10-K

 
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549
                                  FORM 10-K
  (Mark One)
 
[X]     Annual report pursuant to section 13 or 15(d) of the Securities and 
        Exchange Act of 1934 for the fiscal year ended June 27, 1998.
 
[_]     Transition report pursuant to section 13 or 15(d) of the Securities and 
        Exchange Act of 1934 for the Transition period from ___________ to 
        ____________


COMMISSION FILE NUMBER 0-27026

                       PERICOM SEMICONDUCTOR CORPORATION
            (Exact Name of Registrant as Specified in Its Charter)

             California                                   77-0254621
   (State or Other Jurisdiction of                     (I.R.S. Employer
    Incorporation or Organization)                    Identification No.)

             2380 Bering Drive
        San Jose, California  95131                          95131
   (Address of Principal Executive Offices)                (Zip Code)

     Registrant's Telephone Number, Including Area Code:   (408) 435-0800

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

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

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

Yes  [X]    No  [_]

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]


The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on September 15, 1998
as reported by the Nasdaq National Market was approximately $38,950,000.

As of September 15, 1998 the Registrant has outstanding 9,331,699 shares of
Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant's Annual Report to Shareholders for the fiscal year
ended June 27, 1998 and the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held December 8, 1998 are incorporated by reference in
Parts II, III and IV of this report on Form 10-K.

 
                                    PART I

ITEM 1.   BUSINESS

Pericom Semiconductor Corporation (the "Company" or "Pericom") designs, develops
and markets high-performance interface integrated circuits ("ICs") used in many
of today's advanced electronic systems. Interface ICs, such as interface logic,
switches and clock management products, transfer, route and time electrical
signals among a system's microprocessor, memory and various peripherals and
between interconnected systems. High-performance interface ICs, which enable
high signal quality, are essential for the full utilization of the available
speed and bandwidth of advanced microprocessors, memory ICs, local area networks
("LANs") and wide area networks ("WANs"). Pericom focuses on high-growth and
high-performance segments of the notebook computing, networking and multimedia
markets, in which advanced system designs require interface ICs with high-speed
performance, reduced power consumption, low-voltage operation, small size and
higher levels of integration.

Pericom has combined its extensive design technology and applications knowledge
with its responsiveness to the specific needs of electronic systems developers
to become a competitive supplier of interface ICs. The Company has evolved from
one product line in fiscal 1992 to four currently -- SiliconInterface,
SiliconSwitch, SiliconClock and SiliconConnect -- with a goal of providing an
increasing breadth of interface IC solutions to its customers. Pericom currently
offers over 300 standard products, of which 82 were introduced during the twelve
months ended June 30, 1998. The Company's customers and OEM end users include
3Com Corporation, Apple Computer, Inc., Ascend Communications, Inc., Avid
Technology, Inc., Bay Networks, Cabletron Systems, Inc., Canon, Inc., Cisco
Systems, Inc., Compaq Computer Corporation, Dell Computer, Digital Equipment
Corporation, Hewlett-Packard Company, Hitachi Ltd., International Business
Machines Corporation, Intel Corporation, Inventec, Inc., Lexmark International
Inc., Motorola, Quanta, Qualcom, Smart Modular Technologies Inc., Solectron
Technology Corporation, Sony Corporation and Toshiba Corporation.


INDUSTRY BACKGROUND

 OVERVIEW

The presence of electronic systems and subsystems permeates our everyday life,
as evidenced by the growth of the personal computer, mobile communications,
networking and consumer electronics markets. The growth of these markets has
been driven by systems characterized by ever-improving performance, flexibility,
reliability and multi-functionality, as well as decreasing size, weight and
power consumption. Advances in ICs through improvements in semiconductor
technology have contributed significantly to the increased performance of, and
demand for, electronic systems and to the increasing representation of ICs as a
proportion of overall system cost. This technological progress has occurred at
an accelerating pace, while the cost of electronic systems has remained steady
or declined.

The development of high-performance personal computers, the requirement for
higher network performance and the increased level of connectivity among
different types of electronic devices have driven the demand for high-speed,
high-performance interface circuits to handle the transfer, routing and timing
of digital and analog signals at high speeds with minimal loss of signal
quality. High-speed signal transfer is essential to fully utilize the speed and
bandwidth of the microprocessor, the memory and the LAN or WAN. High signal
quality is equally essential to achieve optimal balance between high data
transmission rates and reliable system operation.  Without high signal quality,
transmission errors occur as bandwidth increases.  Market requirements for
interface circuits are driven by the same market pressures as those imposed on
microprocessors, including higher speed, reduced power consumption, lower-
voltage operation, smaller size and higher levels of integration.

The problems associated with signal quality that must be addressed by the
interface ICs are magnified by increases in the speeds at which interface ICs
must transfer, route and time electrical signals, the number of 

                                       1

 
interconnected devices that send or receive signals and the variety of types of
signals processed by the interface ICs. The most significant performance
challenges faced by designers of interface ICs are the requirements to transfer
signals at high speed with low propagation delay, minimize signal degradation
caused by "noise," "jitter," and "skew" and reduce electromagnetic interference
("EMI"). Minimizing propagation delay sources of signal degradation and
interference is needed to enable today's state-of-the-art electronic systems to
function.

Pericom believes that several major market trends make reliable operations of
systems at high frequency and high data transfer rates critical. Multimedia and
high-performance network applications continue to push for more data bandwidth
on system buses and across system boundaries. Computer and networking system
clock frequencies continue to increase at a very rapid rate, shortening the time
available to perform data transfers. While the data transfer rate has typically
increased every few years, the continuing desire for higher system reliability
with minimal system downtime creates increasing pressure to achieve lower data
error rates. Increasing system-wide EMI emissions resulting from higher-
frequency ICs compels system designers to develop and implement new ways to
further reduce these emissions. These factors all increase the need for very
high-speed interface circuits with outstanding performance specifications.

Pericom also believes that electronic systems designers and OEMs have
increasingly required solutions to the technical challenges described above in
order to take advantage of continuing speed and performance enhancements in
microprocessor and memory ICs. These customers have also continued to migrate
from single-part vendors to suppliers who can provide multiple parts for their
systems, both to reduce the number of vendors they must deal with and to address
interoperability requirements among the interface ICs within the system. Due to
the short design times and product life cycles these customers face for their
own products, they are requiring rapid response time and part availability from
interface IC vendors. Interface IC vendors are further required to accomplish
these tasks in a cost-effective manner that flexibly responds to specific
customer needs.


PRODUCTS

The Company has used its expertise in high-performance digital, analog and
mixed-signal IC design, its re-usable core cell library and its modular design
methodology to achieve a rapid rate of new product introductions.  The Company
has evolved from one product line in fiscal 1992 to four product lines
currently, with a goal of providing an increasing breadth of product solutions
to its customers. Within each product line, the Company has continued to
introduce products with higher performance, higher levels of integration, and
new features and options.

SILICONINTERFACE

Through its SiliconInterface product line, Pericom offers a broad range of high-
performance 5-volt and 3.3-volt CMOS logic interface circuits. These products
provide logic functions to handle data transfer between microprocessors and
memory, bus exchange, backplane interface, and other logic interface functions
where high-speed, low-power, low-noise and high-output drive characteristics are
essential. The Company's thin and tight-lead-pitch packages allow significant
reduction in board space and provide enhanced switching characteristics. The
Company has two patents that relate to certain SiliconInterface products: one
that relates to mixed-voltage operations that are scaleable for future
generations of low-voltage logic families, and one that relates to a high-speed,
low-noise input/output buffer design. The SiliconInterface product line is used
in a wide array of systems applications, including notebook computers, high-
speed network hubs, routers and switches and multimedia systems.

5-VOLT INTERFACE LOGIC. The Company's high-speed 5-volt interface logic products
in 8-, 16- and 32-bit configurations address specific system applications,
including a "Quiet Series" family for high-speed, low-noise, point-to-point data
transfer in computing and networking systems and a "Balanced Drive" family with
series resistors at output drivers to reduce switching noise in high-capacitive
load switching in the main and cache memories of high-performance computers.

                                       2

 
3.3-VOLT INTERFACE LOGIC. Pericom's 3.3-volt interface logic products in 8 to 24
bit configurations address a range of cost and performance requirements. The
Company's 3.3-volt ALVC, LPT, LCX and FCT3 interface logic families offer a
comprehensive range of performance at very low power. The ALVC, LPT and LCX
families allow customers the flexibility to use certain Pericom 3.3-volt
products in pure 3.3-volt or mixed 3.3/5-volt designs. Because a full range of
3.3-volt components is not always available, this flexibility is important as
computer and networking designs make the transition from 5 volts to 3.3 volts.
ALVC, a leading-edge performance family that targets high-speed computer and
networking designs, offers bus hold and 5-volt I/O tolerance options. With 50
products in the family, the Company now offers one of the broadest portfolios of
ALVC logic in the industry. LPT is a mid-range performance family and the
industry's first 3.3-volt CMOS logic family with 5-volt I/O tolerance. LCX is a
relatively slow-speed family that is targeted for low-cost applications. FCT3 is
a mid-range performance family that can interface only with 3.3-volt components.
Increasing networking, PC and memory module manufacturers are demanding
application specific logic products.  Pericom believes it is well positioned to
serve this need using its ASIC design methodology and existing cell designs to
achieve rapid product development.


SILICONSWITCH

Through its SiliconSwitch product line, Pericom offers a broad range of high-
performance ICs for switching digital and analog signals. The ability to switch
or route high-speed digital or analog signals with minimal delay and signal
distortion is a critical requirement in many high-speed computers, networking
and multimedia applications. Historically, systems designers have used
mechanical relays, solid-state relays and analog switches, which have
significant disadvantages compared to IC switches: mechanical relays are bulky,
dissipate significant power and have very low response times; solid-state relays
are expensive and dissipate significant power; and traditional analog switches
have relatively high resistance that can cause significant signal distortion.

DIGITAL SWITCH. The Company offers a family of digital switches in 8-, 16- and
32-bit densities that address the switching needs of high-performance systems.
These digital switches offer performance and cost advantages over traditional
switch functions, offering low on-resistance (less than 5 ohms), low propagation
delay (less than 250 picoseconds), low standby power (less than 1 microamp) and
series resistor options that support low EMI emission requirements. Applications
for the Company's digital switches include 5-volt to 3.3-volt signal
translation, high-speed data transfer and switching between microprocessors and
multiple memories, and hot plug interfaces in notebook and desktop computers,
servers and switching hubs and routers. During fiscal year 1998, Pericom
introduced the first 3.3-volt bus switch family.  This family offers industry
leading switching speed and are hot-pluggable, allowing live insertion in real
time systems.

ANALOG SWITCH. The Company offers a family of analog switches for low-voltage
(2- to 5-volt) applications such as multimedia audio and video signal switching
with enhanced characteristics such as low power, high bandwidth, low crosstalk
and low distortion to maintain analog signal integrity. Traditional analog
switches cause unacceptable levels of distortion due to high on-resistance. The
Company's analog switches have significantly lower on-resistance, resulting in
significant improvement in bandwidth and distortion. This allows the Company's
analog switches to be used for state-of-the-art video and audio switching
applications where traditional analog switches cannot be used.  The Company
recently introduced the first members of a higher voltage (17v) analog switch
family for applications requiring higher signal range, such as instrumentation,
telecommunications and industrial control.  The addition of this family
significantly strengthens Pericom's position in the analog switch market.

LAN SWITCH AND VIDEO SWITCH. The Company offers a line of application-specific
standard product ("ASSP") switches for specific applications. These products
include LANSwitches, which are used to switch among multiple LAN protocols
(e.g., Ethernet, FastEthernet and Token Ring) on networking systems, and video
switches, which are used in graphic and multimedia systems to switch among
different 

                                       3

 
video and audio sources at very high frequencies with minimal distortion, hence
preserving high video and audio fidelity.


SILICONCLOCK

Through its SiliconClock product line, Pericom offers a broad range of general-
purpose solutions including clock buffers, PLL-based zero-delay clock generators
and ASSP PLL-based frequency synthesizer products for Pentium, Pentium Pro and
Pentium II systems, as well as a number of ASSP clock products for laser
printers, networking, set-top box and modem applications. As system designers
use microprocessors and memories that run at increasingly high frequencies,
there is a demand for correspondingly reliable clock management circuits to
generate and distribute high-precision, high-frequency timing control signals
for advanced computer, networking, multimedia and embedded applications. To
enable the reliable operations of these ICs with precise timing, the clock
circuits need to have short propagation delay, low jitter and low pin-to-pin
signal skew.

CLOCK BUFFERS AND ZERO-DELAY CLOCK GENERATOR. Clock buffers receive a digital
signal from a frequency source and create multiple copies of the signal for
distribution across system boards. Pericom offers 3.3-volt and 5-volt clock
buffers for high-speed, low-skew applications in computers and networking
equipment. PLL-based clock generators, also known as zero-delay clock
generators, virtually eliminate propagation delays by synchronizing the clock
outputs with the incoming frequency source. Pericom's 5-volt and 3.3-volt zero-
delay clock generators offer frequencies of up to 134 MHz for applications in
computer servers, PCI bridges and SDRAM modules.  Pericom supports the latest
Intel defined PC100 MHz SDRAM registered DIMM memory modules with both a zero
delay clock generator and ALVC logic buffers.

CLOCK FREQUENCY SYNTHESIZERS. Clock frequency synthesizers use single or
multiple PLLs to generate various output frequencies using a crystal oscillator
as an input frequency source. Clock frequency synthesizers are used to provide
critical timing signals to microprocessors, PCI buses, SDRAM and peripheral
functions. Pericom's PLL-based clock synthesizers support Pentium, Pentium Pro
and Pentium II microprocessors and are designed with an emphasis on minimizing
jitter and power consumption. In addition, some of the products come with
integrated serial I2C serial link communications and options for spread-spectrum
selection that meet low EMI requirements for mobile and desktop PC motherboards.
Pericom recently introduced 100MHz clock chipsets (clock synthesizer and buffer)
to support the latest Intel 440BX chipset for both desktop, server and notebook
applications.  The Company is an active participant in the development of Intel
defined technology for the next generation PC and server platforms. An agreement
has recently been signed with Rambus Inc. for the development of the Direct
Rambus Clock Generator IC, a key interface component for this high-speed memory
technology.  The Company's PLL-based laser printer clock provides a cost-
effective solution for high-speed, high-resolution video clock generation at 40
MHz for low-cost color laser printer controllers and at 80 MHz for high-speed
color laser printer controllers. The Company also offers modem clocks to support
28.8K and 56K rack-mount modem designs.

FLEX CLOCK. To support embedded processor and data transmission operations,
telecom and datacom applications often require unique combinations of
frequencies on the system board. Traditionally, such requirements have been
handled by the simultaneous use of several crystal oscillators. This approach is
costly, however, and requires significant board space. Also, certain uncommon
frequencies require very long purchase order lead times. Supporting quick-turn
customer prototyping as well as volume production requirements, Pericom's
FlexClock product offers customers programmable PLL-based clock synthesizers
that provide multiple customer-specified frequencies in a single IC with short
lead time and with fast factory programming of custom requested frequencies.

                                       4

 
SILICONCONNECT

The SiliconConnect product line is the newest and offers the highest complexity
and integration among the Company's products.  It consists of a family of PBX
telecom switches and PCI to PCI bridge products currently in development.

