10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

for the quarterly period ended September 30, 2012

or

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

For the transition period from              to             

Commission File Number 0-19084

PMC-Sierra, Inc.

(Exact name of registrant as specified in its charter)

A Delaware Corporation - I.R.S. NO. 94-2925073

1380 Bordeaux Drive

Sunnyvale, CA 94089

(408) 239-8000

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 5, 2012, the registrant had 200,886,703 shares of Common Stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	Page
	-    Condensed Consolidated Statements of Operations	3
	-    Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	-    Condensed Consolidated Balance Sheets	5
	-    Condensed Consolidated Statements of Cash Flows	6
	-    Condensed Consolidated Statements of Shareholders’ Equity	7
	-    Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	34
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		49

2

Part I—FINANCIAL INFORMATION

Item 1—Financial Statements (Unaudited)

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Net revenues	$	131,723		$	173,299		$	401,579		$	501,751
Cost of revenues		38,990			52,640			121,255			164,464
Gross profit		92,733			120,659			280,324			337,287
Research and development		55,604			59,669			171,374			170,589
Selling, general and administrative		27,786			29,981			86,047			91,556
Amortization of purchased intangible assets		11,624			11,031			34,537			33,083
Impairment of goodwill and purchased intangible assets		276,082			—			276,082			—
(Loss) income from operations		(278,363	)		19,978			(287,716	)		42,059
Other (expense) income:
Revaluation of liability for contingent consideration		—			29,376			—			29,376
Gain on investment securities and other		180			222			746			559
Amortization of debt issue costs		(50	)		(50	)		(150	)		(150	)
Foreign exchange (loss) gain		(2,454	)		3,635			(1,951	)		1,538
Interest expense, net		(797	)		(477	)		(1,539	)		(1,972	)
(Loss) income before recovery of (provision for) income taxes		(281,484	)		52,684			(290,610	)		71,410
Recovery of (provision for) income taxes		7,098			(5,428	)		(53,567	)		(15,076	)
Net (loss) income	$	(274,386	)	$	47,256		$	(344,177	)	$	56,334
Net (loss) income per common share - basic	$	(1.31	)	$	0.20		$	(1.56	)	$	0.24
Net (loss) income per common share - diluted	$	(1.31	)	$	0.20		$	(1.56	)	$	0.24
Shares used in per share calculation - basic		209,512			232,590			221,323			233,880
Shares used in per share calculation - diluted		209,512			233,647			221,323			236,236

See notes to the interim condensed consolidated financial statements.

3

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Net (loss) income	$	(274,386	)	$	47,256		$	(344,177	)	$	56,334
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax of $61, $913, $289, and $1,076		624			(3,422	)		1,704			(3,790	)
Change in fair value of investment securities, net of tax of $166, $482, $267, and $235		262			(1,210	)		209			(590	)
Other comprehensive income (loss)		886			(4,632	)		1,913			(4,380	)
Comprehensive (loss) income	$	(273,500	)	$	42,624		$	(342,264	)	$	51,954

See notes to the interim condensed consolidated financial statements.

4

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	September 30, 2012			December 31, 2011
ASSETS:
Current assets:
Cash and cash equivalents	$	113,219		$	182,571
Short-term investments		57,871			104,391
Accounts receivable, net of allowance for doubtful accounts of $2,189 (2011 - $1,952)		62,568			59,213
Inventories, net		27,405			39,911
Prepaid expenses and other current assets		13,588			23,411
Income taxes receivable		5,806			8,027
Deferred tax assets		42,151			30,725
Total current assets		322,608			448,249
Investment securities		160,846			226,619
Investments and other assets		4,570			2,431
Prepaid expenses		12,517			16,901
Property and equipment, net		40,408			25,364
Goodwill		252,419			520,899
Intangible assets, net		137,679			158,482
Deferred tax assets		58			494
	$	931,105		$	1,399,439
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net	$	67,951		$	65,122
Accounts payable		29,093			38,340
Accrued liabilities		62,242			66,139
Liability for unrecognized tax benefit		52,304			46,394
Deferred income taxes		2,494			2,450
Deferred income		12,720			16,024
Total current liabilities		226,804			234,469
Long-term obligations		2,025			1,284
Deferred income taxes		42,894			40,663
Liability for unrecognized tax benefit		20,403			17,323
PMC special shares convertible into 1,019 (2011 - 1,029) shares of common stock		1,188			1,228
Stockholders’ equity:
Common stock, par value $.001: 900,000 shares authorized; 207,166 shares issued and outstanding (2011 - 230,233)		207			230
Additional paid in capital		1,536,263			1,594,437
Accumulated other comprehensive income (loss)		767			(1,146	)
Accumulated deficit		(899,446	)		(489,049	)
Total stockholders’ equity		637,791			1,104,472
	$	931,105		$	1,399,439

See notes to the interim condensed consolidated financial statements.

5

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended
	September 30, 2012			October 2, 2011
Cash flows from operating activities:
Net (loss) income	$	(344,177	)	$	56,334
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		48,724			56,795
Stock-based compensation		19,978			20,330
Unrealized foreign exchange loss (gain), net		2,299			(1,650	)
Net amortization of premiums/discounts and accrued interest of investments		3,844			3,361
Accrued interest on short-term loan		—			589
Gain on investment securities and other		(731	)		(558	)
Impairment of goodwill and purchased intangible assets		277,240			3,029
Revaluation of liability for contingent consideration		—			(29,376	)
Taxes related to intercompany dividend		60,940			—
Changes in operating assets and liabilities:
Accounts receivable		(3,352	)		4,749
Inventories		12,506			1,361
Prepaid expenses and other current assets		4,108			1,989
Accounts payable and accrued liabilities		(27,643	)		(10,285	)
Deferred income taxes and income taxes receivables/payables		(5,747	)		11,020
Accrued restructuring costs		—			(1,418	)
Deferred income		(3,304	)		(2,690	)
Net cash provided by operating activities		44,685			113,580
Cash flows from investing activities:
Business acquisition		(15,900	)		—
Purchases of property and equipment		(25,558	)		(8,142	)
Purchase of intangible assets		(4,602	)		(5,620	)
Redemption of short-term investments		11,415			—
Disposals of investment securities		182,488			116,813
Purchases of investment securities and other investments		(87,267	)		(160,169	)
Net cash provided by (used in) investing activities		60,576			(57,118	)
Cash flows from financing activities:
Repurchases of common stock		(180,807	)		(39,999	)
Equity forward contract related to accelerated share repurchase program		(9,827	)		—
Repayment of short-term loan		—			(180,991	)
Proceeds from issuance of common stock		15,869			16,462
Net cash used in financing activities		(174,765	)		(204,528	)
Effect of exchange rate changes on cash and cash equivalents		152			(270	)
Net decrease in cash and cash equivalents		(69,352	)		(148,336	)
Cash and cash equivalents, beginning of period		182,571			293,355
Cash and cash equivalents, end of period	$	113,219		$	145,019
Supplemental disclosures of cash flow information:
Cash (refund received) paid for income taxes, net	$	(1,595	)	$	4,206

See notes to the interim condensed consolidated financial statements.

6

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND OCTOBER 2, 2011

(in thousands)

	Shares of Common Stock			Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss) (net of tax)			Accumulated Deficit			Total Stockholders’ Equity
Balance at July 1, 2012		209,790		$	210		$	1,546,547		$	(119	)	$	(617,898	)	$	928,740
Net income		—			—			—			—			(274,386	)		(274,386	)
Other comprehensive loss:
Change in fair value of derivatives, net of tax of $61		—			—			—			624			—			624
Change in fair value of investment securities, net of tax of $66		—			—			—			262			—			262
Comprehensive income																	(273,500	)
Issuance of common stock under stock benefit plans		1,657			1			6,814			—			—			6,815
Stock-based compensation expense		—			—			6,088			—			—			6,088
Benefit of stock option related loss carry-forwards		—			—			(5,328	)		—			—			(5,328	)
Repurchases of common stock		(4,281	)		(4	)		(17,858	)		—			(7,162	)		(25,024	)
Balance at September 30, 2012		207,166		$	207		$	1,536,263		$	767		$	(899,446	)	$	637,791
Balance at June 26, 2011		233,535		$	253		$	1,590,867		$	2,324		$	(550,124	)	$	1,043,320
Net income		—			—			—			—			47,256			47,256
Other comprehensive loss:
Change in fair value of derivatives, net of tax of $913		—			—			—			(3,422	)		—			(3,422	)
Change in fair value of investment securities, net of tax of $482		—			—			—			(1,210	)		—			(1,210	)
Comprehensive income																	42,624
Issuance of common stock under stock benefit plans		1,355			(18	)		6,012			—			—			5,994
Stock-based compensation expense		—			—			6,969			—			—			6,969
Benefit of stock option related loss carry-forwards		—			—			1,857			—			—			1,857
Repurchases of common stock		(4,776	)		(5	)		(15,744	)		—			(14,546	)		(30,295	)
Balance at October 2, 2011		230,114		$	230		$	1,589,961		$	(2,308	)	$	(517,414	)	$	1,070,469
Balance at January 1, 2012		230,233		$	230		$	1,594,437		$	(1,146	)	$	(489,049	)	$	1,104,472
Net loss		—			—			—			—						(344,177	)
Other comprehensive income:
Change in fair value of derivatives, net of tax of $289		—			—			—			1,704			—			1,704
Change in fair value of investment securities, net of tax of $267		—			—			—			209			—			209
Comprehensive loss																	(342,264	)
Issuance of common stock under stock benefit plans		4,328			4			14,991			—			—			14,995
Stock-based compensation expense		—			—			19,978			—			—			19,978
Benefit of stock option related loss carry-forwards		—			—			31,244			—			—			31,244
Repurchases of common stock		(27,395	)		(27	)		(114,560	)		—			(66,220	)		(180,807	)
Equity forward contract related to accelerated share repurchase program		—			—			(9,827	)		—			—			(9,827	)
Balance at September 30, 2012		207,166		$	207		$	1,536,263		$	767		$	(899,446	)	$	637,791
Balance at December 27, 2010		232,008		$	252		$	1,575,949		$	2,072		$	(559,202	)	$	1,019,071
Net income		—			—			—			—			56,334			56,334
Other comprehensive income:
Change in fair value of derivatives, net of tax of $163		—			—			—			(3,790	)		—			(3,790	)
Change in fair value of investment securities, net of tax of $247		—			—			—			(590	)		—			(590	)
Comprehensive income																	51,954
Conversion of special shares into common shares		341			—			488			—			—			488
Issuance of common stock under stock benefit plans		3,849			(16	)		15,500			—			—			15,484
Stock-based compensation expense		—			—			20,330			—			—			20,330
Benefit of stock option related loss carry-forwards		—			—			3,141			—			—			3,141
Repurchases of common stock		(6,084	)		(6	)		(25,447	)		—			(14,546	)		(39,999	)
Balance at October 2, 2011		230,114		$	230		$	1,589,961		$	(2,308	)	$	(517,414	)	$	1,070,469

See notes to the interim condensed consolidated financial statements.

7

PMC-Sierra, Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. Summary of Significant Accounting Policies

Description of business. PMC-Sierra, Inc. (the “Company” or “PMC”) is a semiconductor innovator transforming networks that connect, move and store digital content. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMC’s highly integrated solutions increase performance and enable next generation services to accelerate the network transformation.

Basis of presentation. The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and United States Generally Accepted Accounting Principles (“GAAP”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules or regulations. These interim condensed consolidated financial statements are unaudited, but reflect all adjustments which are normal and recurring in nature and are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods. Fiscal 2012 will consist of 52 weeks and will end on Saturday, December 29, 2012. Fiscal 2011 consisted of 53 weeks and ended on Saturday, December 31, 2011. The third quarter of each of 2012 and 2011 consisted of 13 and 14 weeks, respectively.

Estimates. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, stock-based compensation, purchase accounting assumptions including those used to calculate the fair value of intangible assets and goodwill, the valuation of investments, accounting for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, sales returns, warranty costs, income taxes including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of our senior convertible notes, accounting for employee benefit plans, and contingencies. Actual results could differ materially from these estimates.

Goodwill and intangible assets. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company performs a two-step process on an annual basis, or more frequently if necessary, to determine 1) whether the fair value of the relevant reporting unit exceeds the carrying value and 2) the amount of an impairment loss, if any.

During the third quarter of 2012, the Company recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave, Inc. (“Passave”) and 2010 acquisition of Wintegra, Inc. (“Wintegra”). All of the goodwill of Passave was written down by $146.3 million due to weaker quarterly results and future projections than previously expected, driven by slower adoption rates of FTTH technology in markets outside of Asia. All of the goodwill and a portion of the other intangible assets of Wintegra were determined to be impaired by $122.8 million and $7 million, respectively, as a result of the continuing weak carrier spending, more so than previously expected.

8

The fair value of the reporting unit was determined by using the income approach. Under this approach, the fair value is based on estimated future cash flows of the reporting unit which are discounted to the present value using discount factors that consider the timing and risk of cash flows. Significant assumptions used in the income approach include the forecasts of future operating results, terminal value, growth rates, future capital expenditures and changes in future working capital. The discount rate includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks.

Recent Accounting Pronouncements.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for common fair value measurement. These amendments, effective for the interim and annual periods beginning on or after December 15, 2011, provide common definitions of fair value and common fair value measurements and disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments change some fair value measurement principles and disclosure requirements. The Company adopted this amendment effective the first quarter of fiscal 2012. The adoption of this amended accounting guidance did not have a material impact on our consolidated financial statements.

In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income. This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011, requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this amendment effective the first quarter of fiscal 2012, and presented total comprehensive income, the components of net income, and components of other comprehensive income in two separate but consecutive statements.

In September 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment. This ASU provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If this qualitative criteria is not met, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step quantitative goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of this test. This guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this for the 2012 fiscal year. The adoption of this did not have an impact on our consolidated financial statements.

NOTE 2. Business Combinations

Acquisition of Wintegra, Inc.

The Company recorded a fair value adjustment related to the inventory acquired as part of the Wintegra, Inc. (“Wintegra”) acquisition in the amount of $9.8 million, which was fully expensed through Cost of revenues by the end of the first quarter of 2011.

9

Certain key employees entered into Holdback Escrow Agreements, whereby a portion of cash consideration otherwise payable per the Merger Agreement was retained and would be distributed under certain conditions, including continued employment over a two-year period. This post-combination expense has been included in the interim Condensed Consolidated Balance Sheet as prepaid expenses and is being amortized straight-line over the two-year period. The amortization is recognized as Selling, general and administrative and Research and development expenses on the interim Condensed Consolidated Statements of Operations. Amortization for the three and nine months ended September 30, 2012, were $0.4 million and $1.1 million, respectively. Amortization for the three and nine months ended October 2, 2011 were $0.4 million and $1.3 million, respectively.

Projects comprising In-Process Research and Development at acquisition have progressed as expected, and are now completed.

The terms of the acquisition of Wintegra, provided for potential additional earn-out based purchase consideration ranging from nil to $60 million, calculated on the basis of Wintegra’s 2011 revenue as described in the Agreement and Plan of Merger dated as of October 21, 2010. At acquisition, the Company recorded a liability for contingent purchase consideration of $28.2 million as part of the acquisition of Wintegra, which reflected the estimated fair value of the potential earn-out payment, calculated by applying the income approach. During the three months ended October 2, 2011, the Company determined that Wintegra’s 2011 revenues would be below earn-out levels. Accordingly, the Company recognized a $29.4 million gain on revaluation of this liability in the Consolidated Statement of Operations. See our Form 10-K for the year ended December 31, 2011, Item 8. Financial Statements and Supplementary Data, the Notes to the Consolidated Financial Statements, Note 11. Commitments and Contingencies for details.

See Note 1. Summary of Significant Accounting Policies for discussion on the impairment of goodwill and other intangibles relating to the Wintegra acquisition.

Acquisition of 12GB/s SAS expander business from Maxim Integrated Products, Inc.

During the first quarter of fiscal 2012, the Company completed the acquisition of the 12Gb/s Serial attached SCSI (“SAS”) expander business from Maxim Integrated Products, Inc. (“Maxim”). Along with a very experienced team, this acquisition provides a strong strategic fit between PMC’s core strengths in enterprise storage and Maxim’s established traction with expander solutions at the largest server storage original equipment manufacturers. This acquisition was accounted for under the acquisition method of accounting. The financial impact of the acquisition was not material to the Company.

NOTE 3. Derivative Instruments

The Company generates revenues in U.S. dollars but incurs a portion of its operating expenses in foreign currencies, primarily the Canadian dollar. To minimize the short-term impact of foreign currency fluctuations on the Company’s operating expenses, the Company purchases forward currency contracts.

As at September 30, 2012, the Company had 121 forward currency contracts (October 2, 2011 – 179) outstanding, all with maturities of less than 12 months, which qualified and were designated as cash flow hedges. The U.S. dollar notional amount of these contracts was $23.0 million (October 2, 2011 – $82.6 million) and the contracts had a fair value gain of $0.1 million (October 2, 2011 – fair value loss of $3.5 million), which was recorded in Accumulated other comprehensive income (loss) net of taxes of $nil for the nine months ended September 30, 2012 (net of taxes of $0.7 million for the nine months ended October 2, 2011).

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NOTE 4. Fair Value Measurements

ASC Topic 820 specifies a hierarchy of valuation techniques which requires an entity to maximize the use of observable inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets are available for identical assets and liabilities. The Company’s Level 1 assets include cash equivalents, short-term investments, and long-term investment securities, which are generally acquired or sold at par value and are actively traded.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 liabilities include forward currency contracts whose value is determined using a pricing model with inputs that are observable in the market or corroborated with observable market data. Level 2 observable inputs were used in estimating interest rates used to determine the fair value (on a non-recurring basis) of the debt component of the Company’s senior convertible notes. See Note 9. Senior Convertible Notes.

Level 3 – Pricing inputs include significant inputs that are generally not observable in the marketplace. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and would include in Level 3 all of those whose fair value is based on significant unobservable inputs. Level 3 inputs are used on a recurring basis to measure the fair value of the liability for contingent consideration. Level 3 inputs are used on a non-recurring basis to measure the fair value of non-financial assets, including intangible assets.

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Financial assets measured on a recurring basis as at September 30, 2012 and December 31, 2011, are summarized below:

	Fair value, September 30, 2012
(in thousands)	Level 1
Assets:
Corporate bonds and notes (1)	$	184,459
Money market funds (1)		17,727
United States (“US”) treasury and government agency notes (1)		30,807
Foreign government and agency notes (1)		3,455
US state and municipal securities (1)		1,746
Total assets	$	238,194

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	Fair value, December 31, 2011
(in thousands)	Level 1
Assets:
Corporate bonds and notes (1)	$	254,522
Money market funds (1)		54,588
US treasury and government agency notes (1)		62,350
Foreign government and agency notes (1)		12,389
US state and municipal securities (1)		1,749
Total assets	$	385,598

(1) Included in Cash and cash equivalents, Short-term investments, and Long-term investment securities. See Note 7. Investment Securities.

Financial liabilities measured on a recurring basis are summarized below:

	Fair value, September 30, 2012
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	2

	Fair value, December 31, 2011
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	1,780

(1) Included in Accrued liabilities.

Assets/ Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis

The following liabilities have been measured at fair value on a non-recurring basis, as follows:

	Fair value, September 30, 2012
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9. Senior Convertible Notes)	$	68,354

	Fair value, December 31, 2011
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9. Senior Convertible Notes)	$	67,913

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NOTE 5. Stock-Based Compensation

The Company has two stock-based compensation programs, which are described below. None of the Company’s stock-based awards under these plans are classified as liabilities. The Company did not capitalize any stock-based compensation cost and recorded compensation expense for the three and nine months ended September 30, 2012 and October 2, 2011, as follows:

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
(in thousands)	2012		2011		2012		2011
Cost of revenues	$	181	$	220	$	657	$	703
Research and development		2,933		3,041		8,674		8,665
Selling, general and administrative		2,974		3,708		10,647		10,962
Total	$	6,088	$	6,969	$	19,978	$	20,330

The Company received cash of $6.9 million and $15.9 million related to the issuance of stock-based awards during the three and nine months ended September 30, 2012. The Company received cash of $6 million and $16.5 million related to the issuance of stock-based awards during the three and nine months ended October 2, 2011.

Equity Award Plans

The Company issues its common stock under the provisions of the 2008 Equity Plan (the “2008 Plan”). Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock at the grant date. The options generally expire within 10 years and vest over four years.

