Management's discussion and analysis of financial condition and results of operations ("MD&A") is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of our operations. The MD&A is organized as follows:

• Caution concerning forward-looking statements. This section discusses how forward-looking statements made by us in the MD&A and elsewhere in this report are based on management's present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.

• Overview. This section provides an introductory overview and context for the discussion and analysis that follows in the MD&A.

• Critical accounting policies. This section discusses those accounting policies that are both considered important to our financial condition and operating results and require significant judgment and estimates on the part of management in their application.

• Results of operations. This section provides an analysis of our results of operations for the three and six months ended September 30, 2009 and 2008. A brief description is provided of transactions and events that impact the comparability of the results being analyzed.

• Financial condition and liquidity. This section provides an analysis of our cash position and cash flows, as well as a discussion of our financing arrangements and financial commitments.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The MD&A should be read in conjunction with the consolidated financial statements and notes thereto included in this report. This discussion contains forward-looking statements. These forward-looking statements are made as of the date of this report. Any statement that refers to an expectation, projection or other characterization of future events or circumstances, including the underlying assumptions, is a forward-looking statement. We use certain words and their derivatives such as "anticipate", "believe", "plan", "expect", "estimate", "predict", "intend", "may", "will", "should", "could", "future", "potential", and similar expressions in many of the forward-looking statements. The forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs, and other assumptions made by us. These statements and the expectations, estimates, projections, beliefs and other assumptions on which they are based are subject to many risks and uncertainties and are inherently subject to change. We describe many of the risks and uncertainties that we face in Part II, Item 1A, "Risk Factors" and elsewhere in this report. Our actual results and actual events could differ materially from those anticipated in any forward-looking statement. Readers should not place undue reliance on any forward-looking statement.

OVERVIEW

Applied Micro Circuits Corporation ("AppliedMicro" or the "Company") is a leader in semiconductor solutions for the enterprise, telecom and consumer/small medium business ("SMB") markets. We design, develop, market and support high-performance low power integrated circuits ("ICs"), which are essential for the processing, transporting and storing of information worldwide. In the telecom and enterprise markets, we utilize a combination of design expertise coupled with system-level knowledge and multiple technologies to offer IC products for wireline and wireless communications equipment such as wireless access points, wireless base stations, multi-function printers, edge switches, gateways, metro transport platforms, core switches and routers. In the consumer/SMB markets, we combine optimized software and system-level expertise with highly integrated semiconductors to deliver comprehensive reference designs and stand-alone semiconductor solutions for wireline and wireless communications equipment such as wireless access points. Our corporate headquarters are located in Sunnyvale, California. Sales and engineering offices are located throughout the world.

Our business had three reporting units, Process, Transport and Store. On April 21, 2009, we completed the sale of our 3ware storage adapter business, which was substantially all the business of our Store unit, to LSI Corporation to focus on our Process and Transport reporting units. AppliedMicro is a semiconductor company that possesses fundamental and differentiated intellectual property for high speed signal processing, packet based communications processors and telecommunications transport protocols. This intellectual property enables us to be a key player in the datacenter, enterprise and telecommunications applications. Our focus is on the original equipment manufacturers ("OEMs") and telecommunications companies that build and connect to datacenters.

Certain amounts have been reclassified to conform to the current year presentation. We classified the financial results of our 3ware storage adapter business as discontinued operations for all periods presented due to the sale of our 3ware storage adapter business to LSI Corporation on April 21, 2009.

The following tables present a summary of our results of operations for the three and six months ended September 30, 2009 and 2008 (dollars in thousands):

                                             Three Months Ended September 30,
                                             2009                         2008
                                                   % of Net                    % of Net         Increase           %
                                     Amount        Revenue        Amount       Revenue         (Decrease)        Change
Net revenues                        $  49,232         100.0 %    $ 64,290         100.0 %     $    (15,058 )       (23.4 )%
Cost of revenues                       23,796          48.3        28,576          44.4             (4,780 )       (16.7 )

Gross profit                           25,436          51.7        35,714          55.6            (10,278 )       (28.8 )
Total operating expenses               33,699          68.4        36,281          56.4             (2,582 )        (7.1 )

Operating loss                         (8,263 )       (16.7 )        (567 )        (0.8 )           (7,696 )    (1,357.3 )
Interest and other income
(expense), net                         (3,425 )        (7.0 )        (550 )        (0.9 )           (2,875 )      (522.7 )