The Company has recently started to expand into the telecommunications market
with the introduction of three products for digital switch matrix PBX
applications. For larger scale digital switch matrix applications the Company
offers a PBX switch chipset: the PT9085, which provides serial-to-parallel or
parallel-to-serial conversion, and the PT9080, which provides address and
switching functions for PBX switching stations.  The PT8980 offers a PBX switch
solution for medium scale PBX applications.

The Company is continuing to enhance and refine the offerings in its existing
product lines, while working to add next-generation products which address new
market opportunities on a timely basis. In particular, the Company is developing
PCI bridge products targeted for the networking, workstation and PC markets,
additional 3.3-volt and high-voltage digital and analog switches complementing
its current product families, high-speed 2.5 volt interface logic products,
additional high performance frequency synthesizers and clock buffers intended
for new markets or applications. The failure of the Company to complete and
introduce new products in a timely manner at competitive price/performance
levels would materially and adversely affect the Company's business and results
of operations. See "Factors That May Affect Future Results -- Technological
Changes; Dependence on New Products."


CUSTOMERS

The following is a list of selected customers of the Company, including end
users and OEMs:



COMPUTER                                     NETWORKING
  Acer                                         3Com
  Apple                                        Ascend Communications
  Compaq                                       Bay Networks
  Dell                                         Cabletron
  Digital Equipment Corporation                Cisco
  Hitachi                                      Hewlett-Packard
  IBM                                          Samsung
  Intel
  Inventec                                   MULTIMEDIA, PERIPHERALS AND OTHERS
  NEC                                          Adaptec
  Quanta                                       Avid
  Sony                                         Canon
  Toshiba                                      Diamond Multimedia
                                               Lexmark
CONTRACT MANUFACTURING                         Mylex
  AVEX Electronics                             Trident Microsystems
  Celestica                                    Xerox
  Jabil Circuit
  SCI
  Smart Modular Technologies
  Solectron


The Company's customers include a broad range of end users and OEMs in the
computer, peripherals, networking and contract manufacturing markets. In fiscal
1996, sales to Apple and Pioneer Standard Electronics, Inc., a distributor,
accounted for approximately 20% and 16%, respectively, of net revenues, 

                                       5

 
and sales to the Company's top five customers accounted for approximately 52% 
of net revenues. In fiscal 1997, sales to Harris and IBM accounted for
approximately 17% and 14%, respectively, of the Company's net revenues, and
sales to the Company's top five customers accounted for approximately 47% of net
revenues. In fiscal 1998, sales to Techmosa, a distributor in Taiwan, accounted
for 11% of net revenues, and sales to the Company's top five customers accounted
for 36% of net revenues. See "Factors That May Affect Future Results -- Customer
Concentration."

Contract manufacturers have become important customers for the Company as
systems designers in the Company's target markets are increasingly outsourcing
portions of their manufacturing. In addition, these contract manufacturers are
playing an increasingly vital role in determining which vendors' ICs are
incorporated into new designs.


DESIGN AND PROCESS TECHNOLOGY

The Company's design efforts focus on the development of high-performance
digital, analog and mixed-signal ICs. To minimize design cycle times of high-
performance products, the Company utilizes a modular design methodology that has
enabled it to produce many new products each year and to meet its customers'
need for fast time-to-market response. This methodology uses state-of-the-art
computer-aided design software tools such as HDL description, logic synthesis,
full-chip mixed-signal simulation, and automated design layout and verification
using Pericom's library of high-performance digital and analog core cells. This
family of core cells has been developed over several years and contains high-
performance, specialized digital and analog functions not available in
commercial ASIC libraries. Among these cells are the Company's proprietary
mixed-voltage I/O cells, high-speed, low-noise I/O cells, analog and digital
PLLs, charge pumps and datacom transceiver circuits. Pericom has been granted
four U.S. patents relating to its circuit designs and has several U.S. and
foreign patent applications pending. Another advantage of this modular design
methodology is that it allows the application of final design options late in
the wafer manufacturing process to determine a product's specific function. This
option gives the Company the ability to use pre-staged wafers, which
significantly reduces the design and manufacturing cycle time and enables the
Company to respond rapidly to a customer's prototype needs and volume
requirements.

The Company utilizes advanced CMOS processes to achieve optimal performance and
die cost. The Company's process and device engineers work closely with its
independent wafer foundry partners to develop and evaluate new process
technologies. The Company's process engineers also work closely with circuit
design engineers to optimize the performance and reliability of its cell
library. The Company currently manufactures a majority of its products using 0.5
micron and 0.6 micron CMOS process technologies and is using an advanced 0.35
micron CMOS process, which has been qualified and is in production, in the
design of a number of its new products. The Company is also using a high-voltage
CMOS process developed by one of its foundry partners in the design of new
switch products.


SALES AND MARKETING

The Company markets and distributes its products through a worldwide network of
independent sales representatives and distributors. In fiscal years 1996, 1997
and 1998, international sales comprised 30%, 37% and 45%, respectively, of the
Company's net revenues. The Company has five regional sales offices in the
United States, a sales office in Taiwan and a sales office in Europe. The
Company also supports field sales design-in and training activities with
application engineers. All marketing and product management personnel are
located at the Company's corporate headquarters in San Jose, California. See
"Factors That May Affect Future Results -- Risks of International Sales."

The Company focuses its marketing efforts on product definition, new product
introduction, product marketing, advertising and public relations. The Company
actively seeks cooperative relationships in product development and product
marketing.  For example, the Company recently signed an agreement with Rambus to
develop the Direct Rambus Clock Generator IC to support the high-speed Direct
Rambus 

                                       6

 
memory technology.  In February 1996, the Company and Harris entered into
a private label program (the "Harris Agreement") pursuant to which Harris sells
certain of the Company's SiliconInterface products under its own label. The
Company uses advertising both domestically and internationally to market its
products independently and in cooperation with its distributors. Pericom product
information is available on its web site, which contains technical information
on all of its products and offers design modeling support and sample-request
capabilities online. The Company also publishes and circulates technical briefs
relating to its products and their applications.

In March 1995 the Company was issued ISO-9001 certification by the International
Organization for Standards for Quality Management after the Company successfully
completed the required Registration Assessment Audit with Underwriter's
Laboratories, which entails a rigorous quality assessment.

Pericom believes that contract manufacturing customers are growing in importance
and employs sales and marketing personnel who focus on servicing these customers
and on expanding Pericom's product sales via these customers to OEMs. In
addition, Pericom uses programs such as EDI, bonded inventories and remote
warehousing to enhance its service and attractiveness to contract manufacturers.

Sales through domestic and international distributors were approximately 40%,
36% and 49% of the Company's net revenues in fiscal 1996, 1997 and 1998,
respectively.  Major distributors in the United States include All American
Semiconductor, Bell Microproducts, Interface Electronics, Pioneer Standard, and
Reptron Electronics. Major international distributors include Ambar (U.K.), Chin
Shang Electronics Corp. (Taiwan), Desner Electronics (Singapore), Internix
(Japan), MCM (Japan) and Techmosa (Taiwan). See "Factors That May Affect Future
Results -- Reliance on Distributors."


MANUFACTURING

The Company has adopted a fabless manufacturing strategy by subcontracting its
wafer production to independent wafer foundries. The Company has established
collaborative relationships with selected independent foundries and targets
additional foundry partners with which it can develop a strategic relationship
to the benefit of both parties. The Company believes that its fabless strategy
enables it to introduce high performance products quickly at competitive cost.
To date, the Company's principal manufacturing relationships have been with
Chartered Semiconductor Manufacturing Pte, Ltd. ("Chartered") and Taiwan
Semiconductor Manufacturing Corporation ("TSMC"). The Company provides Chartered
with new product designs to be used for testing and qualifying advanced
manufacturing processes from development to production. In exchange, Chartered
provides the Company with wafer allocation and early access to process
technology. The Company has also used Austria Mikro Systeme GmbH ("AMS") as a
foundry since 1992. The Company is qualifying a high-voltage CMOS process at New
Japan Radio Corporation ("NJRC") and plans to use this process for some of its
future products. Recently the Company qualified a 0.5micron CMOS process at TSMC
that is currently in production.

The Company relies on foreign subcontractors primarily for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single source
supplier for certain new packages. Although the Company believes that it is not
materially dependent upon any such subcontractor, changes in the Company's or a
subcontractor's business could cause the Company to become materially dependent
on a subcontractor. The Company has from time to time experienced difficulties
in the timeliness and quality of product deliveries from the Company's
subcontractors. Although delays experienced to date have not been material,
there can be no assurance that the Company will not experience similar or more
severe difficulties in the future. The Company generally purchases these single
or limited source components or services pursuant to purchase orders and has no
guaranteed arrangements with such subcontractors. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for any such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors, or any other circumstance that would require the
Company to qualify alternative sources of supply could delay shipments and
result in the loss of customers, or limitations or 

                                       7

 
reductions in the Company's revenues, or otherwise materially and adversely
affect the Company's business and results of operations. See "Factors That May
Affect Future Results --Dependence on Single or Limited Source Assembly
Subcontractors."


RESEARCH AND DEVELOPMENT

The Company believes that the continued timely development of new interface ICs
is essential to maintaining its competitive position. Accordingly, the Company
has assembled a team of highly skilled engineers whose activities are focused on
the development of signal transfer, routing and timing technologies and
products. Research and development expenses in fiscal 1996, 1997, and 1998 were
$4.4 million, $4.2 million and $5.1 million, respectively.

The success of new products depends on many factors, including product
selection, timely completion of product development, ability to gain access to
advanced fabrication processes, achievement of acceptable wafer fabrication
yield, and the ability to secure sufficient wafer fabrication capacity. There
can be no assurance that the Company will be able to successfully identify new
product opportunities and timely develop and bring to market such new products.
Failure of the Company to complete, introduce and bring to volume production new
products in a timely manner and at competitive price/performance levels could
adversely affect the Company's results of operations. See "Factors That May
Affect Future Results -- Technological Change; Dependence on New Products."


INTELLECTUAL PROPERTY

In the United States, the Company holds ten patents covering certain aspects of
its product designs and has eight additional patent applications pending. The
Company expects to continue to file patent applications where appropriate to
protect its proprietary technologies; however, the Company believes that its
continued success depends primarily on factors such as the technological skills
and innovation of its personnel, rather than on its patents.

The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. Copyrights, mask work protection, trade
secrets and confidential technological know-how are also key elements of the
Company's business. There can be no assurance that any additional patents will
be issued to the Company or that the Company's patents or other intellectual
property will provide meaningful protection from competition. The Company may be
subject to or may initiate interference proceedings in the U.S. Patent and
Trademark Office, which can consume significant financial and management
resources. In addition to the foregoing, the laws of certain territories in
which the Company's products are or may be developed, manufactured or sold may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. The inability of the Company to protect
its intellectual property adequately could have a material adverse effect on its
business and results of operations.

The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that the Company will not be subject to infringement claims by other parties. In
May 1995, Quality Semiconductor, Inc. ("QSI"), a competitor of the Company,
brought a lawsuit against the Company in the United States District Court for
the Northern District of California, San Francisco Division, claiming
infringement of one of its patents by certain features in certain of the
Company's bus switch products and seeking injunctive relief and unspecified
monetary damages.  The court has issued a claim construction order, at this time
there is no discovery or motions pending.  The Company believes that it has
meritorious defenses, that the products involved are not material to the
Company's business and that the resolution of this matter will not have a
material adverse effect on the Company's business, financial position or results
of operations. However, any litigation, whether or not determined in favor of
the Company, can result in significant expense to the Company and can divert the
efforts of the Company's technical and management personnel from productive
tasks. In the event of an adverse ruling in 

                                       8

 
any litigation involving intellectual property, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringed technology, and may suffer
significant monetary damages, which could include treble damages. In the event
the Company attempts to license any allegedly infringed technology, there can be
no assurance that such a license would be available on reasonable terms or at
all. In the event of a successful claim against the Company and the Company's
failure to develop or license a substitute technology on commercially reasonable
terms, the Company's business and results of operations would be materially and
adversely affected. There can be no assurance that the claims brought by QSI or
any potential infringement claims by other parties (or claims for indemnity from
customers resulting from any infringement claims) will not materially and
adversely affect the Company's business, financial condition and results of
operations.

The process technology used by the Company's independent foundries, including
process technology that the Company has developed with its foundries, can
generally be used by such foundries to produce their own products or to
manufacture products for other companies, including the Company's competitors.
In addition, the Company does not generally have the right to implement the
process technology used to manufacture its products with foundries other than
the foundry with which it has developed such process technology. See "Factors
That May Affect future Results -- Patents and Proprietary Rights."


EMPLOYEES

As of June 30, 1998, the Company had 172 full-time employees, including 33 in
sales, marketing and customer support, 80 in manufacturing, assembly and
testing, 45 in engineering and quality assurance and 14 in finance and
administration, including information systems. The Company has never had a work
stoppage and no employee is represented by a labor organization. The Company
considers its employee relations to be good.

The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each of
whom would be difficult to replace. The Company does not maintain any key person
life insurance policy on any of such persons. The loss of the services of one or
more of the Company's executive officers or key personnel or the inability to
continue to attract qualified personnel could delay product development cycles
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Factors That May Affect Future Results
- -- Dependence on Key Personnel."


FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to other information contained in this Form 10-K, investors should
carefully consider the following factors that may affect future results.  This
Form 10-K includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act.  All statements
other than statements of historical fact are "forward-looking statements" for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance,
and any statement of assumptions underlying any of the foregoing.  In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "will," "expects," "plans," "anticipates," "estimates,"
"potential," or "continue," or the negative thereof or other comparable
terminology.  Although the Company believes that the expectations reflected in
the forward-looking statements contained herein are reasonable, there can be no
assurance that such expectations or any of the forward-looking statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements.  The Company's future
financial condition and results of operations, as well as any forward-looking
statements, are subject to risks and uncertainties, including but not limited to
the factors set forth in 

                                       9

 
factors that may affect future results set forth below and elsewhere in this
report. All forward-looking statements and reasons why results may differ
included in this Form 10-K are made as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement or reason why
actual results may differ.

LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

The Company was founded in 1990 and has a limited history of operations, having
shipped its first products in volume in fiscal 1993. There can be no assurance
that any past levels of revenue growth or profitability can be sustained on a
quarterly or annual basis. The Company's expense levels are based in part on
anticipated future revenue levels, which can be difficult to predict. The
Company's business is characterized by short-term orders and shipment schedules.
The Company does not have long-term purchase agreements with any of its
customers, and customers can typically cancel or reschedule their orders without
significant penalty. The Company typically plans its production and inventory
levels based on forecasts, generated with input from customers and sales
representatives, of customer demand which is highly unpredictable and can
fluctuate substantially. If customer demand falls significantly below
anticipated levels, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company has experienced significant fluctuations in its quarterly operating
results in the past three fiscal years and could continue to experience such
fluctuations in the future.  The Company's operating results are affected by a
wide variety of factors that could materially and adversely affect net revenues
and results of operations, including a decline in the gross margins of its
products, the growth or reduction in the size of the market for interface ICs,
delay or decline in orders received from distributors, the availability of
manufacturing capacity with the Company's wafer suppliers, changes in product
mix, customer acceptance of the Company's new products, the ability of customers
to make payments to the Company, the timing of new product introductions and
announcements by the Company and its competitors, increased research and
development expenses associated with new product introductions or process
changes, expenses incurred in obtaining and enforcing, and in defending claims
with respect to, intellectual property rights, changes in manufacturing costs
and fluctuations in manufacturing yields, and other factors such as general
conditions in the semiconductor industry. All of the above factors are difficult
for the Company to forecast, and these or other factors can materially and
adversely affect the Company's business, financial condition and results of
operations for one quarter or a series of quarters. The Company's expense levels
are based in part on its expectations regarding future sales and are fixed in
the short term to a large extent. Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected shortfall in sales.
Any significant decline in demand relative to the Company's expectations or any
material delay of customer orders could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to sustain profitability on a
quarterly or annual basis. In addition, it is possible that the Company's
operating results in future quarters may fall below the expectations of public
market analysts and investors, which would likely result in a material drop in
the market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Historically, selling prices in the semiconductor industry generally, as well as
for the Company's products, have decreased significantly over the life of each
product. Beginning late in calendar 1995 the Company experienced a significant
decrease in the selling prices of many of its products, which had a material
adverse effect on the Company's net revenues and overall gross margins. The
Company expects that selling prices for its existing products will continue to
decline over time and that average selling prices for new products will decline
significantly over the lives of these products. Declines in selling prices for
the Company's products, if not offset by reductions in the costs of producing
these products or by sales of new products with higher gross margins, would
reduce the Company's overall gross margins and could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to reduce production
costs or to develop and market new products with higher gross margins. See "--
Technological Change; Dependence on New Products," "-- 

                                       10

 
Competition," "-- Semiconductor Industry Risks" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON INDEPENDENT WAFER FOUNDRIES

In fiscal 1996, 1997 and 1998, approximately 90% of the wafers for the Company's
semiconductor products were manufactured by Chartered, and the remainder of the
Company's wafers were manufactured AMS, NJRC and TSMC. During fiscal 1998, the
Company qualified LG as a foundry supplier. The Company's reliance on
independent wafer suppliers to fabricate its wafers at their production
facilities subjects the Company to such possible risks as potential lack of
adequate capacity and available manufactured products, lack of control over
delivery schedules and the risk of events limiting production and reducing
yields, such as fires or other damage to production facilities or technical
difficulties. Although, to date, the Company has not experienced any material
delays in obtaining an adequate supply of wafers, there can be no assurance that
the Company will not experience delays in the future. Any inability or
unwillingness of the Company's wafer suppliers generally, and Chartered in
particular, to provide adequate quantities of finished wafers to meet the
Company's needs in a timely manner or in needed quantities would delay
production and product shipments and have a material adverse effect on the
Company's business, financial condition and results of operations.

At present, the Company purchases wafers from its wafer suppliers through the
issuance of purchase orders based on rolling six-month forecasts provided by the
Company, and such purchase orders are subject to acceptance by each wafer
foundry. The Company does not have long-term purchase agreements with any of its
wafer suppliers, each of which has the right to reduce or terminate allocations
of wafers to the Company. In the event that these suppliers were unable or
unwilling to continue to manufacture the Company's key products in required
volumes, the Company would have to identify and qualify additional foundries. In
any event, the Company's future growth will also be dependent upon its ability
to identify and qualify new wafer foundries. The qualification process can take
up to six months or longer, and there can be no assurance that any additional
wafer foundries will become available to the Company or will be in a position to
satisfy any of the Company's requirements on a timely basis. The Company also
depends upon its wafer suppliers to participate in process improvement efforts,
such as the transition to finer geometries, and any inability or unwillingness
of such suppliers to do so could delay or otherwise materially adversely affect
the Company's development and introduction of new products. Furthermore, sudden
shortages of raw materials or production capacity constraints can lead wafer
suppliers to allocate available capacity to customers other than the Company or
for internal uses, which could interrupt the Company's ability to meet its
product delivery obligations. Any significant interruption in the supply of
wafers to the Company would adversely affect the Company's operating results and
relations with affected customers. The Company's reliance on independent wafer
suppliers may also impact the length of the development cycle for the Company's
products, which may provide time-to-market advantages to competitors that have
in-house fabrication capacity.

Each of Chartered, TSMC, AMS, LG and NJRC is located outside the United States,
which exposes the Company to risks associated with international business
operations, including foreign governmental regulations, currency fluctuations,
reduced protection for intellectual property, changes in political conditions,
disruptions or delays in shipments and changes in economic conditions in the
countries where these foundries are located, each of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Manufacturing."

TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS

The markets for the Company's products are characterized by rapidly changing
technology, frequent new product introductions and declining selling prices over
product life cycles. The Company's future success is highly dependent upon the
timely completion and introduction of new products at competitive
price/performance levels. The success of new products depends on a variety of
factors, including product selection, product performance and functionality,
customer acceptance, competitive pricing, successful and 

                                       11

 
timely completion of product development, sufficient wafer fabrication capacity
and achievement of acceptable manufacturing yields by the Company's wafer
suppliers. There can be no assurance that the Company will be able to
successfully identify new product opportunities and develop and bring to market
such new products or that the Company will be able to respond effectively to new
technological changes or new product announcements by others. In addition, the
Company may experience delays, difficulty in procuring adequate fabrication
capacity for the development and manufacture of such products or other
difficulties in achieving volume production of these products. The failure of
the Company to complete and introduce new products in a timely manner at
competitive price/performance levels would materially and adversely affect the
Company's business, financial condition and results of operations.

The Company has relied in the past and continues to rely upon its relationships
with manufacturers of high-performance systems for insights into product
development strategies for emerging system requirements. The Company believes it
will rely on these relationships more in the future as the Company focuses on
the development and production of application specific standard products. The
Company generally incorporates its new products into a customer's product or
system at the design stage. However, these design efforts, which can often
require significant expenditures by the Company, may precede the generation of
volume sales, if any, by a year or more. Moreover, the value of any design win
will depend in large part on the ultimate success of the customer's product and
on the extent to which the system's design accommodates components manufactured
by the Company's competitors. No assurance can be given that the Company will
achieve design wins or that any design win will result in significant future
revenues. To the extent the Company cannot develop or maintain such
relationships, its ability to develop well-accepted new products may be
impaired, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Products" and "Business  Research and Development."

CUSTOMER CONCENTRATION

A relatively small number of customers has accounted for a significant portion
of the Company's net revenues in each of the past several fiscal years and the
Company expects this trend to continue for the foreseeable future. In fiscal
1998, sales to one customer accounted for approximately 11% of the Company's net
revenues, and sales to the Company's top five customers accounted for
approximately 36% of net revenues. The Company does not have long-term purchase
agreements with any of its customers. There can be no assurance that the
Company's current customers will continue to place orders with the Company, that
orders by existing customers will continue at the levels of previous periods or
that the Company will be able to obtain orders from new customers.  Loss of one
or more of the Company's large customers, or a reduction in the volume of orders
placed by any of such customers, could materially and adversely affect the
Company's business, financial condition and results of operations. See "--
Limited Operating History; Potential Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Customers" and "Business -- Sales and Marketing."

COMPETITION

The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high-performance ICs include product features and
performance, product quality, price, success in developing new products,
adequate wafer fabrication capacity and sources of raw materials, efficiency of
production, timing of new product introductions, ability to protect intellectual
property rights and proprietary information, and general market and economic
conditions. The Company's competitors include Cypress Semiconductor Corporation,
Integrated Circuit Systems, Inc., Integrated Device Technology, Inc., Maxim
Integrated Products, Inc., Quality Semiconductor, Inc. and Texas Instruments,
Inc., most of which have substantially greater financial, technical, marketing,
distribution and other resources, broader product lines and longer-standing
customer relationships than the Company. The Company also competes with other
major or emerging companies that sell products to certain segments of the
markets addressed by the Company. Competitors with greater financial resources
or broader product lines may also have greater ability than the Company to
engage in sustained price reductions in the Company's primary markets in order
to gain or maintain market share.

                                       12

 
The Company believes that its future success will depend on its ability to
continue to improve and develop its products and processes. Unlike the Company,
many of the Company's competitors maintain internal manufacturing capacity for
the fabrication and assembly of semiconductor products, which may provide such
competitors with more reliable manufacturing capability, shorter development and
manufacturing cycles and time-to-market advantages. In addition, competitors
with their own wafer fabrication facilities that are capable of producing
products with the same design geometries as those of the Company may be able to
manufacture and sell competitive products at lower prices. Introduction of
products by competitors that are manufactured with improved process technology
could materially and adversely affect the Company's business and results of
operations. As is typical in the semiconductor industry, competitors of the
Company have developed and marketed products having functionality similar or
identical to the Company's products, and the Company expects this trend to
continue in the future. To the extent the Company's products do not achieve
performance, price, size or other advantages over products offered by
competitors, the Company is likely to experience greater price competition with
respect to such products. The Company also faces competition from the makers of
microprocessors and other system devices, including application specific
integrated circuits ("ASICs") that have been and may be developed for particular
systems. These devices may include interface logic functions, which may
eliminate the need or sharply reduce the demand for the Company's products in
particular applications. There can be no assurance that the Company will be able
to compete successfully in the future or that competitive pressures will not
materially and adversely affect the Company's financial condition and results of
operations. Competitive pressures could also reduce market acceptance of the
Company's products and result in price reductions and increases in expenses that
could materially and adversely affect the Company's business, financial
condition and results of operations. See "-- Dependence on Independent Wafer
Foundries," "-- Dependence on Single or Limited Source Assembly Subcontractors,"
"Business -- Manufacturing" and "Business -- Competition."

VARIATION IN PRODUCTION YIELDS

The manufacture and assembly of semiconductor products is highly complex and
sensitive to a wide variety of factors, including the level of contaminants in
the manufacturing environment, impurities in the materials used and the
performance of manufacturing personnel and production equipment. In a typical
semiconductor manufacturing process, silicon wafers produced by the foundry are
sorted and cut into individual die that are then assembled into individual
packages and tested for performance. The Company's wafer fabrication suppliers
have from time to time experienced lower-than-anticipated yields of good die, as
is typical in the semiconductor industry. In the event of such decreased yields,
the Company would incur additional costs to sort wafers, an increase in average
cost per usable die and an increase in the time to market for its products.
These conditions could reduce the Company's net revenues and gross margin, and
have an adverse effect on the Company's business and results of operations, and
relations with affected customers. No assurance can be given that the Company or
its suppliers will not experience yield problems in the future which could
result in a material adverse effect on the Company's business and results of
operations. See "Business -- Manufacturing."

SEMICONDUCTOR INDUSTRY RISKS

The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, characterized by diminished product
demand, accelerated erosion of selling prices, overcapacity and rapidly changing
technology and evolving industry standards. Beginning late in calendar 1995 the
Company experienced a significant decrease in the selling prices of many of its
products, attributable primarily to a significant downward trend in pricing
experienced in the semiconductor industry. It is uncertain how long these
conditions will continue. Accordingly, the Company may in the future experience
substantial period-to-period fluctuations in business and results of operations
due to general semiconductor industry conditions, overall economic conditions or
other factors. The Company's business is also subject to the risks associated
with the effects of legislation and regulations relating to the import or export
of semiconductor products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Manufacturing,"
"Business -- Sales and Marketing" and "Business -- Competition."

                                       13

 
RELIANCE ON DISTRIBUTORS; PRODUCT RETURNS

Sales through domestic and international distributors represented 40%, 36% and
49% of the Company's net revenues in fiscal 1996, 1997 and 1998, respectively.
The Company's distributors are not subject to minimum purchase requirements, may
reduce or delay orders periodically due to excess inventory and can discontinue
selling the Company's products at any time. The Company recognizes revenue and
related gross profit from sales of products through distributors when shipped.
Domestic distributors are generally permitted a return allowance of 10% of their
net purchases every six months. Although the Company believes that, to date, it
has provided adequate allowances for exchanges, returns, price protection and
other concessions and, to date, amounts incurred have not been material, there
can be no assurance that actual amounts incurred will not exceed the Company's
allowances, particularly in connection with the introduction of new products,
enhancements to existing products or price reductions. The Company's
distributors typically offer competing products. The loss of one or more
distributors, or the decision by one of the distributors to reduce the number of
the Company's products offered by such distributor or to carry the product lines
of the Company's competitors, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Sales and Marketing."

MANAGEMENT OF GROWTH

The Company has recently experienced and may continue to experience growth in
the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to
implement and improve its operational, financial and management information
systems and to hire, train, motivate and manage a growing number of employees.
The future success of the Company also will depend on its ability to attract and
retain qualified technical, marketing and management personnel, particularly
highly skilled design, process and test engineers, for whom competition is
intense. In particular, the current availability of qualified engineers is
limited, and competition among companies for skilled and experienced engineering
personnel is very strong.  During strong business cycles, the Company expects to
experience continued difficulty in filling its needs for qualified engineers and
other personnel. The Company intends to implement a new management information
system over the next six months. There can be no assurance that the Company will
not encounter difficulties as it seeks to integrate this new system into its
operations. There can be no assurance that the Company will be able to achieve
or manage effectively any such growth, and failure to do so could delay product
development cycles or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each of
whom would be difficult to replace. The Company does not maintain any key person
life insurance policy on any such persons. The loss of the services of one or
more of the Company's executive officers or key personnel or the inability to
continue to attract qualified personnel could delay product development cycles
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."

PATENTS AND PROPRIETARY RIGHTS

The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. In the United States, the Company holds ten
patents covering certain aspects of its product designs and has eight additional
patent applications pending. Copyrights, mask work protection, trade secrets and
confidential technological know-how are also key elements of the Company's
business. There can be no assurance that any additional patents will be issued
to the Company or that the Company's patents or other intellectual property will
provide meaningful protection from competition. The Company may be subject to or
may initiate interference proceedings in the U.S. Patent and Trademark Office,
which can consume significant financial and 

                                       14

 
management resources. In addition to the foregoing, the laws of certain
territories in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. The
inability of the Company to protect its intellectual property adequately could
have a material adverse effect on its business, financial condition and results
of operations.

The process technology used by the Company's independent foundries, including
process technology that the Company has developed with its foundries, can
generally be used by such foundries to produce their own products or to
manufacture products for other companies, including the Company's competitors.
In addition, the Company does not generally have the right to implement the
process technology used to manufacture its products with foundries other than
the foundry with which it has developed such process technology. See "Business
- -- Intellectual Property."

RISKS OF INTERNATIONAL SALES

Sales outside of the United States accounted for approximately 30%, 37% and 45%
of the Company's net revenues in fiscal 1996, 1997 and 1998, respectively. The
Company expects that export sales will continue to represent a significant
portion of net revenues. The Company intends to expand its operations outside of
the United States, which will require significant management attention and
financial resources and further subject the Company to international operating
risks. These risks include unexpected changes in regulatory requirements, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs and other barriers and restrictions, and the burdens of complying with a
variety of foreign laws. The Company is also subject to general geopolitical
risks in connection with its international operations, such as political and
economic instability and changes in diplomatic and trade relationships. In
addition, because the Company's international sales are denominated in U.S.
dollars, increases in the value of the U.S. dollar could increase the price in
local currencies of the Company's products in foreign markets and make the
Company's products relatively more expensive than competitors' products that are
denominated in local currencies, and there can be no assurance that the Company
will not be materially and adversely affected by fluctuating exchange rates.
There can be no assurance that regulatory, geopolitical and other factors will
not materially and adversely affect the Company's business, financial condition
and results of operations in the future or require the Company to modify its
current business practices. See "Business -- Customers" and "Business -- Sales
and Marketing."