The 2008 Plan was approved by stockholders at the 2008 Annual Meeting. The 2008 Plan became effective on January 1, 2009 (the “Effective Date”). It is a successor to the 1994 Incentive Stock Plan (the “1994 Plan”) and the 2001 Stock Option Plan (the “2001 Plan”). Up to 30,000,000 shares of our common stock have been initially reserved for issuance under the 2008 Plan. At the 2012 Annual Meeting, stockholders approved an increase in shares reserved for issuance under the 2008 plan by 9,500,000 shares which shares were registered on May 14, 2012 on Form S-8 bringing the total number of authorized and registered shares available under the 2008 Plan to 39,500,000. To the extent that a share that is subject to an award that counts as 1.6 shares against the 2008 Plan’s share reserve is added back into the 2008 Plan upon expiration or termination of the award or repurchase or forfeiture of the shares, the number of shares of common stock available for issuance under the 2008 Plan will be credited with 1.6 shares. The implementation of the 2008 Plan did not affect any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date. To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares thereunder, the number of shares of common stock subject to those terminated awards will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the 1994 Plan or the 2001 Plan. In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination. In 2010, the Company assumed the stock option plans and all outstanding stock options of Wintegra as part of that business combination.

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Activity under the option plans during the nine months ended September 30, 2012 was as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)		Aggregate intrinsic value at September 30, 2012
Outstanding, January 1, 2012		29,130,398		$	7.97
Granted		1,156,623		$	5.98
Exercised		(929,993	)	$	4.76
Forfeited		(1,468,304	)	$	8.69
Outstanding, September 30, 2012		27,888,724		$	7.96		5.61	$	4,419,132
Vested & expected to vest, September 30, 2012		27,263,151		$	7.98		5.54	$	4,413,979
Exercisable, September 30, 2012		21,086,215		$	8.23		4.74	$	3,693,776

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at July 1, 2012. During the each of the nine months ended September 30, 2012, and October 2, 2011, $2.0 million and $2.1 million were recorded for forfeitures, respectively.

The fair value of the Company’s stock option awards granted to employees during the nine months ended September 30, 2012 was estimated using a lattice-binomial valuation model. This model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the stock option valuation model and represents the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the expected life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair values of the Company’s stock option awards were calculated for expense recognition using an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,			October 2,			September 30,			October 2,
	2012			2011			2012			2011
Expected life (years)		5.3			5.1			5.3			4.5
Expected volatility		42	%		45	%		43	%		42	%
Risk-free interest rate		0.8	%		0.9	%		0.8	%		1.9	%

The weighted average grant-date fair value per stock option granted during the three and nine months ended September 30, 2012, was $2.08 and $2.22, respectively. The weighted average grant-date fair value per stock option granted during the three and nine months ended October 2, 2011 was $2.36 and $2.59, respectively. The total intrinsic value of stock options exercised during the three and nine months ended September 30, 2012 was $0.4 million and $1.6 million, respectively.

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As of September 30, 2012, there was $15.5 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the plans, which is expected to be recognized over an average period of 2.3 years.

Restricted Stock Units

On February 1, 2007, the Company amended its stock award plans to allow for the issuance of Restricted Stock Units (“RSUs”) to employees and members of the Board of Directors. The first grant of RSUs occurred on May 25, 2007. The grants vest over varying terms, up to a maximum of four years from the date of grant.

A summary of RSU activity during the nine months ended September 30, 2012 is as follows:

	Restricted Stock Units			Weighted Average Remaining Contractual Term		Aggregate intrinsic value at September 30, 2012
Unvested shares at January 1, 2012		3,679,683			—		—
Awarded		2,966,202			—		—
Released		(1,155,622	)		—		—
Forfeited		(245,858	)		—		—
End of Period		5,244,405			1.81	$	29,394,920
Restricted Stock Units vested and expected to vest September 30, 2012		5,241,333			1.81	$	29,377,701

The intrinsic value of RSUs vested during the three and nine months ended September 30, 2012 was $1.4 million and $7.4 million, respectively. As of September 30, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested RSUs was $22.3 million, which is expected to be recognized over the next 2.9 years.

Employee Stock Purchase Plan

In 1991, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) under Section 423 of the Internal Revenue Code. The ESPP allows eligible participants to purchase shares of the Company’s common stock at six-month intervals through payroll deductions at a price of 85% of the lower of the fair market value at specific dates in those six-month intervals (calculated in the manner provided in the plan). Shares of the Company’s common stock are offered under the ESPP through a series of successive offering periods, generally with a maximum duration of 24 months. Under the ESPP, the number of shares authorized to be available for issuance under the plan is increased automatically on January 1 of each year until the expiration of the plan. The increase will be limited to the lesser of (i) 1% of the outstanding shares on January 1 of each year, (ii) 2,000,000 shares (after adjusting for stock dividends), or (iii) an amount to be determined by the Board of Directors. The ESPP was terminated on February 10, 2011 and no additional shares will be issued under the ESPP.

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The 2011 Employee Stock Purchase Plan (the “2011 Plan”) was approved by stockholders at the 2010 Annual Meeting. The 2011 Plan became effective on February 11, 2011 and is the successor to the ESPP. The 2011 Plan consists of consecutive offering periods, generally of a duration of 6 months, and allows eligible employees to purchase shares of the Company’s common stock at the end of each such offering period at a price per share equal to 85% of the lower of the fair market value of a share of Common Stock on the start date or the fair market value of a share of Common Stock on the exercise date of the offering period. Employees purchase such shares through payroll deductions which may not exceed 10% of their total cash compensation. The 2011 Plan imposes certain limitations upon an employee’s right to acquire Common Stock, including the following: (i) no employee may purchase more than 7,500 shares of Common Stock on any one purchase date and (ii) no employee may be granted rights to purchase more than $25,000 worth of Common Stock for each calendar year that such rights are at any time outstanding. Up to 12,000,000 shares of our common stock have been initially reserved for issuance under the 2011 Plan.

During the nine months of 2012, 2,374,523 shares were issued under the 2011 Plan at a weighted average price of $4.90 per share. As of September 30, 2012, 8,453,134 shares were available for future issuance under the 2011 Plan compared to 10,827,657 under the 2011 Plan as at December 31, 2011.

	Three Months Ended						Nine Months Ended
	September 30,			October 2,			September 30,			October 2,
	2012			2011			2012			2011
Expected life (years)		0.5			0.5			0.5			0.5
Expected volatility		44	%		51	%		42	%		44	%
Risk-free interest rate		0.2	%		0.1	%		0.1	%		0.1	%

The weighted average grant-date fair value per ESPP award granted during the first nine months of 2012 was $1.69. The total intrinsic value of ESPP shares issued during the first nine months of 2012 was $3.6 million.

For the period ending September 30, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $1.4 million which is expected to be recognized over the next 4 months.

NOTE 6. Balance Sheet Items

a. Inventories.

Inventories (net of reserves of $7.9 million and $8.3 million at September 30, 2012 and December 31, 2011, respectively) were as follows:

(in thousands)	September 30, 2012		December 31, 2011
Work-in-progress	$	11,804	$	20,367
Finished goods		15,601		19,544
	$	27,405	$	39,911

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b. Product warranties.

The Company provides a limited warranty on most of its standard products and accrues for the estimated cost at the time of shipment. The Company estimates its warranty costs based on historical failure rates and related repair or replacement costs. The change in the Company’s accrued warranty obligations from December 31, 2011 to September 30, 2012, and for the same period in the prior year were as follows:

	Nine Months Ended
	September 30,			October 2,
(in thousands)	2012			2011
Balance, beginning of the period	$	5,415		$	5,457
Accrual for new warranties issued		1,311			1,435
Reduction for payments and product replacements		(161	)		(185	)
Adjustments related to changes in estimate of warranty accrual		(1,312	)		(1,243	)
Balance, end of the period	$	5,253		$	5,464

The Company’s accrual for warranty obligations is included in Accrued liabilities in the interim Condensed Consolidated Balance Sheet.

NOTE 7. Investment Securities

The Company’s available for sale investments, by investment type, consists of the following at September 30, 2012 and December 31, 2011:

	September 30, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*			Fair Value
Cash equivalents:
Money market funds	$	17,727	$	—	$	—		$	17,727
Corporate bonds and notes		1,750		—		—			1,750
US treasury and government agency notes		—		—		—			—
Total cash equivalents		19,477		—		—			19,477
Short-term investments:
Corporate bonds and notes		50,791		1,510		—			52,301
US treasury and government agency notes		3,808		16		—			3,824
Foreign government and agency notes		—		—		—			—
US states and municipal securities		1,720		26		—			1,746
Total short-term investments		56,319		1,552		—			57,871
Long-term investment securities:
Corporate bonds and notes		129,506		923		(21	)		130,408
US treasury and government agency notes		26,906		78		(1	)		26,983
Foreign government and agency notes		3,395		60		—			3,455
Total long-term investment securities		159,807		1,061		(22	)		160,846
Total	$	235,603	$	2,613	$	(22	)	$	238,194

* Gross unrealized gains include accrued interest on investments of $1.4 million. The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

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	December 31, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*			Fair Value
Cash equivalents:
Money market funds	$	54,588	$	—	$	—		$	54,588
Total cash equivalents		54,588		—		—			54,588
Short-term investments:
Corporate bonds and notes		85,127		2,449		(34	)		87,542
US treasury and government agency notes		10,009		203		—			10,212
Foreign government and agency notes		6,540		97		—			6,637
Total short-term investments		101,676		2,749		(34	)		104,391
Long-term investment securities:
Corporate bonds and notes		166,741		688		(449	)		166,980
US treasury and government agency notes		52,054		123		(39	)		52,138
Foreign government and agency notes		5,713		39		—			5,752
US states and municipal securities		1,720		29		—			1,749
Total long-term investment securities		226,228		879		(488	)		226,619
Total	$	382,492	$	3,628	$	(522	)	$	385,598

* Gross unrealized gains include accrued interest on investments of $2.4 million. The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

As of September 30, 2012 and December 31, 2011, the fair value of certain of the Company’s available-for-sale securities was less than their cost basis. Management reviews various factors in determining whether to recognize an impairment charge related to these unrealized losses, including the current financial and credit market environment, the financial condition, near-term prospects of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment, length of time the investment has been in a loss position and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of market value. As of September 30, 2012, the Company determined that all the unrealized losses are temporary in nature and recorded them as a component of Accumulated other comprehensive income (loss).

NOTE 8. Short-Term Loan

On November 18, 2010, the Company, PMC-Sierra US, Inc., a Delaware wholly owned subsidiary of the Company (the “Borrower”), and Bank of America, N.A., as the Lender, entered into a Credit Agreement (the “Credit Agreement”). The Credit Agreement provides the Borrower with a term loan of $220 million (the “Credit Facility”), which was borrowed on November 18, 2010. The Credit Facility was used to finance, in part, the acquisition of Wintegra by the Company. During 2010, the Company repaid $40 million. As a result, the balance as of December 26, 2010, was $181.0 million, which included accrued interest.

The loan had a maturity date of January 17, 2011 and was fully repaid in the amount of $181.0 million, including accrued interest on January 10, 2011, during the first quarter of 2011.

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In the first quarter of 2011, the Company incurred $0.3 million in interest expense related to the short-term loan, which is included in Interest expense, net, in the interim Condensed Consolidated Statements of Operations.

NOTE 9. Senior Convertible Notes

In October 2005, the Company issued senior convertible notes (the “Notes”) that are due on October 15, 2025 with an aggregate principal amount of $225.0 million and bearing interest at a rate of 2.25% per annum. At the date of issuance, the Company’s borrowing rate for similar debt instruments without any equity conversion features was estimated to be 8.0% per annum. The borrowing rate of 8.0% was estimated using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves, and volatilities, all of which are defined as Level 2 observable inputs. See Note 4. Fair Value Measurements.

The Notes rank equal in right of payment with the Company’s other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by the Company at its option, or converted or put to the Company at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2006. The Company may redeem all or a portion of the Notes at par on or after October 20, 2012. The holders may require that the Company repurchase the Notes on October 15 of each of 2012, 2015 and 2020.

As of September 30, 2012, net of repurchases completed to date, the carrying amount of the equity component is $35.2 million (December 31, 2011 - $35.2 million) and the carrying amount of the debt component is $68 million (December 31, 2011 - $65.1 million), which represents the principal amount of $68.3 million (December 31, 2011 - $68.3 million) net of the unamortized discount of $0.4 million (December 31, 2011 - $3.2 million). The $2.9 million increase in the debt component relates to accretion which was recorded in Interest expense, net in the interim Condensed Consolidated Statements of Operations. The balance of deferred debt issue costs at September 30, 2012 is $nil million (December 31, 2011 - $0.2 million). Since the holders may require the Company to repurchase the Notes on October 15, 2012, the Company reclassified the debt to short-term liabilities in the quarter ended December 31, 2011.

Subsequent to the third quarter of 2012, the Company retired its outstanding Senior Convertible Notes, for their aggregate face value of $68.3 million.

NOTE 10. Income Taxes

The Company recorded a recovery of income taxes of $7.1 million and a provision for income taxes of $53.6 million for the three and nine months ended September 30, 2012, respectively, and a provision for income taxes of $5.4 million and $15.1 million for the three and nine months ended October 2, 2011, respectively.

For the three months ended September 30, 2012, the change in income tax provision relates to the reduction of taxable income driven mainly by lower net revenues.

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For the nine months ended September 30, 2012, compared to the same period last year was mainly the result of a $56.2 million income tax provision related to an intercompany dividend made in preparation for funding the Company’s share repurchase programs. The taxable income generated in the United States by the dividend was offset by available stock-option-related loss carryfowards. Accordingly, a corresponding benefit of $31.2 million was recognized in equity. The remaining change is mainly due to the reduction of taxable income mainly driven by lower net revenues.

The Company’s effective tax rate was 3% and (18%) for the three and nine months ended September 30, 2012, respectively, and 10% and 21% for the three and nine months ended October 2, 2011, respectively. The lower effective tax rate for the three and nine months ended September 30, 2012 compared to the same periods last year mainly result from the impairment charges recorded in 2012, partially offset by the effect of the intercompany dividend.

The difference between our effective tax rate and the 35% federal statutory rate results primarily from foreign earnings eligible for tax rates lower than the federal statutory rate due to economic incentives subject to certain criteria granted by foreign jurisdictions and extending to approximately 2020, adjustments for prior years taxes and tax credits, the effect of intercompany transactions, investment tax credits earned, changes in valuation allowance, changes in accruals related to the unrecognized tax benefit liabilities, permanent differences arising from stock-based compensation, non-deductible intangible asset amortization and impairment and utilization of stock option related loss carryforwards recorded in equity.

As at September 30, 2012, the Company’s liability for unrecognized tax benefits on a world-wide consolidated basis was $72.7 million. Recognition of an amount different from this estimate would affect the Company’s effective tax rate.

NOTE 11. Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted net (loss) income per share:

	Three Months Ended					Nine Months Ended
	September 30,			October 2,		September 30,			October 2,
(in thousands, except per share amounts)	2012			2011		2012			2011
Numerator:
Net (loss) income	$	(274,386	)	$	47,256	$	(344,177	)	$	56,334
Denominator:
Basic weighted average common shares outstanding (1)		209,512			232,590		221,323			233,880
Dilutive effect of employee stock options and awards		—			1,057		—			2,356
Diluted weighted average common shares outstanding (1)		209,512			233,647		221,323			236,236
Basic net (loss) income per share	$	(1.31	)	$	0.20	$	(1.56	)	$	0.24
Diluted net (loss) income per share	$	(1.31	)	$	0.20	$	(1.56	)	$	0.24

(1) PMC-Sierra Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

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In the three and nine months ended September 30, 2012, the Company had approximately 1 million and 1.8 million, respectively, of stock options and Restricted Stock Units that were not included in the diluted net loss per share because they would have been anti-dilutive.

NOTE 12. Stock Repurchase Program and Accelerated Stock Buyback

On May 2, 2012, the Company entered into an Accelerated Stock Buyback agreement (“ASB agreement”) with Goldman, Sachs & Co. (“Goldman”) to repurchase an aggregate of $160 million of PMC common stock. The Company will acquire these common shares as part of its $275 million stock repurchase program announced on March 13, 2012. During the nine months ended September 30, 2012, the Company received 22,228,520 shares from Goldman. These shares were cancelled during the second quarter of 2012. Subsequent to the third quarter of 2012, Goldman Sachs completed the repurchase of the Company’s common stock pursuant to the ASB agreement and delivered 4,600,788 shares, bringing the total common shares repurchased and cancelled under this program to 26,829,308.

In accordance with the Equity topic of the FASB Accounting Standards Codification, the Company accounted for the ASB Agreement as two separate transactions: (a) as shares of common stock acquired in a treasury stock transaction recorded on the acquisition date and (b) as a forward contract indexed to the Company’s own common stock. As such, the Company accounted for the shares that it received under the ASB Program during the period as a repurchase of its common stock for the purpose of calculating earnings per common share. The Company has determined that the forward contract indexed to the Company’s common stock met all the applicable criteria for equity classification in accordance with the Derivatives and Hedging topic of the FASB ASC, and therefore, the ASB Agreement was not accounted for as a derivative instrument.

For the period ended September 30, 2012, the total consideration allocated to stock repurchases that were received before September 30, 2012, under the ASB was $150.2 million of which $57.2 million was recorded as an adjustment to accumulated deficit. The balance reduced common stock and additional paid-in capital. In addition, there was also $9.8 million recorded as an equity forward contract and was included in Additional paid-in capital.

In addition, on November 10, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2012. Under the authorization, the Company may repurchase up to $40 million of shares of the Company’s common stock in 2012. Under this program, during the three months ended September 30, 2012, the Company repurchased and retired 4.3 million shares for approximately $25 million in cash of which $7.2 million was recorded as an adjustment to Accumulated deficit, and the balance reduced Common stock and Additional paid-in capital. During the nine months ended September 30, 2012, the Company repurchased and retired 5.2 million shares for approximately $30.6 million in cash of which $9 million was recorded as an adjustment to Accumulated deficit, and the balance reduced Common stock and Additional paid-in capital. Accordingly, the repurchased shares were recorded as a reduction of Common stock, Additional paid-in capital and Accumulated deficit. Also subsequent to the third quarter of 2012, the Company repurchased and cancelled an additional 1,735,978 common shares under its $40 million Equity Stock Buyback Plan bringing the shares repurchased and cancelled under this program to 6,902,625.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. We use words such as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends”, “may”, “could”, “should”, “estimates”, “predicts”, “potential”, “continue”, “becoming”, “transitioning” and similar expressions to identify such forward-looking statements. Our forward-looking statements include statements as to our business outlook, revenues, margins, expenses, tax provision, capital resources and liquidity sufficiency, sources of liquidity, capital expenditures, interest income and expenses, restructuring activities, cash commitments, purchase commitments, use of cash, our expectation regarding our amortization of purchased intangible assets, our expectations regarding our business acquisitions, and our expectation regarding distribution from certain investments. Such statements, particularly in the “Business Outlook” section, are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing. (See also “Risk Factors” Part II, Item 1A. and our other filings with the Security Exchange Commission (“SEC”)). Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the filing date of this Quarterly Report.

Investors are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

PMC is a semiconductor innovator transforming networks that connect, move and store digital content. Building on a track record of technology leadership, we are driving innovation across storage, optical and mobile networks. Our highly integrated solutions increase performance and enable next generation services to accelerate the network transformation.

Our current revenues are generated by a portfolio of approximately 700 products which we have designed and developed or acquired. PMC’s diverse product portfolio enables many different types of communications network infrastructure equipment in three market segments: Storage, Mobile and Optical networks.

1. Our Storage network products enable high-speed communication servers, switches and storage devices to store, manage and move large quantities of data securely;

2. Our Optical network products are used in optical transport platforms, multi-services provisioning platforms, and edge routers where they gather, process and transmit disparate traffic to their next destination in the network; and

3. Our Mobile network products are used in wireless base stations, mobile backhaul, and aggregation equipment.

The following discussion of the financial condition and results of our operations should be read in conjunction with the interim condensed consolidated financial statements and notes thereto included in this Form 10-Q.

