•

stop selling our products that incorporate the challenged intellectual property;



•

obtain a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all;



•

pay damages; or



•

redesign those products that use the disputed technology.

Although patent disputes in the semiconductor industry have often been settled through cross-licensing arrangements, we may not be able in any or every instance to settle an alleged patent infringement claim through a cross-licensing arrangement. We have a more limited patent portfolio than many of our competitors. If a successful claim is made against us or any of our customers and a license is not made available to us on commercially reasonable terms or we are required to pay substantial damages or awards, our business, financial condition and results of operations would be materially adversely affected.

Our business will suffer if we are unable to protect our intellectual property.

        Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws and non-disclosure and other contractual agreements to protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology from third-party infringement, or to protect us from the claims of others. Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Our attempts to enforce our intellectual property rights could be time consuming and costly. Litigation may be necessary in order to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. If competitors are able to use our technology without our approval or compensation, our ability to compete effectively could be harmed.

The market for Very Fast SRAMs is highly competitive.

        The market for Very Fast SRAMs, which are used primarily in networking and telecommunications equipment, is characterized by price erosion, rapid technological change, cyclical market patterns and heightened foreign and domestic competition. Several of our competitors offer a broad array of memory products and have greater financial, technical, marketing, distribution and other resources than we have. Some of our competitors maintain their own semiconductor fabrication facilities, which may provide them with capacity, cost and technical advantages over us. We cannot assure you that we will be able to compete successfully against any of these competitors. Our ability to compete successfully in this market depends on factors both within and outside of our control, including:

•

real or perceived imbalances in supply and demand of Very Fast SRAMs;



•

the rate at which OEMs incorporate our products into their systems;

•

the success of our customers' products;



•

our ability to develop and market new products;



•

access to advanced process technologies at competitive prices; and



•

the supply and cost of wafers.

In addition, we are vulnerable to advances in technology by competitors, including new SRAM architectures and new forms of dynamic random access memory, or DRAM, or the emergence of new memory technologies that could enable the development of products that feature higher performance, lower cost or lower power capabilities. Additionally, the trend towards incorporating SRAM into other chips in the networking and telecommunications markets has the potential to reduce future demand for Very Fast SRAM products. There can be no assurance that we will be able to compete successfully in the future. Our failure to compete successfully in these or other areas could harm our business.

We may experience difficulties in transitioning to smaller geometry process technologies and other more advanced manufacturing process technologies, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

        In order to remain competitive, we expect to continue to transition the manufacture of our products to smaller geometry process technologies. This transition will require us to migrate to new manufacturing processes for our products and redesign certain products. The manufacture and design of our products is complex, and we may experience difficulty in transitioning to smaller geometry process technologies or new manufacturing processes. These difficulties could result in reduced manufacturing yields, delays in product deliveries and increased expenses. We are dependent on our relationships with TSMC to transition successfully to smaller geometry process technologies and to more advanced manufacturing processes. We cannot assure you that TSMC will be able to effectively manage the transition or that we will be able to maintain our relationship with TSMC. If we or TSMC experience significant delays in this transition or fail to implement these transitions, our business, financial condition and results of operations could be materially and adversely affected.

Manufacturing process technologies are subject to rapid change and require significant expenditures for research and development.

        We continuously evaluate the benefits of migrating to smaller geometry process technologies in order to improve performance and reduce costs. Historically, these migrations to new manufacturing processes have resulted in significant initial design and development costs associated with pre-production mask sets for the manufacture of new products with smaller geometry process technologies. For example, in the six months ended September 30, 2005, we incurred $678,000 in research and development associated with pre-production mask sets, which were not later used in production as part of the transition to our new 90 nanometer process technology. We will incur similar expenses in the future as we continue to transition our products to smaller geometry processes. The transition costs inherent in the transition to new manufacturing process technologies will adversely affect our operating results and our gross margin.

Our products are complex to design and manufacture and could contain defects, which could reduce revenues or result in claims against us.

        We develop complex products. Despite testing by us and our OEM customers, design or manufacturing errors may be found in existing or new products. These defects could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts, result in a loss of market acceptance

of our products and harm our relationships with our OEM customers. Our OEM customers could also seek and obtain damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.

        Defects in wafers and other components used in our products and arising from the manufacturing of these products may not be fully recoverable from TSMC or other suppliers. For example, in the quarter ended December 31, 2005, we incurred a charge of approximately $900,000 related to the write-off of inventory resulting from an error in the assembly process at one of our suppliers. This write-off adversely affected our operating results for fiscal 2006.