DEPENDENCE ON SINGLE OR LIMITED SOURCE ASSEMBLY SUBCONTRACTORS

The Company primarily relies on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single source
supplier for certain new packages. Although the Company believes that it is not
materially dependent upon any such subcontractor, changes in the Company's or a
subcontractor's business could cause the Company to become materially dependent
on a subcontractor. The Company has from time to time experienced difficulties
in the timeliness and quality of product deliveries from the Company's
subcontractors. Although delays experienced to date have not been material,
there can be no assurance that the Company will not experience similar or more
severe difficulties in the future. The Company generally purchases these single
or limited source components or services pursuant to purchase orders and has no
guaranteed arrangements with such subcontractors. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for any such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors, or any other circumstance that would require the
Company to qualify alternative sources of supply could delay shipments and
result in the loss of customers, or limitations or reductions in the Company's
revenues, or otherwise materially and adversely affect the Company's business,
financial condition and results of operations.  Each of the Company's assembly
subcontractors is located outside the United States, which exposes the Company
to risks associated with international business operations, including foreign
governmental regulations, currency fluctuations, reduced protection for
intellectual property, changes in political conditions, disruptions or delays in
shipments and changes in economic conditions in the countries where these
subcontractors are located, any of which could have a 

                                       15

 
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."

                                       16

 
ITEM 2.   PROPERTIES

The Company leases approximately 34,500 square feet of space in San Jose,
California in which its headquarters, technology and product development and
testing facilities are located. The facility is leased through 2001 with certain
renewal options. The Company also has sales offices located in San Jose,
California, Laguna Niguel, California, Marlborough, Massachusetts and Cary,
North Carolina as well as in Taiwan and the United Kingdom. The Company believes
its current facilities are adequate to support its needs through the end of
fiscal 1999.


ITEM 3.   LEGAL PROCEEDINGS

The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that the Company will not be subject to infringement claims by other parties. In
May 1995, Quality Semiconductor, Inc. ("QSI"), a competitor of the Company,
brought a lawsuit against the Company in the United States District Court for
the Northern District of California, San Francisco Division, claiming
infringement of one of its patents by certain features in certain of the
Company's bus switch products and seeking injunctive relief and unspecified
monetary damages.  The court has issued a claim construction order, at this time
there is no discovery or motions pending.  The Company believes that it has
meritorious defenses, that the products involved are not material to the
Company's business and that the resolution of this matter will not have a
material adverse effect on the Company's business, financial position or results
of operations. However, any litigation, whether or not determined in favor of
the Company, can result in significant expense to the Company and can divert the
efforts of the Company's technical and management personnel from productive
tasks. In the event of an adverse ruling in any litigation involving
intellectual property, the Company might be required to discontinue the use of
certain processes, cease the manufacture, use and sale of infringing products,
expend significant resources to develop non-infringing technology or obtain
licenses to the infringed technology, and may suffer significant monetary
damages, which could include treble damages. In the event the Company attempts
to license any allegedly infringed technology, there can be no assurance that
such a license would be available on reasonable terms or at all. In the event of
a successful claim against the Company and the Company's failure to develop or
license a substitute technology on commercially reasonable terms, the Company's
business and results of operations would be materially and adversely affected.
There can be no assurance that the claims brought by QSI or any potential
infringement claims by other parties (or claims for indemnity from customers
resulting from any infringement claims) will not materially and adversely affect
the Company's business, financial condition and results of operations.


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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                       17

 
                                    PART II
                                        
ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to page 21 of
the Company's 1998 Annual Report to Shareholders.

ITEM 6.   SELECTED FINANCIAL DATA

The information required by this item is incorporated by reference to page 2 of
the Company's 1998 Annual Report to Shareholders.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information required by this item is incorporated by reference to pages 3 to
6 of the Company's 1998 Annual Report to Shareholders.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference to the
information appearing under the caption "Market Risk Disclosure" under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing on page 6 of the Company's 1998 Annual Report to
Shareholders.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are incorporated by reference to
pages 7 to 20 of the Company's 1998 Annual Report to Shareholders.  The
unaudited quarterly results of operations are incorporated by reference to page
21 of the Company's 1998 Annual Report to Shareholders.

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

Not Applicable.

                                       18

 
                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company and their respective ages as
of June 30, 1998 are as follows:



                        NAME                            Age                          Position(s)
                        ----                            ---                          -----------
                                                            
Alex Chi-Ming Hui                                       42         Chief Executive Officer, President and Director
Chi-Hung (John) Hui, Ph.D.(1)                           43         Vice President, Technology and Director
Patrick B. Brennan                                      60         Vice President, Finance and Administration
Tat C. Choi, Ph.D.                                      43         Vice President, Design Engineering
Mark Downing                                            38         Vice President, Marketing
Daniel W. Wark                                          42         Vice President, Operations
Glen R. Wiley                                           47         Vice President, Sales
Tay Thiam Song (1) (2)                                  43         Director
Jeffery Young (1) (2)                                   49         Director


____________

(1) Member of Audit Committee.
(2) Member of Compensation Committee.

Alex Chi-Ming Hui has been Chief Executive Officer, President and a member of
the Board of Directors of the Company since its inception in June 1990. From
August 1982 to May 1990, Mr. Hui was employed by LSI Logic Corporation, most
recently as its Director of Advanced Development. From August 1980 to July 1982,
Mr. Hui was a member of the technical staff of Hewlett-Packard Company. Mr. Hui
holds a B.S.E.E. from the Massachusetts Institute of Technology and an M.S.E.E.
from the University of California at Los Angeles.

Chi-Hung (John) Hui, Ph.D., has been Vice President, Technology and a member of
the Board of Directors of the Company since its inception in June 1990. From
August 1987 to June 1990, Dr. Hui was employed by Integrated Device Technology,
most recently as Manager of its Research and Development Department. From August
1984 to August 1987, Dr. Hui was a member of the technical staff of Hewlett-
Packard Company. Dr. Hui holds a B.S.E.E. from Cornell University and an
M.S.E.E. and a Ph.D. in Electrical Engineering from the University of California
at Berkeley.

Patrick B. Brennan has been Vice President, Finance and Administration of the
Company since March 1993. From February 1991 to March 1993, Mr. Brennan was
employed by Datacord, Inc., a subsidiary of Newell Research, Inc., as its Vice
President, Finance, and from July 1985 to February 1991, he was employed as the
Vice President, Finance of SEEQ Technology, Inc. From January 1980 to June 1985,
he was employed by National Semiconductor Corporation, most recently as Vice
President and Treasurer. Mr. Brennan holds a B.S. in Business Administration
from Arizona State University.

Tat C. Choi, Ph.D., joined the Company in April 1998 as Vice President, Design
Engineering.  From September 1996 to March 1998, Dr. Choi was employed by
Anacor, Inc., an engineering design service consulting firm that he founded.
Prior to Anacor, Inc. Dr. Choi was employed by Chrontel, Inc. most recently as
its Vice President, Engineering from September 1989 to August 1996.  Dr. Choi
was employed by Advanced Micro Devices from February 1983 to August 1989 as a
Senior Member of Technical Staff.  Dr. Choi holds a B.S. and M.S. in Electrical
Engineering form the University of Minnesota and a Ph.D. in EECS from the
University of California at Berkeley.

                                       19

 
Mark Downing has been the Vice President, Marketing of the Company since October
1997.  From March 1988 to October 1997, Mr. Downing was employed by National
Semiconductor Corporation most recently as the Marketing Director for Power
Management Products.  Mr. Downing also held other senior marketing management
positions at National Semiconductor Corporation in the Amplifier Products,
Automotive Products and Analog Products divisions.  Prior to National
Semiconductor Corporation Mr. Downing was employed by Ferranti Electronics Ltd.
from September 1983 to February 1988 most recently as a Senior Product Marketing
Engineer.  Mr. Downing holds a B.S. in Physics from Aston University of
Birmingham, England and an MBA from Open University of Milton Keynes, England.

Daniel W. Wark joined the Company in April 1996 as its Director of Operations
and became its Vice President, Operations in July 1997. From May 1983 to
December 1995, Mr. Wark was employed by Linear Technology Corporation
("Linear"), most recently as Director of Corporate Services. Other positions
that Mr. Wark held at Linear included Managing Director of its Singapore
Operations and Production Control Manager. Prior to his employment with Linear,
Mr. Wark was employed by National Semiconductor Corporation and Avantek, Inc.
Mr. Wark holds a B.S. in Business Administration from San Jose State University
and an APICS certification.

Glen R. Wiley has been Vice President, Sales of the Company since April 1997.
From April 1992 to November 1996, Mr. Wiley was the Vice President of Sales at
Orbit Semiconductor, and from January 1990 to March 1992, he served as Vice
President of Pro Associates, a manufacturers' representative firm. From January
1989 to December 1989, Mr. Wiley was employed by Gazelle Microcircuits as its
Western Area Sales Manager, and from February 1980 to December 1988, he served
as a Senior Account Salesman with Pro Associates. Mr. Wiley holds a B.A. in
English from Humboldt State University.

Tay Thiam Song has been a member of the Board of Directors since June 1992. Mr.
Tay resides in Singapore, and, since 1985, has been serving as the Executive
Director of various companies in Singapore and Malaysia, including Daiman Group
(a Malaysian public company) and Chye Seng Tannery (Pte) Ltd. Mr. Tay holds a
B.A. in Accounting from the North East London Polytechnic University.

Jeffrey Young has been a member of the Board of Directors since August 1995.
Since 1988, Mr. Young has been a resident of Singapore and has served as the
Executive Director of Daiman Roof Tiles Sdn. Bhd., a subsidiary of the Daiman
Group, and Great Wall Brick Work Sdn. Bhd., and as a Director of Daiman
Singapore (Pte) Ltd., Teletel System (Pte) Ltd. and Daiman Investments
(Australia) Pty. Ltd. Mr. Young holds a B.S. from the Electronic College of
Canton, People's Republic of China.

All directors of the Company serve until the next annual meeting of the
shareholders of the Company and until their successors have been duly elected
and qualified.  Each officer serves at the discretion of the Board of Directors.
Mr. Hui and Dr. Hui are brothers, and Mr. Young and Mr. Tay are brothers-in-law.
There are no other family relationships among any of the directors, officers or
key employees of the Company.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
section captioned "Executive Compensation" contained in the Company's Definitive
Proxy Statement related to the Annual Meeting of Shareholders to be held
December 8, 1998, to be filed by the Company with the Securities and Exchange
Commission (the "Proxy Statement").

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.

                                       20

 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
section captioned "Certain Transactions" contained in the Proxy Statement.

                                       21

 
                                    PART IV
                                        
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

                (1)    Financial Statements

                The following financial statements of Pericom Semiconductor
                Corporation are incorporated by reference to pages 7 to 20 of
                the Company's 1998 Annual Report to Shareholders:

                Independent Auditors' Report
                Balance Sheets - June 30, 1997 and 1998
                Statements of Income - Years Ended June 30, 1996, 1997 and 1998
                Statements of Shareholders' Equity - Years Ended June 30, 1996,
                1997 and 1998
                Statements of Cash Flows - Years Ended June 30, 1996, 1997 and
                1998
                Notes to Financial Statements

                (2)    Financial Statement Schedules

                The following financial statement schedule of the Registrant is
                filed as part of this report.

                Schedule II - Valuation and Qualifying Accounts

                All other schedules are omitted because they are not applicable
                or the required information is shown in the financial statements
                or notes thereto.

                (3)    Exhibits
 
                        13.1    1998 Annual Report to Shareholders
                        23.1    Consent of Independent Auditors
                        27.1    Financial Data Schedule for the Year Ended 
                                June 30, 1998
                        27.2    Financial Data Schedule for the Years Ended 
                                June 30, 1996 and June 30, 1997 and for the 
                                Quarters Ended September 30, 1995, December 31, 
                                1995 and March 31, 1996
                        27.3    Financial Data Schedule for the Quarters Ended 
                                September 31, 1996, December 31, 1996 and 
                                March 31, 1997

     (b)        Reports on Form 8-K:

                The Company filed no reports on Form 8-K during the fourth
                quarter ended June 30, 1998.

     (c)        Exhibits:

                See list of exhibits under (a)(3) above.

     (d)        Financial Statement Schedules:

                See list of schedules under (a)(2) above.

                                       22

 
                                   SIGNATURES
                                        
        Pursuant to the requirements of Section 13 of 15(d) 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.

                                               PERICOM SEMICONDUCTOR CORPORATION

 
                                              By:      /s/   ALEX C. HUI
                                                 -------------------------------
                                                            Alex C. Hui
                                                    Chief Executive Officer and 
                                                             President




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



          SIGNATURE                                   TITLE                                    DATE
          ---------                                   -----                                    ----
                                                                                     
       /s/    ALEX C. HUI          Chief Executive Officer, President and Director        September 22, 1998
- ---------------------------------  (Principal Executive Officer)
           Alex C. Hui                   
 
   /s/   PATRICK B. BRENNAN        Vice President, Finance & Administration               September 22, 1998
- ---------------------------------  (Principal Financial Officer and Accounting
       Patrick B. Brennan          Officer)
 
    /s/   JOHN CHI-HUNG HUI        Vice President, Technology and Director                September 22, 1998
- ---------------------------------
        John Chi-Hung Hui
 
     /s/   JEFFREY YOUNG           Director                                               September 22, 1998
- ---------------------------------
            Jeffrey Young
 
    /s/   TAY THIAM SONG           Director                                               September 22, 1998
- ---------------------------------
        Tay Thiam Song


                                       23

 
INDEPENDENT AUDITORS' REPORT ON SCHEDULE

We have audited the financial statements of Pericom Semiconductor Corporation as
of June 30, 1998 and 1997 and for each of the three years in the period ended
June 30, 1998 and have issued our report thereon dated July 23, 1998;  such
financial statements and report are incorporated by reference in this 1998
Annual Report on Form 10-K.  Our audits also included the financial statement
schedule of Pericom Semiconductor Corporation, listed in Item 14(a)(2).  Such
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.  In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.