Update to the Interim Condensed Consolidated Financial Statements Included in Earnings Press Release for the Third Quarter Ended September 30, 2012 Dated October 29, 2012

On October 29, 2012, the Company filed an 8-K Current Report containing the Press Release announcing the Company’s Third Quarter Financial Results. Subsequent to October 29, 2012 and prior to the filing of this Form 10-Q, the Company determined that as at September 30, 2012, certain investments totaling $68 million were more appropriately classified in short-term investments and long-term investment securities than cash and cash equivalents. As a result, the Condensed Consolidated Balance Sheet as at September 30, 2012 and Statement of Cash Flows for the nine months ended

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September 30, 2012 in this Form 10-Q, have been adjusted compared to the Press Release as follows: on the Condensed Consolidated Balance Sheet within total assets, cash and cash equivalents decreased by $68 million; and short-term investments and long-term investment securities increased by $23.5 million and $44.5 million, respectively. On the Condensed Consolidated Statement of Cash Flows, total Net cash provided by (used in) investing activities decreased by $68 million. These investment securities were in fact sold and converted into cash subsequent to September 30, 2012.

Results of Operations

Third Quarter of 2012 and 2011

Net revenues

	Third Quarter
($ millions)	2012		2011		Change
Net revenues	$	131.7	$	173.3		(24	)%

Overall net revenues for the third quarter of 2012 were $131.7 million, a decrease of $41.6 million compared to the third quarter of 2011, mainly due to lower product volumes. This 24% year-over-year decrease was mainly attributable to macro-economic uncertainty, which has our customers delaying investments in network infrastructure and has impacted each of the Storage, Optical and Mobile market segments.

Storage represented 68% of our net revenues in the third quarter of 2012 compared to 61% in the same period of 2011. Storage net revenues decreased by 15% compared to the same quarter in 2011 due mainly to the factors described above.

Optical represented 20% of our net revenues in the third quarter of 2012 compared to 24% in the same period of 2011. The Optical net revenues decreased by 36% compared to the same quarter in 2011 due mainly to the factors described above.

Mobile represented 12% our net revenues for the third quarter of 2012 compared to 16% in the same period of 2011. The Mobile net revenues decreased by 40% compared to the same quarter in 2011 due mainly to the factors described above.

On a sequential basis, our net revenues were 4% lower than in the second quarter of 2012. The decrease is due mainly to shipping lower volumes of our Optical and Mobile products, including some one time orders of legacy products sold in the second quarter which were not repeated in the third quarter. This was partially offset by shipping higher volumes sold of our Storage products, which was attributable to improvement in our 6Gbps SAS business and resumption of growth in our channel business.

Gross profit

	Third Quarter
($ millions)	2012			2011			Change
Gross profit	$	92.7		$	120.7			(23	)%
Percentage of net revenues		70	%		70	%

Total gross profit decreased by $28 million in the third quarter of 2012 on lower net revenues compared to the same period in 2011. Gross profit as a percentage of net revenues remained at 70% on a year over year basis as we were able to offset the negative effect on gross margin percentage of fixed costs over the lower net revenues in the first nine months of 2012, through cost saving initiatives.

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Operating expenses

	Third Quarter
($ millions)	2012			2011			Change
Research and development	$	55.6		$	59.7			(7	)%
Percentage of net revenues		42	%		34	%
Selling, general and administrative	$	27.8		$	30.0			(7	)%
Percentage of net revenues		21	%		17	%
Amortization of purchased intangible assets	$	11.6		$	11.0			5	%
Percentage of net revenues		9	%		6	%
Impairment of goodwill and purchased intangible assets	$	276.1		$	—			100	%
Percentage of net revenues		210	%		—	%

Research and Development and Selling, General and Administrative Expenses

Our research and development (“R&D”) expenses decreased $4.1 million, or 7% compared to the same period last year. This was primarily the result of the decrease in payroll-related costs associated with reduced benefit costs, impairment charges to intellectual property in the third quarter of 2011 that did not reoccur in 2012, reduced outside services costs due to cost savings efforts, partially offset by an increase in tape-out related costs. On a sequential basis, R&D expenses were $1.1 million lower in the third quarter of 2012 as compared to the second quarter of 2012 mainly due to the reduction of payroll-related costs, which were partially offset by higher product related tape-out costs.

Selling, general and administrative (“SG&A”) expenses were $2.2 million, or 7%, lower in the third quarter of 2012 compared to the same period last year, mainly due to the reductions in payroll-related costs. On a sequential basis, these expenses decreased $1.5 million primarily due to reductions in payroll-related costs and professional fees, partially offset by additional lease exit, termination and other costs.

Amortization of purchased intangible assets

Amortization of acquired intangible assets related to developed technology, in-process research and development, customer relationships, and trademarks increased by $0.6 million in the third quarter of 2012 compared to the same period in 2011. The increase was primarily the result of additional intangible asset amortization related to the November 2010 acquisition of Wintegra and 2012 acquisition of certain assets from Maxim Inc. (“Maxim”).

Impairment of goodwill and purchased intangible assets

During the third quarter of 2012, we recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave, Inc. (“Passave”) and the 2010 acquisition of Wintegra, Inc. (“Wintegra”). See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies for details.

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Other (expense) income and Recovery of (provision for) income taxes

	Third Quarter
($ millions)	2012			2011			Change
Revaluation of liability for contingent consideration	$	—		$	29.4			(100	)%
Gain on investment securities and other	$	0.2		$	0.2			—	%
Amortization of debt issue costs	$	(0.1	)	$	(0.1	)		—	%
Foreign exchange (loss) gain	$	(2.5	)	$	3.6			(169	)%
Interest expense, net	$	(0.8	)	$	(0.5	)		(60	)%
Recovery of (provision for) income taxes	$	7.1		$	(5.4	)		231	%

Revaluation of liability for contingent consideration

See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 2. Business Combinations for details.

Gain on investment securities and other

We recorded a gain on sale of investment securities of $0.2 million related to the disposition of investment securities in the third quarter of 2012 and 2011.

Amortization of debt issue costs

We recorded amortization of debt issue costs of $0.1 million in the third quarter of 2012 and 2011, relating to our senior convertible notes.

Foreign exchange (loss) gain

We recognized a net foreign exchange loss of $2.5 million in the third quarter of 2012 compared to a net foreign exchange gain of $3.6 million in the third quarter of 2011. This was primarily due to foreign exchange gain and loss on the revaluation of our foreign denominated assets and liabilities. This was partly driven by the United States Dollar depreciating by approximately 3% during the third quarter of 2012 compared to appreciating by approximately 6% during the third quarter of 2011, against currencies applicable to our foreign operations.

Interest expense, net

Net interest expense was $0.8 million in the third quarter of 2012 compared to $0.5 million in the third quarter of 2011.

Recovery of (provision for) income taxes

See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 10. Income Taxes for details.

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First Nine Months of 2012 and 2011

Net revenues

	First Nine Months
($ millions)	2012		2011		Change
Net revenues	$	401.6	$	501.8		(20	)%

Net revenues for the first nine months of 2012 were $401.6 million compared to $501.8 million for the same period of 2011. This 20% year-over-year decrease was mainly attributable to lower volumes shipped. We continued to be affected by macro-economic uncertainty, which has our customers delaying investments in network infrastructure, and has impacted each of the Storage, Optical and Mobile market segments.

Storage represented 65% of our net revenues in the first nine months of 2012 compared to 58% in the same period of 2011. Storage net revenues decreased by 11% year-over-year due mainly to the factors described above.

Optical represented 21% of our net revenues in the first nine months of 2012 compared to 25% in the same period of 2011. Optical net revenues decreased by 34% year-over-year due mainly to the factors described above.

Mobile represented 14% of our net revenues in the first nine months of 2012 compared to 16% in the same period in 2011. The Mobile net revenues decreased by 32% year-over-year due mainly to the factors described above.

Gross profit

	First Nine Months
($ millions)	2012			2011			Change
Gross profit	$	280.3		$	337.3			(17	)%
Percentage of net revenues		70	%		67	%

Total gross profit decreased by $57 million in the first nine months of 2012 on lower net revenues compared to the same period in 2011. Gross profit as a percentage of net revenues increased 3%. This increase is mainly due to $9 million of expense related to our acquisition of Wintegra in November 2010, specifically, the effect of fair value adjustments related to inventory acquired from Wintegra and sold during the first half of 2011. As a result, gross profit as a percentage of net revenues would have been 69% had it not been for this fair value adjustment. The remainder of the change is mainly due to product mix. We were able to offset the negative effect on gross margin percentage of fixed costs over the lower net revenues in the first nine month of 2012 through cost saving initiatives.

Operating expenses

	First Nine Months
($ millions)	2012			2011			Change
Research and development	$	171.4		$	170.6			0	%
Percentage of net revenues		43	%		34	%
Selling, general and administrative	$	86.0		$	91.6			(6	)%
Percentage of net revenues		21	%		18	%
Amortization of purchased intangible assets	$	34.5		$	33.1			4	%
Percentage of net revenues		9	%		7	%
Impairment of goodwill and purchased intangible assets	$	276.1		$	—			100	%
Percentage of net revenues		69	%		0	%

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Research and Development and Selling, General and Administrative Expenses

Our R&D expense increased $0.8 million in the first nine months of 2012 compared to the same period in 2011.

This was primarily the result of higher payroll-related costs associated with planned hiring, higher product related tape-out costs, and termination costs incurred in the first nine months of 2012 partially offset by lower outside services due to the timing of projects.

Selling, general and administrative (“SG&A”) expenses was $5.6 million, or 6% lower in the first nine months of 2012 compared to the same period last year, mainly due to the reductions in payroll-related costs, lease exit costs and acquisition-related costs incurred in 2011.

Amortization of purchased intangible assets

Amortization of acquired intangible assets related to developed technology, in-process research and development, customer relationships, and trademarks increased by $1.4 million in the first nine months of 2012 compared to the same period in 2011. The increase was the result of additional intangible asset amortization related to the November 2010 acquisition of Wintegra and March 2012 acquisition of the SAS expander business from Maxim Integrated Products, Inc.

Impairment of goodwill and purchased intangible assets

During the first nine months of 2012, we recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave and 2010 acquisition of Wintegra. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies for details.

Other (expense) income and provision for income taxes

	First Nine Months
($ millions)	2012			2011			Change
Revaluation of liability for contingent consideration	$	—		$	29.4			(100	)%
Gain on investment securities and other	$	0.7		$	0.6			17	%
Amortization of debt issue costs	$	(0.2	)	$	(0.2	)		—	%
Foreign exchange (loss) gain	$	(2.0	)	$	1.5			(233	)%
Interest expense, net	$	(1.5	)	$	(2.0	)		25	%
Provision for income taxes	$	(53.6	)	$	(15.1	)		(255	)%

Revaluation of liability for contingent consideration

See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 2. Business Combinations for details.

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Gain on investment securities and other

We recorded a gain on sale of investment securities of $0.7 million and $0.6 million, related to the disposition of investment securities in the first nine months of 2012 and 2011, respectively.

Amortization of debt issue costs

We recorded amortization of debt issue costs of $0.2 million in the first nine months of 2012 and 2011, relating to our senior convertible notes.

Foreign exchange (loss) gain

We recognized a net foreign exchange loss of $2.0 million in the first nine months of 2012 compared to a net foreign exchange gain of $1.5 million in the first nine months of 2011. This was primarily due to foreign exchange gain and loss on the revaluation of our foreign denominated assets and liabilities. This was partly driven by the United States Dollar depreciating by approximately 2% during the first nine months of 2012 compared to appreciating by approximately 4% during the first nine months of 2011, against currencies applicable to our foreign operations.

Interest expense, net

Net interest expense decreased by $0.5 million in the first nine months of 2012 compared to first nine months of 2011.

Provision for income taxes

See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 10. Income Taxes for details.

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Critical Accounting Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect our reported assets, liabilities, revenue and expenses, and related disclosure of our contingent assets and liabilities. For a full discussion of our accounting estimates and assumptions that we have identified as critical in the preparation of our interim condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2011, which also provides commentary on our most critical accounting estimates.

As discussed more fully in our Form 10-K for the year ended December 31, 2011 in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Critical Accounting Policies and Estimates section and Item 8. Financial Statements and Supplementary Data, the Notes to the Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies, goodwill is reviewed for impairment annually and more frequently if an event occurs or circumstances change that could reduce the fair value below its carrying value. During the third quarter of 2012, we recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave and 2010 acquisition of Wintegra. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies for more details on this impairment.

Business Outlook

We expect our net revenues for the fourth quarter of 2012 to be approximately $121.2 million to $131.7 million. As in the past, and consistent with business practice in the semiconductor industry, a portion of our revenue is likely to be derived from orders placed and shipped during the same quarter, which we call our “turns business.” Our turns business varies from quarter to quarter. We expect the turns business percentage from the beginning of the fourth quarter of 2012 to be approximately 28%. A number of factors such as volatile macroeconomic conditions could impact achieving our revenue outlook.

We anticipate our fourth quarter 2012 gross margin percentage to be in the range of 70% to 71%, minus approximately 0.2% related to stock-based compensation expense. This could vary depending on the volumes of products sold, since many of our costs are fixed. The gross margin percentage will also vary depending on the mix of products sold.

In the fourth quarter of 2012, we expect operating expenses to be approximately $70 million to $71 million plus stock-based compensation expense of approximately $5.8 million to $6.8 million, and amortization of purchased intangible assets related to our past acquisitions of $10.8 million.

We anticipate that net interest income will be approximately $0.1 million in the fourth quarter of 2012, consisting of income earned from our cash and cash equivalents, short-term investments and long-term investment securities, partially offset by interest expense related to our outstanding senior convertible notes.

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Liquidity & Capital Resources

Our principal sources of liquidity are cash from operations, short-term investments and long-term investment securities. We employ these sources of liquidity to support ongoing business activities, acquire or invest in critical or complementary technologies, purchase capital equipment, repay any short-term indebtedness, and finance working capital. Currently, our primary objective for use of discretionary cash has been to repurchase and retire a portion of our common stock. The combination of cash and cash equivalents, short-term investments, and long-term investment securities at September 30, 2012 totaled $331.9 million and is comprised of the following:

	September 30, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*			Fair Value
Cash and cash equivalents:
Cash	$	93,742	$	—	$	—		$	93,742
Money market funds		17,727		—		—			17,727
Corporate bonds and notes		1,750		—		—			1,750
US treasury and government agency notes		—		—		—			—
Total cash and cash equivalents		113,219		—		—			113,219
Short-term investments:
Corporate bonds and notes		50,791		1,510		—			52,301
US Treasury and Government Agency notes		3,808		16		—			3,824
Foreign Government and Agency notes		—		—		—			—
US States and Municipal securities		1,720		26		—			1,746
Total short-term investments		56,319		1,552		—			57,871
Long-term investment securities:
Corporate bonds and notes		129,506		923		(21	)		130,408
US Treasury and Government Agency notes		26,906		78		(1	)		26,983
Foreign Government and Agency notes		3,395		60		—			3,455
Total long-term investment securities		159,807		1,061		(22	)		160,846
Total	$	329,345	$	2,613	$	(22	)	$	331,936

* Gross unrealized gains include accrued interest on investments of $1.4 million. The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

Most of our cash and cash equivalents, short-term investments, and long-term investment securities balances at September 30, 2012 were held by our United States parent company.

Operating Activities

In the first nine months of 2012, cash generated from operations was $64.7 million, less a $20 million payment of withholding taxes related to an intercompany dividend paid to fund our stock buyback program. The primary adjustments to net income to arrive at operating cash flow are: $48.7 million of depreciation and amortization, $20 million of stock based compensation expense and $277.2 million impairment of goodwill and purchased intangible assets. While changes in our working capital accounts were primarily due to normal variations in timing of receipts and payments, we have been tightly managing our inventory levels to improve inventory turns, which contributed $12.5 million to operating cash flows. We have also monitored and controlled inventory held by our distributors resulting in a decreased deferred revenue balance. While this has had the effect of a $3.3 million operating cash outflow, it has resulted in improved inventory turns at distributors.

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Investing Activities

We had a net inflow of cash of $60.6 million from investing activities in the first nine months of 2012, an increase of $117.7 million over the same period in 2011. During this period, we generated $193.9 million from the disposal and redemption of short- and long-term investments, in part to fund the share repurchases conducted in the third quarter of 2012. We purchased $87.3 million of these short-and long-term investments. We also invested $46 million in property and equipment, intangible assets, including a business acquisition in the nine months ended September 30, 2012.

Financing Activities

On May 2, 2012, the Company entered into an Accelerated Stock Buyback (“ASB”) program with Goldman, Sachs & Co. (“Goldman”) to repurchase an aggregate of $160 million of our common stock. During the nine months ended September 30, 2012, we repurchased 22.2 million shares under the ASB and a further 5.2 million shares on the open market as authorized by our Board of Directors. At September 30, 2012, we have paid $190.6 million in connection with the Company’s stock buyback program. Subsequent to the third quarter of 2012, the ASB and our 2012 Stock Buyback Plan was completed. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 12. Stock Repurchase Program and Accelerated Stock Buyback.

Also, subsequent to the third quarter of 2012, we retired our outstanding Senior Convertible Notes for their aggregate face value of $68.3 million. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 9. Senior Convertible Notes.

Proceeds from employee related stock issuances in the first nine months of 2012 were $15.9 million.

Contractual Obligations

As of September 30, 2012, we had cash commitments made up of the following:

	Payments due in:
(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations:
Minimum Rental Payments	$	44,664	$	2,504	$	16,528	$	12,631	$	13,001
Estimated Operating Cost Payments		13,834		894		5,633		4,323		2,984
Senior Convertible Notes:
Principal Repayment		68,340		68,340		—		—		—
Interest Payments		769		769		—		—		—
Purchase and Other Obligations		11,765		7,042		4,223		500		—
Total	$	139,372	$	79,549	$	26,384	$	17,454	$	15,985

In addition to the amounts shown in the table above, we have recorded a $72.7 million liability for unrecognized tax benefits as of September 30, 2012, and we are uncertain as to if or when such amounts may be realized.

Purchase obligations, as noted in the above table, are comprised of commitments to purchase design tools and software for use in product development. Excluded from these purchase obligations are commitments for inventory or other expenses entered into in the normal course of business. We estimate these other commitments to be approximately $21.4 million at September 30, 2012 for inventory and other expenses that will be received within 90 days and that will require settlement 30 days thereafter.

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Also, in addition to the amounts shown in the table above, we expect to use approximately $7 million of cash in the remainder of 2012 for property and equipment and purchases of intellectual property.

We continue to expect that our cash from operations, short-term investments and long-term investment securities will continue to be our primary sources of liquidity. Based on our current operating prospects, we believe that existing sources of liquidity will satisfy our projected operating, working capital, investing, and capital expenditures through the next twelve months.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion regarding our risk management activities contains “forward-looking statements” that involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements.

Cash Equivalents, Short-Term Investments and Long-Term Investment Securities:

We regularly maintain a portfolio of short and long-term investments comprised of various types of money market funds, United States treasury and government agency notes including FDIC-insured corporate notes, United States state and municipal securities, foreign government and agency notes, and corporate bonds and notes. Our investments are made in accordance with an investment policy approved by our Board of Directors. Our investment policy sets guidelines for diversification and maturities that intend to preserve principal, while meeting liquidity needs. Maturities of these instruments are 36 months or less. To minimize credit risk, we diversify our investments and select minimum ratings of P-1 or A3 by Moody’s, or A-1 or A- by Standard and Poor’s, or equivalent. We classify these securities as available-for-sale and they are carried at fair market value. Our corporate policies prevent us from holding material amounts of asset-backed commercial paper.

Investments in instruments with both fixed and floating rates carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations because of changes in interest rates, or we may suffer losses in principal if we were to sell securities that have declined in market value because of changes in interest rates.

We do not attempt to reduce or eliminate our exposure to interest rate risk through the use of derivative financial instruments.

Based on a sensitivity analysis performed on the financial instruments held at September 30, 2012, the impact to the fair value of our investment portfolio by a shift in the yield curve of plus or minus 50, 100, or 150 basis points would result in a decline, or increase, in portfolio value of approximately $1.6 million, $3.2 million, and $4.8 million, respectively.

Senior Convertible Notes:

At September 30, 2012, $68.3 million in face value of our 2.25% senior convertible notes were outstanding. Because we pay fixed interest coupons on our senior convertible notes, market interest rate fluctuations do not impact our debt interest payments. However, the fair value of our senior convertible notes will fluctuate as a result of changes in the price of our common stock, changes in market interest rates, and changes in our credit worthiness.