We are dependent on a number of single source suppliers, and if we fail to obtain adequate supplies, our business will be harmed and our prospects for growth will be curtailed.

        We currently purchase several key components used in the manufacture of our products from single sources and are dependent upon supply from these sources to meet our needs. If any of these suppliers cannot provide components on a timely basis, at the same price or at all, our ability to manufacture our products will be constrained and our business will suffer. For example, we obtain wafers from a single foundry, TSMC. If we are unable to obtain an adequate supply of wafers from TSMC or find alternative sources in a timely manner, we will be unable to fulfill our customer orders and our operating results will be harmed. We do not have supply agreements with TSMC or any of our independent assembly and test suppliers, and instead obtain manufacturing services and products on a purchase-order basis. Our suppliers, including TSMC, have no obligation to supply products or services to us for any specific product, in any specific quantity, at any specific price or for any specific time period. As a result, the loss or failure to perform by any of these suppliers could adversely affect our business and operating results.

        Should any of our single source suppliers experience manufacturing failures or yield shortfalls, be disrupted by natural disaster or political instability, choose to prioritize capacity or inventory for other uses or reduce or eliminate deliveries to us, we likely will not be able to enforce fulfillment of any delivery commitments and we would have to identify and qualify acceptable replacements from alternative sources of supply. In particular, if TSMC is unable to supply us with sufficient quantities of wafers to meet all of our requirements, we would have to allocate our products among our customers, which would constrain our growth and might cause some of them to seek alternative sources of supply. Since the manufacturing of wafers and other components is extremely complex, the process of qualifying new foundries and suppliers is a lengthy process and there is no assurance that we will be able to find and qualify another supplier without materially adversely affecting our business, financial condition and results of operations.

Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we may be required to enter into costly long-term supply arrangements to secure foundry capacity.

        We do not have long-term supply agreements with TSMC, but instead obtain our wafers on a purchase order basis. In order to secure future wafer supply from TSMC or from other independent foundries, we may be required to enter into various arrangements with them, which could include:

•

contracts that commit us to purchase specified quantities of wafers over extended periods;



•

investments in and joint ventures with the foundries; or



•

non-refundable deposits with or prepayments or loans to foundries in exchange for capacity commitments.

        We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements, if any, may not be on terms favorable to us. Moreover, even if we are able to secure

independent foundry capacity, we may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our financial results.

If we are unable to offset increased wafer fabrication costs by increasing the average selling prices of our products, our gross margins will suffer.

        If there is a significant upturn in the networking and telecommunications markets that results in increased demand for our products and competing products, the available supply of wafers may be limited. As a result, we could be required to obtain additional manufacturing capacity in order to meet increased demand. Securing additional manufacturing capacity may cause our wafer fabrication costs to increase. If we are unable to offset these increased costs by increasing the average selling prices of our products, our gross margins will decline.

Demand for our products may decrease if our OEM customers experience difficulty manufacturing, marketing or selling their products.

        Our products are used as components in our OEM customers' products. For example, Cisco Systems, our largest OEM customer, incorporates our products in a number of its networking routers and switches. Accordingly, demand for our products is subject to factors affecting the ability of our OEM customers to successfully introduce and market their products, including:

•

capital spending by telecommunication and network service providers and other end users who purchase our OEM customers' products;



•

the competition our OEM customers face, particularly in the networking and telecommunications industries;



•

the technical, manufacturing, sales and marketing and management capabilities of our OEM customers;



•

the financial and other resources of our OEM customers; and



•

the inability of our OEM customers to sell their products if they infringe third-party intellectual property rights.

As a result, if OEM customers reduce their purchases of our products, our business will suffer.

Downturns in the semiconductor industry may harm our business.
revenues and margins.

        The semiconductor industry is highly cyclical. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies' and their customers' products and declines in general economic conditions. These downturns have been characterized by production overcapacity, high inventory levels and

8

accelerated erosion of average selling prices. From time to time, the semiconductor industry also has experienced periods of increased demand and production capacity constraints.

        Our operating results may suffer during the down portion of these cycles. For example, the SRAM industry experienced significant declines in the average selling prices of SRAM products during the recent downturn in the semiconductor industry. We expect similar declines to occur in the future. Downturns in the semiconductor industry could cause our stock price to be volatile, and a prolonged decline in the industry could harmadversely affect our operating results.

The average selling prices of our products are expected to decline, and if we are unable to offset these declines, our operating results will suffer.