/s/ DELOITTE & TOUCHE, LLP

San Jose, California
July 23, 1998

                                       24

 
SCHEDULE II

                       PERICOM SEMICONDUCTOR CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)



                                          BALANCE AT             CHARGED TO                             BALANCE AT
                                          BEGINNING               COSTS AND                               END OF
                                          OF PERIOD               EXPENSES           DEDUCTIONS           PERIOD
                                          ---------               --------           ----------           ------
Accounts receivable allowances
June 30,
                                                                                         
    1996                                   $  735                   $870                 ---              $1,605
    1997                                    1,605                     19                 426               1,198
    1998                                    1,198                    401                  40               1,559

                                        

                                       25

EX-13.1

 
                                                                    EXHIBIT 13.1

                             FINANCIAL HIGHLIGHTS

       (Dollar and share amounts in thousands, except per share amounts)



                                                                                 FISCAL YEAR ENDED JUNE 30,
                                                                ---------------------------------------------------------
                                                                       1997                 1998              CHANGE
                                                                -------------------  ------------------  ----------------
                                                                                                
For the year:
     Net revenues                                                           $33,166             $49,198             48.3%
     Operating income                                                         2,004               7,055            252.0%
     Net income                                                               1,578               5,164            227.2%
 
Earnings per share:
     Basic                                                                  $  0.73             $  0.73              ---
     Diluted                                                                   0.22                0.55            150.0%
 
At year-end:
     Cash and short-term investments                                        $ 9,566             $25,831            170.0%
     Total assets                                                            23,581              47,401            101.0%
     Shareholders' equity                                                    16,795              38,611            129.9%
     Book value per share                                                      2.30                4.10             78.3%
 
Shares used in computing earnings per share:
     Basic                                                                    2,165               7,083            227.2%
     Diluted                                                                  7,316               9,412             28.6%


 
                            SELECTED FINANCIAL DATA
                                        
The following selected financial data of the Company is qualified by reference
to and should be read in conjunction with the Financial Statements, including
the Notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein. The Statement of
Income Data for each of the years in the three-year period ended June 30, 1998
and the Balance Sheet Data as of June 30, 1997 and 1998 are derived from, and
are qualified by reference to, the Financial Statements which are incorporated
by reference from the Company's 1998 Annual Report to Shareholders, which have
been audited by Deloitte & Touche LLP, independent accountants, whose report
with respect thereto is incorporated by reference from the Company's 1998 Annual
Report to Shareholders. The Statement of Income Data for the years ended June
30, 1994 and 1995 and the Balance Sheet Data as of June 30, 1994, 1995 and 1996
are derived from audited financial statements not included herein.


 
                                                                             FISCAL YEAR ENDED JUNE 30,
                                                          -------------------------------------------------------------------
                                                              1994           1995          1996          1997        1998
                                                          ------------  ------------  ------------  ------------  -----------
                                                                       (in thousands, except per share data)
                                                                                                  
STATEMENT OF INCOME DATA:
 
Net revenues                                                $18,886        $22,732       $41,174        $33,166     $49,198
Cost of revenues                                             11,008         12,873        22,797         20,986      29,285
                                                       --------------------------------------------------------------------
     Gross profit                                             7,878          9,859        18,377         12,180      19,913
Operating expenses:
     Research and development                                 2,303          2,942         4,414          4,187       5,065
     Selling, general and administrative                      3,143          4,038         6,471          5,989       7,793
                                                       --------------------------------------------------------------------
          Total operating expenses                            5,446          6,980        10,885         10,176      12,858
                                                       --------------------------------------------------------------------
Income from operations                                        2,432          2,879         7,492          2,004       7,055
Other income (expense), net                                     106            144           (50)           351         738
                                                       --------------------------------------------------------------------
Income before income taxes                                    2,538          3,023         7,442          2,355       7,793
Provision (credit) for income taxes                              (6)           982         2,732            777       2,629
                                                       --------------------------------------------------------------------
Net income                                                  $ 2,544        $ 2,041       $ 4,710        $ 1,578     $ 5,164
                                                       ====================================================================
Basic earnings per share                                    $  1.28        $  0.97       $  2.19        $  0.73     $  0.73
                                                       ====================================================================
Diluted earnings per share                                  $  0.37        $  0.28       $  0.63        $  0.22     $  0.55
                                                       ====================================================================
Shares used in computing basic earnings per share (1)         1,986          2,096         2,149          2,165       7,083
                                                       ====================================================================
Shares used in computing diluted earnings per share (1)       6,920          7,199         7,493          7,316       9,412
                                                       ====================================================================
 
 
                                                                                       AS OF JUNE 30,
                                                          -------------------------------------------------------------------
                                                              1994           1995          1996          1997        1998
                                                          ------------  ------------  ------------  ------------  -----------
                                                                                       (in thousands)
 
BALANCE SHEET DATA:
 
Working capital                                             $ 6,625        $ 7,999       $12,145        $12,984     $32,751
Total assets                                                 10,054         14,483        19,820         23,581      47,401
Long-term obligations                                           ---            ---           ---            ---         ---
Shareholders' equity                                          8,294         10,352        15,095         16,795      38,611


(1)  See Note 1 of Notes to Financial Statements for an explanation of the
     method used to determine the number of shares used in computing basic and
     diluted earnings per share.

                                       2

 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                        
This Annual Report to Shareholders includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act.  All statements other than statements of historical fact are "forward-
looking statements" for purposes of these provisions, including any projections
of earnings, revenues or other financial items, any statements of the plans and
objectives of management for future operations, any statements concerning
proposed new products or services, any statements regarding future economic
conditions or performance, and any statement of assumptions underlying any of
the foregoing.  In some cases, forward-looking statements can be identified by
the use of terminology such as "may," "will," "expects," "plans," "anticipates,"
"estimates," "potential," or "continue," or the negative thereof or other
comparable terminology.  Although the Company believes that the expectations
reflected in the forward-looking statements contained herein are reasonable,
there can be no assurance that such expectations or any of the forward-looking
statements will prove to be correct, and actual results could differ materially
from those projected or assumed in the forward-looking statements.  The
Company's future financial condition and results of operations, as well as any
forward-looking statements, are subject to risks and uncertainties, including
but not limited to the factors set forth in the Company's Form 10-K under the
heading "Factors That May Affect Future Results" and elsewhere in this report.
All forward-looking statements and reasons why results may differ included in
this Annual Report are made as of the date hereof, and the Company assumes no
obligation to update any such forward-looking statement or reason why actual
results may differ.

OVERVIEW

The Company, founded in June 1990, designs, develops and markets high-
performance interface ICs for the transfer, routing and timing of signals within
electronic systems. The Company's first volume sales occurred in fiscal 1993 and
consisted exclusively of 5-volt 8-bit interface logic circuits. The Company
expanded its product offering by introducing 3.3-volt 16-bit logic circuits and
8-bit digital switches in fiscal 1994; clock generators, 3.3-volt clock
synthesizers and buffers, and high-speed interface products for the networking
industry in fiscal 1995; 32-bit logic, 16-bit digital switches and Pentium, 56K
modem and laser printer clock synthesizers in fiscal 1996; an analog switch
family, mixed-voltage logic, a family of clock generators and a FastEthernet
transceiver in fiscal 1997; and a family of low voltage ALVCH logic, clock
devices for Pentium and Pentium II mobile computers, a complete solution for the
PC100 memory module standard and a 3.3-volt bus switch family offering the
fastest bus switches on the market in fiscal 1998.

The Company completed its first profitable fiscal year on June 30, 1993 and has
been profitable in each of its last twenty-two quarters. Beginning late in
calendar 1995 the Company experienced a significant decrease in the selling
prices of many of its products, which had a material adverse effect on the
Company's net revenues and overall gross margins. This decrease in selling
prices was attributable primarily to a significant downward trend in pricing
experienced in the semiconductor industry and by the Company and was not fully
offset by cost reductions. The decrease in net revenues and gross margins in
fiscal 1997 was also attributable to reduced sales to two customers, Apple
Computer, Inc. ("Apple") and American Computer & Digital Components, Inc.
("ACDC"), which had previously accounted for substantial sales of certain of the
Company's higher margin products. In addition, in the fourth quarter of fiscal
1997, the Company made significant shipments to Harris under a private label
resale program, which had lower gross margins. Net revenues and gross margins
improved in fiscal 1998 as the Company experienced increased sales volume in all
of its product families, and in particular the Company's SiliconSwitch product
line, as the Company added to its existing customer base and was able to reduce
product costs in excess of the decrease in average selling prices in addition to
introducing new products at higher gross margins.  The Company's operating
results are influenced by a wide variety of factors that could materially and
adversely affect net revenues and results of operations. See "Risk Factors --
Limited Operating History; Potential Fluctuations in Operating Results."

As is typical in the semiconductor industry, the Company expects selling prices
for its products to decline over the life of each product. The Company's ability
to increase net revenues is highly dependent upon its ability to increase unit
sales volumes of existing products and to introduce and sell new products in
quantities sufficient to compensate for the anticipated declines in selling
prices of existing products. The Company seeks to increase unit sales volume
through increased wafer fabrication capacity allocations from its existing
foundries, qualification of new foundries, increased number of die per wafer
through die size reductions and improved yields of good die through the
implementation of advanced process technologies, but there can be no assurance
that the Company will be successful in these efforts. In 

                                       3

 
fiscal 1996, 1997 and 1998, approximately 90% of the wafers for the Company's
semiconductor products were manufactured by Chartered. The Company qualified AMS
as a wafer supplier in fiscal 1991, NJRC in fiscal 1995, TSMC in fiscal 1997 and
LG in 1998.

Declining selling prices will adversely affect gross margins unless the Company
is able to offset such declines with the sale of new higher margin products or
achieve commensurate reductions in unit costs. The Company seeks to improve its
overall gross margin through the development and introduction of selected new
products that the Company believes will ultimately achieve higher gross margins.
A higher gross margin for a new product is typically not achieved until some
period after the initial introduction of the product -- after start-up expenses
for that product have been incurred and once volume production begins. In
general, costs are higher at the introduction of a new product due to the use of
a more generalized design schematic, lower economies of scale in the assembly
phase and lower die yield. The Company's ability to decrease unit cost depends
on its ability to shrink the die sizes of its products, improve yields, obtain
favorable subcontractor pricing, and make in-house test and assembly operations
more productive and efficient. There can be no assurance that these efforts,
even if successful, will be sufficient to offset declining selling prices.

Revenue from product sales is recognized upon shipment. Estimated costs for
exchanges, returns, price protection and other concessions are accrued in the
period that sales are recognized. Although the Company believes that, to date,
it has provided adequate allowances for exchanges, returns, price protection and
other concessions, and, to date, actual amounts incurred have not differed
materially from the allowances, there can be no assurance that actual amounts
incurred will not exceed the Company's allowances, particularly in connection
with the introduction of new products, enhancements to existing products or
price reductions.


RESULTS OF OPERATIONS

The following table sets forth certain statement of income data as a percentage
of net revenues for the periods indicated.



                                                                                      Fiscal Year Ended
                                                                                          June 30,
                                                                         1996                 1997               1998
                                                                --------------------    ----------------   --------------- 
                                                                                                  
Net revenues                                                                   100.0%              100.0%            100.0%
Cost of revenues                                                                55.4                63.3              59.5
                                                                ----------------------------------------------------------
     Gross Margin                                                               44.6                36.7              40.5
Operating expenses:
     Research and development                                                   10.7                12.6              10.3
     Selling, general and administrative                                        15.7                18.1              15.9
                                                                ----------------------------------------------------------
          Total operating expenses                                              26.4                30.7              26.2
                                                                ----------------------------------------------------------
Income from operations                                                          18.2                 6.0              14.3
Other income (expense), net                                                     (0.1)                1.1               1.5
                                                                ----------------------------------------------------------
Income before income taxes                                                      18.1                 7.1              15.8
Provision for income taxes                                                       6.6                 2.3               5.3
                                                                ----------------------------------------------------------
Net income                                                                      11.5%                4.8%             10.5%
                                                                ==========================================================



COMPARISON OF FISCAL 1996, 1997 AND 1998

NET REVENUES.  Net revenues increased 48% from $33.2 million in fiscal 1997 to
$49.2 million in fiscal 1998.  The increase in net revenues was attributable to
increased sales volume in all of the Company's product families, and in
particular the Company's SiliconSwitch product line.  Net revenues decreased 19%
from $41.2 million in fiscal 1996 to $33.2 million in fiscal 1997. This decrease
was primarily attributable to the significant downward trend in pricing
experienced by the semiconductor industry and the Company in late fiscal 1996
through fiscal 1997. A 30% increase in the number of units shipped in fiscal
1997 compared to fiscal 1996 was not sufficient to offset a 36% decline in
selling prices experienced by the Company in fiscal 1997. In addition, sales to
two of the Company's principal customers 

                                       4

 
decreased significantly in fiscal 1997. Apple, which accounted for 20% of the
Company's net revenues in fiscal 1996, curtailed a number of programs and, as a
result, significantly reduced its purchases of the Company's products. ACDC, a
chip module supplier which accounted for 8% of the Company's net revenues in
fiscal 1996, experienced a downturn in its business and reduced its purchases of
integrated circuits from a number of suppliers, including the Company. ACDC has
not purchased any products from the Company since the fourth quarter of fiscal
1996.

GROSS PROFIT.  Gross profit increased 63% from $12.2 million in fiscal 1997 to
$19.9 million in fiscal 1998.  Gross margin increased from 36.7% in fiscal 1997
to 40.5% in fiscal 1998.  The increase in gross margin resulted from cost
reductions in excess of decreases in the average selling prices in the Company's
various product lines and the introduction of new products at higher gross
margins.  Cost reductions were achieved in each of the Company's product lines
through reduced wafer costs, lower per unit assembly and test costs, and
increased die per wafer resulting from reduced design geometries.  Gross profit
decreased 34% from $18.4 million in fiscal 1996 to $12.2 million in fiscal 1997.
Gross margin decreased from 44.6% in fiscal 1996 to 36.7% in fiscal 1997. These
decreases were primarily the result of the significant downward trend in pricing
experienced by the semiconductor industry and the Company in late fiscal 1996
through fiscal 1997 that was not fully offset by cost reductions, as well as the
significant decrease in high-margin sales to Apple and ACDC and significant
shipments in fiscal 1997 of the Company's products to Harris under a private
label resale program which had lower margins.

RESEARCH AND DEVELOPMENT. Research and development expenses increased 21.0% from
$4.2 million in fiscal 1997 to $5.1 million in fiscal 1998 but decreased as a
percentage of net revenues from 12.6% to 10.3%.  The increased research and
development spending was attributable to development costs for new products in
each of the Company's product lines, expansion of the Company's engineering
staff and increased mask expense, as the Company continued its commitment to new
product development.  Research and development expenses decreased 5% from $4.4
million in fiscal 1996 to $4.2 million in fiscal 1997 but increased as a
percentage of net revenues from 10.7% in fiscal 1996 to 12.6% in fiscal 1997.
The decrease in research and development expense was due primarily to reduced
legal expenses associated with patent and other intellectual property rights and
reduced mask expenses. Research and development expenses increased as a
percentage of net revenues from fiscal 1996 to fiscal 1997 due to the decrease
in net revenues in that period, as well as the Company's commitment to continued
product development efforts.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 30% from $6.0 million in fiscal 1997 to $7.8 million in
fiscal 1998 but decreased as a percentage of net revenue from 18.1% to 15.9%.
The increase in expense was attributable to increased staffing levels,
particularly in sales and marketing, as well as increased commission expense due
to higher sales levels.  Selling, general and administrative expenses decreased
7% from $6.5 million in fiscal 1996 to $6.0 million in fiscal 1997, but
increased as a percentage of net revenues from 15.7% in fiscal 1996 to 18.1% in
fiscal 1997 due to the lower net revenues recorded in fiscal 1997. The decrease
in expenses was primarily due to reduced commissions resulting from lower net
revenues in fiscal 1997 compared to fiscal 1996. The Company anticipates that
selling, general and administrative expenses will increase in future periods due
to increased staffing levels, commission expenses and increased legal and
accounting expenses associated with public reporting obligations.

OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
income and expense and the Company's allocated portion of net losses of Pericom
Technology, Inc. ("PTI"), a British Virgin Islands corporation based in
Shanghai, People's Republic of China.  PTI was formed by Pericom and certain
Pericom shareholders in 1994 to develop and market semiconductors in China and
certain other Asian countries. See Note 4 of Notes to Financial Statements.
Other income (expense), net increased from income of $351,000 in fiscal 1997 to
$738,000 in fiscal 1998.  Interest income increased from $431,000 in fiscal 1997
to $1.1 million in fiscal 1998 as a result of the Company's investment of the
net proceeds from its initial public offering.  The increased interest income in
fiscal 1998 was partially offset by an increase of $265,000 in the Company's
share of the net losses of PTI.  Other income (expense), net increased from an
expense of $50,000 in fiscal 1996 to income of $351,000 in fiscal 1997 due to
interest earned on cash balances in fiscal 1997 and the fact that fiscal 1996
included a one-time write-off of $382,000 of costs associated with the Company's
proposed initial public offering that was not consummated.

PROVISION FOR INCOME TAXES. The provision for income taxes was $2,732,000,
$777,000 and $2,629,000 in fiscal 1996, 1997 and 1998, respectively. In each of
these fiscal years, the provision for income taxes differed from the federal
statutory rate primarily due to state income taxes and the utilization of
research and development tax credits.

                                       5

 
LIQUIDITY AND CAPITAL RESOURCES

Prior to the Company's initial public offering in October 1997, the Company used
proceeds from the private sale of equity securities, bank borrowings and
internal cash flow to support its operations, acquire capital equipment and
finance inventory and accounts receivable growth.  Operating activities provided
approximately $4.9 million in cash in fiscal 1996, $2.9 million in fiscal 1997,
and $3.5 million in fiscal 1998.

Net cash used for investing activities was $1.4 million, $2.0 million and $20.9
million in fiscal 1996, 1997 and 1998, respectively.  The Company made capital
expenditures of approximately $1.4 million, $2.0 million and $2.9 million in
fiscal 1996, 1997, and 1998, respectively.  The Company expects to spend
approximately $2.6 million to acquire capital equipment, primarily for research
and development and testing, in fiscal 1999.  The Company used proceeds from its
initial public offering to purchase short-term investments of $17.1 million in
fiscal 1998.

As of June 30, 1998, the Company's principal source of liquidity included cash,
cash equivalents and short-term investments of approximately $25.8 million. The
Company believes that cash generated from operations and existing cash balances
will be sufficient to fund necessary purchases of capital equipment and to
provide working capital at least through the next 12 months. However, there can
be no assurance that future events will not require the Company to seek
additional capital sooner or, if so required, that adequate capital will be
available at all or on terms acceptable to the Company.

MARKET RISK DISCLOSURE

At June 30, 1998, the Company's investment portfolio consisted of fixed income
securities, excluding those classified as cash equivalents, of $17 million (see
Note 1 of Notes to Financial Statements).  These securities are subject to
interest rate risk and will decline in value if market interest rates increase.
For example, if market interest rates were to increase immediately and uniformly
by 10% from levels as of June 30, 1998, the decline in the fair value of the
portfolio would not have a material effect on the Company's results of
operations over the next fiscal year.

YEAR 2000 DISCLOSURE

The approach of the year 2000 may present potentially serious information
systems problems for many companies because many of today's existing computer
programs were written using two digits rather than four to define the applicable
year.  As a result, those computer programs have time-sensitive software that
recognize a date using "00" as the year and therefore, may be unable to
distinguish 1900 from the year 2000.  This could cause a system failure or
miscalculations causing disruptions to operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.  The Company relies upon products and
information from critical suppliers, large customers and other outside parties,
in the normal course of business, whose software programs are also subject to
this problem.  In response to this, the Company is in the process of inquiring
of strategic vendors and large customers to determine the extent to which the
Company may be vulnerable to these third parties' failure to adequately remedy
any Year 2000 issues.  The Company has spent and will continue to spend an
appropriate level of resources to address this issue on a timely basis.  There
can be no assurance that the critical Year 2000-deficient software applications
of the parties on which the Company depends will be converted on a timely basis
or not converted to systems which are incompatible with the Company's systems.

The Company began the installation of an enterprise wide EDP system that was
required to meet Pericom's business needs in late fiscal 1997.  The enterprise
wide system purchased by the Company includes many important functional
improvements necessary for Pericom to be a competitive semiconductor
manufacturing company and is year 2000 compliant.  The Company has not allocated
a portion of the total project cost to the Year 2000 issue.  The Company
believes that the incremental cost associated with Year 2000 compliance is not
material, as this feature is included in the enterprise wide system purchased by
the Company to satisfy business needs.  The Company believes that substantially
all of its systems, including the new enterprise wide system, are Year 2000
compliant.

The Company currently believes that is has no significant exposure to
contingencies directly related to the Year 2000 issue for products it has sold
or will sell in the future.

                                       6

 
                          INDEPENDENT AUDITORS' REPORT
                                        
To the Board of Directors and Shareholders of
Pericom Semiconductor Corporation:

We have audited the accompanying balance sheets of Pericom Semiconductor
Corporation as of June 30, 1997 and 1998, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pericom Semiconductor Corporation at June
30, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles.


/s/ Deloitte & Touche LLP

San Jose, California
July 23, 1998

                                       7

 
                       PERICOM SEMICONDUCTOR CORPORATION

                                BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)



                                                                         JUNE 30,
                                                                   --------------------
                                                                     1997       1998
                                                                   ---------  ---------
                                                                        
                                ASSETS
Current assets:
  Cash and equivalents                                               $ 9,566    $ 8,773
  Short-term investments                                                 ---     17,058
  Accounts receivable:
     Trade (net of allowances of $1,198 and $1,559)                    3,227      5,437
     Related party                                                        99        ---
     Other                                                                20        193
  Inventories                                                          6,182      8,917
  Prepaid expenses and other current assets                              149        153
  Deferred income taxes                                                  339        510
                                                                   --------------------
         Total current assets                                         19,582     41,041
Property and equipment--net                                            3,422      5,121
Investment in and advances to joint venture                              545      1,046
Other assets                                                              32        193
                                                                   --------------------
         Total                                                       $23,581    $47,401
                                                                   ====================
 
      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                   $ 4,984    $ 6,117
  Accrued liabilities                                                  1,203      1,855
  Income taxes payable                                                   411        318
                                                                   --------------------
         Total current liabilities                                     6,598      8,290
Commitments and contingencies (Notes 8 and 9)
Deferred income taxes                                                    188        500
Shareholders' equity:
  Convertible preferred stock, no par value;
     20,000,000 shares authorized:
     Series A, 5,200,000 shares designated and outstanding             2,588        ---
     Series B, 4,000,000 shares designated; 2,150,000 shares
        outstanding                                                    2,137        ---
     Series C, 1,875,000 shares designated and outstanding             2,992        ---
  Preferred stock, 5,000,000 shares authorized; none
       issued and outstanding                                            ---        ---
  Common stock, 30,000,000 shares authorized;
       shares outstanding: 1997, 2,345,951; 1998, 9,286,399              201     24,570
  Retained earnings                                                    8,877     14,041
                                                                   --------------------
         Total shareholders' equity                                   16,795     38,611
                                                                   --------------------
         Total                                                       $23,581    $47,401
                                                                   ====================


                                        
                       See notes to financial statements.

                                       8

 
                       PERICOM SEMICONDUCTOR CORPORATION
                                        
                              STATEMENTS OF INCOME

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                       Years Ended June 30,
                                                          -------------------------------------------
                                                              1996          1997            1998
                                                          -----------  -------------  ---------------
         
                                                                               
Net revenues                                                   $41,174        $33,166         $49,198
Cost of revenues                                                22,797         20,986          29,285
                                                          -------------------------------------------
     Gross profit                                               18,377         12,180          19,913
Operating expenses:
     Research and development                                    4,414          4,187           5,065
     Selling, general and administrative                         6,471          5,989           7,793
                                                          -------------------------------------------
         Total                                                  10,885         10,176          12,858
                                                          -------------------------------------------
Income from operations                                           7,492          2,004           7,055
Equity in net loss of joint venture                                (70)           (80)           (345)
Interest income                                                    402            431           1,083
Other expense                                                     (382)           ---             ---
                                                          -------------------------------------------
Income before income taxes                                       7,442          2,355           7,793
Provision  for income taxes                                      2,732            777           2,629
                                                          -------------------------------------------
Net income                                                     $ 4,710        $ 1,578         $ 5,164
                                                          ===========================================
Basic earnings per share                                         $2.19          $0.73           $0.73
                                                          ===========================================
Diluted earnings per share                                       $0.63          $0.22           $0.55
                                                          ===========================================
Shares used in computing basic earnings per share                2,149          2,165           7,083
                                                          ===========================================
Shares used in computing diluted earnings per share              7,493          7,316           9,412
                                                          ===========================================

                                        
                       See notes to financial statements.

                                       9

 
                       PERICOM SEMICONDUCTOR CORPORATION
                                        
                       STATEMENTS OF SHAREHOLDERS' EQUITY

                                 (IN THOUSANDS)



                                                                                                                   
                                                                                                                             
                                                    PREFERRED STOCK            COMMON STOCK                        TOTAL     
                                                ------------------------  -----------------------   RETAINED   SHAREHOLDERS' 
                                                  SHARES       AMOUNT       SHARES       AMOUNT     EARNINGS      EQUITY
                                                ----------  ------------  -----------  ----------  ----------  -------------
 
                                                                                             
BALANCES, July 1, 1995                              9,225       $ 7,717         2,119     $    46     $ 2,589        $10,352
Exercise of employee stock options                    ---           ---            46          33         ---             33
Net income                                            ---           ---           ---         ---       4,710          4,710
                                              ------------------------------------------------------------------------------
BALANCES, June 30, 1996                             9,225         7,717         2,165          79       7,299         15,095
Exercise of employee stock options                    ---           ---           181         122         ---            122
Net income                                            ---           ---           ---         ---       1,578          1,578
                                              ------------------------------------------------------------------------------
BALANCES, June 30, 1997                             9,225         7,717         2,346         201       8,877         16,795
Initial public offering of common stock, net
 of issuance costs of $740                            ---           ---         2,000      16,000         ---         16,000
Conversion of preferred stock to common stock      (9,225)       (7,717)        4,612       7,717         ---            ---
Issuance of common stock under employee stock
 plans                                                ---           ---           328         495         ---            495
Tax benefit resulting from stock option               ---           ---           ---         157         ---            157
 transactions
Net income                                            ---           ---           ---         ---       5,164          5,164
                                              ------------------------------------------------------------------------------
BALANCES, June 30, 1998                               ---       $   ---         9,286     $24,570     $14,041        $38,611
                                              ==============================================================================

                                                                                

                    See notes to financial statements.

                                       10

 
                       PERICOM SEMICONDUCTOR CORPORATION
                                        
                            STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)



 
                                                                               Years Ended June 30,
                                                                    ---------------------------------------
                                                                        1996         1997          1998
                                                                    -----------  -----------  -------------
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                                       
Net income                                                               $ 4,710      $ 1,578      $  5,164
Adjustments to reconcile net income to net cash provided by
 (used for) operating activities:
  Depreciation and amortization                                              698          966         1,144
  Loss on disposal of assets                                                 ---          ---            10
  Equity in net loss of joint venture                                         70           80           345
  Deferred income taxes                                                      (97)         130           141
  Changes in assets and liabilities:
     Accounts receivable                                                   1,287       (1,423)       (2,284)
     Inventories                                                          (2,050)        (713)       (2,735)
     Prepaid expenses and other current assets                                18          (67)           (4)
     Accounts payable                                                        533        1,701         1,133
     Accrued liabilities                                                     306         (107)          652
     Income taxes payable                                                   (600)         706           (93)
                                                                    ---------------------------------------
         Net cash provided by operating activities                         4,875        2,851         3,473
                                                                    ---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                                     (1,384)      (2,001)       (2,857)
  Purchase of short-term investments                                         ---          ---       (17,058)
  (Increase) decrease in other assets                                       (165)          56          (260)
  Advances to joint venture                                                  122          (25)         (747)
  Proceeds from sale of property and equipment                               ---            7             4
                                                                    ---------------------------------------
        Net cash used for investing activities                            (1,427)      (1,963)      (20,918)
                                                                    ---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock                                                        33          122        16,652
                                                                    ---------------------------------------
        Net cash provided by financing activities                             33          122        16,652
                                                                    ---------------------------------------
NET INCREASE (DECREASE) IN CASH AND
 EQUIVALENTS                                                               3,481        1,010          (793)
CASH AND EQUIVALENTS:
  Beginning of period                                                      5,075        8,556         9,566
                                                                    ---------------------------------------
  End of period                                                          $ 8,556      $ 9,566      $  8,773
                                                                    =======================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
 Cash paid during the period for:
  Income taxes                                                           $ 3,429      $    50      $  2,381
                                                                    =======================================

                                        
                       See notes to financial statements.

                                       11

 
                       PERICOM SEMICONDUCTOR CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                FISCAL YEARS ENDED JUNE 30, 1996, 1997 AND 1998
                                        

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Pericom Semiconductor Corporation (the "Company") was incorporated in June 1990.
The Company designs, manufactures and markets high performance digital, analog
and mixed-signal integrated circuits for the personal computer, servers,
peripherals and networking markets.

FINANCIAL STATEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period.  Actual results
could differ from those estimates.

CASH EQUIVALENTS -- The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents. The recorded carrying amounts of the Company's cash and cash
equivalents approximate their fair market value.

SHORT-TERM INVESTMENTS  The Company's policy is to invest in short-term
instruments with investment grade credit ratings.  Generally, such investments
have contractual maturities of up to three years.  The Company classifies its
short-term investments as "available-for-sale" securities and the cost of
securities sold is based on the specific identification method.  As of June 30,
1998 there were no significant differences between the fair market value and the
underlying cost of such investments.  At June 30, 1998 short-term investments
consisted of the following:



                                                          GROSS                 GROSS
                                     AMORTIZED          UNREALIZED           UNREALIZED             MARKET
                                        COST              GAINS                LOSSES               VALUE
                                ------------------  ------------------  ---------------------  ----------------
 
                                                                                   
    Corporate bonds and notes          $ 9,380,000                 ---                    ---       $ 9,380,000
    U.S. government securities           6,378,000                 ---                    ---         6,378,000
    Certificates of deposit              1,300,000                 ---                    ---         1,300,000
                                -------------------------------------------------------------------------------
                                       $17,058,000                 ---                    ---       $17,058,000
                                ===============================================================================


INVENTORIES are stated at the lower of cost (first-in, first-out) or market.

PROPERTY AND EQUIPMENT are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three to
five years.

INVESTMENT IN JOINT VENTURE is accounted for using the equity method (see Note
4).

LONG-LIVED ASSETS -- The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company's policy is to review the
recoverability of all intangible assets based upon undiscounted cash flows on an
annual basis at a minimum, and in addition, whenever events or changes indicate
that the carrying amount of an asset may not be recoverable.

INCOME TAXES -- The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
recording deferred taxes.

                                       12

 
STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."

REVENUE RECOGNITION -- Revenue from product sales is recognized upon shipment.
Estimated costs for sales returns, price protection, stock rotation and other
allowances are accrued in the period that sales are recognized. Domestic
distributors are permitted a return allowance of 10% of their net purchases
every six months. Revenue from design services, included in net revenues, is
recognized on the completion of project milestones set forth in the related
agreements.

