This Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, hopes, intentions, beliefs or strategies regarding the future, but excluding from such "safe harbor" any statements made or deemed made in connection with the agreement described in Note 1 of the condensed consolidated financial statements. Forward-looking statements include statements regarding our expectations or other prospective statements concerning the Merger Agreement and related transactions described in Note 1 of the condensed consolidated financial statements, future gross margin, our future research and development expenses, our expectations and plans for the 10G Ethernet over copper products that we are developing based on our acquisition of Teranetics, our future unrecognized tax benefits, our ability to meet our capital requirements for the next twelve months, our future capital requirements, current high turns fill requirements and our anticipation that sales to a small number of customers will account for a significant portion of our sales. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ include unexpected changes in the mix of our product sales, unexpected pricing pressures, unexpected capital requirements that may arise due to other possible acquisitions or other events, unanticipated changes in the businesses of our suppliers, and unanticipated cash shortfalls. Actual results could also differ for the reasons noted under the sub-heading "Factors That May Affect Future Operating Results" in Item 1A, Risk Factors in Part II of this report on Form 10-Q and in other sections of this report on Form 10-Q. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this report on Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

OVERVIEW

PLX Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in 1986, designs, develops, manufactures, and sells integrated circuits that perform critical system connectivity functions. These interconnect products are fundamental building blocks for standards-based electronic equipment. We market our products to major customers that sell electronic systems in the enterprise, consumer, server, storage, communications, PC peripheral and embedded markets.

On April 30, 2012, we announced that we entered into an agreement to be acquired by IDT, summarized in Note 1 of Notes to Condensed Consolidated Financial Statements.

The explosive growth of cloud-based computing has provided a significant opportunity for PLX, since the data centers that house these systems are limited by their ability to offer high performance, low cost, low power, scalable interconnection. The level of integration is increasing, and the need for rapid expansion forces these customers to build their systems using standard-based, off-the-shelf devices. The industry has converged around two general purpose interconnection standards, PCI Express and Ethernet.

PLX is a market share leader in PCI Express switches and bridges. We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors, and have deployed multiple generations of products to serve a general-purpose market. In addition to enabling customer differentiation through our product features, the breadth of our product offering is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to specific system requirements. PLX supplies an extensive portfolio of PCI Express switches; PCI Express bridges that allow backward compatibility to the previous PCI standard; and our newest bridge enables seamless interoperability between two of the most popular mainstream interconnects: PCI Express and USB 3.0. Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate in non-ideal real-world, system environments.

PLX extended its penetration into the overall enterprise market through the October 2010 acquisition of Teranetics, Inc., a privately held fabless provider of high-performance mixed-signal semiconductors. Teranetics, the broadly recognized leader in 10 Gigabit Ethernet over copper physical layer (10GBase-T PHY) technology, delivered the industry's first fully integrated single-chip implementation of single-port and dual-port 10GBase-T PHY silicon. Although we continued to invest in this technology and the latest generation of 40nm devices are in production, market development for these devices has been delayed relative to expectations. We believe that significant market developments are expected within the next few years.

PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, software drivers, and firmware solutions that enable added-value features in our products. We differentiate our products by offering higher performance at lower power, by enabling a richer customer experience based on proprietary features that enable system-level customer advantages, and by providing capabilities that enable a customer to get to market more quickly.

We utilize a "fabless" semiconductor business model whereby we purchase wafers and packaged and tested semiconductor devices from independent manufacturing foundries. This approach allows us to focus on defining, developing, and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

We rely on a combination of direct sales personnel, distributors and manufacturers' representatives throughout the world to sell a significant portion of our products. We pay manufacturers' representatives a commission on sales while we sell products to distributors at a discount from the selling price.

The time period between initial customer evaluation and design completion is generally between six and twelve months, though it can be longer in some circumstances. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer requests volume production of our products. Due to the variability and length of these design cycles and variable demand from customers, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to successfully introduce new products. While new products typically generate little or no revenue during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time before our customers request volume production, significant revenues from our new products typically occur twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See -"Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues" in Item 1A, Risk Factors, in Part II of this report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND JUNE
30, 2011

Net Revenues

The following table shows the revenue by type (in thousands) and as a percentage
of net revenues:

                           Three Months Ended                               Six Months Ended
                                June 30,                                        June 30,
                      2012                    2011                    2012                    2011
PCI Express
Revenue        $  17,132     65.7 %    $  16,823     54.7 %    $  33,039     64.2 %    $  31,049     52.8 %
Network PHY
Revenue              627      2.4 %          580      1.9 %        1,512      2.9 %        2,331      4.0 %
Connectivity
Revenue            8,304     31.9 %       13,342     43.4 %       16,929     32.9 %       25,444     43.2 %
               $  26,063               $  30,745               $  51,480               $  58,824

Net revenues consist primarily of product revenues generated principally by sales of our semiconductor devices. Net revenues for the three months ended June 30, 2012 decreased 15.2%, or $4.7 million compared to same period in 2011. The decrease was due to lower sales of our Connectivity products as a result of the hard disk drive shortage issue in the market, increased sales in the second quarter of 2011 in connection with the March 2011 Japan Tsunami and the customer transition from our legacy products to our PCI Express products.

In the first quarter of 2011, we recorded development service revenues of approximately $1.6 million primarily associated with our Network PHY technology, which was accounted for under the milestone method of revenue recognition. Net revenues for the six months ended June 30, 2012 decreased 12.5%, or $7.3 million compared to the same period in 2011. Excluding development service revenue, revenues decreased by 10.1%, or $5.7 million compared to 2011. The decrease was due to lower sales of our Connectivity products as a result of the hard disk drive shortage issue in the market, increased sales in the second quarter of 2011 in connection with the March 2011 Japan Tsunami and the customer transition from our legacy products to our PCI Express products, partially offset by higher sales of our PCI Express products due to the ramp of our Gen 2 and Gen 3 products and increased sales of our Network PHY products.

There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:

                                Three Months Ended          Six Months Ended
                                     June 30,                   June 30,
                               2012             2011       2012          2011
Excelpoint Systems Pte Ltd          25 %           21 %        25 %          23 %
Avnet, Inc.                         21 %           22 %        23 %          23 %
Answer Technology, Inc.             19 %           22 %        20 %          19 %

Future demand for our products is uncertain and is highly dependent on general economic conditions and the demand for products that contain our chips. Customer demand for semiconductors can change quickly and unexpectedly. Our revenue levels have been highly dependent on the amount of new orders that are received for products to be delivered to the customer within the same quarter, also called "turns fill" orders. Because of the long cycle time to build our products and our lack of visibility into demand when turns fill orders are high, it is difficult to predict which products to build to match future demand. We believe the current high turns fill requirements will continue indefinitely. The high turns fill orders pattern, together with the uncertainty of product mix and pricing, makes it difficult to predict future levels of sales and profitability and may require us to carry higher levels of inventory.

Gross Margin

Gross margin represents net revenues less the cost of revenues. Cost of revenues
includes the cost of (1) purchasing semiconductor devices or wafers from our
independent foundries, (2) packaging, assembly and test services from our
independent foundries, assembly contractors and test contractors and (3) our
operating costs associated with the procurement, storage, and shipment of
products as allocated to production.

                 Three Months Ended          Six Months Ended
                      June 30,                   June 30,
                  2012          2011         2012         2011
                                in thousands

Gross profit for the three months ended June 30, 2012 decreased by 13.5%, or $2.3 million compared to the same period in 2011. The increase in product gross margin was due primarily to increased sales and improved costs on our PCI Express Gen 3 builds as we move from our early revision products to our production revision products and into production volume builds.

Gross profit for the six months ended June 30, 2012 decreased by 13.0%, or $4.3 million compared to the same period in 2011. Excluding the first quarter 2011 development service revenue of $1.6 million which was recorded at 100% margin, gross profit decreased 8.6% or $2.7 million compared to 2011. The adjusted gross margin for the six months ended June 30, 2011 was 55.4% and gross profit was $31.7 million. The increase in product gross margin was due primarily to increased sales and improved costs on our PCI Express Gen 3 builds as we move from our early revision products to our production revision products and into production volume builds and decreased sales of the low margin Storage products within the Connectivity product grouping. The decrease in absolute dollars was due to the decrease in overall product sales.

Future gross profit and gross margin are highly dependent on the product and customer mix, timing of development service and IP mix, provisions and sales of previously written down inventory, the position of our products in their respective life cycles and specific manufacturing costs. Accordingly, we are not able to predict future gross profit levels or gross margins with certainty.