              We expect that the average unit selling prices of our products will be subject to significant pricing pressures. A reduction in average selling prices of our products could result in reduced revenues and lower gross margins on our products. Our ability to increase our net revenues and maintain our gross margins despite a decline in the average selling prices of our products will depend on a variety of factors, including our ability to introduce lower cost versions of our existing products, increase unit sales volumes of these products, and introduce new products with higher prices. If we fail to accomplish any of these objectives, our business will suffer. To reduce our costs, we may be required to implement design changes that lower our manufacturing costs, negotiate reduced purchase prices from our foundries and assembly and test vendors, and successfully manage our manufacturing and subcontractor relationships. Because we do not operate our own wafer foundry or assembly facilities, we may not be able to reduce our costs as rapidly as companies that operate their own foundries or facilities.

A small number of customers account for a significant percentage of our net revenues. If any of our major customers reduce the amount they purchase or stop purchasing our products, our operating results will suffer.

              Historically, a small number of customers and end-users have accounted for a significant portion of our net revenues. A significant percentage of our sales are made to distributors and to contract manufacturers who incorporate our products into end products for systems manufacturers, including Cisco Systems. For the nine months ended December 31, 2003, SMART Modular Technologies, which operates consigned warehouses for Cisco Systems, accounted for 26.5% of our net revenues. During the same period, distributors Impact and Avnet Logistics accounted for 17.0% and 14.1%, respectively, of our net revenues. Cisco Systems, the largest end-user of our products, accounted for approximately one quarter to one third of our net revenues for the nine months ended December 31, 2003, fiscal 2003 and fiscal 2002. Cisco Systems purchases our products directly, through our distributors, through its contract manufacturers and through SMART Modular Technologies.

              We anticipate that our operating results in any given period will continue to depend, to a significant extent, upon revenues from a small number of end-users, distributors and contract manufacturers. We expect to continue to depend significantly on orders from our key end-users, particularly Cisco Systems, and our future success is dependent to a large degree on the business success of these end-users over which we have no control. We do not have long-term contracts with Cisco Systems, or our other major end-users, distributors or contract manufacturers that obligate them to purchase our products. If we fail to continue to sell to our key end-users, distributors or contract manufacturers in sufficient quantities, the growth of our business could be harmed. If a key end-user, distributor or contract manufacturer were to delay orders or payment or terminate its relationship with us, our business would be harmed.

9

A small number of customers generally account for a significant portion of our accounts receivable in any period, and if any one of them fails to pay us, our operating results will suffer.

              A small number of customers generally account for a significant portion of our accounts receivable in any period, and if any of them fails to pay us, our operating results will suffer. For example, at March 31, 2003, Celestica, Avnet Logistics and Unique Technologies accounted for 17.0%, 15.4% and 10.4%, respectively, of our accounts receivable. If any of these customers do not pay us, our operating results will be harmed. Generally, we do not require collateral from our customers.

The market for Fast and Ultra-Fast SRAMs is highly competitive.

              The market for Fast and Ultra-Fast SRAMs, which are used primarily in networking and telecommunications equipment, is characterized by price erosion, rapid technological change, cyclical market patterns and heightened foreign and domestic competition. Several of our competitors offer broader product lines and have greater financial, technical, marketing, distribution and other resources than we have. We cannot assure you that we will be able to compete successfully against any of these competitors. Our ability to compete successfully in this market depends on factors both within and outside of our control, including:

•

real or perceived imbalances in supply and demand of SRAMs;



•

the rate at which OEMs incorporate our products into their systems;



•

the success of our customers' products;



•

our ability to develop and market new products;



•

access to advanced process technologies at competitive prices; and



•

the supply and cost of wafers.

In addition, we are vulnerable to advances in technology used by competitors to offer products that feature higher performance, lower cost or lower power capabilities. There can be no assurance that we will be able to compete successfully in the future as to any of these factors. Our failure to compete successfully in these or other areas could harm our business.

Our products are complex and could contain defects, which could reduce revenues or result in claims against us.

              We develop complex products. Despite testing by us and our end-users, design or manufacturing errors may be found in existing or new products. These defects could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts, result in a delay or loss of market acceptance of our products and harm our relationships with our end-users. Our end-users could also seek and obtain damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.

              In addition, wafers and other components used in our products may contain defects that are not fully recoverable from our independent wafer foundries and other suppliers. For example, in the quarter ended March 31, 2003, we returned approximately $2.8 million of defective wafers to Taiwan Semiconductor Manufacturing Company Limited, or TSMC, which required us to take a charge of approximately $700,000 to cost of revenues for manufacturing costs incurred in excess of the amount credited by TSMC.