FISCAL PERIOD -- The Company's fiscal years in the accompanying financial
statements have been shown as ending on June 30. Fiscal years 1996, 1997 and
1998 ended on June 29, 1996, June 28, 1997 and June 27, 1998, respectively, and
each included 52 weeks.

CONCENTRATION OF CREDIT RISK AND CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES --
The Company sells its products primarily to large organizations and generally
does not require its customers to provide collateral or other security to
support accounts receivable. The Company maintains allowances for estimated bad
debt losses.

The Company participates in a dynamic high technology industry and believes that
changes in any of the following areas could have a material adverse effect on
the Company's future financial position or results of operations: advances and
trends in new technologies; competitive pressures in the form of new products or
price reductions on current products; changes in product mix; changes in the
overall demand for products and services offered by the Company; changes in
customer relationships; litigation or claims against the Company based on
intellectual property, patent, product, regulatory or other factors; risks
associated with changes in domestic and international economic and/or political
conditions or regulations; availability of necessary components; and the
Company's ability to attract and retain employees necessary to support its
growth.

RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from nonowner sources; and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers.  The Company has not yet
determined its reporting segments.  Adoption of these statements will not impact
the Company's financial position, results of operations or cash flows. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.

EARNINGS PER SHARE  The Company has computed earnings per share in accordance
with SFAS No. 128, "Earnings Per Share," (SFAS 128) and all periods presented
have been restated to conform with SFAS 128.  Basic earnings per share is based
upon the weighted average number of common shares outstanding.  Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock.

                                       13

 
Basic and diluted earnings per share for each of the three years in the period
ended June 30, 1998 are as follows:



                                                                                     YEARS ENDED JUNE 30,
                                                                          ------------------------------------------- 
                                                                              1996           1997           1998
                                                                          -------------  -------------  -------------
                                                                                               
         Net income                                                             $4,710         $1,578         $5,164
                                                                        =============================================
         Computation of common shares outstanding - basic 
         earnings per share:
               Common stock                                                      2,149          2,165          7,083
                                                                        =============================================
 
         Basic earnings per share                                               $ 2.19         $ 0.73         $ 0.73
                                                                        =============================================
 
         Computation of common shares outstanding - diluted 
         earnings per share:
               Common stock                                                      2,149          2,165          7,083    
               Preferred shares                                                  4,612          4,612          1,572    
               Dilutive options using the treasury stock method                    724            539            757    
               Warrants                                                              8            ---            ---    
                                                                        --------------------------------------------    
 
         Shares used in computing diluted earnings per share                     7,493          7,316          9,412
                                                                        ============================================    
         Diluted earnings per share                                             $ 0.63         $ 0.22         $ 0.55
                                                                        ============================================    

                                                                                
Options to purchase 571,553 and 224,000 shares of Common Stock at prices ranging
from $2.40 to $3.80 and $8.13 to $9.63 were outstanding as of June 30, 1997 and
1998, respectively, but not included in the computation of diluted net income
per share because the options' exercise prices were greater that the average
market price of the common shares as of such dates and therefore, would be anti-
dilutive under the treasury stock method.  There were no anti-dilutive options
at June 30, 1996.

2. INVENTORIES

Inventories consist of (in thousands):


                                                               AS OF JUNE 30,
                                                       -----------------------------
                                                             1997           1998
                                                       ---------------  ------------
                                                                  
         Finished goods                                         $1,327        $1,752
         Work-in-process                                         3,659         5,671
         Raw materials                                           1,196         1,494
                                                       -----------------------------
                                                                $6,182        $8,917
                                                       =============================


                                       14

 
3. PROPERTY AND EQUIPMENT

Property and equipment consist of (in thousands):


                                                                                         AS OF JUNE 30,
                                                                               --------------------------------
                                                                                      1997            1998
                                                                               ----------------  ---------------
 
                                                                                           
         Machinery and equipment                                                      $ 3,195          $ 4,336
         Computer equipment and software                                                1,844            2,101
         Furniture and fixtures                                                           322              332
         Leasehold improvements                                                            80              137
         Construction-in-progress                                                         544            1,881
                                                                               --------------------------------
         Total                                                                          5,985            8,787
         Accumulated depreciation and amortization                                     (2,563)          (3,666)
                                                                               --------------------------------
         Property and equipment  net                                                  $ 3,422          $ 5,121
                                                                               ================================


Construction-in-progress represents implementation costs of an enterprise-wide
EDP system that is not in use.

4. INVESTMENT IN JOINT VENTURE

In fiscal 1994, the Company purchased 1,500,000 shares of Series A Convertible
Preferred Stock issued by Pericom Technology, Inc. ("PTI") for $750,000 (an
18.4% equity investment). Such preferred stock is convertible at the option of
the Company into 1,500,000 shares of PTI common stock, does not bear dividends,
has a liquidation preference up to the purchase price and votes based on the
number of common shares into which it is convertible. PTI was incorporated in
1994 and in 1995 established a design center and sales office to pursue
opportunities and participate in joint ventures in China. The investment in PTI
is accounted for using the equity method due to the Company's significant
influence over its operations. In addition, several of the directors of the
Company are also directors of PTI, and certain shareholders of the Company are
also shareholders of PTI. During the years ended June 30, 1996, 1997 and 1998,
the Company sold $24,000, $39,000 and $61,000, respectively, in services to PTI.
During the fiscal year ended June 30, 1998 the Company purchased $61,000 in
services from PTI.  At June 30, 1997 and 1998, $99,000 and $846,000,
respectively, was owed to the Company by PTI for reimbursement of certain
administrative expenses incurred by the Company on behalf of PTI and for
advances made to PTI by the Company. Condensed financial information of the
joint venture at June 30, 1998 is as follows (in thousands):
 
                                                                          
         Total assets                                                               $ 1,645
         Total liabilities                                                              847
         Total equity                                                                   798
 
         Expenses                                                                     1,216
                                                                           -----------------
 
         Operating loss                                                              (1,214)
         Interest income                                                                 15
                                                                           -----------------
 
         Net loss                                                                   $(1,199)
                                                                           =================


                                                                                
The Company's investment in preferred stock of PTI has a liquidation preference
of approximately $200,000 at June 30, 1998. This carrying value of the PTI
investment at June 30, 1997 is greater than the 18.4% equity interest consistent
with the Company's liquidation preference.

                                       15

 
5. ACCRUED LIABILITIES

Accrued liabilities consist of (in thousands):


                                                                                   AS OF JUNE 30,
                                                                           -----------------------------
                                                                                 1997          1998
                                                                           --------------  -------------
                                                                                     
         Accrued compensation                                                     $  591         $1,059
         External sales representative commissions                                   310            636
         Other accrued expenses                                                      302            160
                                                                           -----------------------------
                                                                                  $1,203         $1,855
                                                                           =============================



6. SHAREHOLDERS' EQUITY

In October 1997, the Company completed an initial public offering of 2,000,000
shares of its common stock (selling shareholders sold an additional 500,000
shares in the offering) at a price of $9.00 per share.  Concurrent with the
offering, 9,225,000 shares of convertible preferred stock were converted, at a
2-for-1 ratio, into 4,612,000 shares of common stock.

PREFERRED STOCK

The number of shares of preferred stock authorized to be issued is 5,000,000.
The Board of Directors is authorized to issue the preferred stock from time to
time in one or more series and to fix the rights, privileges and restrictions of
the shares of such series.  As of June 30, 1998, no shares of preferred stock
were outstanding.

STOCK OPTION PLANS

Under the Company's 1990 Stock Option Plan and 1995 Stock Option Plans,
incentive and nonqualified stock options to purchase up to 3,483,663 shares of
common stock have been reserved at June 30, 1998 for issuance to employees,
officers, directors, independent contractors and consultants of the Company.

The options may be granted at not less than the fair value, as determined by the
Board of Directors, and not less than 85% of the fair value on grant date for
incentive stock options and nonqualified stock options, respectively. Options
vest over periods of up to 48 months as determined by the Board. Options granted
under the Plans expire 10 years from grant date.

                                       16

 
Activity in the Company's option plans is summarized below:



                                                                                               WEIGHTED
                                                                                               AVERAGE
                                                                                               EXERCISE
                                                                                 SHARES         PRICE
                                                                           ----------------  -------------
 
                                                                                       
       Balance July 1, 1995                                                       1,004,042          $0.78
            Granted (weighted average fair value
               of $1.04 per share)                                                  639,881           4.42
            Exercised                                                               (45,917)          0.82
            Canceled                                                               (393,037)          3.98
                                                                           -------------------------------
       Balance June 30, 1996                                                      1,204,969           1.56
            Granted (weighted average fair value
               of $0.94 per share)                                                  488,825           2.48
            Exercised                                                              (180,700)          0.64
            Canceled                                                               (316,479)          3.08
                                                                           -------------------------------
       Balance June 30, 1997                                                      1,196,615           1.70
            Granted (weighted average fair value
               of $2.59 per share)                                                  835,539           6.34
            Exercised                                                              (299,314)          0.97
            Canceled                                                               (138,516)          3.33
                                                                           -------------------------------
       Balance June 30, 1998                                                      1,594,324          $4.13
                                                                           ===============================

                                                                                
At June 30, 1998, 1,128,967 shares were available for future issuance under the
option plans.

In fiscal 1996, the Company canceled options to purchase 277,700 shares of
common stock with exercise prices ranging from $5.00 to $6.00 per share and
issued replacement options with an exercise price of $3.80 per share.

In fiscal 1997, the Company canceled options to purchase 160,700 shares of
common stock with an exercise price of $3.80 per share and issued replacement
options with an exercise price of $2.40 per share.

Additional information regarding options outstanding as of June 30, 1998 is as
follows:



                                         OPTIONS OUTSTANDING                                   OPTIONS EXERCISABLE
                    --------------------------------------------------------------  -----------------------------------------
                                                WEIGHTED
                                                 AVERAGE             WEIGHTED                                  WEIGHTED
     RANGE OF                                   REMAINING             AVERAGE                                  AVERAGE
     EXERCISE              NUMBER              CONTRACTUAL           EXERCISE             NUMBER               EXERCISE
      PRICES            OUTSTANDING           LIFE (YEARS)             PRICE            EXERCISABLE             PRICE
- ------------------  --------------------  ---------------------  -----------------  -------------------  --------------------
                                                                                          
   $0.20 - 1.44                  359,248                  6.14               $0.95              351,677                 $0.94
   $2.40 - 3.80                  432,943                  8.26                2.62              189,597                  2.75
   $4.00 - 5.80                  328,958                  9.08                4.44               85,701                  4.33
   $6.25 - 7.50                  206,325                  9.52                6.65                9,375                  6.38
   $7.63 - 9.63                  266,850                  9.64                8.51                2,650                  8.62
- -----------------------------------------------------------------------------------------------------------------------------
   $0.20 - 9.63                1,594,324                  8.35               $4.13              639,000                 $2.05
=============================================================================================================================


1997 EMPLOYEE STOCK PURCHASE PLAN

In 1997, the Company approved the 1997 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), which allows eligible employees of the Company to purchase
shares of Common Stock through payroll deductions.  A total of 300,000 shares of
the Company's Common Stock has been reserved for issuance under the Stock
Purchase Plan.  The Stock Purchase Plan permits eligible employees to purchase
Common Stock at a discount through payroll deductions, 

                                       17

 
during 24-month purchase periods, except that the first purchase period will be
27 months. Each purchase period will be divided into eight consecutive three-
month accrual periods, except that the first accrual period will be six months.
The price at which stock is purchased under the Stock Purchase Plan is equal to
85% of the fair market value of the Common Stock on the first day of the
purchase period or the last day of the accrual period, whichever is lower. The
initial purchase period commenced upon the effective date of the Company's
initial public offering of Common Stock in October 1997 and will end on January
30, 2000. The maximum number of shares of Common Stock that any employee may
purchase under the Stock Purchase Plan during any accrual period is 500 shares.
During fiscal year 1998, the Company issued 28,829 shares of common stock under
the Stock Purchase Plan at a weighted average price of $7.11 per share. The
weighted average fair value of the 1998 awards was $2.99 per share.

ADDITIONAL STOCK PLAN INFORMATION

As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting Principles
Board No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements.

SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123), requires
the disclosure of pro forma net income as if the Company had adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the terms of the Company's stock
option awards. These models also require subjective assumptions, including
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions for the Company's stock option
grants:



                                                        1996                   1997                  1998
                                                ---------------------  --------------------  ---------------------
                                                                                    
Expected life                                          5 years               5 years                5 years
Risk-free interest rate                                   5.9%                  6.3%                   5.5%
Volatility                                                ---                   ---                 0.7486
Dividend yield                                           0.00%                 0.00%                  0.00%


The following weighted average assumptions are included in the estimated grant
date fair value calculations for rights to purchase stock under the Stock
Purchase Plan:



                                                                                                   1998
                                                                                           ---------------------
                                                                                        
Expected life                                                                                   3-6 months
Risk-free interest rate                                                                              5.5%
Volatility                                                                                        0.7639
Dividend yield                                                                                      0.00%



PRO FORMA NET INCOME AND EARNINGS PER SHARE

Had the Company amortized to expense the computed fair values of the 1996, 1997
and 1998 awards under the 1990 Stock Option Plan, 1995 Stock Option Plan and
Employee Stock Purchase Plan, the Company's pro forma net income and earnings
per share for the three fiscal years in the period ended June 30, 1998 would
have been as follows:



                                                                  1996                 1997                 1998
                                                          ---------------------  -----------------  --------------------
                                                                                           
Pro forma net income                                                 $4,637,000         $1,398,000            $4,863,000
 
Pro forma earnings per share:
    Basic earnings per share                                         $     2.16         $     0.65            $     0.69
    Diluted earnings per share                                       $     0.62         $     0.19            $     0.52


                                       18

 
However, the impact of outstanding nonvested stock options granted prior to
fiscal 1996 has been excluded from the pro forma calculation; accordingly, the
1996, 1997 and 1998 pro forma adjustments are not indicative of future period
pro forma adjustments, when the calculation will apply to all applicable stock
options.

