This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements include, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "can," and similar expressions identify such forward-looking statements. These are statements that relate to future periods and include statements relating to our expectations regarding our discretionary spending controls; our anticipation that the rate of new orders and shipments will vary significantly from quarter to quarter; our expectations regarding industry trends; our anticipation that the total amount of sales through distributors will increase in future periods; our expectation that a significant percentage of our sales will continue to come from direct sales to key customers; our expectations regarding the number of days in inventory, inventory levels and levels of accounts receivable; our expectations regarding competition; our expectation regarding decreases in average selling prices; our continued efforts relating to the protection of our intellectual property; our expectations regarding the amount of customer concentration in the future; our expectations regarding the amount of our future sales in Asia; our expectation regarding the effect of auction rate securities on our working capital needs or other requirements; our expected results, cash flows, and expenses, including those related to research and development, sales and marketing and general and administrative; our intention to make acquisitions, investments, strategic alliances and joint ventures; our expectations regarding revenue in the third quarter of fiscal 2010 compared with the revenue in the second quarter of fiscal 2010; our expectations regarding the impact of legal proceedings and claims; our expectations regarding the adequacy of our capital resources, capital expenditures, investment requirements and commitments to meet our capital needs for the next 12 months; our plan to attract and retain highly skilled personnel; our expectations regarding the growth in business and operations; our plan regarding forward exchange contracts; the effect of recent accounting pronouncements and changes in taxation rules; our expectations regarding unrecognized tax benefits; our plan of sourcing certain legacy application processor cellular and handset inventory from Intel Corporation; and our plan to reduce the global workforce. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ materially from those predicted, include but are not limited to, the impact of the recent worldwide financial crisis; the international conflict and continued economic volatility in either domestic or foreign markets; our dependence upon the hard disk drive industry which is highly cyclical; our ability to scale our operations in response to changes in demand for existing or new products and services; our maintenance of an effective system of internal controls; our dependence on a small number of customers; our ability to develop new and enhanced products; our success in integrating businesses we acquire and the impact such acquisitions may have on our operating results; our ability to estimate customer demand accurately; the success of our strategic relationships with customers; our reliance on independent foundries and subcontractors for the manufacture, assembly and testing of our products; our ability to manage future growth; the development and evolution of markets for our integrated circuits; our ability to protect our intellectual property; the impact of any change in our application of the United States federal income tax laws and the loss of any beneficial tax treatment that we currently enjoy; the impact of changes in international financial and regulatory conditions; the impact of changes in management; and the outcome of pending or future litigation and legal proceedings. Additional factors which could cause actual results to differ materially include those set forth in the following discussion, as well as the risks discussed in Part II, Item 1A, "Risk Factors," and other sections of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. Unless required by law, we undertake no obligation to update any forward-looking statements.

Overview

We are a leading global semiconductor provider of high-performance application-specific standard products. Our core strength of expertise is the development of complex System-on-a-Chip devices leveraging our extensive technology portfolio of intellectual property in the areas of analog, mixed-signal, digital signal processing and embedded ARM-based microprocessor integrated circuits. Our broad product portfolio includes devices for data storage, enterprise-class Ethernet data switching, Ethernet physical-layer transceiver handheld cellular, Ethernet-based wireless networking, personal area networking, Ethernet-based PC connectivity, control plane communications controllers, video-image processing and power management solutions. Our products serve diverse applications used in carrier, metropolitan, enterprise and PC-client data communications and storage systems. Additionally, we serve the consumer electronics market for the convergence of voice, video and data applications. We are a fabless integrated circuit company, which means that we rely on independent, third party contractors to perform manufacturing, assembly and test functions. This approach allows us to focus on designing, developing and marketing our products and significantly reduces the amount of capital we need to invest in manufacturing products.

Our sales have historically been made on the basis of purchase orders rather than long-term agreements. In addition, the sales cycle for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is

generated from these expenditures. We anticipate that the rate of new orders may vary significantly from quarter to quarter. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our operating results for that quarter and future quarters may be adversely affected.

Our fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. In a 52-week year, each fiscal quarter consists of 13 weeks. The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2010 and fiscal 2009 are comprised of a 52-week period. In this Quarterly Report on Form 10-Q, we refer to the fiscal year ended February 2, 2008 as fiscal 2008, the fiscal year ended January 31, 2009 as fiscal 2009, and the fiscal year ending January 30, 2010 as fiscal 2010.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates, and such differences could affect the results of operations reported in future periods. For a description of our critical accounting policies and estimates, please refer to the "Critical Accounting Policies and Estimates" section of our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2009. There have been no material changes in any of our critical accounting policies during fiscal 2010.