10

We are dependent on the supply of wafers from independent foundries over which we have no control, and if we fail to obtain an adequate supply of wafers, our business will be harmed.

              To produce our products, we require wafers that are manufactured by independent foundries over which we have no control. If we are unable to obtain an adequate supplycontrol our expenses adequately in response to reduced net sales, our results of wafers from our current or any alternative sourcesoperations would be negatively impacted. For example, the industry downturn in 2001 resulted in a timely manner, our operating results will be harmed. Our ability to increase IC shipments is dependent on our ability to increase production through the allocation of increased wafer fabrication capacity by our existing foundries. To date, our principal manufacturing relationship has been with TSMC from which we have obtained a substantial majority of our wafers. We also receive wafers from WaferTech LLC, located$3.9 million inventory write-off in Washington. WaferTech is a subsidiary of TSMC. Each of our wafer foundries also supplies wafers to other IC companies, including our competitors. We do not have supply agreements with these manufacturers, and instead obtain manufacturing services on a purchase-order basis. Our manufacturers have no obligation to supply products to us for any specific product, in any specific quantity, at any specific price or for any specific time period. If these suppliers experience manufacturing failures or yield shortfalls, are disrupted by natural disaster or political instability, choose to prioritize capacity for other uses or reduce or eliminate deliveries to us, we likely will not be able to enforce fulfillment of any delivery commitments. Our wafer foundries may be unable to supply us with sufficient quantities to meet all of our requirements. If this were to occur, we would have to allocate our products among our end-users which would constrain our growth and might cause some of them to seek alternative sources of supply. To increase our supply of wafers, we may seek to qualify additional manufacturing sources. The qualification process may take up to 12 months or longer and there is no assurance that we will be able to find and qualify another manufacturer. Moreover, it is uncertain whether additional manufacturing sources would agree to deliver an adequate supply of wafers to us.fiscal 2002.

Because we outsource our wafer manufacturing and independent wafer foundry capacity is limited, we may be required to enter into costly long-term supply arrangements to secure foundry capacity.


              We do not have long-term supply agreements with our wafer foundries but instead obtain our wafers on a purchase order basis. In order to secure wafer supply from our current or future independent foundries, we may be required to enter into various arrangements with them, which could include:

•

contracts that commit us to purchase specified quantities of wafers over extended periods;



•

investments in and joint ventures with the foundries; or



•

non-refundable deposits with or prepayments or loans to foundries in exchange for capacity commitments.

              We may not be able to make any of these arrangements in a timely fashion or at all, and these arrangements, if any, may not be on terms favorable to us. Moreover, if we are able to secure independent foundry capacity, we may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our financial results.


Any significant order cancellations or order deferrals could adversely affect our operating results.


              We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significant penalty. Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results of operations. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur

11

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significant charges against our income, which could materially and adversely affect our operating results.


Demand for our products may decrease if our end-users and contract manufacturers experience difficulty manufacturing, marketing or selling their products.


              Our products are used as components in our end-users' networking and telecommunications products. For example, Cisco Systems, our largest end-user, incorporates our products in a number of its networking routers and switches. Accordingly, demand for our products is subject to factors affecting the ability of our end-users and their contract manufacturers to successfully introduce and market their products, including:

•

capital spending by service providers and other enterprises who purchase our end-users' products;



•

the competition our end-users face in the networking and telecommunications industries;



•

the technical, manufacturing, sales and marketing and management capabilities of our end-users and contract manufacturers;



•

the financial and other resources of end-users of our products and their contract manufacturers; and



•

the inability of our end-users to sell their products if they infringe third party intellectual property rights.

If demand for the products offered by our end-users or their contract manufacturers decreases, they may reduce purchases of our products, which would harm our business.


If we do not successfully develop new products to respond to rapid market changes due to changing technology and evolving industry standards, particularly in the networking and telecommunications markets, our business will be harmed.