7. INCOME TAXES

The provision for income taxes consists of (in thousands):



                                                                             FISCAL YEAR ENDED JUNE 30,
                                                          ------------------------------------------------------------------
                                                                    1996                   1997                  1998
                                                          ----------------------  --------------------  --------------------
                                                                                                
    Federal:                                         
       Current                                                            $2,552                 $ 652                $2,256
       Deferred                                                             (121)                  104                   174
                                                          ------------------------------------------------------------------
                                                                           2,431                   756                 2,430
    State:                                           
       Current                                                               277                    (5)                   75
       Deferred                                                               24                    26                   (33)
                                                          ------------------------------------------------------------------
                                                                             301                    21                    42
    Charge is lieu of taxes attributable to employee 
     stock plans                                                             ---                   ---                   157
                                                           ------------------------------------------------------------------
    Provision for income taxes                                            $2,732                 $ 777                $2,629    
                                                          ==================================================================

A reconciliation between the Company's effective tax rate and the U.S. statutory
rate is as follows:



                                                                                    FISCAL YEAR ENDED JUNE 30,
                                                                     -------------------------------------------------------
                                                                              1996               1997              1998
                                                                     --------------------  -----------------  --------------
                                                                                                     
Tax at federal statutory rate                                                       35.0%              35.0%            35.0%
State income taxes, net of federal benefit                                           6.4                5.3              5.1
Research and development tax credits                                                (3.6)              (8.7)            (6.9)
Other                                                                               (1.1)               1.4               .5
                                                                     -------------------------------------------------------
Provision for income taxes                                                          36.7%              33.0%            33.7%
                                                                     =======================================================

                                        
The components of the net deferred tax assets were as follows (in thousands):



                                                                                                   AS OF JUNE 30,
                                                                                         ----------------------------------
                                                                                               1997              1998
                                                                                         -----------------  ---------------
                                                                                                      
Deferred tax assets:
  Accruals and reserves recognized in different periods                                             $ 398            $ 410
  Capitalized research and development costs                                                            4              ---
  Other                                                                                                11              113
                                                                                       -----------------------------------
                                                                                                      413              523
                                                                                       -----------------------------------
Deferred tax liabilities:
  Tax basis depreciation                                                                             (188)            (259)
   Capitalized research and development costs                                                         ---             (207)
  Other                                                                                               (74)             (47)
                                                                                        -----------------------------------
                                                                                                     (262)            (513)
                                                                                       -----------------------------------
  Net deferred tax assets                                                                           $ 151            $  10
                                                                                       ===================================


                                       19

 
8. LEASES

The Company leases certain facilities under operating leases through 2001, with
an option to extend the facilities lease for an additional three years upon
termination of the original lease term. The future minimum operating lease
commitments at June 30, 1998 are as follows (in thousands):




            FISCAL YEAR:
                                                                        
                  1999                                                   $  415                                
                  2000                                                      425                                
                  2001                                                      358                                
                                                              -----------------                                
                                                                         $1,198                                
                                                              =================                                 


Rent expense for operating leases for the years ended June 30, 1996, 1997 and
1998 was $281,000, $366,000 and $481,000, respectively.

9. CONTINGENCIES

The semiconductor industry is characterized by frequent claims and related
litigation regarding patent and other intellectual property rights. The Company
is party to one claim of this nature. Although the ultimate outcome of this
matter is not presently determinable, management believes that the resolution of
this matter will not have a material adverse effect on the Company's financial
position or results of operations.

10. MAJOR CUSTOMERS AND FOREIGN SALES

In fiscal 1996, two customers accounted for 20% and 16% of net revenues,
respectively, and three customers represented 14%, 11%, and 10% of trade
accounts receivable at June 30, 1996. In fiscal 1997, two customers accounted
for 17% and 14% of net revenues, respectively, and two customers represented 12%
and 11% of trade accounts receivable, respectively, at June 30, 1997.  In fiscal
1998, one customer accounted for 11% of net revenues and three customers
represented 12%, 11%, and 10% of trade accounts receivable, respectively, at
June 30, 1998.

Total export sales represented approximately 30%, 37% and 45% of net revenues in
fiscal years 1996, 1997 and 1998, respectively. Export sales to Asia were
approximately 22%, 26% and 35% of net revenues in fiscal years 1996, 1997 and
1998, respectively. Export sales to Europe were approximately 11% and 10% in
fiscal years 1997 and 1998, respectively, and were less than 10% in fiscal year
1996.

11. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) tax-deferred savings plan under which eligible
employees may elect to have a portion of their salary deferred and contributed
to the plan. Employer matching contributions are determined by the Board of
Directors and are discretionary. There were no employer matching contributions
in fiscal 1996, 1997 or 1998.

                                       20

 
                            QUARTERLY FINANCIAL DATA
                                        
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

  
 
                                                           Three Months Ended
                                                           ------------------
                                      SEP 30  DEC 31  MAR 31  JUNE 30  SEP 30   DEC 31   MAR 31   JUNE 30
                                       1996    1996    1997    1997     1997     1997     1998     1998
                                    --------  ------  ------  -------  -------  -------  -------  -------
                                                                          
Net revenues                          $6,601  $7,300  $8,008  $11,257  $11,398  $11,974  $12,512  $13,314
Cost of revenues                       3,996   4,676   5,017    7,297    6,839    7,140    7,418    7,888
                                    --------------------------------------------------------------------- 
     Gross profit                      2,605   2,624   2,991    3,960    4,559    4,834    5,094    5,426
Operating expenses:
     Research and development            986     989   1,078    1,134    1,169    1,269    1,300    1,327
     Selling, general and           
      administrative                   1,448   1,407   1,497    1,637    1,956    1,991    2,005    1,841 
                                    --------------------------------------------------------------------- 
          Total operating expenses     2,434   2,396   2,575    2,771    3,125    3,260    3,305    3,168
                                    --------------------------------------------------------------------- 
Income from operations                   171     228     416    1,189    1,434    1,574    1,789    2,258
Other income (expense), net              105      75      90       81       93      223      260      162
                                    ---------------------------------------------------------------------
Income before income taxes               276     303     506    1,270    1,527    1,797    2,049    2,420
Provision for income taxes                91     100     167      419      504      593      676      856
                                    --------------------------------------------------------------------- 
Net income                            $  185  $  203  $  339  $   851  $ 1,023  $ 1,204  $ 1,373  $ 1,564
                                    =====================================================================  
Basic earnings per share               $0.09   $0.09   $0.16    $0.39    $0.33    $0.17    $0.15    $0.17
                                    =====================================================================  
Diluted earnings per share             $0.03   $0.03   $0.05    $0.11    $0.12    $0.13    $0.14    $0.16
                                    =====================================================================
Shares used in computing basic
 earnings per share                    2,165   2,165   2,165    2,165    3,122    6,926    9,083    9,204
                                    =====================================================================
Share used in computing diluted
 earnings per share                    7,448   7,336   7,268    7,211    8,210    9,390   10,007   10,040
                                    =====================================================================




COMMON STOCK PRICE RANGE

The Common Stock of the Company began trading publicly on the Nasdaq National
Market on October 31, 1997 under the symbol PSEM.  Prior to that date, there was
no public market for the Common Stock.  The Company has not paid cash dividends
and has no present plans to do so.  It is the policy of the Company to reinvest
earnings of the Company to finance expansion of the Company's operations, and
the Company does not expect to pay dividends in the foreseeable future.  The
following table sets forth for the periods indicated the high and low sale
prices of the Common Stock on the Nasdaq National Market.  As of June 30, 1998
there were approximately 700 holders of record of the Company's Common Stock.



                                                                                   HIGH                   LOW
                                                                           ---------------------  --------------------
 FISCAL YEAR ENDED JUNE 30, 1998:
                                                                                            
          Second Quarter (from October 31, 1997)                                          $10.38                 $6.13
 
          Third Quarter                                                                    10.50                  6.00
 
          Fourth Quarter                                                                   10.25                  5.88


                                       21

 
                            CORPORATION INFORMATION
                                        
 

                                                                 
BOARD OF DIRECTORS              Alex Chi-Ming Hui                    Chief Executive Officer, President and Director
                                Chi-Hung (John) Hui, Ph.D. (1)       Vice President, Technology and Director
                                Tay Thiam Song (1) (2)               Director
                                Jeffery Young (1) (2)                Director
 
EXECUTIVE OFFICERS              Patrick B Brennan                    Vice President, Finance and Administration
                                Tat C. Choi, Ph.D.                   Vice President, Design Engineering
                                Mark Downing                         Vice President, Marketing
                                Daniel W. Wark                       Vice President, Operations
                                Glen R. Wiley                        Vice President, Sales


(1)  Member of Audit Committee.
(2)  Member of Compensation Committee.


LEGAL MATTERS       Questions regarding legal matters should be directed to:
                    Patrick B. Brennan, Vice President, Finance and 
                    Administration           
                    
LEGAL COUNSEL       Morrison & Foerster LLP 
                    755 Page Mill Road
                    Palo Alto, California      94304-1018
                    (650) 813-5600
                                         
INDEPENDENT         Deloitte & Touche LLP
ACCOUNTANTS         60 South Market Street, Suite 800
                    San Jose, California       95113-2303
                    (408) 998-4000
                                                    
CORPORATE           2380 Bering Drive               Tel:      (408) 435-0800
OFFICE              San Jose, California  95131     Fax:      (408) 435-1100
                                                    Website Address: 
                                                      www.pericom.com 
                                                              
REGISTRAR AND       BankBoston, N.A.
TRANSFER AGENT      c/o BostonEquiserve, L.P.
                    P.O. Box 8040
                    Boston, Massachusetts  02266-8040
                    http://www.EquiServe.com
                    (781) 575-2000

ANNUAL MEETING      The annual meeting of shareholders for Pericom Semiconductor
                    Corporation will be on Tuesday, December 8, 1998, at 3:00
                    P.M., local time at the Westin Santa Clara, 5101 Great
                    America Parkway, Santa Clara, California 95054.

COMMON STOCK        Pericom Semiconductor Corporation's Common Stock is traded
                    on the NASDAQ National Market under the symbol "PSEM".

FORM 10-K           A copy of the Corporation's Annual Report on Form 10-K, as
                    filed with the Securities and Exchange Commission, will be
                    made available without charge to all shareholders upon
                    written request to the Company. Direct requests to the
                    attention of the Chief Financial Officer at the corporate
                    office listed above.

                                       22

EX-23.1

 
                                                                    EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS

                                        
The Board of Directors and Shareholders
Pericom Semiconductor Corporation:


We consent to the incorporation by reference in Registration Statement No. 333-
51229 of Pericom Semiconductor Corporation on Form S-8 of our reports dated July
23, 1998, incorporated by reference in this Annual Report on Form 10-K of
Pericom Semiconductor Corporation for the year ended June 30, 1998.


/s/ DELOITTE & TOUCHE, LLP

San Jose, California
September 22, 1998

EX-27.1

 


<ARTICLE> 5
<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1998
<PERIOD-START>                             JUL-01-1997
<PERIOD-END>                               JUN-30-1998
<CASH>                                           8,773
<SECURITIES>                                    17,053
<RECEIVABLES>                                    7,189
<ALLOWANCES>                                     1,559
<INVENTORY>                                      8,917
<CURRENT-ASSETS>                                41,041
<PP&E>                                           8,787
<DEPRECIATION>                                   3,666
<TOTAL-ASSETS>                                  41,401
<CURRENT-LIABILITIES>                            8,290
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        24,570
<OTHER-SE>                                      14,041
<TOTAL-LIABILITY-AND-EQUITY>                    47,401
<SALES>                                         49,198
<TOTAL-REVENUES>                                49,198
<CGS>                                           29,285
<TOTAL-COSTS>                                   42,143
<OTHER-EXPENSES>                                   345
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                  7,793
<INCOME-TAX>                                     2,629
<INCOME-CONTINUING>                              5,164
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     5,164
<EPS-PRIMARY>                                     0.73
<EPS-DILUTED>                                     0.55
        

 

EX-27.2

 


<ARTICLE> 5
 
<MULTIPLIER> 1,000
       
                                                                                                   
<PERIOD-TYPE>               YEAR                   YEAR                   3-MOS                   3-MOS             3-MOS
<FISCAL-YEAR-END>           JUN-30-1996             JUN-30-1997             JUN-30-1996           JUN-30-1996       JUN-30-1996
<PERIOD-START>              JUL-01-1995             JUL-01-1996             JUL-01-1995           OCT-01-1995       JAN-01-1996
<PERIOD-END>                JUN-30-1996             JUN-30-1997             SEP-30-1995           DEC-31-1995       MAR-31-1996
<CASH>                            8,556                   9,566                   7,697                 8,567             9,289
<SECURITIES>                          0                       0                       0                     0                 0
<RECEIVABLES>                     3,528                   4,544                   3,297                 3,970             3,850
<ALLOWANCES>                      1,605                   1,198                     923                 1,352             1,605
<INVENTORY>                       5,469                   6,182                   3,313                 4,649             5,182
<CURRENT-ASSETS>                 16,738                  19,582                  13,734                16,173            17,027
<PP&E>                            3,997                   5,985                   2,847                 3,400             3,770
<DEPRECIATION>                    1,603                   2,563                   1,058                 1,226             1,408
<TOTAL-ASSETS>                   19,820                  23,581                  16,447                19,413            20,109
<CURRENT-LIABILITIES>             4,593                   6,598                   4,808                 6,111             5,567
<BONDS>                               0                       0                       0                     0                 0
<PREFERRED-MANDATORY>                 0                       0                       0                     0                 0
<PREFERRED>                       7,717                   7,717                   7,717                 7,717             7,717
<COMMON>                             79                     201                      62                    64                73
<OTHER-SE>                        7,299                   8,877                   3,789                 5,450             6,681
<TOTAL-LIABILITY-AND-EQUITY>     19,820                  23,581                  16,447                19,413            20,109
<SALES>                          41,174                  33,166                   9,776                11,553            11,359
<TOTAL-REVENUES>                 41,174                  33,166                   9,776                11,553            11,359
<CGS>                            22,797                  20,986                   5,377                 6,147             6,197
<TOTAL-COSTS>                    33,682                  31,162                   7,914                 9,006             9,093
<OTHER-EXPENSES>                    452                      80                      20                     0               423
<LOSS-PROVISION>                      0                       0                       0                     0                 0
<INTEREST-EXPENSE>                    0                       0                       0                     0                 0
<INCOME-PRETAX>                   7,442                   2,355                   1,920                 2,657             1,970
<INCOME-TAX>                      2,732                     777                     720                   996               739
<INCOME-CONTINUING>               4,710                   1,578                   1,200                 1,661             1,231
<DISCONTINUED>                        0                       0                       0                     0                 0
<EXTRAORDINARY>                       0                       0                       0                     0                 0
<CHANGES>                             0                       0                       0                     0                 0
<NET-INCOME>                      4,710                   1,578                   1,200                 1,661             1,231
<EPS-PRIMARY>                      2.19                    0.73                    0.57                  0.77              0.57
<EPS-DILUTED>                      0.63                    0.22                    0.16                  0.22              0.16
        

 

EX-27.3

 


<ARTICLE> 5
 
<MULTIPLIER> 1,000
       
                                                                       
<PERIOD-TYPE>                   3-MOS                   3-MOS                   3-MOS
<FISCAL-YEAR-END>                          JUN-30-1997             JUN-30-1997             JUN-30-1997
<PERIOD-START>                             JUL-01-1996             OCT-01-1996             JAN-01-1997
<PERIOD-END>                               SEP-30-1996             DEC-31-1996             MAR-31-1997
<CASH>                                           8,173                   9,231                   9,013
<SECURITIES>                                         0                       0                       0
<RECEIVABLES>                                    3,257                   3,181                   4,153
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<INVENTORY>                                      4,871                   4,537                   5,294
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<PP&E>                                           4,362                   4,456                   5,482
<DEPRECIATION>                                   1,818                   2,054                   2,293
<TOTAL-ASSETS>                                  18,439                  19,292                  21,657
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<BONDS>                                              0                       0                       0
<PREFERRED-MANDATORY>                                0                       0                       0
<PREFERRED>                                      7,717                   7,717                   7,717
<COMMON>                                            89                     107                     146
<OTHER-SE>                                       7,784                   7,687                   8,026
<TOTAL-LIABILITY-AND-EQUITY>                    18,439                  19,292                  21,657
<SALES>                                          6,601                   7,300                   8,008
<TOTAL-REVENUES>                                 6,601                   7,300                   8,008
<CGS>                                            3,996                   4,676                   5,017
<TOTAL-COSTS>                                    6,430                   7,072                   7,592
<OTHER-EXPENSES>                                     0                      30                      20
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