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Our 2.25% senior convertible notes are not listed on any securities exchange or included in any automated quotation system but are registered for resale under the Securities Act of 1933. The notes rank equal in right of payment with our other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by us at our option, or converted or put to us at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year. These interest payments commenced on April 15, 2006. We may redeem all or a portion of the notes at par on and after October 20, 2012. We redeemed $156.7 million of the principal of these notes in 2008 at a cost of $138.3 million, including transaction fees and accrued interest. The holders may require that we repurchase the notes on October 15, 2012, 2015 and 2020 respectively.

Holders may convert the notes into the right to receive the conversion value (i) when our stock price exceeds 120% of the approximately $8.80 per share initial conversion price for a specified period, (ii) in certain change in control transactions, and (iii) when the trading price of the notes does not exceed a minimum price level. For each $1,000 principal amount of notes, the conversion value represents the amount equal to 113.6687 shares multiplied by the per share price of our common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of notes, we will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at our election.

Subsequent to the third quarter of 2012, we redeemed the Senior Convertible Notes at face value of $68.3 million. The redemption took place at one hundred per cent of the outstanding principal amount of the notes accrued plus accrued and unpaid interest. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 9. Senior Convertible Notes.

Foreign Currency:

Our sales and corresponding receivables are denominated primarily in United States dollars. We generate a significant portion of our revenues from sales to customers located outside the United States including Asia, Europe and Canada. We are subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in these or other factors.

Through our operations in Canada and elsewhere outside of the United States, we incur research and development, sales, customer support and administrative expenses in various foreign currencies. We are exposed, in the normal course of business, to foreign currency risks on these expenditures, primarily in Canada. In our effort to manage such risks, we have adopted a foreign currency risk management policy intended to reduce the effects of potential short-term fluctuations on our operating results stemming from our exposure to these risks. As part of this risk management, we enter into foreign exchange forward contracts. These forward contracts offset the impact of exchange rate fluctuations on forecasted cash flows or firm commitments. We limit the forward contracts operational period to 12 months or less and we do not enter into foreign exchange forward contracts for trading purposes. Because we do not engage in foreign exchange risk management techniques beyond these periods, our cost structure is subject to long-term changes in foreign exchange rates. In the event that one of the counterparties to our forward currency contracts failed to complete the terms of their contracts, we would purchase foreign currencies at the spot rate as of the date the funds were required. If the counterparties to our foreign forward currency contracts that matured in the fiscal quarter ended September 30, 2012 had not fulfilled their contractual obligations and we were required to purchase the foreign currencies at the spot market rate on respective settlement dates, our operating income for the first nine months of 2012 would have increased by $0.3 million. See Part I. Financial Information, Item 1. Financial Statements, the Notes to the Condensed Consolidated Financial Statements, Note 3. Derivative Instruments for further details.

We attempt to limit our exposure to foreign exchange rate fluctuations from our foreign currency net asset or liability positions. In the first nine months of 2012, we recorded a $2.1 million foreign exchange loss on the revaluation of our net tax liabilities in a foreign jurisdiction. The revaluation of our foreign income tax liabilities was required because of fluctuations in the value of the United States dollar against other currencies. Our operating income would be materially impacted by a shift in the foreign exchange rates between United States and foreign currencies that are material to our business. For example, a five percent shift in the foreign exchange rates between United States dollar and Canadian dollar would impact our pre-tax income by approximately $3.3 million.

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Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our management evaluated, with the participation of our chief executive officer and our chief financial officer, our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the first nine months of 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

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ITEM 1A. RISK FACTORS.

Our company is subject to a number of risks. Some of these risks are common in the fabless semiconductor industry, some are the same or similar to those disclosed in previous SEC filings, and some may be present in the future. You should carefully consider all of these risks and the other information in this report before investing in PMC. The fact that certain risks are endemic to the industry does not lessen the significance of the risk.

As a result of the following risks, our business, financial condition, operating results and/or liquidity could be materially adversely affected. This could cause the trading price of our securities to decline, and you may lose part or all of your investment.

Our global growth is subject to a number of economic risks.

We conduct business throughout the world, including in Asia, North America, Europe and the Middle East. Instability in the global credit markets, including the recent European economic and financial turmoil related to sovereign debt issues in certain countries, the instability in the geopolitical environment in many parts of the world and other disruptions, such as changes in energy costs, may continue to put pressure on global economic conditions. The world has recently experienced a global macroeconomic downturn. To the extent global economic and market conditions, or economic conditions in key markets, remain uncertain or deteriorate further, business, operating results, and financial condition may be materially adversely impacted.

Additionally, given the greater credit restrictions that are being invoked by lenders around the world, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to access such capital markets, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.

We are subject to rapid changes in demand for our products due to:

• variations in our turns business;

• short order lead time;

• customer inventory levels;

• production schedules; and

• fluctuations in demand.

As a result, there could be significant variability in the demand for our products, and our past operating results may not be indicative of our future operating results.

Fluctuation in demand is dependent on, among other things, the size of the markets for our products, the rate at which such markets develop, and the level of capital spending by end customers. We cannot assure you of the rate, or extent to which, capital spending by end customers will grow, if at all.

Our revenues and profits may fluctuate because of factors that are beyond our control. As a result, we may fail to meet the expectations of securities analysts and investors, which could cause our stock price to decline.

Our ability to project revenues is limited because a significant portion of our quarterly revenues may be derived from orders placed and shipped in the same quarter, which we call our “turns business.” Our turns business varies widely from quarter to quarter. Our customers may delay product orders and reduce delivery lead-time expectations, which may reduce our ability to project revenues beyond the current quarter. While we regularly evaluate end users’ and contract manufacturers’ inventory levels of our products to assess the impact of their inventories on our projected turns business, we do not have complete information on their inventories. This could cause our projections of a quarter’s turns business to be inaccurate, leading to lower revenues than projected.

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We may fail to meet our forecasts if our customers cancel or delay the purchase of our products or if we are unable to meet their demand.

We rely on customer forecasts in order to estimate the appropriate levels of inventory to build and to project our future revenues. Many of our customers have numerous product lines, numerous component requirements for each product, sizeable and complex supplier structures, and typically engage contract manufacturers for additional manufacturing capacity. This complex supply chain creates several variables that make it difficult to accurately forecast our customers’ demand and accurately monitor their inventory levels of our products. If customer forecasts are not accurate, we may build too much inventory, potentially leaving us with excess and obsolete inventory, which would reduce our profit margins and adversely affect our operating results. Conversely, we may build too little inventory to meet customer demand causing us to miss revenue-generating opportunities. The cancellation or deferral of product orders, the return of previously sold products or overproduction due to the failure of anticipated orders to materialize, could result in our holding excess or obsolete inventory, which could in turn result in write-downs of inventory. This difficulty may be compounded when we sell to OEMs indirectly through distributors and other resellers or contract manufacturers, or both, as our forecasts of demand are then based on estimates provided by multiple parties.

Our customers often shift buying patterns as they manage inventory levels, market different products, or change production schedules. This makes forecasting their production requirements difficult and can lead to an inventory surplus or shortage of certain components. In addition, our products vary in terms of the profit margins they generate. If our customers purchase a greater proportion of our lower margin parts in a particular period, it would adversely impact our results of operations.

Further, our distributors provide us with periodic reports of their backlog to end customers, sales to end customers and quantities of our products that they have on hand. If the data that is provided to us is inaccurate, it could lead to inaccurate forecasting of our revenues or errors in our reported revenues, gross profit and net income.

While backlog is our best estimate of our next quarter’s expectations of revenues, it is industry practice to allow customers to cancel, change or defer orders with limited advance notice prior to shipment. As such, backlog may be an unreliable indicator of future revenue levels. Because a significant portion of our operating expenses is fixed, even a small revenue shortfall can have a disproportionately negative effect on our operating results.

We rely on a few customers for a major portion of our sales, any one of which could materially impact our revenues should they change their ordering pattern. The loss of a key customer could materially impact our results of operations.

We depend on a limited number of customers for large portions of our net revenues. During the rolling twelve month period ended September 30, 2012, we had one end customers that each accounted for more than 10% of our revenues, namely Hewlett-Packard Company (“HP”).

During the first nine months of 2012 and 2011, our top ten customers accounted for more than 60% of our net revenues. We do not have long-term volume purchase commitments from any of our major customers. We sell our products solely on the basis of purchase orders. Those customers could decide to cease purchasing products with little or no notice and without significant penalties. A number of factors could cause our customers to cancel or defer orders, including interruptions to their operations due to a downturn in their industries, delays in manufacturing their own product offerings into which our products are incorporated, and natural disasters. Accordingly, our future operating results will continue to depend on the success of our largest customers and on our ability to sell existing and new products to these customers in significant quantities.

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The loss of a key customer, or a reduction in our sales to any major customer or our inability to attract new significant customers could materially and adversely affect our business, financial condition or results of operations.

We generate a portion of our sales through third-party distribution agreements. Termination of a distributor agreement either by us or a distributor, could result in a temporary or permanent loss of revenue, if we cannot establish an alternative distributor to manage this portion of our business, or we are unable to service the related end customers directly. Further, if we terminate a distributor agreement, we may be required to repurchase unsold inventory held by the distributor. We maintain a reserve for estimated returns. If actual returns exceed our estimate, there may be an adverse effect on our operating results.

If the demand for our customers’ products declines, demand for our products will be similarly affected and our revenues, gross margins and operating performance will be adversely affected.

Our customers are subject to their own business cycles, most of which are unpredictable in commencement, depth and duration. We cannot accurately predict the continued demand of our customers’ products and the demands of our customers for our products. In the past, networking customers have reduced capital spending without notice, adversely affecting our revenues. As a result of this uncertainty, our past operating results may not be indicative of our future operating results. It is possible that, in future periods, our results may be below the expectations of public market analysts and investors. This could cause the market price of our common stock to decline.

Changes in the political and economic climate in the countries in which we do business may adversely affect our operating results.

We earn a substantial proportion of our revenues in Asia. We conduct an increasing portion of our research and development and manufacturing activities outside North America. We procure substantially all of our wafers from Taiwan and use assemblers and testers throughout Asia.

Given the depth of our sales and operations in Asia, we face risks that could negatively impact our results of operations, including economic sanctions imposed by the U.S. government, imposition of tariffs and other potential trade barriers or regulations, uncertain protection for intellectual property rights and generally longer receivable collection periods. In addition, fluctuations in foreign currency exchange rates could adversely affect the revenues, net income, earnings per share and cash flow of our operations in affected markets. Similarly, fluctuations in exchange rates may affect demand for our products in foreign markets or our cost competitiveness and may adversely affect our profitability.

Our results of operations continue to be influenced by our sales to customers in Asia. Government agencies in this region have broad discretion and authority over many aspects of the telecommunications and information technology industry. Accordingly, their decisions may impact our ability to do business in this region, and significant changes in this region’s political and economic conditions and governmental policies could have a substantial negative impact on our business.

The loss of key personnel could delay us from designing new products.

To succeed, we must retain and hire technical personnel highly skilled at design and test functions needed to develop high-speed networking products. The competition for such employees is intense.

We do not have employment agreements in place with many of our key personnel. As employee incentives, we issue common stock options and restricted stock grants that are subject to time vesting, and, in the case of options, have exercise prices at the market value on the grant date. As our stock price varies substantially, the equity awards to employees are effective as retention incentives only if they have economic value.

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Our revenues may decline if we do not maintain a competitive portfolio of products or if we fail to secure design wins.

We are experiencing significantly greater competition in the markets in which we participate. We are expanding into market segments, such as the Storage, Mobile and Optical market segments, which have established incumbents with substantial financial and technological resources. We expect more intense competition than that which we have traditionally faced as some of these incumbents derive a majority of their earnings from these markets.

We typically face competition at the design stage, where customers evaluate alternative design approaches requiring integrated circuits. We often compete in bid selection processes to achieve design wins. These selection processes can be lengthy and can require us to invest significant effort and incur significant design and development expenditures. We may not win competitive selection processes, and even if we do win such processes, we may not generate the expected level of revenue despite incurring significant design and development expenditures. Because the life cycles of our customers’ products can last several years and changing suppliers involves significant cost, time, effort and risk, our failure to win a competitive bid can result in our foregoing revenue from a given customer’s product line for the life of that product.

The markets for our products are intensely competitive and subject to rapid technological advancement in design tools, wafer manufacturing techniques, process tools and alternate networking technologies. We may not be able to develop new products at competitive pricing and performance levels. Even if we are able to do so, we may not complete a new product and introduce it to market in a timely manner. Our customers may substitute use of our products in their next generation equipment with those of current or future competitors, reducing our future revenues. With the shortening product life and design-in cycles in many of our customers’ products, our competitors may have more opportunities to supplant our products in next generation systems.

Our customers are increasingly price conscious, as semiconductors sourced from third party suppliers comprise a greater portion of the total materials cost in networking equipment. We continue to experience aggressive price competition from competitors that wish to enter into the market segments in which we participate. These circumstances may make some of our products less competitive, and we may be forced to decrease our prices significantly to win a design. We may lose design opportunities or may experience overall declines in gross margins as a result of increased price competition.

Over the next few years, we expect additional competitors, some of which may also have greater financial and other resources, to enter these markets with new products. These companies, individually or collectively, could represent future competition for many design wins and subsequent product sales.

Design wins do not translate into near-term revenues and the timing of revenues from newly designed products is often uncertain.

From time to time, we announce new products and design wins for existing and new products. While some industry analysts may use design wins as a metric for future revenues, many design wins have not, and will not, generate any revenues for us, as customer projects are cancelled or unsuccessful in their end market. In the event a design win generates revenues, the amount of revenues will vary greatly from one design win to another. In addition, most revenue-generating design wins do not translate into near-term revenues. Most revenue-generating design wins take more than two years to generate meaningful revenues.

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Since many of the products we develop do not reach full production sales volumes for a number of years, we may incorrectly anticipate market demand and develop products that achieve little or no market acceptance.

Our products generally take between 12 and 24 months from initial conceptualization to development of a viable prototype, and another three to 18 months to be designed into our customers’ equipment and sold in production quantities. We sell products whose characteristics include evolving industry standards, short product life spans and new manufacturing and design technologies. Our products often must be redesigned because manufacturing yields on prototypes are unacceptable or customers redefine their products to meet changing industry standards or customer specifications. As a result, we develop products many years before volume production and may inaccurately anticipate our customers’ needs. Redesigning our products is expensive and may delay production of our products. Our products may become obsolete during these delays, resulting in our inability to recoup our initial investments in product development.

We may be unsuccessful in transitioning the design of our new products to new manufacturing processes.

Many of our new products are designed to take advantage of new manufacturing processes offering smaller device geometries as they become available, since smaller geometries can provide a product with improved features such as lower power requirements, increased performance, more functionality and lower cost. We believe that the transition of our products to, and introduction of new products using, smaller device geometries is critical for us to remain competitive. We could experience difficulties in migrating to future smaller device geometries or manufacturing processes, which would result in the delay of the production of our products. Our products may become obsolete during these delays, or allow competitors’ parts to be chosen by customers during the design process.

The final determination of our income tax liability may be materially different from our income tax provision.

We are subject to income taxes in both the United States and international jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions where the ultimate tax determination is uncertain. Additionally, our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file. Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals. Should additional taxes be assessed as a result of new legislation, an audit or litigation, if our effective tax rate should change as a result of changes in federal, international or state and local tax laws, or if we were to change the locations where we operate, there could be a material effect on our income tax provision and results of operations in the period or periods in which that determination is made, and potentially to future periods as well.

The ultimate resolution of outstanding tax matters could be for amounts in excess of our reserves established. Such events could have a material adverse effect on our liquidity or cash flows in the quarter in which an adjustment is recorded or the tax payment is due.

If foreign exchange rates fluctuate significantly, our profitability may decline.

We are exposed to foreign currency rate fluctuations because a significant part of our development, test, and selling and administrative costs are incurred in foreign currencies. The U.S. dollar has fluctuated significantly compared to other foreign currencies and this trend may continue. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we enter into foreign currency forward contracts. The contracts reduce, but do not eliminate, the impact of foreign currency exchange rate movements. In addition, this foreign currency risk management policy may not be effective in addressing long-term fluctuations since our contracts do not extend beyond a 12-month maturity.

We regularly limit our exposure to foreign exchange rate fluctuations from our foreign net asset or liability positions. We recorded a net $2.1 million foreign exchange loss on the revaluation of our income tax liability in the first nine months of 2012 because of the fluctuations in the U.S. dollar against certain foreign currencies. A five percent shift in the foreign exchange rates between the U.S. and Canadian dollar would cause an approximately $3.3 million impact to our pre-tax net income.

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We are exposed to the credit risk of some of our customers.

Many of our customers employ contract manufacturers to produce their products and manage their inventories. Many of these contract manufacturers represent greater credit risk than our OEM customers, who do not guarantee our credit receivables related to their contract manufacturers.

In addition, a significant portion of our sales flow through our distribution channel. This generally represents a higher credit risk. Should these companies encounter financial difficulties, our revenues could decrease, and collection of our significant accounts receivables with these companies or other customers could be jeopardized.

Our business strategy contemplates acquisition of other products, technologies or businesses, which could adversely affect our operating performance.

Acquiring products, intellectual property, technologies and businesses from third parties is a core part of our business strategy. That strategy depends on the availability of suitable acquisition candidates at reasonable prices and our ability to resolve challenges associated with integrating acquired businesses into our existing business. These challenges include integration of product lines, sales forces, customer lists and manufacturing facilities, development of expertise outside our existing business, diversion of management time and resources, possible divestitures, inventory write-offs and other charges. We also may be forced to replace key personnel who may leave our company as a result of an acquisition. We cannot be certain that we will find suitable acquisition candidates or that we will be able to meet these challenges successfully. Acquisitions could also result in customer dissatisfaction, performance problems with the acquired company, investment, or technology, the assumption of contingent liabilities, or other unanticipated events or circumstances, any of which could harm our business. Consequently, we might not be successful in integrating any acquired businesses, products or technologies and may not achieve anticipated revenues and cost benefits.

An acquisition could absorb substantial cash resources, require us to incur or assume debt obligations, or issue additional equity. If we are not able to obtain financing, then we may not be in a position to consummate acquisitions. If we issue equity securities in connection with an acquisition, we may dilute our common stock with securities that have an equal or a senior interest in our company.

From time to time, we license, or acquire, technology from third parties to incorporate into our products. Incorporating technology into our products may be more costly or more difficult than expected, or require additional management attention to achieve the desired functionality. The complexity of our products could result in unforeseen or undetected defects or bugs, which could adversely affect the market acceptance of new products and damage our reputation with current or prospective customers.

Our current product roadmap will, in part, be dependent on successful acquisition and integration of intellectual property cores developed by third parties. If we experience difficulties in obtaining or integrating intellectual property from these third parties, it could delay or prevent the development of our products in the future.

Although our customers, our suppliers and we rigorously test our products, our highly complex products may contain defects or bugs. We have in the past experienced, and may in the future experience, defects and bugs in our products. If any of our products contain defects or bugs, or have reliability, quality or compatibility problems that are significant to our customers, our reputation may be damaged and customers may be reluctant to buy our products. This could materially and adversely affect our ability to retain existing customers or attract new customers. In addition, these defects or bugs could interrupt or delay sales to our customers.

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We may have to invest significant capital and other resources to alleviate problems with our products. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur additional development costs and product recall, repair or replacement costs. These problems may also result in claims against us by our customers or others. In addition, these problems may divert our technical and other resources from other development efforts. Moreover, we would likely lose or experience a delay in, market acceptance of the affected product or products, and we could lose credibility with our current and prospective customers.

Industry consolidation may lead to increased competition and may harm our operating results.

There has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt to improve the leverage of growing research and development costs, strengthen or hold their market positions in an evolving industry or are unable to continue operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results and financial condition.

Our business may be adversely affected if our customers or suppliers cannot obtain sufficient supplies of other components needed in their product offerings to meet their production projections and target quantities.

Some of our products are used by customers in conjunction with a number of other components, such as transceivers, microcontrollers and digital signal processors. If, for any reason, our customers experience a shortage of any component, their ability to produce the forecasted quantity of their product offerings may be affected adversely and our product sales would decline until the shortage is remedied. Such a situation could harm our operating results, cash flow and financial condition.

We rely on limited sources of wafer fabrication, the loss of which could delay and limit our product shipments.

We do not own or operate a wafer fabrication facility. In the first nine months of 2012, three outside wafer foundries supplied more than 95% of our semiconductor wafer requirements. Our wafer foundry suppliers also make products for other companies and some make products for themselves, thus we may not have access to adequate capacity or certain process technologies. We also have less control over delivery schedules, manufacturing yields and costs than competitors with their own fabrication facilities. If the wafer foundries we use are unable or unwilling to manufacture our products in required volumes, or at specified times, we may have to identify and qualify acceptable additional or alternative foundries. This qualification process could take six months or longer. We may not find sufficient capacity quickly enough or at an acceptable cost, to satisfy our production requirements.