Loss from continuing operations
before income taxes                   (11,688 )       (23.7 )      (1,117 )        (1.7 )          (10,571 )      (946.4 )
Income tax expense (benefit)           (3,617 )        (7.3 )         403           0.6             (4,020 )      (997.5 )

Loss from continuing operations        (8,071 )       (16.4 )      (1,520 )        (2.3 )           (6,551 )      (431.0 )
Income (loss) from discontinued
operations, net of taxes                1,347           2.7          (793 )        (1.3 )            2,140         269.9

Net loss                            $  (6,724 )        13.7 %    $ (2,313 )        (3.6 )%    $     (4,411 )      (190.7 )%

                                               Six Months Ended September 30,
                                             2009                          2008
                                                   % of Net                      % of Net         Increase          %
                                     Amount        Revenue         Amount        Revenue         (Decrease)       Change
Net revenues                        $  94,284         100.0 %     $ 125,489         100.0 %     $    (31,205 )     (24.9 )%
Cost of revenues                       45,971          48.8          57,002          45.4            (11,031 )     (19.4 )

Gross profit                           48,313          51.2          68,487          54.6            (20,174 )     (29.5 )
Total operating expenses               64,483          68.4          71,676          57.1             (7,193 )     (10.0 )

Operating loss                        (16,170 )       (17.2 )        (3,189 )        (2.5 )          (12,981 )    (407.1 )
Interest and other income
(expense), net                         (1,836 )        (1.9 )        (1,877 )        (1.5 )               41         2.2

Loss from continuing operations
before income taxes                   (18,006 )       (19.1 )        (5,066 )        (4.0 )          (12,940 )    (255.4 )
Income tax expense (benefit)           (7,136 )        (7.6 )           905           0.8             (8,041 )    (888.5 )

Loss from continuing operations       (10,870 )       (11.5 )        (5,971 )        (4.8 )           (4,899 )     (82.0 )
Income (loss) from discontinued
operations, net of taxes                7,044           7.5          (1,516 )        (1.2 )            8,560       564.6

Net loss                            $  (3,826 )        (4.0 )%    $  (7,487 )        (6.0 )%    $      3,661        48.9 %

Net Revenues. We generate revenues primarily through sales of our IC products, embedded processors and printed circuit board assemblies to OEMs, such as Alcatel-Lucent, Ciena, Cisco, Brocade, Fujitsu, Hitachi, Huawei, Juniper, Ericsson, NEC, Nortel, Nokia Siemens Networks, and Tellabs, who in turn supply their equipment principally to communications service providers.

In July 2008, we entered into a Patent Purchase Agreement (the "Agreement") with QUALCOMM Incorporated ("Qualcomm"). Pursuant to the Agreement, we agreed to sell a series of our patents, patent applications and associated rights related to certain technologies which were no longer core to our long-term strategic direction and product road maps for an aggregate purchase price of $33.0 million. The purchase price is being paid over three years in equal quarterly payments of $3.0 million each beginning in the three months ended September 30, 2008. Due to the nature of the payment terms, related revenue is being recorded as the payments are received beginning in the quarter ended September 30, 2008. Under the Agreement, we and our affiliates have retained a worldwide and non-exclusive right to manufacture and sell existing AppliedMicro products that utilize technology covered by the patents. Prior to the due date of the final payment, Qualcomm is permitted to withhold a portion of the total purchase price in the event we breach the representations, warranties or covenants that we made under the Agreement.

The demand for our products has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• the timing, rescheduling or cancellation of significant customer orders and our ability, as well as the ability of our customers, to manage inventory corrections;

• the qualification, availability and pricing of competing products and technologies and the resulting effects on sales and pricing of our products.

• our ability to specify, develop or acquire, complete, introduce, and market new products and technologies in a cost effective and timely manner;

• the rate at which our present and future customers and end-users adopt our products and technologies in our target markets;

• general economic and market conditions in the semiconductor industry and communications markets, including the current global economic recession;

• combinations of companies in our customer base, resulting in the combined company choosing our competitor's IC standardization other than our supported product platforms; and

• the gain or loss of one or more key customers, or their key customers, or significant changes in the financial condition of one or more of our key customers or their key customers.

For these and other reasons, our net revenue and results of operations for the three and six months ended September 30, 2009 and prior periods may not necessarily be indicative of future net revenue and results of operations.

