 ---------       ---------
              Total assets                                       $  79,062       $  84,081
                                                                 =========       =========

Liabilities and stockholders' equity
   Current liabilities
       Current portion of long-term debt and capital leases      $   3,052       $   2,894
       Accounts payable                                              3,400           4,480
       Accrued liabilities                                           7,596           6,606
                                                                 ---------       ---------
              Total current liabilities                             14,048          13,980

   Long-term debt and capital leases                                 3,238           3,406
   Other long-term liabilities                                       1,000           1,000
                                                                 ---------       ---------

              Total liabilities                                     18,286          18,386
                                                                 ---------       ---------

   Commitments and contingencies
   Stockholders' equity
       Common stock, $.0015 par value;  60,000,000 shares
          authorized; 23,348,829 (unaudited) and 23,213,588
          shares issued and outstanding, respectively                   35              35
       Additional  paid-in capital                                 154,975         155,070
       Deferred compensation                                        (4,106)         (5,525)
       Notes receivable from stockholders                           (5,222)         (5,246)
       Treasury stock, at cost; 66,666 shares                          (50)            (50)
       Accumulated deficit                                         (84,856)        (78,589)
                                                                 ---------       ---------
              Total stockholders' equity                            60,776          65,695
                                                                 ---------       ---------

              Total liabilities and stockholders' equity         $  79,062       $  84,081
                                                                 =========       =========
</TABLE>



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



                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED
                                                -----------------------
                                                 April 2,       April 4,
                                                  2000           1999
                                                --------       --------
<S>                                             <C>            <C>
Revenue
     SAN systems                                $  5,898       $  4,306
     Components                                    1,879          6,216
                                                --------       --------
         Total revenue                             7,777         10,522
Cost of revenue                                    5,555          7,529
                                                --------       --------

Gross profit                                       2,222          2,993
                                                --------       --------

Operating expenses
     Research and development                      3,444          3,101
     Selling, general and administrative           4,105          3,045
     Amortization of goodwill
         and intangibles                             540            340
     Amortization of deferred compensation         1,168            103
                                                --------       --------
         Total operating expenses                  9,257          6,589
                                                --------       --------

Loss from operations                              (7,035)        (3,596)
Other income (expense), net                          768           (443)
                                                --------       --------
Net loss                                        $ (6,267)      $ (4,039)
                                                ========       ========

Net loss available to common stockholders       $ (6,267)      $ (4,088)
                                                ========       ========

Basic and diluted net loss per share            $  (0.28)      $  (1.40)
                                                ========       ========

Weighted-average shares outstanding               22,103          2,913
                                                ========       ========
</TABLE>


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



                                       4
<PAGE>   5

                                VIXEL CORPORATION
                        CONDENSED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED
                                                                     -----------------------
                                                                     April 2,       April 4,
                                                                       2000           1999
                                                                     --------       --------
<S>                                                                  <C>            <C>
Cash flows from operating activities
   Net loss                                                          $ (6,267)      $ (4,039)
   Adjustments to reconcile net loss to net cash used in
      operating activities
      Depreciation                                                        707            559
      Amortization of goodwill and intangibles                            540            504
      Amortization of debt discount                                        --             57
      Stock-based compensation                                          1,168            117
      Changes in:
         Accounts receivable, net                                        (877)           809
         Inventories                                                    1,464            301
         Prepaid expenses and other assets                                459            (68)
         Accounts payable and accrued liabilities                         (90)            92
                                                                     --------       --------
            Net cash used in operating activities                      (2,896)        (1,668)
                                                                     --------       --------

Cash flows from investing activities
   Purchase of short-term investments                                  (4,329)        (1,145)
   Sale of short-term investments                                      43,446             --
   Purchase of property and equipment                                    (642)           (51)
                                                                     --------       --------

            Net cash provided by (used in) investing activities        38,475         (1,196)
                                                                     --------       --------

Cash flows from financing activities
   Receipt of payment on stockholder note receivable                       24             --
   Principal payments on long-term debt and capital leases               (712)          (396)
   Amortization of debt issuance costs                                      4              4
   Proceeds from exercise of stock options                                156             11
                                                                     --------       --------

            Net cash used in financing activities                        (528)          (381)
                                                                     --------       --------

Net increase (decrease) in cash and cash equivalents                   35,051         (3,245)
Cash and cash equivalents, beginning of period                         16,706          3,841
                                                                     --------       --------
Cash and cash equivalents, end of period                             $ 51,757       $    596
                                                                     ========       ========