Some companies that supply our customers are similarly dependent on a limited number of suppliers to produce their products. These other companies’ products may be designed into the same networking equipment into which our products are designed. Our order levels could be reduced materially if these companies are unable to access sufficient production capacity to produce in volumes demanded by our customers because our customers may be forced to slow down or halt production on the equipment into which our products are designed.

We depend on third parties for the assembly and testing of our semiconductor products, which could delay and limit our product shipments.

We depend on third parties in Asia for the assembly and testing of our semiconductor products. In addition, subcontractors in Asia assemble all of our semiconductor products into a variety of packages. Raw material shortages, political, economic and social instability, assembly and testing house service disruptions, currency fluctuations, or other circumstances in the region could force us to seek additional or alternative sources of supply, assembly or testing. This could lead to supply constraints or product delivery delays that, in turn, may result in the loss of revenues. At times, capacity in the assembly industry has become scarce and lead times have lengthened. This capacity shortage may become more severe, which could in turn adversely affect our revenues. We have less control over delivery schedules, assembly processes, testing processes, quality assurances, raw material supplies and costs than competitors that do not outsource these tasks.

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Due to the amount of time that it usually takes us to qualify assemblers and testers, we could experience significant delays in product shipments if we are required to find alternative assemblers or testers for our components. Any problems that we may encounter with the delivery, quality or cost of our products could damage our customer relationships and materially and adversely affect our results of operations. We are continuing to develop relationships with additional third-party subcontractors to assemble and test our products. However, even if we use these new subcontractors, we will continue to be subject to all of the risks described above.

Our business is vulnerable to interruption by earthquake, flooding, fire, power loss, telecommunications failure, terrorist activity and other events beyond our control.

We do not have sufficient business interruption insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could have a material adverse effect on our business. We are vulnerable to a major earthquake and other calamities. We have operations in seismically active regions in California, Japan and British Columbia, Canada, and we rely on third-party suppliers, including wafer fabrication and testing facilities, in seismically active regions in Asia, which have recently experienced natural disasters. To the extent that manufacturing issues and any related component shortages result in delayed shipments in the future, and particularly in periods in which we and our contract manufacturers are operating at higher levels of capacity, it is possible that revenue for a quarter could be adversely affected if such matters occur and are not remediated within the same quarter.

We are unable to predict the effects of any such events, but the effects could be seriously harmful to our business.

Hostilities in the Middle East and India may have a significant impact on our Israeli and Indian subsidiaries’ ability to conduct their business.

We have operations, which are primarily research and development facilities, located in Israel and India which employ approximately 230 and 150 people, respectively. A catastrophic event, such as a terrorist attack or the outbreak of hostilities that results in the destruction or disruption of any of our critical business or information technology systems in Israel or India could harm our ability to conduct normal business operations and therefore negatively impact our operating results.

On an on-going basis, some of our Israeli employees are periodically called into active military duty. In the event of severe hostilities breaking out, a significant number of our Israeli employees may be called into active military duty, resulting in delays in various aspects of production, including product development schedules.

From time to time, we become defendants in legal proceedings about which we are unable to assess our exposure and which could become significant liabilities upon judgment.

We become defendants in legal proceedings from time to time. Companies in our industry have been subject to claims related to patent infringement and product liability, as well as contract and personal claims. We may not be able to accurately assess the risk related to these suits and we may be unable to accurately assess our level of exposure. These proceedings may result in material charges to our operating results in the future if our exposure is material and if our ability to assess our exposure becomes clearer.

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If we cannot protect our proprietary technology, we may not be able to prevent competitors from copying or misappropriating our technology and selling similar products, which would harm our business.

To compete effectively, we must protect our intellectual property. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We hold numerous patents and have a number of pending patent applications. However, our portfolio of patents evolves as new patents are issued and older patents expire and the expiration of patents could have a negative effect on our ability to prevent competitors from duplicating certain of our products.

We might not succeed in obtaining patents from any of our pending applications. Even if we are awarded patents, they may not provide any meaningful protection or commercial advantage to us, as they may not be of sufficient scope or strength, or may not be issued in all countries where our products can be sold. In addition, our competitors may be able to design around our patents.

To protect our product technology, documentation and other proprietary information, we enter into confidentiality agreements with our employees, customers, consultants and strategic partners. We require our employees to acknowledge their obligation to maintain confidentiality with respect to PMC’s products. Despite these efforts, we cannot guarantee that these parties will maintain the confidentiality of our proprietary information in the course of future employment or working with other business partners. We develop, manufacture and sell our products in Asia and other countries that may not protect our intellectual property rights to the same extent as the laws of the United States. This makes piracy of our technology and products more likely. Steps we take to protect our proprietary information may not be adequate to prevent theft of our technology. We may not be able to prevent our competitors from independently developing technologies that are similar to or better than ours.

Our products employ technology that may infringe on the intellectual property and the proprietary rights of third parties, which may expose us to litigation and prevent us from selling our products.

Vigorous protection and pursuit of intellectual property rights or positions characterize the semiconductor industry. This often results in expensive and lengthy litigation. We, and our customers or suppliers, may be accused of infringing patents or other intellectual property rights owned by third parties in the future. An adverse result in any litigation against us or a customer or supplier could force us to pay substantial damages, stop manufacturing, using and selling the infringing products, spend significant resources to develop non-infringing technology, discontinue using certain processes or obtain licenses to the infringing technology. In addition, we may not be able to develop non-infringing technology or find appropriate licenses on reasonable terms or at all. Although some of our suppliers have agreed to indemnify us against certain intellectual property infringement claims or other losses relating to their products, these contractual indemnification rights may not cover the full extent of losses we incur as a result of these suppliers’ products.

Patent disputes in the semiconductor industry are often settled through cross-licensing arrangements. Our portfolio of patents may not have the breadth to enable us to settle an alleged patent infringement claim through a cross-licensing arrangement. We may therefore be more exposed to third party claims than some of our larger competitors and customers.

The majority of our customers are required to obtain licenses from and pay royalties to third parties for the sale of systems incorporating our semiconductor devices. Customers may also make claims against us in connection with infringement claims made against them that relate to our products or components included in our products, even where we obtain the components from a supplier. For example, we have been notified by two customers of patent infringement claims by BIAX Corporation, allegedly involving components that we obtain from a supplier and use in our products. While we have not incurred any losses from these claims to date or been made a party to the related litigation, we are currently reviewing these claims and our indemnification obligations and rights as well as supporting our customers’ efforts to defend these claims against them. We are incurring costs associated with this work and responding to BIAX Corporation’s subpoena. Further, there can be no assurance that we will not incur future losses in connection with such claims or, if we incur any losses, that we will be fully indemnified against such losses by the supplier.

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Furthermore, we may initiate claims or litigation against third parties for infringing our proprietary rights or to establish the validity of our proprietary rights. This could consume significant resources and divert the efforts of our technical and management personnel, regardless of the litigation’s outcome.

We may be subject to intellectual property theft or misuse, which could result in third-party claims and harm our business and results of operations.

We regularly face attempts by others to gain unauthorized access through the Internet to our information technology systems, such as when such parties masquerade as authorized users or surreptitiously introduce software. We might become a target of computer hackers who create viruses to sabotage or otherwise attack our products and services. Hackers might attempt to penetrate our network security and gain access to our network and our data centers, misappropriate our or our customers’ proprietary information, including personally identifiable information, or cause interruptions of our internal systems and services. We seek to detect and investigate these security incidents and to prevent their recurrence, but in some cases we might be unaware of an incident or its magnitude and effects. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and reduce marketplace acceptance of our products; the value of our investment in R&D, product development, and marketing could be reduced; and third parties might assert against us or our customers claims related to resulting losses of confidential or proprietary information or end-user data, or system reliability. Our business could be subject to significant disruption, and we could suffer monetary and other losses, including the cost of product recalls and returns and reputational harm, in the event of such incidents and claims.

Securities we issue to fund our operations could dilute your ownership.

We may decide to raise additional funds through public or private debt or equity financing. If we raise funds by issuing equity securities, the percentage ownership of current stockholders will be reduced and the new equity securities may have priority rights to your investment. We may not obtain sufficient financing on terms that are favorable to you or us. We may delay, limit or eliminate some or all of our proposed operations if adequate funds are not available.

Our stock price has been and may continue to be volatile.

We expect that the price of our common stock will continue to fluctuate significantly, as it has in the past. In particular, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction particularly when viewed on a quarterly basis.

Securities class action litigation has often been instituted against a company following periods of volatility and decline in the market price of their securities. If instituted against us, regardless of the outcome, such litigation could result in substantial costs and diversion of our management’s attention and resources and have a material adverse effect on our business, financial condition and operating results. In addition, we could incur substantial punitive and other damages relating to such litigation.

Provisions in Delaware law and our charter documents may delay or prevent another entity from acquiring us without the consent of our Board of Directors.

Our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Delaware law imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.

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Although we believe these provisions of our charter documents and Delaware law will provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by some stockholders.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Programs

On November 10, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2012. Under the authorization, the Company may repurchase up to $40,000,000 of shares of the Company’s common stock in 2012. The following table represents a month-to-month summary of the stock purchase activity pursuant to this share repurchase program in the third quarter of fiscal year 2012:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 2, 2012 to July 29, 2012		1,088,992	$	5.84		1,088,992	$	28,033,141
July 30, 2012 to August 26, 2012		1,608,713	$	5.78		1,608,713	$	18,729,425
August 27, 2012 to September 30, 2012		1,583,122	$	5.92		1,583,122	$	9,364,988
Total		4,280,827	$	5.85		4,280,827

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On August 7, 2012, PMC-Sierra, Inc. (the “Company”) entered into a Separation Agreement with Michael W. Zellner, the Company’s Vice President of Finance and Chief Financial Officer (the “Separation Agreement”). On November 5, 2012, the Company amended the Separation Agreement (the “Amendment”) by extending Mr. Zellner’s term of employment beyond the original Separation Date of November 9, 2012, to a date yet to be determined, but no later than December 31, 2012. There are no changes to the amount or terms and condition of the Separation Payment specified in the Separation Agreement.

The foregoing summary of the Amendment does not purport to be complete and is qualified in its entirety by reference to the terms of the Amendment, a copy of which is attached hereto as Exhibit 10.2 and is incorporated herein by reference in its entirety.

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Item 6. Exhibits

Exhibit     No.	Description	Form	File No.	Filing Date	Exhibit No. as Filed	Filed with this 10-Q
10.1	PMC-Sierra, Inc. Restricted Stock Unit Agreement (Performance-Based Vesting Award) between PMC-Sierra, Inc. and Gregory S. Lang.	8-K	0-19084	8/27/2012	10.1
10.2	Amendment 1 to the Separation Agreement between PMC-Sierra, Inc., and Michael W. Zellner, dated November 5, 2012.					X
31.1	Certification of Chief Executive Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Chief Financial Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002					X
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)					X
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

48

SIGNATURES

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

	PMC-SIERRA, INC.
	(Registrant)
Date: November 8, 2012	/s/ Michael W. Zellner
	Michael W. Zellner
	Vice President, Chief Financial Officer and Principal Accounting Officer

49

EX-10.2

Exhibit 10.2

VIA HAND DELIVERY

November 5, 2012

Michael W. Zellner

Re: Transition and Release Agreement

Dear Mike:

Thank you for agreeing to remain in the position of VP, Finance and Chief Financial Officer of PMC-Sierra, Inc. (“PMC” or the “Company”) beyond your original Separation Date of November 9, 2012.

Once countersigned by you, this letter (this “Amendment One”) confirms our understanding of the terms of the extension of your employment and amends, only as stated, the terms of your Transition and Release Agreement dated August 7, 2012 (the “Transition Agreement”) as follows:

A. “Transition Period” and “Separation Date”: You and PMC agree that you will remain in PMC’s employment in your current role from now until a date to be determined but no later than December 31, 2012 (the “Transition Period”). Either you or PMC may terminate your employment within the Transition Period with at least ten (10) day’s written notice and that date will become the “Separation Date” for purposes of your rights and obligations under the Transition Agreement, as amended by this Amendment One. While you remain employed during the Transition Period, you will continue to receive your current salary and benefits as stated in Section 1 of the Transition Agreement.

B. Separation payment and benefits: There is no change to the amount or terms and conditions of the Separation Payment specified in Section 2 of the Transition Agreement. The extended period to exercise which is covered in Section 3(b) of the Transition Agreement will commence the day after the new Separation Date and will continue through the earlier of (i) the 180th day following the Separation Date or (ii) the expiration of the grant.

Page 1 of 2

C. Limited payment of COBRA premiums: The conditional entitlement to receive payment of COBRA premiums as described in Section 5 shall continue through the end of the ninth month following your new Separation Date.

D. Legal: Unless expressly addressed by this Amendment One, the Transition Agreement remains in full force and effect. In the case of a conflict between this Amendment One and the Transition Agreement, this Amendment One has precedence. Unless otherwise amended, defined terms shall have the meaning ascribed to them by the Transition Agreement. This Amendment together with the Transition Agreement, the Indemnification Agreement, the Change of Control Agreement, the Confidentiality Agreement and the grant agreements associated with each equity grant (not exclusive to those grants identified in the Transition Agreement) constitute the entire Agreement between you and PMC with respect to any matters referred to herein.

Thank you again, Mike, for your continuing support of PMC.

Yours truly,

/s/ Gregory S. Lang

Gregory S. Lang

President and Chief Executive Officer

AGREEMENT OF EMPLOYEE:

My signature below signifies my agreement with Amendment One to the Transition Agreement and my understanding that the terms of the Transition Agreement, including without limitation the General Release, remain in full force and effect except as expressly amended by this Amendment One.

Signed:	/s/ Michael W. Zellner	Date:	November 5, 2012
	Michael W. Zellner

Page 2 of 2

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gregory S. Lang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMC-Sierra, Inc.;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2012	By:	/s/ Gregory S. Lang
	Gregory S. Lang
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael W. Zellner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMC-Sierra, Inc.;

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

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2012	By:	/s/ Michael W. Zellner
	Michael W. Zellner
	Vice President, Chief Financial Officer and Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory S. Lang, hereby certify, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. (“PMC”), that, to my knowledge, this Quarterly Report of PMC on Form 10-Q for the period ended September 30, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMC.

Date: November 8, 2012	By:	/s/ Gregory S. Lang
	Gregory S. Lang
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Michael W. Zellner hereby certify, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. (“PMC”), that, to my knowledge, this Quarterly Report of PMC on Form 10-Q for the period ended September 30, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMC.

Date: November 8, 2012	By:	/s/ Michael W. Zellner
	Michael W. Zellner
	Vice President, Chief Financial Officer and Principal Accounting Officer

XML

Balance Sheet Items (Schedule Of Inventory) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Balance Sheet Items [Abstract]
Work-in-progress	$ 11,804,000	$ 20,367,000
Finished goods	15,601,000	19,544,000
Inventory, net	27,405,000	39,911,000
Inventory reserves	$ 7,900,000	$ 8,300,000

XML

Stock Repurchase Program And Accelerated Stock Buyback (Details) (USD $)	1 Months Ended	3 Months Ended			9 Months Ended		1 Months Ended	3 Months Ended	9 Months Ended	10 Months Ended	9 Months Ended	5 Months Ended	9 Months Ended
	Nov. 07, 2012	Sep. 30, 2012	Apr. 01, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Nov. 07, 2012 Accelerated Stock Buyback [Member]	Sep. 30, 2012 Accelerated Stock Buyback [Member]	Sep. 30, 2012 Accelerated Stock Buyback [Member]	Nov. 10, 2012 Accelerated Stock Buyback [Member]	Sep. 30, 2012 2012 Stock Repurchase Program [Member] agreement	Oct. 02, 2012 2012 Stock Repurchase Program [Member] Accelerated Stock Buyback [Member]	Sep. 30, 2012 2012 Stock Repurchase Program [Member] Accelerated Stock Buyback [Member]
Forward Contract Indexed to Issuer's Equity [Line Items]
Share repurchase plan, authorized amount										$ 40,000,000	$ 275,000,000
Repurchases of common stock (in shares)	1,735,978	4,281,000		4,776,000	27,395,000	6,084,000		4,300,000
Repurchase of common stock		25,024,000		30,295,000	180,807,000	39,999,000						160,000,000
Stock repurchased, shares	4,600,788								5,200,000		22,228,520
Stock Repurchase Program, Date Announced			Mar. 13, 2012
Treasury Stock, Shares, Retired	6,902,625						26,829,308
Number of transactions											2
Consideration allocated to stock repurchases											150,200,000
Adjustment to accumulated deficit								7,200,000			57,200,000		9,000,000
Treasury Stock, Retired, Cost Method, Amount									30,600,000
Equity Forward Contract Related To Accelerated Share Repurchase Program					$ 9,827,000

XML

Fair Value Measurements (Fair Value Liabilities Measured On Recurring And Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Mar. 27, 2011	Sep. 30, 2012 Level 2 [Member]	Dec. 31, 2011 Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
2.25% senior convertible notes due October 15, 2025, net (see Note 9. Senior Convertible Notes)		$ 68,354	$ 67,913
Debt instrument, maturity date	Jan. 17, 2011	Oct. 15, 2025

XML

Balance Sheet Items (Tables)

9 Months Ended

Sep. 30, 2012

Balance Sheet Items [Abstract]

Schedule Of Inventory

	September 30,		December 31,
(in thousands)	2012		2011
Work-in-progress	$	11,804	$	20,367
Finished goods		15,601		19,544
	$	27,405	$	39,911

Schedule Of Product Warranties

	Nine Months Ended
	September 30,		October 2,
(in thousands)	2012		2011
Balance, beginning of the period	$	5,415	$	5,457
Accrual for new warranties issued		1,311		1,435
Reduction for payments and product replacements		(161)		(185)
Adjustments related to changes in estimate of warranty accrual		(1,312)		(1,243)
Balance, end of the period	$	5,253	$	5,464

XML

Short-Term Loan (Details) (USD $)	3 Months Ended	9 Months Ended	12 Months Ended
	Mar. 27, 2011	Oct. 02, 2011	Dec. 26, 2010	Nov. 18, 2010
Senior Convertible Notes [Abstract]
Short-term loan				$ 220,000,000
Repayment of short-term loan		180,991,000	40,000,000
Loan maturity date	Jan. 17, 2011
Interest expense, net related to the short-term loan	$ 300,000

XML

Stock-Based Compensation (Schedule Of Fair Values Of Company's Stock Option Awards) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Expected life (years)	5 years 3 months 18 days	5 years 1 month 6 days	5 years 3 months 18 days	4 years 6 months
Expected volatility	42.00%	45.00%	43.00%	42.00%
Risk-free interest rate	0.80%	0.90%	0.80%	1.90%
Employee Stock Purchase Plan [Member]
Expected life (years)	6 months	6 months	6 months	6 months
Expected volatility	44.00%	51.00%	42.00%	44.00%
Risk-free interest rate	0.20%	0.10%	0.10%	0.10%

XML

Condensed Consolidated Statements Of Stockholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Condensed Consolidated Statements Of Stockholders' Equity [Abstract]
Change in fair value of derivatives, deferred tax expense (benefit)	$ 61	$ (913)	$ 289	$ (1,076)
Change in fair value of investment securities, deferred tax expense (benefit)	$ 166	$ (482)	$ 267	$ (235)

XML

Senior Convertible Notes (Details) (USD $)	3 Months Ended		1 Months Ended	9 Months Ended
	Mar. 27, 2011	Sep. 30, 2012	Oct. 31, 2005 2.25% Convertible Senior Notes [Member]	Sep. 30, 2012 2.25% Convertible Senior Notes [Member]	Dec. 31, 2011 2.25% Convertible Senior Notes [Member]
Debt Instrument [Line Items]
Convertible debt				$ 225,000,000
Debt instrument earliest call date				Oct. 20, 2012
Debt instrument, effective interest percentage			8.00%
Convertible debt instrument, carrying amount of equity component				35,200,000	35,200,000
Carrying Of Debt Component				68,000,000	65,100,000
Principal amount				68,300,000	68,300,000
Debt instrument, unamortized discount				400,000	3,200,000
Increase in debt due to accretion				2,900,000
Deferred debt issue costs				0	200,000
Debt instrument, maturity date	Jan. 17, 2011			Oct. 15, 2025
Debt instrument, stated interest rate				2.25%
Repayments of Senior Debt		$ 68,300,000

XML

Business Combinations (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Mar. 27, 2011	Nov. 18, 2010
Business Acquisition [Line Items]
Inventory Adjustments					$ 9,800,000
Continued employment for merger consideration minimum, years			2 years
Post combination expense reported as prepaid expenses amortization	400,000	400,000	1,100,000	1,300,000
Contingent purchase consideration						28,200,000
Liability For Contingent Consideration		29,400,000		(29,376,000)
Maximum [Member]
Business Acquisition [Line Items]
Purchase Consideration, Potential Earn Out			60,000,000
Minimum [Member]
Business Acquisition [Line Items]
Purchase Consideration, Potential Earn Out			$ 0

XML

Summary Of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]
Goodwill and Intangible Asset Impairment	$ 276.1
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)	146.3
Goodwill, Impairment Loss	$ 122.8	$ 7.0

XML

Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Income Taxes [Abstract]
Recovery of (provision for) income taxes	$ 7,098,000	$ (5,428,000)	$ (53,567,000)	$ (15,076,000)
Effective tax rate	3.00%	10.00%	18.00%	21.00%
Income tax provision related to an intercompany dividend			56,200,000
Benefit of stock option related loss carry-forwards	(5,328,000)	1,857,000	31,244,000	3,141,000
Federal statutory rate			35.00%
Unrecognized tax benefits, liability	$ 72,700,000		$ 72,700,000

XML

Derivative Instruments (Details) (USD $)	9 Months Ended
	Sep. 30, 2012 contract	Oct. 02, 2011 contract
Derivative [Line Items]
Tax effect on fair value gain	$ 0
Cash Flow Hedging [Member]
Derivative [Line Items]
Forward currency contracts outstanding	121	179
Forward currency contracts maturity, maximum	12 months
Notional amount of contracts	23,000,000	82,600,000
Fair value gain, net of taxes	(100,000)	3,500,000
Tax effect on fair value gain		$ 700,000

XML

Fair Value Measurements (Financial Assets Measured At Fair Values On Recurring Basis) (Details) (Level 1 [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	$ 238,194		$ 385,598
Corporate Bonds And Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	184,459	[1]	254,522	[1]
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	17,727	[1]	54,588	[1]
United States ("US") Treasury And Government Agency Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	30,807	[1]	62,350	[1]
Foreign Government And Agency Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	3,455	[1]	12,389	[1]
US State And Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets	$ 1,746	[1]	$ 1,749	[1]

[1] Included in Cash and cash equivalents, Short-term investments, and Long-term investment securities. See Note 7. Investment Securities.