Based on direct shipments, net revenues to customers that was equal to or greater than 10% of total net revenues were as follows:

                                                  Three Months Ended             Six Months Ended
                                                    September 30,                  September 30,
                                                2009             2008           2009           2008
Avnet (distributor)                                 28 %             26 %          26 %           28 %
Flextronics (sub-contract manufacturer)              *               13 %           *             11 %
Hon Hai (sub-contract manufacturer)                 14 %              *            13 %            *

* Less than 10% of total net revenues for period indicated.

We expect that our largest customers will continue to account for a substantial portion of our net revenue for the foreseeable future.

Net revenues by geographic region were as follows (in thousands):

                                       Three Months Ended September 30,                   Six Months Ended September 30,
                                        2009                     2008                     2009                      2008
                                            % of Net                 % of Net                 % of Net                  % of Net
                                  Amount    Revenue        Amount    Revenue        Amount    Revenue        Amount     Revenue
United States of America         $ 17,428       35.4 %    $ 18,583       28.9 %    $ 32,968       35.0 %    $  36,124       28.8 %
Other North America                 1,734        3.5         7,389       11.5         4,344        4.6         12,691       10.1
Europe                              9,267       18.8         8,970       14.0        16,234       17.2         18,157       14.5
Asia                               20,650       41.9        29,078       45.2        40,340       42.8         58,021       46.2
Other                                 153        0.4           270        0.4           398        0.4            496        0.4

                                 $ 49,232      100.0 %    $ 64,290      100.0 %    $ 94,284      100.0 %    $ 125,489      100.0 %

All of our revenues have been denominated in U.S. dollars.

Sale of our 3ware storage adapter business. We completed the sale of our 3ware storage adapter business, a significant portion of our overall business, to LSI Corporation on April 21, 2009, after our 2009 fiscal year. As a result, we now expect to generate all of our sales from our remaining business, Process and Transport, which will require us to grow our remaining business in order to achieve profitability. Economic and other factors may prevent us from growing our remaining business. If we fail to grow our remaining business, it could have a material adverse impact on our business, financial condition and operating results. We may in the future dispose of additional assets or businesses that represent a significant portion of our business.

Under the Asset Purchase Agreement with LSI Corporation (the "Purchase Agreement"), which we entered on April 5, 2009, we sold substantially all of the operating assets (other than patents) of our 3ware storage adapter business. The assets sold included customer contracts, inventory, fixed assets, certain intellectual property and other assets, as well as rights to the name "3ware." The purchase price, adjusted for the level of inventory and products in the channel at the closing of the Transaction, was approximately $21.5 million.

The Purchase Agreement contained customary representations, warranties, covenants and indemnities, including, among others, entering into an intellectual property agreement, a transition services agreement and a master procurement agreement with LSI Corporation.

Net Loss. Our net loss has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• stock-based compensation expense;

• amortization of purchased intangibles;

• acquired in-process research and development;

• litigation settlement costs;

• restructuring charges;

• combinations of companies within our customer base;

• purchased intangible asset impairment charges;

• other-than-temporary impairment of short-term investments and marketable securities; and

• income tax expense (benefit).

Since the start of fiscal 2008, we have invested a total of $211.0 million in the research and development of new products, including higher-speed, lower-power and lower-cost products, products that combine the functions of multiple existing products into single highly integrated products, and other products to complete our portfolio of communications products. These products, and our customers' products for which they are intended, are highly complex. Due to this complexity, it often takes several years to complete the development and qualification of these products before they enter into volume production. Accordingly, we have not yet generated significant revenues from some of the products developed during this time period. In addition, downturns in the telecommunications market can severely impact our customers' business and usually results in significantly less demand for our products than was expected when the development work commenced. As a result of restructuring activities associated with these downturns, we have discontinued development of several products that were in process and slowed down development of others as we realized that demand for these products would not materialize as originally anticipated.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to: inventory valuation and warranty liabilities, which affect our cost of sales and gross margin; the valuation of purchased intangibles, which has in the past affected, and could in the future affect, our impairment charges to write down the carrying value of purchased intangibles and the amount of related periodic amortization expense recorded for definite-lived intangibles; the valuation of restructuring liabilities, which affects the amount and timing of restructuring charges; an evaluation of other than temporary impairment of our investments, which affects the amount and timing of write-down charges; and the valuation of deferred income taxes, which affects our income tax expense (benefit). We also have other key accounting policies, such as our policies for stock-based compensation and revenue recognition, including the deferral of a portion of revenues on sales to distributors. The methods, estimates and judgments we use in applying these critical accounting policies have a significant impact on the results we report in our financial statements. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from management's estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Inventory Valuation and Warranty Liabilities