        If we fail to offer technologically advanced products and respond to technological advances and emerging standards, we may not generate sufficient revenues to offset our development costs and other expenses, which will hurt our business. The development of new or enhanced products is a complex and uncertain process that requires the accurate anticipation of technological and market trends. In particular, the networking and telecommunications markets are rapidly evolving and new standards are emerging. We may experience development, marketing and other technological difficulties that may delay or limit our ability to respond to technological changes, evolving industry standards, competitive developments or end-user requirements. For example, because we have limited experience developing integrated circuits, or IC products other than Very Fast and Ultra-Fast SRAMs, our efforts to introduce new products may not be successful and our business may suffer. Other challenges that we face include:

•

our products may become obsolete upon the introduction of alternative technologies;



•

we may incur substantial costs if we need to modify our products to respond to these alternative technologies;



•

we may not have sufficient resources to develop or acquire new technologies or to introduce new products capable of competing with future technologies;



•

new products that we develop may not successfully integrate with our end-users' products into which they are incorporated;



•

we may be unable to develop new products that incorporate emerging industry standards;

12

•

we may be unable to develop or acquire the rights to use the intellectual property necessary to implement new technologies; and



•

when introducing new or enhanced products, we may be unable to manage effectively the transition from older products.

We may experience difficulties in transitioning to smaller geometry process technologies and other more advanced manufacturing process technologies and that may result in reduced manufacturing yields, delays in product deliveries and increased expenses.


              In order to remain competitive, we expect to continue to transition our products to smaller geometry process technologies. This transition will require us to migrate to new manufacturing processes for our products and redesign certain products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs and increase performance, and we have designed products to be manufactured using 90 nanometer geometry process technologies. We may experience difficulty in transitioning to smaller geometry process technologies or new manufacturing processes. These difficulties could result in reduced manufacturing yields, delays in product deliveries and increased expenses. We are dependent on our relationships with our wafer foundries to transition successfully to smaller geometry process technologies and to more advanced manufacturing processes. We cannot assure you that our wafer foundries will be able to effectively manage the transition or that we will be able to maintain our relationships with our foundries. If we or our wafer foundries experience significant delays in this transition or fail to implement these transitions, our business, financial condition and results of operations could be materially and adversely affected.


Our products have lengthy sales cycles that make it difficult to plan our expenses and forecast results.

        Our products are generally incorporated in our end-users'OEM customers' products at the design stage. However, their decisions to use our products often require significant expenditures by us without any assurance of success, and often precede volume sales, if any, by a year or more. If an end-userOEM customer decides at the design stage not to incorporate our products into their products, we will not have another opportunity for a design win with respect to that customer's product for many months or years, if at all. Our sales cycle can take up to 24 months to complete, and because of this lengthy sales cycle, we may experience a delay between increasing expenses for research and development and our sales and marketing efforts and the generation of volume production revenues, if any, from these expenditures. Moreover, the value of any design win will largely depend on the commercial success of our end-user'sOEM customers' products. There can be no assurance that we will continue to achieve design wins or that any design win will result in future revenues.

Our business will suffer if we are unable to protectAny significant order cancellations or order deferrals could adversely affect our intellectual property.
operating results.

        Our success and abilityWe typically sell products pursuant to compete depends in large part upon protecting our proprietary technology. We relypurchase orders that customers can generally cancel or defer on short notice without incurring a combination of trade secret, copyright and trademark laws and non-disclosure and other contractual agreements to protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology from third party infringement,significant penalty. Any significant cancellations or to protect us from the claims of others. In addition, we do not have any patents or registered trademarks. Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully asdeferrals in the United States. Our attempts to enforce our intellectual property rightsfuture could be time consumingmaterially and costly. Litigation may be necessary in order to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. If competitors are able to use our technology, our ability to compete effectively could be harmed.

13

We could become subject to claims and litigation regarding intellectual property rights, which could seriously harm our business and require us to incur significant costs.

              If we infringe the proprietary rights of others, we could be forced to either seek a license to those intellectual property rights or alter our products so that they no longer infringe upon other's proprietary rights. Any license could be very expensive to obtain or may not be available at all. In 2002, we settled patent litigation filed against us by one of our competitors, and obtained a license from that competitor in connection with the settlement. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical. Litigation resulting from claims that we are infringing others propriety rights could result in substantial costs and diversion of resources and could have a material adverse effect onadversely affect our business, financial condition and results of operations. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If any claims receiveda customer refuses to accept shipped

products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.

We are subject to pending legal proceedings.