Cash paid for interest                                               $    147       $    475
Equipment purchased under capital leases                             $    698       $    409
Accretion of mandatorily redeemable stock                            $     --       $     49
</TABLE>


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



                                       5
<PAGE>   6

                                VIXEL CORPORATION

                     Notes to Condensed Financial Statements
                     (Information for the three months ended
                        April 2, 2000 and April 4, 1999)
                                   (Unaudited)


NOTE 1. BASIS OF PRESENTATION

        The accompanying unaudited condensed financial statements include all
adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to present fairly the financial information
set forth therein. Certain information and note disclosures normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. Results of operations for the
three-month period ended April 2, 2000 are not necessarily indicative of future
financial results.

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


NOTE 2. INVENTORIES

        Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                    April 2,     January 2,
                                      2000          2000
                                    -------       -------
<S>                                 <C>          <C>
Raw materials                       $ 1,637       $ 1,258
Finished goods                        1,110         2,628
Less:  write-down to
     expected realizable value         (890)         (565)
                                    -------       -------
                                    $ 1,857       $ 3,321
                                    =======       =======
</TABLE>

NOTE 3. NET LOSS PER SHARE

        Basic net loss per share represents the net loss available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share represents net loss available to
common stockholders divided by the weighted-average number of common shares
outstanding including the potentially dilutive impact of common stock options
and warrants and convertible preferred stock. Common stock options and warrants
are converted using the treasury stock method. Convertible preferred stock is
converted using the if-converted method. Basic and diluted net loss per share
are equal for the periods presented as potentially dilutive securities are
anti-dilutive. Potentially dilutive securities totaling 4,758,079 and
16,699,569 shares for the quarters ended April 2, 2000 and April 4, 1999,
respectively, were excluded from diluted net loss per share due to their
anti-dilutive effect.



                                       6
<PAGE>   7

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

<TABLE>
<CAPTION>
                                         Three Months Ended
                                      -----------------------
                                       April 2,      April 4,
                                        2000           1999
                                      --------       --------
<S>                                   <C>            <C>
Numerator:
    Net loss                          $ (6,267)      $ (4,039)
    Accretion of mandatorily
        redeemable convertible
        preferred stock                     --            (49)
                                      --------       --------
    Net loss available to common
        stockholders                  $ (6,267)      $ (4,088)
                                      ========       ========

Denominator:
    Weighted-average shares
        outstanding                     22,103          2,913
                                      ========       ========
</TABLE>

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

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

        This document contains forward-looking statements that involve risk and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. 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.

                                COMPANY OVERVIEW

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

        We derive substantially all of our revenue from the sale of SAN
interconnect products, including switches, hubs and transceivers. We currently
include our SAN InSite software with our switches and managed hubs and do not
sell this software separately from our other products. Our revenue includes SAN
systems revenue as well as component and other revenue. SAN systems revenue
consists of revenue generated from our SAN switches and hubs. Component revenue
consists primarily of revenue generated from the sale of our transceivers.


                                       7
<PAGE>   8

        We sell our products primarily to a limited number of customers. Compaq
Computer, IBM, Bell Microproducts and Avid Technology represented 24.6%, 10.9%,
10.4% and 10.4% of revenue, respectively for the three months ended April 2,
2000. Sun Microsystems, Compaq Computer and Hewlett-Packard represented 39.6%,
15.7% and 14.2% of revenue, respectively for the three months ended April 4,
1999. No other individual customer represented more than 10.0% of our total
revenue in those periods. During the three months ended April 2, 2000 and April
4, 1999, 20.4% and 2.5%, respectively, of our total revenue was derived from
sales to distribution channel customers. We plan to continue to expand our sales
channels to include systems integrators, VARs and additional distributors in the
United States and internationally.