Our policy is to value inventories at the lower of cost or market on a part-by-part basis. This policy requires us to make estimates regarding the market value of our inventories, including an assessment of excess or obsolete inventories. We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months. The estimates we use for future demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. If our demand forecast is greater than our actual demand we may be required to take additional excess inventory charges, which would decrease gross margin and net operating results. For example, as of September 30, 2009, reducing our future demand estimate to six months could decrease our current inventory valuation by approximately $7.3 million or increasing our future demand forecast to 18 months could increase our current inventory valuation by approximately $0.1 million.

Our products typically carry a one year warranty. We establish reserves for estimated product warranty costs at the time revenue is recognized. Although we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, use of materials and service delivery costs incurred in correcting any product failure. Should actual product failure rates, use of materials or service delivery costs differ from our estimates, additional warranty reserves could be required, which could reduce our gross margin. Additional changes to negotiated master purchase agreements could result in increased warranty reserves and unfavorably impact future gross margins.

Intangible Asset Valuation

The purchase method of accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in process research and development ("IPR&D"). Intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The amounts and useful lives assigned to other intangible assets impact future amortization. Determining the fair values and useful lives of intangible assets requires the use of estimates and the exercise of judgment. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets acquired, we primarily use the income (discounted cash flows) method. This method requires significant management judgment to forecast the future operating results used in the analysis. In addition, other significant estimates are required such as residual growth rates and discount factors. The estimates we use to value and amortize intangible assets are consistent with the plans and estimates that we use to manage our business and are based on available historical information and industry estimates and averages. These judgments can significantly affect our net operating results.

Intangible assets need to be tested for potential impairment at the reporting unit level on at least an annual basis and between annual tests in certain circumstances. Application of the intangible assets impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. The intangible assets impairment test compares the fair value of the reporting unit with the carrying value of the reporting unit. The implied fair value of intangible assets is determined in the same manner as in a business combination. Determining the implied fair value of the intangible assets is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flows for each reporting unit and market comparisons from relevant industries for each reporting unit. These approaches use significant estimates and assumptions, including projection and timing of future cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, determination of appropriate market comparables, and determination of whether a premium or discount should be applied to comparables. It is possible that the plans and estimates used to value these assets may differ from actual outcomes.

Investments

We hold a variety of securities that have varied underlying investments. We review our investment portfolio periodically to assess for other-than-temporary impairment. We assess the existence of impairment of our investments in order to determine the classification of the impairment as "temporary" or "other-than-temporary". The factors used to determine whether an impairment is temporary or other-than-temporary involve considerable judgment. The current rapidly changing economic climate and volatile financial markets have created an environment in which it is difficult to make accurate estimates and assumptions on which we base our judgments. The factors we consider in determining whether any individual impairment is temporary or other-than-temporary are primarily the length of the time and the extent to which the market value has been less than amortized cost, the nature of underlying assets (including the degree of collateralization), the financial condition, credit rating, market liquidity conditions and near-term prospects of the issuer. If the fair value of a debt security is less than its amortized cost basis at the balance sheet date, an assessment would have to be made as to whether the impairment is other-than-temporary. If we decided to sell the security, an other-than-

temporary impairment shall be considered to have occurred. However, if we do not intend to sell the debt security, we shall consider available evidence to assess whether it more likely than not will be required to sell the security before the recovery of its amortized cost basis due to cash, working capital requirements, contractual or regulatory obligations indicate that the security will be required to be sold before a forecasted recovery occurs. If more likely than not, we are required to sell the security before recovery of its amortized cost basis, an other-than-temporary impairment is considered to have occurred. If we do not expect to recover the entire amortized cost basis of the security, we would not be able to assert that it will recover its amortized cost basis even if we do not intend to sell the security. Therefore, in those situations, an other-than-temporary impairment shall be considered to have occurred. Use of present value cash flow models to determine whether the entire amortized cost basis of the security will be recovered is expected. We will compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. An other-than-temporary impairment is said to have occurred if the present value of cash flows expected to be collected is . . .