XML

Condensed Consolidated Statements Of Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Common Stock [Member]	Additional Paid In Capital [Member]	Accumulated Other Comprehensive Income (Loss) (Net Of Tax) [Member]	Accumulated Deficit [Member]	Total
Beginning Balance at Dec. 26, 2010	$ 252	$ 1,575,949	$ 2,072	$ (559,202)	$ 1,019,071
Beginning Balance (in shares) at Dec. 26, 2010					232,008,000
Net (loss) income				56,334	56,334
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax			(3,790)		(3,790)
Change in fair value of investment securities, net of tax			(590)		(590)
Comprehensive income (loss)					51,954
Conversion of special shares into common shares (in shares)					341,000
Conversion of special shares into common shares		488			488
Issuance of common stock under stock benefit plans (in shares)					3,849,000
Issuance of common stock under stock benefit plans	(16)	15,500			15,484
Stock-based compensation expense		20,330			20,330
Benefit of stock option related loss carry-forwards		3,141			3,141
Repurchases of common stock	(6)	(25,447)		(14,546)	(39,999)
Repurchases of common stock (in shares)					(6,084,000)
Ending Balance at Oct. 02, 2011	230	1,589,961	(2,308)	(517,414)	1,070,469
Ending Balance (in shares) at Oct. 02, 2011					230,114,000
Beginning Balance at Jun. 26, 2011	253	1,590,867	2,324	(550,124)	1,043,320
Beginning Balance (in shares) at Jun. 26, 2011					233,535,000
Net (loss) income				47,256	47,256
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax			(3,422)		(3,422)
Change in fair value of investment securities, net of tax			(1,210)		(1,210)
Comprehensive income (loss)					42,624
Issuance of common stock under stock benefit plans (in shares)					1,355,000
Issuance of common stock under stock benefit plans	(18)	6,012			5,994
Stock-based compensation expense		6,969			6,969
Benefit of stock option related loss carry-forwards		1,857			1,857
Repurchases of common stock	(5)	(15,744)		(14,546)	(30,295)
Repurchases of common stock (in shares)					(4,776,000)
Ending Balance at Oct. 02, 2011	230	1,589,961	(2,308)	(517,414)	1,070,469
Ending Balance (in shares) at Oct. 02, 2011					230,114,000
Beginning Balance at Dec. 31, 2011	230	1,594,437	(1,146)	(489,049)	1,104,472
Beginning Balance (in shares) at Dec. 31, 2011					230,233,000
Net (loss) income				(344,177)	(344,177)
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax			1,704		1,704
Change in fair value of investment securities, net of tax			209		209
Comprehensive income (loss)					(342,264)
Issuance of common stock under stock benefit plans (in shares)					4,328,000
Issuance of common stock under stock benefit plans	4	14,991			14,995
Stock-based compensation expense		19,978			19,978
Benefit of stock option related loss carry-forwards		31,244			31,244
Repurchases of common stock	(27)	(114,560)		(66,220)	(180,807)
Repurchases of common stock (in shares)					(27,395,000)
Equity forward contract related to accelerated share repurchase program		(9,827)			(9,827)
Ending Balance at Sep. 30, 2012	207	1,536,263	767	(899,446)	637,791
Ending Balance (in shares) at Sep. 30, 2012					207,166,000
Beginning Balance at Jul. 01, 2012	210	1,546,547	(119)	(617,898)	928,740
Beginning Balance (in shares) at Jul. 01, 2012					209,790,000
Net (loss) income				(274,386)	(274,386)
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax			624		624
Change in fair value of investment securities, net of tax			262		262
Comprehensive income (loss)					(273,500)
Issuance of common stock under stock benefit plans (in shares)					1,657,000
Issuance of common stock under stock benefit plans	1	6,814			6,815
Stock-based compensation expense		6,088			6,088
Benefit of stock option related loss carry-forwards		(5,328)			(5,328)
Repurchases of common stock	(4)	(17,858)		(7,162)	(25,024)
Repurchases of common stock (in shares)					(4,281,000)
Ending Balance at Sep. 30, 2012	$ 207	$ 1,536,263	$ 767	$ (899,446)	$ 637,791
Ending Balance (in shares) at Sep. 30, 2012					207,166,000

XML

Fair Value Measurements (Liabilities Measured At Fair Value On A Recurring Basis) (Details) (Level 2 [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Forward currency contracts	$ 2	[1]	$ 1,780	[1]

[1] Included in Accrued liabilities.

XML

Balance Sheet Items (Schedule Of Product Warranties) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Balance Sheet Items [Abstract]
Balance, beginning of the period	$ 5,415	$ 5,457
Accrual for new warranties issued	1,311	1,435
Reduction for payments and product replacements	(161)	(185)
Adjustments related to changes in estimate of warranty accrual	(1,312)	(1,243)
Balance, end of the period	$ 5,253	$ 5,464

XML

Condensed Consolidated Statements Of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Oct. 02, 2011		Sep. 30, 2012		Oct. 02, 2011
Condensed Consolidated Statements Of Operations [Abstract]
Net revenues	$ 131,723		$ 173,299		$ 401,579		$ 501,751
Cost of revenues	38,990		52,640		121,255		164,464
Gross profit	92,733		120,659		280,324		337,287
Other costs and expenses:
Research and development	55,604		59,669		171,374		170,589
Selling, general and administrative	27,786		29,981		86,047		91,556
Amortization of purchased intangible assets	11,624		11,031		34,537		33,083
Impairment of goodwill and purchased intangible assets	276,082				276,082
(Loss) income from operations	(278,363)		19,978		(287,716)		42,059
Other income (expense):
Revaluation of liability for contingent consideration			29,376				29,376
Gain on investment securities and other	180		222		746		559
Amortization of debt issue costs	(50)		(50)		(150)		(150)
Foreign exchange (loss) gain	(2,454)		3,635		(1,951)		1,538
Interest expense, net	(797)		(477)		(1,539)		(1,972)
(Loss) income before recovery of (provision for) income taxes	(281,484)		52,684		(290,610)		71,410
Recovery of (provision for) income taxes	7,098		(5,428)		(53,567)		(15,076)
Net (loss) income	$ (274,386)		$ 47,256		$ (344,177)		$ 56,334
Net (loss) income per common share - basic	$ (1.31)		$ 0.20		$ (1.56)		$ 0.24
Net (loss) income per common share - diluted	$ (1.31)		$ 0.20		$ (1.56)		$ 0.24
Shares used in per share calculation - basic	209,512	[1]	232,590	[1]	221,323	[1]	233,880	[1]
Shares used in per share calculation - diluted	209,512	[1]	233,647	[1]	221,323	[1]	236,236	[1]

[1] PMC-Sierra Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

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Net Income (Loss) Per Share (Schedule Of Net Income Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Oct. 02, 2011		Sep. 30, 2012		Oct. 02, 2011
Net Income (Loss) Per Share [Abstract]
Net (loss) income	$ (274,386)		$ 47,256		$ (344,177)		$ 56,334
Basic weighted average common shares outstanding	209,512	[1]	232,590	[1]	221,323	[1]	233,880	[1]
Dilutive effect of employee stock options and awards			1,057				2,356
Diluted weighted average common shares outstanding	209,512	[1]	233,647	[1]	221,323	[1]	236,236	[1]
Basic net income per share	$ (1.31)		$ 0.20		$ (1.56)		$ 0.24
Diluted net income per share	$ (1.31)		$ 0.20		$ (1.56)		$ 0.24
Antidilutive securities excluded from computation of earnings per share	1,000,000				1,800,000

[1] PMC-Sierra Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 2,189	$ 1,952
PMC special shares convertible into common stock, shares	1,019	1,029
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	900,000	900,000
Common stock, shares issued	207,166	230,233
Common stock, shares outstanding	207,166	230,233

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Stock-Based Compensation (Schedule Of Stock-Based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 6,088	$ 6,969	$ 19,978	$ 20,330
Cost of revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	181	220	657	703
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	2,933	3,041	8,674	8,665
Selling, general and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,974	$ 3,708	$ 10,647	$ 10,962

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Summary Of Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies [Abstract]

Description Of Business

Description of business. PMC-Sierra, Inc. (the “Company” or “PMC”) is a semiconductor innovator transforming networks that connect, move and store digital content. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks.  PMC’s highly integrated solutions increase performance and enable next generation services to accelerate the network transformation. 

Basis Of Presentation

Basis of presentation.The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and United States Generally Accepted Accounting Principles (“GAAP”).  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules or regulations.  These interim condensed consolidated financial statements are unaudited, but reflect all adjustments which are normal and recurring in nature and are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented.  These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.  The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods. Fiscal 2012 will consist of 52 weeks and will end on Saturday, December 29, 2012.  Fiscal 2011 consisted of 53 weeks and ended on Saturday, December 31, 2011.  The third quarter of each of 2012 and 2011 consisted of 13 and 14 weeks, respectively.  

Estimates

Estimates. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Estimates are used for, but not limited to, stock-based compensation, purchase accounting assumptions including those used to calculate the fair value of intangible assets and goodwill, the valuation of investments, accounting for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, sales returns, warranty costs, income taxes including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of our senior convertible notes, accounting for employee benefit plans, and contingencies.  Actual results could differ materially from these estimates. 

Goodwill And Iintangible Assets

Goodwill and intangible assets.  Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company performs a two-step process on an annual basis, or more frequently if necessary, to determine 1) whether the fair value of the relevant reporting unit exceeds the carrying value and 2) the amount of an impairment loss, if any.

During the third quarter of 2012, the Company recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave, Inc. (“Passave”) and 2010 acquisition of Wintegra, Inc. (“Wintegra”).  All of the goodwill of Passave was written down by $146.3 million due to weaker quarterly results and future projections than previously expected, driven by slower adoption rates of FTTH technology in markets outside of Asia.  All of the goodwill and a portion of the other intangible assets of Wintegra were determined to be impaired by $122.8 million and $7 million, respectively, as a result of the continuing weak carrier spending, more so than previously expected.

The fair value of the reporting unit was determined by using the income approach. Under this approach, the fair value is based on estimated future cash flows of the reporting unit which are discounted to the present value using discount factors that consider the timing and risk of cash flows.  Significant assumptions used in the income approach include the forecasts of future operating results, terminal value, growth rates, future capital expenditures and changes in future working capital.  The discount rate includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks.

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Stock-Based Compensation (Schedule Of Activity Under Option Plans) (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Stock-Based Compensation [Abstract]
Outstanding beginning balance, Number of options	29,130,398
Granted, Number of options	1,156,623
Exercised, Number of options	(929,993)
Forfeited, Number of options	(1,468,304)
Outstanding ending balance, Number of options	27,888,724
Vested & expected to vest, Number of options	27,263,151
Exercisable ending balance, Number of options	21,086,215
Outstanding beginning balance, Weighted average exercise price per share	$ 7.97
Granted, Weighted average exercise price per share	$ 5.98
Exercised, Weighted average exercise price per share	$ 4.76
Forfeited, Weighted average exercise price per share	$ 8.69
Outstanding ending balance, Weighted average exercise price per share	$ 7.96
Vested & expected to vest, Weighted average exercise price per share	$ 7.98
Exercisable ending balance, Weighted average exercise price per share	$ 8.23
Outstanding ending balance, Weighted average remaining contractual term (years)	5 years 7 months 10 days
Vested & expected to vest, Weighted average remaining contractual term (years)	5 years 6 months 15 days
Exercisable ending balance, Weighted average remaining contractual term (years)	4 years 8 months 27 days
Outstanding ending balance, Aggregate intrinsic value	$ 4,419,132
Vested & expected to vest, Aggregate intrinsic value	4,413,979
Exercisable ending balance, Aggregate intrinsic value	$ 3,693,776

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule Of Stock-Based Compensation Expense

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
(in thousands)	2012		2011		2012		2011
Cost of revenues	$	181	$	220	$	657	$	703
Research and development		2,933		3,041		8,674		8,665
Selling, general and administrative		2,974		3,708		10,647		10,962
Total	$	6,088	$	6,969	$	19,978	$	20,330
								\

Schedule Of Activity Under Option Plans

	Number of options	Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value at September 30, 2012
Outstanding, January 1, 2012	29,130,398	$	7.97
Granted	1,156,623	$	5.98
Exercised	(929,993)	$	4.76
Forfeited	(1,468,304)	$	8.69
Outstanding, September 30, 2012	27,888,724	$	7.96	5.61	$	4,419,132
Vested & expected to vest, September 30, 2012	27,263,151	$	7.98	5.54	$	4,413,979
Exercisable, September 30, 2012	21,086,215	$	8.23	4.74	$	3,693,776

Schedule Of Fair Value Assumptions

	Three Months Ended		Nine Months Ended
	September 30,	October 2,	September 30,	October 2,
	2012	2011	2012	2011
Expected life (years)	5.3	5.1	5.3	4.5
Expected volatility	42%	45%	43%	42%
Risk-free interest rate	0.8%	0.9%	0.8%	1.9%

Schedule Of Summary Of RSU Activity

	Restricted Stock Units	Weighted Average Remaining Contractual Term			Aggregate intrinsic value at September 30, 2012
Unvested shares at January 1, 2012	3,679,683		-		-
Awarded	2,966,202		-		-
Released	(1,155,622)		-		-
Forfeited	(245,858)		-		-
End of Period	5,244,405		1.81	$	29,394,920
Restricted Stock Units vested and expected to vest September 30, 2012	5,241,333		1.81	$	29,377,701

RSU Activity [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule Of Stock-Based Compensation Expense

	Three Months Ended		Nine Months Ended
	September 30,	October 2,	September 30,	October 2,
	2012	2011	2012	2011
Expected life (years)	0.5	0.5	0.5	0.5
Expected volatility	44%	51%	42%	44%
Risk-free interest rate	0.2%	0.1%	0.1%	0.1%

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Cash flows from operating activities:
Net (loss) income	$ (344,177)	$ 56,334
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	48,724	56,795
Stock-based compensation	19,978	20,330
Unrealized foreign exchange (gain) loss, net	2,299	(1,650)
Net amortization of premiums/discounts and accrued interest of investments	3,844	3,361
Accrued interest on short-term loan		589
Gain on investment securities and other	(731)	(558)
Impairment of goodwill and purchased intangible assets	277,240	3,029
Revaluation of liability for contingent consideration		(29,376)
Taxes related to intercompany dividend	60,940
Changes in operating assets and liabilities:
Accounts receivable	(3,352)	4,749
Inventories	12,506	1,361
Prepaid expenses and other current assets	4,108	1,989
Accounts payable and accrued liabilities	(27,643)	(10,285)
Deferred income taxes and income taxes recievables / payables	(5,747)	11,020
Accrued restructuring costs		(1,418)
Deferred income	(3,304)	(2,690)
Net cash provided by operating activities	44,685	113,580
Cash flows from investing activities:
Business acquisition	(15,900)
Purchases of property and equipment	(25,558)	(8,142)
Purchase of intangible assets	(4,602)	(5,620)
Redemption of short-term investments	11,415
Disposals of investment securities	182,488	116,813
Purchases of investment securities and other investments	(87,267)	(160,169)
Net cash provided by (used) in investing activities	60,576	(57,118)
Cash flows from financing activities:
Repurchases of common stock	(180,807)	(39,999)
Equity forward contract related to accelerated share repurchase program	(9,827)
Repayment of short-term loan		(180,991)
Proceeds from issuance of common stock	15,869	16,462
Net cash used in financing activities	(174,765)	(204,528)
Effect of exchange rate changes on cash and cash equivalents	152	(270)
Net decrease in cash and cash equivalents	(69,352)	(148,336)
Cash and cash equivalents, beginning of period	182,571	293,355
Cash and cash equivalents, end of period	113,219	145,019
Supplemental disclosures of cash flow information:
Cash (refund received) paid for income taxes, net	$ (1,595)	$ 4,206

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Condensed Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Condensed Consolidated Statements Of Comprehensive Income [Abstract]
Net (loss) income	$ (274,386)	$ 47,256	$ (344,177)	$ 56,334
Change in fair value of derivatives, net of tax of $61, $913, $289, and $1,076	624	(3,422)	1,704	(3,790)
Change in fair value of investment securities, net of tax of $166, $482, $267, and $235	262	(1,210)	209	(590)
Other comprehensive income (loss)	886	(4,632)	1,913	(4,380)
Comprehensive (loss) income	$ (273,500)	$ 42,624	$ (342,264)	$ 51,954

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Short-Term Loan

9 Months Ended

Sep. 30, 2012

Senior Convertible Notes [Abstract]

Short-Term Loan

NOTE 8.  Short-Term Loan

On November 18, 2010, the Company, PMC-Sierra US, Inc., a Delaware wholly owned subsidiary of the Company (the “Borrower”), and Bank of America, N.A., as the Lender, entered into a Credit Agreement (the “Credit Agreement”). The Credit Agreement provides the Borrower with a term loan of $220 million (the “Credit Facility”), which was borrowed on November 18, 2010. The Credit Facility was used to finance, in part, the acquisition of Wintegra by the Company. During 2010, the Company repaid $40 million. As a result, the balance as of December 26, 2010, was $181.0 million, which included accrued interest.

The loan had a maturity date of January 17, 2011 and was fully repaid in the amount of $181.0 million, including accrued interest on January 10, 2011, during the first quarter of 2011.

In the first quarter of 2011, the Company incurred $0.3 million in interest expense related to the short-term loan, which is included in Interest expense, net, in the interim Condensed Consolidated Statements of Operations.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	pmcs
Entity Registrant Name	PMC SIERRA INC
Entity Central Index Key	0000767920
Current Fiscal Year End Date	--12-29
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		200,886,703

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Senior Convertible Notes

9 Months Ended

Sep. 30, 2012

Senior Convertible Notes [Abstract]

Senior Convertible Notes

NOTE 9.  Senior Convertible Notes

In October 2005, the Company issued senior convertible notes (the “Notes”) that are due on October 15, 2025 with an aggregate principal amount of $225.0 million and bearing interest at a rate of 2.25% per annum.  At the date of issuance, the Company’s borrowing rate for similar debt instruments without any equity conversion features was estimated to be 8.0% per annum.  The borrowing rate of 8.0% was estimated using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves, and volatilities, all of which are defined as Level 2 observable inputs.  See Note 4. Fair Value Measurements.