Results of Operations

Starting in the third quarter of fiscal 2009, when we began to see the early signs of a potential economic downturn, we began taking actions to reduce our cost structure. Several of those actions had a significant impact on the results in both the three and six months ended August 1, 2009 as follows:

• Headcount reductions - Starting in the fourth quarter of fiscal 2009, we began a reduction of force that impacts all of our worldwide operations including the closure of the design center in Canada and the test operations in Malaysia. These reductions have lowered our salary related expenses significantly as discussed below.

• Facilities consolidations - We have also taken actions to readjust our real estate footprint to more closely match our current business needs. This included vacating certain facilities, downsizing certain facilities, and renegotiating many of our existing and expiring leases. These measures have begun to also benefit our on-going results.

• Manufacturing cost reductions - At the beginning of the downturn, we took the opportunity to renegotiate the pricing arrangements with our key manufacturing partners including foundries, assembly and test subcontractors. As we have substantially sold through our inventory built in prior periods at higher costs, we are beginning to see significant benefits as a result of these efforts.

• Discretionary spending controls - During the second half of fiscal 2009, we implemented very strict guidelines with regards to discretionary spending including restrictions on travel and limitations on use of outside professional services to name a few. Although we have begun to ease some of the restrictions, we will continue the spending discipline to ensure our expense levels remain competitive.

• Stock-based compensation - In the fourth quarter of fiscal 2009, we implemented a stock option exchange program for our employees to allow them to exchange options with higher prices for restricted stock units. Not only did this program allow employees to receive some value, it also impacted our stock option expense levels as is evidenced in the results. The expense in the periods of fiscal 2010 has been lower partially due to differences in the vesting schedule of replacement grants versus exchanged options. In addition, we took the opportunity while the stock price was lower to provide our annual grants to employees earlier in the cycle in order to provide some additional retention value but also limit the amount of stock-based compensation associated with those awards.

The following table sets forth information derived from our unaudited condensed consolidated statements of operations expressed as a percentage of net revenue:

                                                 Three Months Ended                Six Months Ended
                                              August 1,       August 2,       August 1,        August 2,
                                                2009            2008            2009             2008
Net revenue                                       100.0 %         100.0 %         100.0 %          100.0 %
Operating costs and expenses:
Cost of goods sold                                 45.0            48.2            47.0             48.3
Research and development                           30.1            29.6            33.8             29.6
Selling and marketing                               5.0             5.0             5.6              5.3
General and administrative                          4.5             3.7            11.2              2.7
Amortization of acquired intangible assets          4.1             4.1             4.9              4.3
Restructuring                                       0.8              -              1.1               -

Total operating costs and expenses                 89.5            90.6           103.6             90.2

Operating income (loss)                            10.5             9.4            (3.6 )            9.8
Interest and other income, net                      0.3             0.5             0.1              0.4
Interest expense                                   (0.2 )          (0.6 )          (0.1 )           (0.7 )

Income (loss) before income taxes                  10.6             9.3            (3.6 )            9.5
Provision for income taxes                          1.5             0.8             1.0              0.9

Net income (loss)                                   9.1 %           8.5 %          (4.6 )%           8.6 %

Three and Six Months Ended August 1, 2009 and August 2, 2008

Net Revenue



                   Three Months Ended                       Six Months Ended
                 August 1,    August 2,      %           August 1,     August 2,      %
                    2009         2008      Change          2009          2008       Change
                                     (in thousands, except percentage)
   Net revenue   $  640,620   $  842,575    (24.0 )%    $ 1,162,054   $ 1,646,650    (29.4 )%

The decrease in net revenue for the three and six months ended August 1, 2009 compared to the net revenue for the three and six months ended August 2, 2008 reflects the negative impacts of the global economic slowdown, which we experienced across each of our product families. Within our storage businesses, a reduction in consumer spending on PCs resulted in lower demand from our hard disk drive customers. Within cellular handheld, wireless and printer semiconductor solution offerings, our products such as mobile phones, gaming devices and printers were adversely impacted by lower consumer spending as compared to the previous year. During the three months ended August 1, 2009, we began to see the possible signs of economic recovery as we experienced improving order momentum throughout the quarter. We currently expect that revenue in the third quarter of fiscal 2010 will increase moderately from the level of revenue that we reported in the second quarter of fiscal 2010 as we continue to see signs of recovery in the economic environment and the ramp of some new design wins.