        We have been named as a defendant in a number of civil antitrust complaints filed against semiconductor companies on behalf of purported classes of direct and indirect purchasers of SRAM products throughout the United States. The complaints allege that the defendants conspired to raise the price of SRAM in violation of Section 1 of the Sherman Act, the California Cartwright Act, and several other state antitrust, unfair competition and consumer protection statutes. We believe that we have meritorious defenses to the allegations in the future werecomplaints, and we intend to defend these lawsuits vigorously. However, the litigation is in the preliminary stage and we cannot predict its outcome. Multidistrict antitrust litigation is particularly complex and can extend for a protracted time, which can substantially increase the cost of such litigation. The defense of these lawsuits is also expected to divert the efforts and attention of some of our key management and technical personnel. As a result, our defense of this litigation, regardless of its eventual outcome, will likely be upheld,costly and time consuming. Should the consequencesoutcome of the litigation be adverse to us, wouldwe could be severe andrequired to pay significant monetary damages, which could require us to:

•

stop selling our products that incorporate the challenged intellectual property;



•

obtain a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all;



•

pay damages; or



•

redesign those products that use the disputed technology.

If we are forced to take any of the foregoing actions,adversely affect our business, could be severely harmed.financial condition, operating results and cash flows.

As our business grows, such growth may place a significant strain on our management and operations and, as a result, our business might not succeed.
may suffer.

              Our ability to grow successfully requires an effective planning and management process.        We plan to continue to expandexpanding our business, and our expected growth could place a significant strain on our management systems, infrastructure and other resources. To manage the expected growth of our growth effectively,operations and increases in the number of our personnel, we mustwill need to invest the necessary capital and continue to improve our operational, financial and expandmanagement controls and our reporting systems and infrastructureprocedures. Accordingly, we are currently transitioning the preparation of all of our internal reporting to a new enterprise resource planning system, which is expected to be implemented in athe first quarter of fiscal 2008. If we encounter problems with the implementation of this system, we may have difficulties tracking internal information, which would adversely affect our ability to timely report our financial results. Our controls, systems and efficient manner. Those resourcesprocedures might not be available whenadequate to support a growing public company. In addition, we need them, which would limitlikely do not have sufficient administrative staff to support our growth. Ouroperations. For example, we currently have only three employees in our finance department in the United States, including our Chief Financial Officer. Furthermore, our officers have limited experience in managing large or rapidly growing businesses. In addition,businesses and the majority of our management has no experience in managing a public company or communicating with securities analysts and public company investors. Our controls, systems and procedures might not be adequate to support a growing public company. If our management fails to respond effectively to changes in our business, our business might not succeed.may suffer.

Our international business exposes us to additional risks.

        Products providedshipped to our international customersdestinations outside of the United States accounted for 52.5% of our net revenues for the nine months ended December 31, 200351.9%, 48.3% and 47.6%50.3% of our net revenues in fiscal 2003.2005 and 2006 and the six months ended September 30, 2006, respectively. Moreover, a substantial portion of our products is manufactured and tested in Taiwan. We intend to expand our international business in the future. Conducting business outside of the United States subjects us to additional risks and challenges, including:

•

heightened price sensitivity from customers in emerging markets;



•

compliance with a wide variety of foreign laws and regulations;



•

legal uncertainties regarding taxes, tariffs, quotas, export controls, competition, export licenses and other trade barriers;

•

political and economic instability in, or foreign conflicts that involve or affect, the countries of our customers;



•

difficulties in collecting accounts receivable and longer accounts receivable payment cycles;

14

•

difficulties in staffing and managing personnel, distributors and representatives;



•

reducedlimited protection for intellectual property rights in some countries; and



•

fluctuations in freight rates and transportation disruptions.

Moreover, our reporting currency is the U.S. dollar. However, a significant portion of our cost of revenues and our operating expenses is denominated in currencies other than the U.S. dollar, primarily the newNew Taiwanese dollar. As a result, appreciation or depreciation of other currencies in relation to the U.S. dollar could result in material transaction or translation gains or losses that could reduceimpact our operating results. We do not currently engage in currency hedging activities.

Our third-party foundries andTSMC, our other subcontractorsindependent suppliers and many of our OEM customers are locatedhave operations in the Pacific Rim, an area subject to significant earthquake risk and adverse consequences related to the potential outbreak of SARS and other epidemics.
contagious diseases such as the Avian Flu.

        All of the principal foundriesThe foundry that manufacturemanufactures our products, TSMC, and all of the principal subcontractorsindependent suppliers that assemble and test our products are located in Taiwan. Many of our customers are also located in the Pacific Rim. The risk of an earthquake in these Pacific Rim locations is significant. The occurrence of an earthquake or other natural disaster near these foundriesthe fabrication facilities of TSMC or subcontractorsour other independent suppliers could result in damage, power outages and other disruptions that impair their production and assembly capacity. Any disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. While we have some foundry capacity in the United States,In such an event, we may not be able to increase our foundry capacity in the United States, or obtain other alternate foundry capacity on favorable terms, ifor at all.