The Notes rank equal in right of payment with the Company’s other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by the Company at its option, or converted or put to the Company at the option of the holders.  Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2006.  The Company may redeem all or a portion of the Notes at par on or after October 20, 2012.  The holders may require that the Company repurchase the Notes on October 15 of each of 2012, 2015 and 2020.

As of September 30, 2012, net of repurchases completed to date, the carrying amount of the equity component is $35.2 million (December 31, 2011 - $35.2 million) and the carrying amount of the debt component is $68 million (December 31, 2011 - $65.1 million), which represents the principal amount of $68.3 million (December 31, 2011 - $68.3 million) net of the unamortized discount of $0.4 million (December 31, 2011 - $3.2 million).  The $2.9 million increase in the debt component relates to accretion which was recorded in Interest expense, net in the interim Condensed Consolidated Statements of Operations.  The balance of deferred debt issue costs at September 30, 2012 is $nil million (December 31, 2011 - $0.2 million).  Since the holders may require the Company to repurchase the Notes on October 15, 2012, the Company reclassified the debt to short-term liabilities in the quarter ended December 31, 2011.

Subsequent to the third quarter of 2012, the Company retired its outstanding Senior Convertible Notes, for their aggregate face value of $68.3 million.

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Condensed Consolidated Statements Of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Condensed Consolidated Statements Of Comprehensive Income [Abstract]
Change in fair value of derivatives, deferred tax expense (benefit)	$ 61	$ (913)	$ 289	$ (1,076)
Change in fair value of investment securities, deferred tax expense (benefit)".	$ 166	$ (482)	$ 267	$ (235)

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Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments [Abstract]

Derivative Instruments

NOTE 3.  Derivative Instruments

The Company generates revenues in U.S. dollars but incurs a portion of its operating expenses in foreign currencies, primarily the Canadian dollar.  To minimize the short-term impact of foreign currency fluctuations on the Company’s operating expenses, the Company purchases forward currency contracts. 

As at September 30, 2012, the Company had 121 forward currency contracts (October 2,  2011 - 179) outstanding, all with maturities of less than 12 months, which qualified and were designated as cash flow hedges.  The U.S. dollar notional amount of these contracts was  $23.0million (October 2, 2011 –  $82.6 million) and the contracts had a fair value gain of $0.1 million (October 2, 2011 – fair value loss of $3.5 million), which was recorded in Accumulated other comprehensive income (loss) net of taxes of $nil for the nine months ended September 30, 2012 (net of taxes of $0.7 million for the nine months ended October 2, 2011).

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Business Combinations

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Business Combinations

NOTE 2. Business Combinations

Acquisition of Wintegra, Inc.

The Company recorded a fair value adjustment related to the inventory acquired as part of the Wintegra, Inc. (“Wintegra”) acquisition in the amount of $9.8 million, which was fully expensed through Cost of revenues by the end of the first quarter of 2011. 

Certain key employees entered into Holdback Escrow Agreements, whereby a portion of cash consideration otherwise payable per the Merger Agreement was retained and would be distributed under certain conditions, including continued employment over a two-year period.  This post-combination expense has been included in the interim Condensed Consolidated Balance Sheet as prepaid expenses and is being amortized straight-line over the two-year period.  The amortization is recognized as Selling, general and administrative and Research and development expenses on the interim Condensed Consolidated Statements of Operations.   Amortization for the three and nine months ended September 30, 2012, were $0.4 million and $1.1 million, respectively.  Amortization for the three and nine months ended October 2, 2011 were $0.4 million and $1.3 million, respectively.    

Projects comprising In-Process Research and Development at acquisition have progressed as expected, and are now completed.  

The terms of the acquisition of Wintegra, provided for potential additional earn-out based purchase consideration ranging from nil to $60 million, calculated on the basis of Wintegra’s 2011 revenue as described in the Agreement and Plan of Merger dated as of October 21, 2010. At acquisition, the Company recorded a liability for contingent purchase consideration of $28.2 million as part of the acquisition of Wintegra, which reflected the estimated fair value of the potential earn-out payment, calculated by applying the income approach. During the three months ended October 2, 2011, the Company determined that Wintegra’s 2011 revenues would be below earn-out levels. Accordingly, the Company recognized a $29.4 million gain on revaluation of this liability in the Consolidated Statement of Operations. See our Form 10-K for the year ended December 31, 2011, Item 8. Financial Statements and Supplementary Data,  the Notes to the Consolidated Financial Statements, Note 11. Commitments and Contingencies for details.  

See Note 1. Summary of Significant Accounting Policies for discussion on the impairment of goodwill and other intangibles relating to the Wintegra acquisition.    

Acquisition of 12GB/s SAS expander business from Maxim Integrated Products, Inc.

During the first quarter of fiscal 2012, the Company completed the acquisition of the 12Gb/s Serial attached SCSI (“SAS”) expander business from Maxim Integrated Products, Inc. (“Maxim”).  Along with a very experienced team, this acquisition provides a strong strategic fit between PMC’s core strengths in enterprise storage and Maxim’s established traction with expander solutions at the largest server storage original equipment manufacturers.  This acquisition was accounted for under the acquisition method of accounting.  The financial impact of the acquisition was not material to the Company.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Financial Assets Measured At Fair Value On Recurring Basis

	Fair value,
(in thousands)	September 30, 2012
	Level 1
Assets:
Corporate bonds and notes (1)	$	184,459
Money market funds (1)		17,727
United States ("US") treasury and government agency notes (1)		30,807
Foreign government and agency notes (1)		3,455
US state and municipal securities (1)		1,746
Total assets	$	238,194
	Fair value,
	December 31, 2011
(in thousands)	Level 1
Assets:
Corporate bonds and notes (1)	$	254,522
Money market funds (1)		54,588
US treasury and government agency notes (1)		62,350
Foreign government and agency notes (1)		12,389
US state and municipal securities (1)		1,749
Total assets	$	385,598
(1)  Included in Cash and cash equivalents, Short-term investments, and Long-term investment securities.  See Note 7. Investment Securities.

Liabilities Measured At Fair Value On A Recurring Basis

	Fair value,
	September 30, 2012
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	2
	Fair value,
	December 31, 2011
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	1,780
(1)  Included in Accrued liabilities.

Fair Value Liabilities Measured On Recurring And Nonrecurring Basis

	Fair value,
	September 30, 2012
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9.  Senior Convertible Notes)	$	68,354
	Fair value,
	December 31, 2011
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9.  Senior Convertible Notes)	$	67,913

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

NOTE 10.  Income Taxes

The Company recorded a recovery of income taxes of $7.1 million and a provision for income taxes of $53.6 million for the three and nine months ended September 30, 2012, respectively, and a  provision for income taxes of $5.4 million and $15.1 million for the three and nine months ended October 2, 2011, respectively. 

For the three months ended September 30, 2012, the change in income tax provision relates to the reduction of taxable income driven mainly by lower net revenues.

For the nine months ended September 30, 2012, compared to the same period last year was mainly the result of a $56.2 million income tax provision related to an intercompany dividend made in preparation for funding the Company’s share repurchase programs.  The taxable income generated in the United States by the dividend was offset by available stock-option-related loss carryfowards.  Accordingly, a corresponding benefit of $31.2 million was recognized in equity.  The remaining change is mainly due to the reduction of taxable income mainly driven by lower net revenues.  

The Company’s effective tax rate was 3% and  (18%) for the three and nine months ended September 30, 2012, respectively, and 10% and 21% for the three and nine months ended October 2, 2011, respectively.  The lower effective tax rate for the three and nine months ended September 30, 2012 compared to the same periods last year mainly result from the impairment charges recorded in 2012, partially offset by the effect of the intercompany dividend.  

The difference between our effective tax rate and the 35% federal statutory rate results primarily from foreign earnings eligible for tax rates lower than the federal statutory rate due to economic incentives subject to certain criteria granted by foreign jurisdictions and extending to approximately 2020, adjustments for prior years taxes and tax credits, the effect of intercompany transactions, investment tax credits earned, changes in valuation allowance, changes in accruals related to the unrecognized tax benefit liabilities, permanent differences arising from stock-based compensation, non-deductible intangible asset amortization and impairment and utilization of stock option related loss carryforwards recorded in equity.

As at September 30, 2012, the Company’s liability for unrecognized tax benefits on a world-wide consolidated basis was $72.7 million.  Recognition of an amount different from this estimate would affect the Company’s effective tax rate. 

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Balance Sheet Items

9 Months Ended

Sep. 30, 2012

Balance Sheet Items [Abstract]

Balance Sheet Items

NOTE 6.   Balance Sheet Items 

a. Inventories.

Inventories (net of reserves of $7.9 million and $8.3 million at September 30, 2012 and December 31, 2011, respectively) were as follows:

	September 30,		December 31,
(in thousands)	2012		2011
Work-in-progress	$	11,804	$	20,367
Finished goods		15,601		19,544
	$	27,405	$	39,911

b. Product warranties. 

The Company provides a limited warranty on most of its standard products and accrues for the estimated cost at the time of shipment.  The Company estimates its warranty costs based on historical failure rates and related repair or replacement costs.  The change in the Company’s accrued warranty obligations from December 31, 2011 to September 30, 2012, and for the same period in the prior year were as follows:

	Nine Months Ended
	September 30,		October 2,
(in thousands)	2012		2011
Balance, beginning of the period	$	5,415	$	5,457
Accrual for new warranties issued		1,311		1,435
Reduction for payments and product replacements		(161)		(185)
Adjustments related to changes in estimate of warranty accrual		(1,312)		(1,243)
Balance, end of the period	$	5,253	$	5,464

The Company’s accrual for warranty obligations is included in Accrued liabilities in the interim Condensed Consolidated Balance Sheet.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

NOTE 4.  Fair Value Measurements

ASC Topic 820 specifies a hierarchy of valuation techniques which requires an entity to maximize the use of observable inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets are available for identical assets and liabilities.  The Company’s Level 1 assets include cash equivalents, short-term investments, and long-term investment securities, which are generally acquired or sold at par value and are actively traded. 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  The Company’s Level 2 liabilities include forward currency contracts whose value is determined using a pricing model with inputs that are observable in the market or corroborated with observable market data.  Level 2 observable inputs were used in estimating interest rates used to determine the fair value (on a non-recurring basis) of the debt component of the Company’s senior convertible notes.  See Note 9. Senior Convertible Notes.

Level 3 - Pricing inputs include significant inputs that are generally not observable in the marketplace. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and would include in Level 3 all of those whose fair value is based on significant unobservable inputs.  Level 3 inputs are used on a recurring basis to measure the fair value of the liability for contingent consideration.  Level 3 inputs are used on a non-recurring basis to measure the fair value of non-financial assets, including intangible assets.

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Financial assets measured on a recurring basis as at September 30, 2012 and December 31, 2011, are summarized below:

	Fair value,
(in thousands)	September 30, 2012
	Level 1
Assets:
Corporate bonds and notes (1)	$	184,459
Money market funds (1)		17,727
United States ("US") treasury and government agency notes (1)		30,807
Foreign government and agency notes (1)		3,455
US state and municipal securities (1)		1,746
Total assets	$	238,194
	Fair value,
	December 31, 2011
(in thousands)	Level 1
Assets:
Corporate bonds and notes (1)	$	254,522
Money market funds (1)		54,588
US treasury and government agency notes (1)		62,350
Foreign government and agency notes (1)		12,389
US state and municipal securities (1)		1,749
Total assets	$	385,598
(1)  Included in Cash and cash equivalents, Short-term investments, and Long-term investment securities.  See Note 7. Investment Securities.

Financial liabilities measured on a recurring basis are summarized below:

	Fair value,
	September 30, 2012
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	2
	Fair value,
	December 31, 2011
(in thousands)	Level 2
Current liabilities:
Forward currency contracts (1)	$	1,780
(1)  Included in Accrued liabilities.

Assets/ Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis

The following liabilities have been measured at fair value on a non-recurring basis, as follows:

	Fair value,
	September 30, 2012
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9.  Senior Convertible Notes)	$	68,354
	Fair value,
	December 31, 2011
(in thousands)	Level 2
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9.  Senior Convertible Notes)	$	67,913

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 5.   Stock-Based Compensation

The Company has two stock-based compensation programs, which are described below.  None of the Company’s stock-based awards under these plans are classified as liabilities.  The Company did not capitalize any stock-based compensation cost and recorded compensation expense for the three and nine months ended September 30, 2012 and October 2, 2011, as follows:

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
(in thousands)	2012		2011		2012		2011
Cost of revenues	$	181	$	220	$	657	$	703
Research and development		2,933		3,041		8,674		8,665
Selling, general and administrative		2,974		3,708		10,647		10,962
Total	$	6,088	$	6,969	$	19,978	$	20,330
								\

The Company received cash of $6.9 million and $15.9 million related to the issuance of stock-based awards during the three and nine months ended September 30, 2012.  The Company received cash of $6 million and $16.5 million related to the issuance of stock-based awards during the three and nine months ended October 2, 2011.

Equity Award Plans

The Company issues its common stock under the provisions of the 2008 Equity Plan (the “2008 Plan”).   Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock at the grant date. The options generally expire within 10 years and vest over four years.

The 2008 Plan was approved by stockholders at the 2008 Annual Meeting.  The 2008 Plan became effective on January 1, 2009 (the “Effective Date”).  It is a successor to the 1994 Incentive Stock Plan (the “1994 Plan”) and the 2001 Stock Option Plan (the “2001 Plan”).  Up to 30,000,000 shares of our common stock have been initially reserved for issuance under the 2008 Plan.  At the 2012 Annual Meeting, stockholders approved an increase in shares reserved for issuance under the 2008 plan by 9,500,000 shares which shares were registered on May 14, 2012 on Form S-8 bringing the total number of authorized and registered shares available under the 2008 Plan to 39,500,000.  To the extent that a share that is subject to an award that counts as 1.6 shares against the 2008 Plan’s share reserve is added back into the 2008 Plan upon expiration or termination of the award or repurchase or forfeiture of the shares, the number of shares of common stock available for issuance under the 2008 Plan will be credited with 1.6 shares.  The implementation of the 2008 Plan did not affect any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date.  To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares thereunder, the number of shares of common stock subject to those terminated awards will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the 1994 Plan or the 2001 Plan.  In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination.  In 2010, the Company assumed the stock option plans and all outstanding stock options of Wintegra as part of that business combination.

Activity under the option plans during the nine months ended September 30, 2012 was as follows:

	Number of options	Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value at September 30, 2012
Outstanding, January 1, 2012	29,130,398	$	7.97
Granted	1,156,623	$	5.98
Exercised	(929,993)	$	4.76
Forfeited	(1,468,304)	$	8.69
Outstanding, September 30, 2012	27,888,724	$	7.96	5.61	$	4,419,132
Vested & expected to vest, September 30, 2012	27,263,151	$	7.98	5.54	$	4,413,979
Exercisable, September 30, 2012	21,086,215	$	8.23	4.74	$	3,693,776

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at July 1, 2012.  During the each of the nine months ended September 30, 2012, and October 2, 2011, $2.0 million and $2.1 million were recorded for forfeitures, respectively. 

The fair value of the Company’s stock option awards granted to employees during the nine months ended September 30, 2012 was estimated using a lattice-binomial valuation model.  This model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option.   The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.  The expected term of options granted is derived from the output of the stock option valuation model and represents the period of time that granted options are expected to be outstanding.  The risk-free rate for periods within the expected life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair values of the Company’s stock option awards were calculated for expense recognition using an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:

	Three Months Ended		Nine Months Ended
	September 30,	October 2,	September 30,	October 2,
	2012	2011	2012	2011
Expected life (years)	5.3	5.1	5.3	4.5
Expected volatility	42%	45%	43%	42%
Risk-free interest rate	0.8%	0.9%	0.8%	1.9%

The weighted average grant-date fair value per stock option granted during the three and nine months ended September 30, 2012, was $2.08 and $2.22, respectively.  The weighted average grant-date fair value per stock option granted during the three and nine months ended October 2, 2011 was $2.36 and $2.59, respectively.  The total intrinsic value of stock options exercised during the three and nine months ended September 30, 2012 was $0.4 million and $1.6 million, respectively.    

As of September 30, 2012, there was $15.5 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the plans, which is expected to be recognized over an average period of 2.3 years.

Restricted Stock Units

On February 1, 2007, the Company amended its stock award plans to allow for the issuance of Restricted Stock Units (“RSUs”) to employees and members of the Board of Directors.  The first grant of RSUs occurred on May 25, 2007.  The grants vest over varying terms, up to a maximum of four years from the date of grant.

A summary of RSU activity during the nine months ended September 30, 2012 is as follows:

	Restricted Stock Units	Weighted Average Remaining Contractual Term			Aggregate intrinsic value at September 30, 2012
Unvested shares at January 1, 2012	3,679,683		-		-
Awarded	2,966,202		-		-
Released	(1,155,622)		-		-
Forfeited	(245,858)		-		-
End of Period	5,244,405		1.81	$	29,394,920
Restricted Stock Units vested and expected to vest September 30, 2012	5,241,333		1.81	$	29,377,701

The intrinsic value of RSUs vested during the three and nine months ended September 30, 2012 was $1.4 million and $7.4 million, respectively.  As of September 30, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested RSUs was $22.3 million, which is expected to be recognized over the next 2.9 years.

Employee Stock Purchase Plan

In 1991, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) under Section 423 of the Internal Revenue Code.  The ESPP allows eligible participants to purchase shares of the Company’s common stock at six-month intervals through payroll deductions at a price of 85% of the lower of the fair market value at specific dates in those six-month intervals (calculated in the manner provided in the plan). Shares of the Company’s common stock are offered under the ESPP through a series of successive offering periods, generally with a maximum duration of 24 months.  Under the ESPP, the number of shares authorized to be available for issuance under the plan is increased automatically on January 1 of each year until the expiration of the plan.  The increase will be limited to the lesser of (i) 1% of the outstanding shares on January 1 of each year, (ii) 2,000,000 shares (after adjusting for stock dividends), or (iii) an amount to be determined by the Board of Directors.  The ESPP was terminated on February 10, 2011 and no additional shares will be issued under the ESPP. 

The 2011 Employee Stock Purchase Plan (the “2011 Plan”) was approved by stockholders at the 2010 Annual Meeting.  The 2011 Plan became effective on February 11, 2011 and is the successor to the ESPP. The 2011 Plan consists of consecutive offering periods, generally of a duration of 6 months, and allows eligible employees to purchase shares of the Company’s common stock at the end of each such offering period at a price per share equal to 85% of the lower of the fair market value of a share of Common Stock on the start date or the fair market value of a share of Common Stock on the exercise date of the offering period.  Employees purchase such shares through payroll deductions which may not exceed 10% of their total cash compensation.  The 2011 Plan imposes certain limitations upon an employee’s right to acquire Common Stock, including the following: (i) no employee may purchase more than 7,500 shares of Common Stock on any one purchase date and (ii) no employee may be granted rights to purchase more than $25,000 worth of Common Stock for each calendar year that such rights are at any time outstanding.  Up to 12,000,000 shares of our common stock have been initially reserved for issuance under the 2011 Plan.

During the nine months of 2012, 2,374,523 shares were issued under the 2011 Plan at a weighted average price of $4.90 per share.  As of September 30, 2012, 8,453,134 shares were available for future issuance under the 2011 Plan compared to 10,827,657 under the 2011 Plan as at December 31, 2011.

	Three Months Ended		Nine Months Ended
	September 30,	October 2,	September 30,	October 2,
	2012	2011	2012	2011
Expected life (years)	0.5	0.5	0.5	0.5
Expected volatility	44%	51%	42%	44%
Risk-free interest rate	0.2%	0.1%	0.1%	0.1%

The weighted average grant-date fair value per ESPP award granted during the first nine months of 2012 was $1.69.  The total intrinsic value of ESPP shares issued during the first nine months of 2012 was $3.6 million.

For the period ending September 30, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $1.4 million which is expected to be recognized over the next4months.