Research and Development Expenses

Research and development ("R&D") expenses consist primarily of tape-out costs at
our independent foundries, salaries and related costs, including share-based
compensation and expenses for outside engineering consultants.

                                Three Months Ended          Six Months Ended
                                     June 30,                   June 30,
                                 2012          2011         2012         2011
                                               in thousands

R&D expenses decreased by $2.6 million or 19.0% in the three months ended June 30, 2012 compared to the same period in 2011. In the three months ended June 30, 2011 expenses relating to the divested UK design team were $1.7 million. Excluding the impact of the UK design team divestiture in the fourth quarter of 2011, R&D expenses decreased by $0.9 million or 7.2%. The decrease in R&D in absolute dollars and as a percentage of revenue was primarily due to decreases in R&D spending on tape-out related activities and engineering tools of $1.9 million due to timing of projects taped-out, partially offset by increases in variable compensation of $0.5 million as a result of changes in the plan to tie payouts to personal and group performance objectives and compensation and benefit expenses of $0.2 million due to an increase in headcount.

R&D expenses decreased by $4.4 million or 16.5% in the six months ended June 30, 2012 compared to the same period in 2011. In the six months ended June 30, 2011 expenses relating to the divested UK design team were $3.9 million. Excluding the impact of the UK design team divestiture in the fourth quarter of 2011, R&D expenses decreased by $0.5 million or 2.0%. The decrease in R&D in absolute dollars and as a percentage of revenue was primarily due to decreases in R&D spending on tape-out related activities and engineering tools of $2.0 million due to timing of projects taped-out, partially offset by increases in variable compensation of $0.8 million and compensation and benefit expenses of $0.2 million.

We believe continued spending on research and development to develop new products is critical to our success. R&D spending will continue to fluctuate due to timing of projects and tape-out related activities.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses consist primarily of salaries and related costs, including share-based compensation, commissions to manufactures' representatives and professional fees, as well as trade show and other promotional expenses.

                                Three Months Ended          Six Months Ended
                                     June 30,                   June 30,
                                 2012          2011         2012         2011
                                               in thousands

SG&A expenses increased by $1.0 million or 15.1% in the three months ended June 30, 2012 compared to the same period in 2011. The increase in SG&A in absolute dollars and a percentage of revenue was due primarily to an increase in legal fees of $0.7 million relating to the Internet Machines patent infringement lawsuit and variable compensation of $0.3 million.

SG&A expenses increased by $2.5 million or 18.2% in the six months ended June 30, 2012 compared to the same period in 2011. The increase in SG&A in absolute dollars and a percentage of revenue was due primarily to an increase in legal fees of $2.5 million relating to the Internet Machines patent infringement lawsuit in which a significant portion of the increase was due to the February 2012 trial of the first suit and variable compensation of $0.5 million.

Acquisition and Restructuring Related Costs

                                      Three Months Ended          Six Months Ended
                                           June 30,                   June 30,
                                       2012           2011        2012         2011
                                                     in thousands
Carve-out retention bonus expense   $         -       $ 452     $       -     $ 1,828
Deal costs                                2,350          33         2,350          88
Severance costs                               -           -             -         501
Asset impairment                              -           -             -          42
Lease commitment accrual                      -           -             -         647
                                    $     2,350       $ 485     $   2,350     $ 3,106

We recorded acquisition related costs of $2.4 million in the three and six months ended June 30, 2012, primarily for outside legal and investment banking expenses associated with the pending IDT acquisition of PLX.

Due primarily to our entering into an agreement to be acquired by IDT summarized in Note 1 of the condensed consolidated financial statements, we expect to incur, in the third quarter and possibly additional future periods, significant additional expenses in connection with the transactions contemplated by the agreement. See Risk Factors below in this report under the caption "Risks Related to the Proposed Acquisition of the Company by IDT" for a discussion of risks related to the proposed acquisition.

We recorded acquisition related costs associated with the October 1, 2010 acquisition of Teranetics during the three and six months ended June 30, 2011 of $0.5 million and $1.9 million, respectively. Approximately $5.3 million was carved out of the consideration as a bonus pool under the Teranetics Employee Retention Plan to be paid out over a period of time, to participants who were employees of Teranetics at the time of a change in control, provided they fulfilled certain future service requirements under the combined entity. In the three and six months ended June 30, 2011, we recorded $0.5 million and $1.8 million, respectively, in expense for this retention bonus plan. We also incurred $33,000 and $88,000, respectively, of third party acquisition related costs, primarily for outside legal and accounting costs.