        The outbreak of SARS in the past2003 curtailed travel to and from certain countries, primarily in the Asia-Pacific region, and limited travel within those countries. If there were to be another outbreak of a contagious disease, such as SARS or the Avian Flu, that significantly affected the Asia-Pacific region, the operations of our key suppliers could be disrupted. In addition, outbreaksour business could be harmed if such an outbreak resulted in travel being restricted, as it was during parts of disease2003, or other disasters could limitif it adversely affected the operations of our OEM customers or the demand for our products or our OEM customers' products.

Changes in Taiwan's political, social and economic environment may affect our business performance.

        Because much of the manufacturing and testing of our products is conducted in Taiwan, our business performance may be affected by changes in Taiwan's political, social and economic environment. For example, any political instability resulting from the relationship among the United States, Taiwan and the People's Republic of China could damage our business. Moreover, the role of the Taiwanese government in the Taiwanese economy is significant. Taiwanese policies toward economic liberalization, and laws and policies affecting technology companies, foreign investment, currency exchange rates, taxes and other matters could change, resulting in greater restrictions on our ability and our suppliers' ability to do business and operate facilities in Taiwan. If any of these riskschanges were to occur, our business could be harmed and our stock price could decline.

Our success depends onMarket demand for our ability to developproducts may decrease as a result of changes in general economic conditions, as well as incidents of terrorism, war and manage our indirect distribution channels.
other social and political instability.

        Our success dependsrevenues and gross profit depend largely on general economic conditions and, in particular, the strength of demand for our abilityproducts in the markets in which we are doing business. From time to developtime, customers and managepotential customers have elected not to make purchases of our indirect distribution channels. Our existing orproducts due to reduced budgets and uncertainty about the future, channeland, in the case of distributors, may choose to devote greater resources to marketing and supporting the products of other companies. Since we sell through multiple channels and distribution networks, we may have to resolve potential conflicts between these channels. For example, these conflicts may resultdeclining demand from the different discount levels offered by multiple channel distributors to their customers for their solutions in which they integrate our products. Similarly, from time to time, acts of terrorism, in particular in the United States, have had a negative impact on information technology spending. High fuel prices and turmoil in the Middle East and elsewhere have increased uncertainty in the United States and our other markets. Should the current conflicts in the Middle East and in other parts of the world suppress economic activity in the United States or potentially, fromglobally, our direct sales force targeting the same equipment manufacturer accounts ascustomers may delay or reduce their purchases on information technology, which would result in lower demand for our indirect channel distributors. These conflicts may harmproducts and adversely affect our business or reputation.results of operations.

15

We are substantially dependent on the continued services and performance of our senior management and other key personnel.

        Our future success is substantially dependent on the continued services and continuing contributions of our senior management and other key personnel, particularly our President and Chief Executive Officer and our Vice President of Engineering. Loss of the services of any of our executive officers or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. Our management teamwho must work together effectively in order to design our products, expand our business, increase our revenues and improve our operating results. The loss of services of Lee-Lean Shu, our President and Chief Executive Officer, Robert Yau, our Vice President of Engineering, any other executive officer or other key employee could significantly delay or prevent the achievement of our development and strategic objectives. We do not have employment contracts with, nor maintain key person insurance on, any of our executive officers.

If we are unable to recruit or retain qualified personnel, our business and product development efforts could be harmed.

        We must continue to identify, recruit, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing and administrative personnel. Competition for these individuals is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. We may encounter difficulties in recruiting and retaining a sufficient number of qualified engineers, which could harm our ability to develop new products and adversely impact our relationships with existing and future end-users at a critical stage of development. The failure to recruit and retain necessary technical, managerial, sales, marketing and administrative personnel could harm our business and our ability to obtain new end-usersOEM customers and develop new products.

We may need to raise additional capital in the future, which may not be available on favorable terms or at all, and which may cause dilution to existing stockholders.

        We may need to seek additional funding in the future. We do not know if we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, and we may be required to reduce operating costs, which could seriously harm our business. In addition, if we issue equity securities, our stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of our common stock.

Our products are increasingly being incorporated into advanced military electronics, and changes in international geopolitical circumstances and domestic budget considerations may hurt our business.