Historically, a relatively small number of customers have accounted for a significant portion of our revenue. For the three months ended August 1, 2009, three customers each represented more than 10% of our net revenue, and totaled 45% of our net revenue. For the six months ended August 1, 2009, two customers each represented more than 10% of our net revenue, and totaled 35% of our net revenue. For the three and six months ended August 2, 2008, one customer represented more than 10% of our net revenue, for a total of 21% and 22%, respectively, of our net revenue. No distributors accounted for more than 10% of our net revenue in the three and six months ended August 1, 2009 and August 2, 2008, respectively.

Because we sell our products to many OEM manufacturers who have manufacturing operations located in Asia, a significant percentage of our sales are made to customers located outside of the United States. Sales to customers located in Asia represented 93% and 87% of our net revenue for the three months ended August 1, 2009 and August 2, 2008, respectively, and represented 91% and 86% of our net revenue for the six months ended August 1, 2009 and August 2, 2008, respectively. The rest of our sales are to customers located in the United States and other geographic regions. We expect that a significant portion of our revenue will continue to be represented by sales to our customers in Asia. Substantially all of our sales to date have been denominated in U.S. dollars.

Cost of Goods Sold



                                       Three Months Ended                            Six Months Ended
                                   August 1,       August 2,         %          August 1,       August 2,         %
                                      2009            2008         Change          2009            2008         Change
                                                            (in thousands, except percentage)
Cost of Goods Sold                 $  288,059      $  405,913       (29.0 )%    $  545,689      $  794,755       (31.3 )%
% of net revenue                         45.0 %          48.2 %                       47.0 %          48.3 %

Cost of goods sold as a percentage of revenue for the three and six months ended August 1, 2009 compared to the three and six months ended August 2, 2008 decreased due to lower material and manufacturing costs as a result of cost reduction efforts with our foundry, assembly and test subcontractors discussed above as well as yield improvements. Cost of goods sold as a percentage of revenue also decreased due to an improved mix of products sold, sales of previously written down inventory and lower royalty expenses. Our cost of goods sold as a percentage of revenue may fluctuate in future periods due to, among other things, changes in the mix of products sold, the timing of production ramps of new products, increased pricing pressures from our customers and competitors, particularly in the consumer product markets that we are targeting, charges for obsolete or potentially excess inventory, changes in the costs charged by our foundry, assembly and test subcontractors, the introduction of new products with lower margins and product warranty costs.

Research and Development



                                       Three Months Ended                            Six Months Ended
                                   August 1,       August 2,         %          August 1,       August 2,         %
                                      2009            2008         Change          2009            2008         Change
                                                            (in thousands, except percentage)
Research and development           $  192,664      $  249,714       (22.8 )%    $  392,913      $  488,189       (19.5 )%
% of net revenue                         30.1 %          29.6 %                       33.8 %          29.6 %

The decrease in research and development expense for the three months ended August 1, 2009 compared to the three months ended August 2, 2008 of $57.1 million was partially due to lower salary and related expenses of $8.4 million as a result of lower headcount. In addition, we received the benefit of $10.3 million of research and development funding from customers for development work in the three months ended August 1, 2009. Stock-based compensation decreased $10.8 million due to older options with relatively higher valuations becoming fully vested along with the impact of our stock option exchange program. Mask, wafer and product related costs decreased $13.0 million due to lower pricing and timing of tape outs. Other decreases in research and development expenses of approximately $13.4 million related to lower discretionary spending due to tight cost controls.

The decrease in research and development expense for the six months ended August 1, 2009 compared to the six months ended August 2, 2008 of $95.3 million was partially due to lower salary and related expenses of $24.1 million as a result of lower headcount while stock-based compensation decreased $19.0 million. In addition, we received the benefit of $15.6 million of research and development funding from customers for development work in the six months ended August 1, 2009. Mask, wafer and product related costs decreased $12.7 million due to lower pricing and timing of tape outs. Other decreases in research and development expenses of approximately $20.3 million related to lower discretionary spending due to tight cost controls.

We currently expect research and development expense during the third quarter ending October 31, 2009 will moderately increase from the level of expense reported during the second quarter ended August 1, 2009.