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

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



                                       8
<PAGE>   9

                              RESULTS OF OPERATIONS


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

<TABLE>
<CAPTION>
                                                Three Months Ended
                                               ---------------------
                                               April 2,     April 4,
                                                 2000         1999
                                               --------     --------
<S>                                            <C>          <C>
Revenue
     SAN systems                                 75.8%        40.9%
     Components                                  24.2         59.1
                                                -----        -----
         Total revenue                          100.0        100.0
Cost of revenue                                  71.4         71.6
                                                -----        -----

Gross profit                                     28.6         28.4
                                                -----        -----

Operating expenses
     Research and development                    44.3         29.5
     Selling, general and administrative         52.8         28.9
     Amortization of goodwill
         and intangibles                          6.9          3.2
     Amortization of deferred compensation       15.0          1.0
                                                -----        -----
         Total operating expenses               119.0         62.6
                                                -----        -----

Loss from operations                            (90.4)       (34.2)
Other income (expense), net                       9.9         (4.2)
                                                -----        -----
Net loss                                        (80.5)%      (38.4)%
                                                =====        =====
</TABLE>

THREE MONTHS ENDED APRIL 2, 2000 COMPARED WITH THREE MONTHS ENDED APRIL 4, 1999

        Revenue. Total revenue was $7,777 and $10,522 for the three months ended
April 2, 2000 and April 4, 1999, respectively. Our SAN systems revenue was
$5,898 and $4,306 for the three months ended April 2, 2000 and April 4, 1999,
respectively. The 37% increase in SAN systems revenue in the first quarter 2000
compared with first quarter 1999 was the result of increased sales of our switch
and managed hub products.

        Component revenue was $1,879 and $6,216 for the three months ended April
2, 2000 and April 4, 1999, respectively. We anticipate that our component
revenue will continue to decrease as a result of our decision to focus our
resources on the development, sales and marketing of our SAN systems products.

        Gross profit. Cost of revenue includes the cost to acquire finished
products from third party manufacturers of our products, expenses we incur
related to inventory management, product quality testing, customer order
fulfillment, and provisions for warranty expenses and inventory obsolescence.
Gross profit was $2,222 and $2,993 for the three months ended April 2, 2000 and
April 4, 1999, respectively, representing 28.6% and 28.4% of total revenue,
respectively. The decrease in gross profit dollars reflects the decrease in
revenue in 2000 compared with 1999.

        Research and development expenses. Research and development expenses
consist primarily of salaries and related expenses for personnel engaged in the
design, development and sustaining engineering of our products, consulting and
outside service fees, costs for prototype and test units and other expenses
related to the design, development, testing and enhancement of our products.
Research and development expenses were $3,444, or 44.3% of total revenue, in the
three months ended April 2, 2000 compared with $3,101, or 29.5% of total revenue
in the three months ended April 4, 1999. The $343, or 11.1% increase in expenses
during the three months ended April 2, 2000 was primarily attributable to



                                       9
<PAGE>   10
increased personnel, 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. We believe that continued investment in
research and development is an essential element of our strategic objectives to
design quality products while reducing costs. As a result, we expect these
expenses to increase in the future.

        Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, commissions and related
expenses for personnel engaged in marketing, sales, finance and information
technology support functions, as well as professional fees, allowance for
doubtful accounts receivable, trade shows and other marketing activities.
Selling, general and administrative expenses were $4,105, or 52.8% of total
revenue, in the three months ended April 2, 2000 compared with $3,045, or 28.9%
of total revenue in the three months ended April 4, 1999. The $1,060, or 34.8%
increase in expenses during the three months ended April 2, 2000 was primarily
attributable to additional salaries, and related expenses for marketing, sales,
finance and information technology support personnel, as well as professional
fees, trade shows and other marketing activities. We expect selling, general and
administrative expenses to increase in the future, primarily to support our
strategies of expanding our indirect distribution channels and our international
sales and marketing activities.

        Amortization of goodwill and intangibles. Amortization of goodwill and
intangibles for the three months ended April 2, 2000 and April 4, 1999 were $540
and $340, respectively, representing 6.9% and 3.2%, respectively, of total
revenue. This increase is the result of an increase in the amortization of the
intangible assets capitalized in conjunction with our purchase of Arcxel
Technologies in February 1998.

        Amortization of deferred compensation. In connection with the grant of
certain stock options we recorded deferred compensation of $9,753 during fiscal
1999. Deferred compensation is presented as a reduction of stockholders' equity
and amortized on a graded vesting method over the vesting period of the options,
which is generally four years. We amortized deferred compensation of $1,168 and
$103 for the three months ended April 2, 2000 and April 4, 1999, respectively,
representing 15.0% and 1.0%, respectively, of total revenue.

        Other income (expense), net. Other income (expense), net consists of
interest income, interest expense and other miscellaneous income or expense.
Other income was $768 for the three months ended April 2, 2000, which consisted
primarily of interest income and represented 9.9% of total revenue. Other
expense of $443 for the three months ended April 4, 1999 represented 4.2% of
total revenue and consisted primarily of interest expense on notes payable and
capital lease obligations.