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Investment Securities

9 Months Ended

Sep. 30, 2012

Investment Securities [Abstract]

Investment Securities

NOTE 7.  Investment Securities

The Company’s available for sale investments, by investment type, consists of the following at September 30, 2012 and December 31, 2011:

		September 30, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*		Fair Value
Cash equivalents:
Money market funds	$	17,727	$	-	$	-	$	17,727
Corporate bonds and notes		1,750		-		-		1,750
US treasury and government agency notes		-		-		-		-
Total cash equivalents		19,477		-		-		19,477
Short-term investments:
Corporate bonds and notes		50,791		1,510		-		52,301
US treasury and government agency notes		3,808		16		-		3,824
Foreign government and agency notes		-		-		-		-
US states and municipal securities		1,720		26		-		1,746
Total short-term investments		56,319		1,552		-		57,871
Long-term investment securities:
Corporate bonds and notes		129,506		923		(21)		130,408
US treasury and government agency notes		26,906		78		(1)		26,983
Foreign government and agency notes		3,395		60		-		3,455
Total long-term investment securities		159,807		1,061		(22)		160,846
Total	$	235,603	$	2,613	$	(22)	$	238,194
*Gross unrealized gains include accrued interest on investments of $1.4 million.  The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).
		December 31, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*		Fair Value
Cash equivalents:
Money market funds	$	54,588	$	-	$	-	$	54,588
Total cash equivalents		54,588		-		-		54,588
Short-term investments:
Corporate bonds and notes		85,127		2,449		(34)		87,542
US treasury and government agency notes		10,009		203		-		10,212
Foreign government and agency notes		6,540		97		-		6,637
Total short-term investments		101,676		2,749		(34)		104,391
Long-term investment securities:
Corporate bonds and notes		166,741		688		(449)		166,980
US treasury and government agency notes		52,054		123		(39)		52,138
Foreign government and agency notes		5,713		39		-		5,752
US states and municipal securities		1,720		29		-		1,749
Total long-term investment securities		226,228		879		(488)		226,619
Total	$	382,492	$	3,628	$	(522)	$	385,598
*Gross unrealized gains include accrued interest on investments of $2.4 million.  The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

As of September 30, 2012 and December 31, 2011, the fair value of certain of the Company’s available-for-sale securities was less than their cost basis.  Management reviews various factors in determining whether to recognize an impairment charge related to these unrealized losses, including the current financial and credit market environment, the financial condition, near-term prospects of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment, length of time the investment has been in a loss position and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of market value.  As of September 30, 2012, the Company determined that all the unrealized losses are temporary in nature and recorded them as a component of Accumulated other comprehensive income (loss).

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Stock-Based Compensation (Narrative) (Details) (USD $)	3 Months Ended			9 Months Ended			3 Months Ended	9 Months Ended				9 Months Ended
	Sep. 30, 2012	Jul. 01, 2012	Oct. 02, 2011	Sep. 30, 2012 ShareBasedCompensationPlan	Oct. 02, 2011	Dec. 31, 2011	Jul. 01, 2012 RSU Activity [Member]	Sep. 30, 2012 RSU Activity [Member]	Sep. 30, 2012 Employee Stock Purchase Plan [Member]	Sep. 30, 2012 2008 Plan [Member]	Apr. 01, 2012 2008 Plan [Member]	Sep. 30, 2012 2011 Employee Stock Purchase Plan [Member]	Sep. 30, 2012 Maximum [Member] 2011 Employee Stock Purchase Plan [Member]	Sep. 30, 2012 Pre-Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock-based compensation programs				2
Proceeds from issuance of stock-based awards	$ 6,900,000		$ 6,000,000	$ 15,900,000	$ 16,500,000
Option expiration term (years)										10 years
Award vesting period (years)										4 years
Common shares reserved for issuance										39,500,000	30,000,000	12,000,000
Additional shares reserved for issuance										9,500,000
Shares per award, ratio										1.6
Maximum number of unexercised options that may become eligible for reissuance under the plan										15,000,000
Adjustments for forfeitures				2,000,000	2,100,000
Weighted average grant-date fair value per stock option	$ 2.08	$ 2.08	$ 2.36	$ 2.22	$ 2.59
Total intrinsic value of stock options	400,000			1,600,000
Total unrecognized compensation costs								22,300,000	1,400,000					1,000,000
Unrecognized compensation expected to be recognized, average period								2 years 10 months 24 days						2 years 3 months 18 days
Restricted stock units vested, aggregate intrinsic value							1,400,000	7,400,000
Stock price as a percentage of fair value									85.00%			85.00%
Maximum percentage of compensation an employee can use to purchase stock												10.00%
Maximum annual increase in shares that can be issued under ESPP									2,000,000
Maximum annual increase in shares that can be issued under ESPP, percentage of outstanding shares									1.00%
Maximum shares of stock an employee can purchase													7,500
Maximum amount granted to each employee to purchase common stock under ESPP													25,000
Shares issued during period under ESPP				2,374,523
Weighted average price per share under ESPP	$ 4.90			$ 4.90
Stock available for further issuance during the period under ESPP	8,453,134			8,453,134		10,827,657
Weighted average grant-date fair value per ESPP award									$ 1.69
Total intrinsic value of ESPP shares issued									$ 3,600,000
Unrecognized Compensation Costs, Which Are Adjusted For Forfeitures Are To Be Recognized	4 months

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Stock Repurchase Program And Accelerated Stock Buyback

9 Months Ended

Sep. 30, 2012

Stock Repurchase Program And Accelerated Stock Buyback [Abstract]

Stock Repurchase Program And Accelerated Stock Buyback

NOTE 12.   Stock Repurchase Program and Accelerated Stock Buyback

On May 2, 2012, the Company entered into an Accelerated Stock Buyback agreement (“ASB agreement”) with Goldman, Sachs & Co. (“Goldman”) to repurchase an aggregate of $160 million of PMC common stock.  The Company will acquire these common shares as part of its $275 million stock repurchase program announced on March 13, 2012.  During the nine months ended September 30, 2012, the Company received 22,228,520 shares from Goldman.   These shares were cancelled during the second quarter of 2012.  Subsequent to the third quarter of 2012, Goldman Sachs completed the repurchase of the Company’s common stock pursuant to the ASB agreement and delivered 4,600,788 shares, bringing the total common shares repurchased and cancelled under this program to 26,829,308.    

In accordance with the Equity topic of the FASB Accounting Standards Codification, the Company accounted for the ASB Agreement as two separate transactions: (a) as shares of common stock acquired in a treasury stock transaction recorded on the acquisition date and (b) as a forward contract indexed to the Company’s own common stock.  As such, the Company accounted for the shares that it received under the ASB Program during the period as a repurchase of its common stock for the purpose of calculating earnings per common share.  The Company has determined that the forward contract indexed to the Company’s common stock met all the applicable criteria for equity classification in accordance with the Derivatives and Hedging topic of the FASB ASC, and therefore, the ASB Agreement was not accounted for as a derivative instrument.

For the period ended September 30, 2012, the total consideration allocated to stock repurchases that were received before September 30, 2012, under the ASB was $150.2 million of which $57.2 million was recorded as an adjustment to accumulated deficit.  The balance reduced common stock and additional paid-in capital.In addition, there was also  $9.8 million recorded as an equity forward contract and was included in Additional paid-in capital.    

In addition, on November 10, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2012. Under the authorization, the Company may repurchase up to $40 million of shares of the Company’s common stock in 2012.  Under this program, during the three months ended September 30, 2012, the Company repurchased and retired 4.3 million shares for approximately $25 million in cash of which $7.2 million was recorded as an adjustment to Accumulated deficit, and the balance reduced Common stock and Additional paid-in capital.  During the nine months ended September 30, 2012, the Company repurchased and retired 5.2 million shares for approximately $30.6 million in cash of which $9 million was recorded as an adjustment to Accumulated deficit, and the balance reduced Common stock and Additional paid-in capital.  Accordingly, the repurchased shares were recorded as a reduction of Common stock, Additional paid-in capital and Accumulated deficit.  Also subsequent to the third quarter of 2012, the Company repurchased and cancelled an additional 1,735,978 common shares under its $40 million Equity Stock Buyback Plan bringing the shares repurchased and cancelled under this program to 6,902,625.

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities [Abstract]

Available For Sale Investments

		September 30, 2012
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*		Fair Value
Cash equivalents:
Money market funds	$	17,727	$	-	$	-	$	17,727
Corporate bonds and notes		1,750		-		-		1,750
US treasury and government agency notes		-		-		-		-
Total cash equivalents		19,477		-		-		19,477
Short-term investments:
Corporate bonds and notes		50,791		1,510		-		52,301
US treasury and government agency notes		3,808		16		-		3,824
Foreign government and agency notes		-		-		-		-
US states and municipal securities		1,720		26		-		1,746
Total short-term investments		56,319		1,552		-		57,871
Long-term investment securities:
Corporate bonds and notes		129,506		923		(21)		130,408
US treasury and government agency notes		26,906		78		(1)		26,983
Foreign government and agency notes		3,395		60		-		3,455
Total long-term investment securities		159,807		1,061		(22)		160,846
Total	$	235,603	$	2,613	$	(22)	$	238,194
*Gross unrealized gains include accrued interest on investments of $1.4 million.  The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).
		December 31, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses*		Fair Value
Cash equivalents:
Money market funds	$	54,588	$	-	$	-	$	54,588
Total cash equivalents		54,588		-		-		54,588
Short-term investments:
Corporate bonds and notes		85,127		2,449		(34)		87,542
US treasury and government agency notes		10,009		203		-		10,212
Foreign government and agency notes		6,540		97		-		6,637
Total short-term investments		101,676		2,749		(34)		104,391
Long-term investment securities:
Corporate bonds and notes		166,741		688		(449)		166,980
US treasury and government agency notes		52,054		123		(39)		52,138
Foreign government and agency notes		5,713		39		-		5,752
US states and municipal securities		1,720		29		-		1,749
Total long-term investment securities		226,228		879		(488)		226,619
Total	$	382,492	$	3,628	$	(522)	$	385,598
*Gross unrealized gains include accrued interest on investments of $2.4 million.  The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

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Investment Securities (Available For Sale Investments) (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012		Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 235,603,000
Gross Unrealized Gains	2,613,000	[1]
Gross Unrealized Losses	(22,000)
Fair Value	238,194,000
Accrued interest on investments	1,400,000		2,400,000
Cash Equivalents [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	19,477,000		54,588,000
Fair Value	19,477,000		54,588,000
Cash Equivalents [Member] | Corporate Bonds And Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,750,000
Fair Value	1,750,000
Cash Equivalents [Member] | Money Market Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	17,727,000		54,588,000
Fair Value	17,727,000		54,588,000
Short-Term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	56,319,000		101,676,000
Gross Unrealized Gains	1,552,000	[1]	2,749,000	[2]
Gross Unrealized Losses			(34,000)
Fair Value	57,871,000		104,391,000
Short-Term Investments [Member] | Corporate Bonds And Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	50,791,000		85,127,000
Gross Unrealized Gains	1,510,000	[1]	2,449,000	[2]
Gross Unrealized Losses			(34,000)
Fair Value	52,301,000		87,542,000
Short-Term Investments [Member] | US Treasury And Government Agency Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,808,000		10,009,000
Gross Unrealized Gains	16,000	[1]	203,000	[2]
Fair Value	3,824,000		10,212,000
Short-Term Investments [Member] | Foreign Government And Agency Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			6,540,000
Gross Unrealized Gains			97,000	[2]
Fair Value			6,637,000
Short-Term Investments [Member] | US States And Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,720,000
Gross Unrealized Gains	26,000	[1]
Fair Value	1,746,000
Long-Term Investment Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	159,807,000		226,228,000
Gross Unrealized Gains	1,061,000	[1]	879,000	[2]
Gross Unrealized Losses	(22,000)		(488,000)
Fair Value	160,846,000		226,619,000
Long-Term Investment Securities [Member] | Corporate Bonds And Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	129,506,000		166,741,000
Gross Unrealized Gains	923,000	[1]	688,000	[2]
Gross Unrealized Losses	(21,000)		(449,000)
Fair Value	130,408,000		166,980,000
Long-Term Investment Securities [Member] | US Treasury And Government Agency Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	26,906,000		52,054,000
Gross Unrealized Gains	78,000	[1]	123,000	[2]
Gross Unrealized Losses	(1,000)		(39,000)
Fair Value	26,983,000		52,138,000
Long-Term Investment Securities [Member] | Foreign Government And Agency Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,395,000		5,713,000
Gross Unrealized Gains	60,000	[1]	39,000	[2]
Fair Value	3,455,000		5,752,000
Long-Term Investment Securities [Member] | US States And Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			1,720,000
Gross Unrealized Gains			29,000	[2]
Fair Value			$ 1,749,000

[1] Gross unrealized gains include accrued interest on investments of $1.4 million. The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

[2] Gross unrealized gains include accrued interest on investments of $2.4 million. The remainder of the gross unrealized gains and losses are included in the interim Condensed Consolidated Balance Sheet as Accumulated other comprehensive income (loss).

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 113,219,000	$ 182,571,000
Short-term investments	57,871,000	104,391,000
Accounts receivable, net of allowance for doubtful accounts of $2,189 (2011 - $1,952)	62,568,000	59,213,000
Inventories, net	27,405,000	39,911,000
Prepaid expenses and other current assets	13,588,000	23,411,000
Income taxes receivable	5,806,000	8,027,000
Deferred tax assets	42,151,000	30,725,000
Total current assets	322,608,000	448,249,000
Investment securities	160,846,000	226,619,000
Investments and other assets	4,570,000	2,431,000
Prepaid expenses	12,517,000	16,901,000
Property and equipment, net	40,408,000	25,364,000
Goodwill	252,419,000	520,899,000
Intangible assets, net	137,679,000	158,482,000
Deferred tax assets	58,000	494,000
Assets, Total	931,105,000	1,399,439,000
Current liabilities:
2.25% senior convertible notes due October 15, 2025, net	67,951,000	65,122,000
Accounts payable	29,093,000	38,340,000
Accrued liabilities	62,242,000	66,139,000
Liability for unrecognized tax benefit	52,304,000	46,394,000
Deferred income taxes	2,494,000	2,450,000
Deferred income	12,720,000	16,024,000
Total current liabilities	226,804,000	234,469,000
Long-term obligations	2,025,000	1,284,000
Deferred income taxes	42,894,000	40,663,000
Liability for unrecognized tax benefit	20,403,000	17,323,000
PMC special shares convertible into 1,019 (2011 - 1,029) shares of common stock	1,188,000	1,228,000
Stockholders' equity:
Common stock, par value $.001: 900,000 shares authorized; 207,166 shares issued and outstanding (2011 - 230,233)	207,000	230,000
Additional paid in capital	1,536,263,000	1,594,437,000
Accumulated other comprehensive income (loss)	767,000	(1,146,000)
Accumulated deficit	(899,446,000)	(489,049,000)
Total stockholders' equity	637,791,000	1,104,472,000
Liabilities and Stockholders' Equity, Total	$ 931,105,000	$ 1,399,439,000

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Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

NOTE 1.  Summary of Significant Accounting Policies

Description of business. PMC-Sierra, Inc. (the “Company” or “PMC”) is a semiconductor innovator transforming networks that connect, move and store digital content. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks.  PMC’s highly integrated solutions increase performance and enable next generation services to accelerate the network transformation. 

Basis of presentation.The accompanying interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and United States Generally Accepted Accounting Principles (“GAAP”).  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules or regulations.  These interim condensed consolidated financial statements are unaudited, but reflect all adjustments which are normal and recurring in nature and are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented.  These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.  The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods. Fiscal 2012 will consist of 52 weeks and will end on Saturday, December 29, 2012.  Fiscal 2011 consisted of 53 weeks and ended on Saturday, December 31, 2011.  The third quarter of each of 2012 and 2011 consisted of 13 and 14 weeks, respectively.  

Estimates. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Estimates are used for, but not limited to, stock-based compensation, purchase accounting assumptions including those used to calculate the fair value of intangible assets and goodwill, the valuation of investments, accounting for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, sales returns, warranty costs, income taxes including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of our senior convertible notes, accounting for employee benefit plans, and contingencies.  Actual results could differ materially from these estimates. 

Goodwill and intangible assets.  Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company performs a two-step process on an annual basis, or more frequently if necessary, to determine 1) whether the fair value of the relevant reporting unit exceeds the carrying value and 2) the amount of an impairment loss, if any.

During the third quarter of 2012, the Company recognized $276.1 million in impairment of goodwill and purchased intangible assets related to the 2006 acquisition of Passave, Inc. (“Passave”) and 2010 acquisition of Wintegra, Inc. (“Wintegra”).  All of the goodwill of Passave was written down by $146.3 million due to weaker quarterly results and future projections than previously expected, driven by slower adoption rates of FTTH technology in markets outside of Asia.  All of the goodwill and a portion of the other intangible assets of Wintegra were determined to be impaired by $122.8 million and $7 million, respectively, as a result of the continuing weak carrier spending, more so than previously expected.

The fair value of the reporting unit was determined by using the income approach. Under this approach, the fair value is based on estimated future cash flows of the reporting unit which are discounted to the present value using discount factors that consider the timing and risk of cash flows.  Significant assumptions used in the income approach include the forecasts of future operating results, terminal value, growth rates, future capital expenditures and changes in future working capital.  The discount rate includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks.

Recent Accounting Pronouncements.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for common fair value measurement. These amendments, effective for the interim and annual periods beginning on or after December 15, 2011, provide common definitions of fair value and common fair value measurements and disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments change some fair value measurement principles and disclosure requirements. The Company adopted this amendment effective the first quarter of fiscal 2012.  The adoption of this amended accounting guidance did not have a material impact on our consolidated financial statements.

In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income. This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011, requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this amendment effective the first quarter of fiscal 2012, and presented total comprehensive income, the components of net income, and components of other comprehensive income in two separate but consecutive statements. 

In September 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment. This ASU provides companies with the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If this qualitative criteria is not met, then performing the two-step impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step quantitative goodwill impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of this test. This guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this for the 2012 fiscal year.  The adoption of this did not have an impact on our consolidated financial statements.

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Net Income (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Net Income (Loss) Per Share [Abstract]

Schedule Of Net Income (Loss) Per Share

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
(in thousands, except per share amounts)	2012		2011		2012		2011
Numerator:
Net (loss) income	$	(274,386)	$	47,256	$	(344,177)	$	56,334
Denominator:
Basic weighted average common shares outstanding (1)		209,512		232,590		221,323		233,880
Dilutive effect of employee stock options and awards		-		1,057		-		2,356
Diluted weighted average common shares outstanding (1)		209,512		233,647		221,323		236,236
Basic net (loss) income per share	$	(1.31)	$	0.20	$	(1.56)	$	0.24
Diluted net (loss) income per share	$	(1.31)	$	0.20	$	(1.56)	$	0.24

(1) PMC-Sierra Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

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Stock-Based Compensation (Schedule Of Summary Of RSU Activity) (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Stock-Based Compensation [Abstract]
Beginning of period, Unvested Restricted Stock Units	3,679,683
Awarded, Restricted Stock Units	2,966,202
Released, Restricted Stock Units	(1,155,622)
Forfeited, Restricted Stock Units	(245,858)
End of period, Restricted Stock Units	5,244,405
Restricted Stock Units vested and expected to vest	5,241,333
End of period, Weighted Average Remaining Contractual Term (years)	1 year 9 months 22 days
Restricted Stock Units vested and expected to vest, Weighted Average Remaining Contractual Term (years)	1 year 9 months 22 days
End of period, Aggregate intrinsic value	$ 29,394,920
Restricted Stock Units vested and expected to vest, Aggregate intrinsic value	$ 29,377,701

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Net Income (Loss) Per Share

9 Months Ended

Sep. 30, 2012

Net Income (Loss) Per Share [Abstract]

Net Income (Loss) Per Share

NOTE 11.   Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted net (loss)income per share:

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
(in thousands, except per share amounts)	2012		2011		2012		2011
Numerator:
Net (loss) income	$	(274,386)	$	47,256	$	(344,177)	$	56,334
Denominator:
Basic weighted average common shares outstanding (1)		209,512		232,590		221,323		233,880
Dilutive effect of employee stock options and awards		-		1,057		-		2,356
Diluted weighted average common shares outstanding (1)		209,512		233,647		221,323		236,236
Basic net (loss) income per share	$	(1.31)	$	0.20	$	(1.56)	$	0.24
Diluted net (loss) income per share	$	(1.31)	$	0.20	$	(1.56)	$	0.24

(1) PMC-Sierra Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

In the three and nine months ended September 30, 2012, the Company had approximately 1million and 1.8million, respectively, of stock options and Restricted Stock Units that were not included in the diluted net loss per share because they would have been anti-dilutive.