Selling and Marketing



                                         Three Months Ended                               Six Months Ended
                                     August 1,         August 2,         %           August 1,        August 2,         %
                                        2009             2008          Change          2009             2008          Change
                                                               (in thousands, except percentage)
Selling and marketing               $     32,384      $    41,834       (22.6 )%    $    65,030      $    87,922       (26.0 )%
% of net revenue                             5.0 %            5.0 %                         5.6 %            5.3 %

The decrease in selling and marketing expense for the three months ended August 1, 2009 compared to the three months ended August 2, 2008 of $9.5 million was primarily due to lower salary and related expenses of $1.5 million due to lower overall headcount. Stock-based compensation decreased $2.5 million for the reasons described above. Additionally, sales rep commissions decreased $2.1 million due to the decrease in revenue and various other selling and marketing costs declined $3.1 million due to cost control efforts.

The decrease in selling and marketing expense for the six months ended August 1, 2009 compared to the six months ended August 2, 2008 of $22.9 million was primarily due to lower salary and related expenses of $6.6 million due to lower headcount. Stock-based compensation decreased $6.1 million for the reasons described above. Additionally, sales rep commissions decreased $3.8 million due to the decrease in revenue and various other selling and marketing costs declined $5.4 million due to cost control efforts.

We currently expect that selling and marketing expense during the third quarter ending October 31, 2009 will remain essentially flat from the level of expense reported during the second quarter ended August 1, 2009.

General and Administrative



                                           Three Months Ended                              Six Months Ended
                                       August 1,         August 2,         %          August 1,        August 2,         %
                                          2009             2008          Change          2009            2008          Change
                                                                 (in thousands, except percentage)
General and administrative            $     28,562      $    30,989        (7.8 )%    $  130,058      $    43,940       196.0 %
% of net revenue                               4.5 %            3.7 %                       11.2 %            2.7 %

The decrease in general and administrative expense for the three months ended August 1, 2009 compared to the three months ended August 2, 2008 of $2.4 million was primarily due to a decrease in salary and related costs of $2.3 million due to lower headcount. Stock-based compensation expense was lower by $2.4 million due to older options with relatively higher valuations becoming fully vested along with lower expense as a result of our stock option exchange program. In addition, various other general and administrative expenses such as outside services and consulting decreased $2.8 million due to cost control efforts. Partially offsetting the decreases was an increase in legal fees of $5.8 million due primarily to increased activity in connection with our litigation matters.

The increase in general and administrative expense for the six months ended August 1, 2009 compared to the six months ended August 2, 2008 of $86.1 million was primarily the result of a $72.0 million legal settlement in connection with the class action securities litigation related to our historical stock option granting practices recorded in the three months ended May 2, 2009. Legal fees, on a net basis increased by $28.2 million primarily due to $24.5 million of insurance recoveries related to certain litigation activity received in the first quarter ended May 3, 2008. This was partially offset by a $10.0 million settlement with the Securities and Exchange Commission (the "SEC") investigation regarding our historical stock option granting practices and related accounting matters also recorded in the first quarter ended May 3, 2008. In addition to the settlements, the remaining increase in legal fees of approximately $13.7 million was due to increased litigation matters, including one of our cases ramping up for trial. Partially offsetting the increase was a decrease of $5.1 million in stock-based compensation and $4.0 million of lower salary and related costs due to lower headcount. Finally, various other general and administrative expenses such as outside services and consultants decreased $4.8 million due to cost control efforts.

We currently expect that general and administrative expense during the third quarter ending October 31, 2009 will decrease moderately from the level of expense reported during the second quarter ended August 1, 2009, mainly due to lower legal spending.

Amortization of Acquired Intangible Assets



                                           Three Months Ended                               Six Months Ended
                                       August 1,         August 2,         %           August 1,        August 2,         %
                                          2009             2008          Change          2009             2008          Change
                                                                 (in thousands, except percentage)
Amortization of acquired intangible
assets                                $     26,446      $    34,988       (24.4 )%    $    56,802      $    70,235       (19.1 )%
% of net revenue                               4.1 %            4.1 %                         4.9 %            4.3 %

The decrease in amortization of acquired intangible assets for the three and six months ended August 1, 2009 compared to the three and six months ended August 2, 2008 was due to amortization of intangible assets from certain acquisitions being fully amortized and the effects of the write-off of certain purchased intangibles during the fourth quarter ended January 31, 2009.

Restructuring



                                           Three Months Ended                             Six Months Ended
                                       August 1,         August 2,         %          August 1,       August 2,         %
                                         2009               2008         Change         2009             2008         Change
                                                                (in thousands, except percentage)
Restructuring                         $     4,956        $       -        100.0 %    $    13,292      $       -        100.0 %
% of net revenue                              0.8 %              -  %                        1.1 %            -  %

Restructuring charges included in operating expenses increased $5.0 million and $13.3 million in the three and six months ended August 1, 2009, respectively, . . .