                         LIQUIDITY AND CAPITAL RESOURCES

        Our principal sources of liquidity at April 2, 2000 consisted of $51.8
million in cash and cash equivalents, and $5.5 million in short-term
investments.

        Since inception, we have financed our operations primarily through the
sale of common stock and preferred stock with aggregate proceeds of
approximately $112.6 million. Additionally, we have financed our operations
through capital equipment lease lines, working capital credit facilities, notes
payable and $6.9 million in net cash received from the sale of our laser diode
fabrication facility and gigabit Ethernet product line.

        Cash utilized by operating activities was $2.9 million in the three
months ended April 2, 2000, and $1.7 million in the three months ended April 4,
1999. The cash utilized in each of these periods was due to net losses, as well
as working capital required to fund our operations. Cash flows from investing
activities consisted of short-term investment transactions and capital
expenditures of $642 in the three months ended April 2, 2000 and $51 in the
three months ended April 4, 1999.

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

        We believe that our existing cash, cash equivalent and short-term
investment balances will be sufficient to meet our cash requirements at least


                                       10
<PAGE>   11
through the next twelve months. However, we may be required, or could elect, to
seek additional funding prior to that time. Our future capital requirements will
depend on many factors, including our future revenue, the timing and extent of
spending to support product development efforts and expansion of sales, general
and administrative activities, the timing of introductions of new products, and
market acceptance of our products. We cannot assure you that additional equity
or debt financing, if required, will be available on acceptable terms or at all.

                        RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for the Company for fiscal years and quarters
beginning after June 15, 2000, requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. Management believes that the impact of
SFAS No. 133 will not have a material impact on the Company's financial
position, results of operations and cash flows.

        In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue, provides guidance for disclosures related
to revenue recognition policies and will be effective for our quarter ending
July 2, 2000. Management is currently assessing the impact of SAB 101.

      FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

        We have incurred significant losses since inception and expect to incur
losses in the future. As of April 2, 2000, we had an accumulated deficit of
$84.9 million. We cannot be certain that we ever will realize sufficient revenue
to achieve profitability. We expect to incur significant product development,
sales and marketing and administrative expenses, and we will need to generate
significant revenue to achieve and maintain profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability.

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, timing, terms and fluctuations of customer orders,
             particularly large orders from a limited number of OEMs;

        -    our ability to attain and maintain sufficient reliability levels
             for our SAN interconnect products;

        -    the timing of the introduction or enhancement of products by us,
             our OEMs and our competitors;

        -    decreases in the prices at which we can sell our products;

        -    the mix of products sold, as our switches and hubs typically have
             higher margins than our transceivers, and the mix of distribution
             channels through which our products are sold; and

        -    the ability of our contract manufacturers to produce and distribute
             our products in a timely fashion.

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


                                       11
<PAGE>   12
A COMPONENT IN OUR TRANSCEIVERS HAS EXPERIENCED AN ABNORMALLY HIGH FAILURE RATE
WHICH HAS ADVERSELY AFFECTED AND COULD IN THE FUTURE AFFECT OUR SALES.

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

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

        Our OEMs tend to order sporadically, and their purchases can vary
significantly from quarter to quarter. Our OEMs generally forecast expected
purchases in advance, but frequently do not order as expected and tend to place
purchase orders only shortly before the scheduled delivery date. We plan our
operating expenses based on revenue projections derived from our OEMs'
forecasts. Because most of our expenses are fixed in the short term or incurred
in advance of anticipated revenue, we may not be able to decrease our expenses
in a timely manner to offset any unexpected shortfall in revenue. These order
habits cause our backlog to fluctuate significantly. Moreover, our backlog is
not necessarily indicative of actual sales for any succeeding period, as orders
are subject to cancellation or delay by our OEMs with limited or no penalty.
Also, we typically generate a large percentage of our quarterly revenue in the
last month of the quarter.

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

        Our success will depend on our continued ability to develop and manage
relationships with significant OEMs and resellers, as well as on the sales
efforts and success of these customers. Compaq Computer, IBM, Bell Microproducts
and Avid Technology represented 24.6%, 10.9%, 10.4% and 10.4% of our total
revenue, respectively, for year three months ended April 2, 2000. Although we
are attempting to expand our base of OEMs and resellers, most of our future
revenue may come from a small number of customers.