In the six months ended June 30, 2011, we recorded approximately $0.5 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations, related to the termination of 14 employees as a result of the downsizing and refocus of the operations in the UK and cost control efforts as a result of the Teranetics acquisition.

In the six months ended June 30, 2011, in connection with the lease acquired in the Teranetics acquisition and the downsizing of the UK operations, we recorded lease commitment accrual and leasehold impairment charges of $0.6 million and $42,000, respectively. See Note 9 of the condensed consolidated financial statements for additional information.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets consists of amortization expense
related to developed core technology, trade name and customer base acquired as a
result of the Teranetics acquisition in October 2010 and the Oxford acquisition
in January 2009.

                                                Three Months Ended             Six Months Ended
                                                     June 30,                      June 30,
                                                2012           2011           2012          2011
                                                                 in thousands

Amortization of acquired intangible assets decreased by $0.7 million or 29.3% and $1.4 million or 29.2% in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. The decrease in amortization expense was due to the accelerated amortization method for the Teranetics customer base, the fourth quarter 2011 acceleration of the Oxford NAS developed core technology as a result of the UK design team divestiture and the Oxford Serial and USB core technology becoming fully amortized in December 2011.

Asset Impairment

In June 2012 we recorded impairment charges of $10.3 million related to our 10 Gigabit Ethernet business, including core technology of $9.6 million, trade name and customer relationships of $0.2 million and certain tangible assets of $0.5 million. The primary factors contributing to this impairment charge was the uncertainty of and reduction in forecasted cash flows, resulting in an increase in the probability that the product line will be sold or disposed of based on the reduction and timing of future cash flows. In determining the amount of impairment charges we calculated the fair value of the asset group as of the impairment date. The fair value was determined using the weighted average of a discounted cash flow analysis and a market approach along with proceeds received from Entropic in July 2012 in connection with the IP license agreement. The discounted cash flow approach calculates the value based on the risk-adjusted present value of the cash flows related to 10 Gigabit Ethernet while the market approach calculates the value based on indications of what a market participant would pay for the asset group. The key unobservable inputs utilized in the discounted cash flow model include a 40% discount rate, a tax rate of 40% and future cash flows based on current product and market data. The impairment was recorded in income from operations under impairment of assets in our Condensed Consolidated Statement of Operations.

Interest Income (Expense) and Other, Net

                            Three Months Ended           Six Months Ended
                                 June 30,                    June 30,
                           2012            2011          2012          2011
                                           in thousands
Interest income          $      8       $       20     $     18       $   45
Interest expense              (66 )            (63 )        (90 )       (128 )
Other income (expense)          3              (58 )         12          (84 )
                         $    (55 )     $     (101 )   $    (60 )     $ (167 )

Interest income reflects interest earned on cash, cash equivalents and short-term and long-term investment balances. Interest income for the three months ended June 30, 2012 decreased by $12,000 or 60.0%, compared to the same period in 2011. The decrease was due to lower investment balances largely due to operating losses and the payment of the note related to the Teranetics acquisition.

Interest income for the six months ended June 30, 2012 decreased by $27,000 or 60.0%, compared to the same period in 2011. The decrease was due to lower investment balances largely due to operating losses and the payment of the note related to the Teranetics acquisition.

Interest expense for the three and six months ended June 30, 2012 of $66,000 and $90,000, respectively, primarily consisted of interest recorded on the line of credit borrowings and capital lease obligations. For the same periods in 2011, interest expense of $63,000 and $0.1 million, respectively, consisted of interest recorded on the notes associated with the acquisition of Teranetics and interest recorded on our capital lease obligations.

Other income includes foreign currency transaction gains and losses and other miscellaneous transactions. Other income may fluctuate significantly due to currency fluctuations.

Provision for Income Taxes

A provision for income tax of $58,000 has been recorded for the six month period ended June 30, 2012, compared to a provision of $51,000 for the same period in 2011. Income tax expense for the six months ended June 30, 2012 and June 30, 2011 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur and miscellaneous state income taxes. We excluded from our calculation of the effective tax rate losses in the US since we cannot benefit those losses.

We have determined that negative evidence supports the need for a full valuation allowance against our net deferred tax assets at this time. We will maintain a . . .