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

        -    our OEMs and resellers can stop purchasing and marketing our
             products at any time;

        -    our OEM and reseller agreements are not exclusive and contain no
             renewal obligation; and

        -    our OEM and reseller agreements do not require minimum purchases.

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

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

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



                                       12
<PAGE>   13

other things, our ability to:

        -    demonstrate the benefits of SANs and our SAN InSite management
             software, switch, hub and transceiver products to OEMs, resellers
             and end-users;

        -    develop, maintain and build relationships with leading OEMs and
             resellers; and

        -    accurately predict the direction of industry standards and base our
             products on those industry standards.

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

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

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

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

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

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

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

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



                                       13
<PAGE>   14
and brand recognition, to capture significant SAN market share. Therefore, we
may not be able to compete successfully in the SAN market.

OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.

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

        -    changing OEM product specifications;

        -    difficulties in hiring and retaining necessary personnel;

        -    difficulties in reallocating engineering resources and overcoming
             resource limitations;

        -    difficulties with independent contractors;

        -    changing market or competitive product requirements; and

        -    unanticipated engineering complexities.

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

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

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

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

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

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

        In order to support and develop opportunities for our indirect
distribution channels, we plan to expand our field sales and support staff
significantly. We cannot assure you that this expansion will be successfully
completed, that the cost of this expansion will not exceed the incremental
revenue generated or that our expanded field sales and support staff will



                                       14
<PAGE>   15
be able to compete successfully against the significantly more extensive and
well-funded sales and marketing operations of many of our current or potential
competitors. Our inability to effectively establish our distribution channels or
manage the expansion of our field sales and support staff would have a material
adverse effect on our ability to increase revenue.

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

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

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

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

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

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

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


                                       15
<PAGE>   16
A DECREASE IN THE SELLING PRICES OF PRODUCTS WOULD REDUCE OUR REVENUE AND GROSS
MARGINS.

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

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

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

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

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

OUR MANAGEMENT TEAM IS NEW AND MAY NOT BE ABLE TO WORK TOGETHER SUCCESSFULLY
WHICH COULD HARM OUR BUSINESS.

        Our success depends to a significant degree upon the continued joint
contributions of our key management, many of whom we only recently hired. In
April 1999, we hired a new president and chief executive officer, James M.
McCluney and in July 1999, we hired a vice president of worldwide sales, Ronald
G. von Trapp and a vice president of marketing, Arun K. Taneja. Other members of
our management team also joined us only recently. Because of the limited time in
which our management team has been working together, we cannot assure you that
management will be able to work effectively as a team.

IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL,
WE MAY NOT BE SUCCESSFUL.

        We believe our future success will depend in large part upon our ability
to attract and retain highly skilled managerial, technical, sales and marketing,
finance and operations personnel. In particular, we will need to increase the
number of technical staff members with experience in high-speed networking
applications as we further develop our product line. Competition for these
highly skilled employees in our industry is intense. Our failure to attract and
retain these key employees could have a material adverse effect on our business,
results of operations and financial condition.

        We are seeking additional sales and marketing personnel. Competition for
qualified sales and marketing personnel is intense and we might not be able to
hire the kind and number of sales and marketing personnel we are targeting.
Unless we expand our sales and marketing force, we may not be able to increase
our revenue or extend our brand awareness. We also have a small customer service
and support organization and will need to increase our staff to support new OEMs
and resellers and the expanding needs of our existing customers. Hiring customer


                                       16
<PAGE>   17
service and support personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of SAN interconnect products.

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

WE HAVE EXPERIENCED A PERIOD OF RAPID GROWTH, AND IF WE ARE NOT ABLE TO
SUCCESSFULLY MANAGE THIS AND FUTURE GROWTH, OUR BUSINESS MAY SUFFER.

        We have experienced a period of rapid growth, which has placed and
continues to place a significant strain on our resources. Unless we manage our
growth effectively, we may make mistakes in operating our business, such as
inaccurate sales forecasting, material planning and financial reporting, which
may result in fluctuations in our operating results and cause the price of our
stock to decline. We plan to continue to expand our operations significantly.
This growth will place a significant demand on our management and operational
resources. In order to manage growth effectively, we must implement and improve
our operational systems, procedures and controls on a timely basis. Our key
personnel have limited experience managing this type of growth. If we cannot
manage growth effectively, our business could suffer.

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

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

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

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

        Our revenue from international sales represented 19.9% of our total
revenue for the three months ended April 2, 2000 and 15.9% for the three months
ended April 4, 1999. We plan to expand our international sales activities
significantly, especially in Europe and Asia. Our international sales growth
will be limited if we are unable to establish relationships with international
distributors, establish foreign operations, effectively manage international
sales channels, hire additional personnel and develop relationships with service
organizations. We cannot be certain that we will be able to establish, generate
and build market demand for our products internationally. Our international
operations will be subject to a number of risks, including:

        -    increased complexity and costs of managing international
             operations;

        -    multiple protectionist, conflicting and changing governmental laws
             and regulations;

        -    reduced or limited protections of intellectual property rights; and

        -    political and economic instability.



                                       17
<PAGE>   18

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

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

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

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

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

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

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

        -    actual or anticipated fluctuations in our operating results;

        -    losses of our key OEMs or reduction in their purchases of our
             products;

        -    changes in financial estimates by securities analysts;

        -    changes in market valuations of other technology companies;

        -    announcements by us or our competitors of significant technical
             innovations, contracts, acquisitions, strategic partnerships, joint
             ventures or capital commitments;

        -    additions or departures of key personnel; and

        -    future sales of common stock.


                                       18
<PAGE>   19
        In addition, the stock market has experienced extreme volatility that
often has been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance.

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

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

        These purchases also involve numerous risks, including:

        -    problems assimilating the purchased operations, technologies or
             products;

        -    unanticipated costs associated with the acquisition;

        -    diversion of management's attention from our core business;

        -    adverse effects on existing business relationships with suppliers
             and customers;

        -    incorrect estimates made in the accounting for acquisitions;

        -    risks associated with entering markets in which we have no or
             limited prior experience; and

        -    potential loss of key employees of purchased organizations.

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

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

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK.

        Substantially all of our cash equivalents and investment securities are
at fixed interest rates and, as such, the fair value of these instruments is
affected by changes in market interest rates. However, all of our cash
equivalents and investment securities at April 2, 2000 mature within one year.
As a result, we believe that the market risk arising from our holdings of these
financial instruments is immaterial. In addition, all of our sales are made in
U.S. dollars and, consequently, we believe our foreign currency exchange rate
risk is immaterial. We do not have any derivative instruments and do not engage
in hedging-transactions.


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<PAGE>   20

                           PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        The Company's Registration Statement on Form S-1 (No. 333-81347) for its
initial public offering of its Common Stock became effective September 30, 1999,
covering an aggregate of 4,945,000 shares of Common Stock, including the
underwriters' over-allotment. A total of 4,945,000 shares of the Company's
common stock was sold at a price of $18.00 per share to an underwriting
syndicate led by BancBoston Robertson Stephens, Inc., Bear, Stearns & Co. Inc.
and Needham & Co., Inc. The Offering commenced on October 1, 1999 and closed on
October 15, 1999. The initial public offering resulted in gross proceeds of
approximately $89.0 million, of which approximately $6.2 million was applied
toward the underwriting discount. Net proceeds to the Company were $82.8
million. Expenses related to the offering totaled approximately $1.4 million.
Through April 2, 2000, the proceeds were applied to repay an 8.69% promissory
note and accrued interest due to Western Digital totaling approximately $2.0
million, a line of credit borrowing totaling $2.8 million and a note payable to
a bank of $7.5 million. In addition, $10.8 million was used for working capital
and general corporate purposes. The Company has invested the remaining net
proceeds in short-term, investment grade, interest-bearing securities.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits:

        Exhibit 27.1 - Financial Data Schedule

(b)     Reports on Form 8-K:

        On January 18, 2000, the Company filed a current report on Form 8-K
        reporting that on January 5, 2000 the board of directors announced the
        appointment of James M. McCluney, chief executive officer, to the
        additional position of chairman of the board of directors, succeeding
        the Company's founder Gregory R. Olbright.



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<PAGE>   21

                                   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.

                                       VIXEL CORPORATION
                                       (Registrant)

                                       /s/  Kurtis L. Adams
                                       ------------------------------------
                                       Kurtis L. Adams
                                       Chief Financial Officer, Vice President
                                       of Finance, Secretary and Treasurer
                                       (Authorized Officer and Principal
                                       Financial and Accounting Officer)



                                       21

<PAGE>   22
                                 EXHIBIT INDEX


          Exhibit
           Index                    Title
          -------           -----------------------

           27.1             Financial Data Schedule