        Our products are increasingly being incorporated into advanced military electronics such as radar and guidance systems. Military expenditures and appropriations for such purchases have risen significantly in recent years. However, should the current conflicts in Iraq and Afghanistan and the general war on terror subside, our operating results would likely suffer. Domestic budget considerations may also adversely affect our operating results. For example, if governmental appropriations for military purchases of electronic devices that include our products are reduced, our revenues will likely decline.

Our reportedIf we acquire any companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.

        In the future, we may acquire or make investments in companies, assets or technologies that we believe are complementary or strategic. We have not made any acquisitions or investments to date, and therefore our ability as an organization to make acquisitions or investments is unproven. If we decide to make an acquisition or investment, we face numerous risks, including:

•

difficulties in integrating operations, technologies, products and personnel;



•

diversion of financial resultsand managerial resources from existing operations;



•

risk of overpaying for or misjudging the strategic fit of an acquired company, asset or technology;



•

problems or liabilities stemming from defects of an acquired product or intellectual property litigation that may result from offering the acquired product in our markets;



•

challenges in retaining employees key to maximize the value of the acquisition or investment;



•

inability to generate sufficient return on investment;



•

incurrence of significant one-time write-offs; and



•

delays in customer purchases due to uncertainty.

example, asreporting. Satisfying these requirements involves a commitment of significant resources and management oversight. As a result of becomingmanagement's efforts to comply with such requirements, other important business concerns may receive insufficient attention, which could have a material adverse effect on our business, financial condition and results of operations. Failure to meet certain of these regulatory requirements may also cause us to be delisted from the Nasdaq Global Market.

        In addition, in order to comply with these additional requirements, we are hiring and will continue to hire additional accounting and financial staff with appropriate public company we have created several board committeesexperience and adopted additional internal controls and disclosure controls and procedures. We have also retained a transfer agent, a bank note company and a financial printer, adopted an insider trading policy andtechnical accounting knowledge, which will have all of the internal and external costs of preparing and distributing periodic public reportsincrease our operating expenses in compliance with our obligations under the securities laws.future periods.

        We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtainmaintain coverage. These new rulesIf we are unable to maintain adequate directors' and regulations could also makeofficers' insurance, it may be more difficult for us to attract and retain qualified memberspersons to serve on our board of our Board of Directors,directors, particularly to serve on our audit committee, and qualified executive officers.

Our operations involve the use of hazardous and toxic materials, and we must comply with environmental laws and regulations, which can be expensive, and may affect our business and operating results.

        We are subject to federal, state and local regulations relating to the use, handling, storage, disposal and human exposure to hazardous and toxic materials. If we were to violate or become liable under environmental laws in the future as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs, or civil or criminal sanctions, face property damage or personal injury claims or be required to incur substantial investigation or remediation costs, which could be material, or experience disruptions in our operations, any of which could have a material adverse effect on our business. In addition, environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm our business.

        We also face increasing complexity in our product design as we adjust to new and future requirements relating to the materials composition of our products, including the restrictions on lead and other hazardous substances applicable to specified electronic products placed on the market in the European Union (Restriction on the Use of Hazardous Substances Directive 2002/95/EC, also known as the RoHS Directive). We also expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws and regulations, they will likely result in additional costs, and could require that we change the design and/or manufacturing of our products, any of which could have a material adverse effect on our business.

Risks Related to this Offering
and Our Common Stock

There has been no prior market for our common stock and the price of our common stock may decline after this offering.

        Before this offering, there has not been a public market for our common stock and the trading price of our common stock may decline below the initial public offering price. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

        An active trading market may not develop and you may not be able to resell the shares you purchase at or above the initial public offering price, or at all. The trading price of our common stock

may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:

•

actual or anticipated declines in operating results;



•

changes in financial estimates or recommendations by securities analysts;



•

announcements by us or our competitors of financial results, new products, significant technological innovations, contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other events;



•

rapid changes in industry estimates in demand for Very Fast SRAM products;



•

the gain or loss of significant orders or customers;



•

recruitment or departure of key personnel; and



•

market conditions in our industry, the industries of our customers and the economy as a whole.

If securities analysts do not publish research or reports about our business, our stock price could decline.

        The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. Other companies in our industry and market are larger, established, publicly traded companies. As a result, it may be difficult for us to attract analyst coverage. If we should be unable to attract analyst coverage or if one or more of these analysts should cease coverage of our company, our visibility in the financial market would suffer, which in turn could cause our stock price to decline. Furthermore, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

The price of our stock may be volatile, which could harm our business or stockholders and result in litigation.

        In recent years the stock market in general, and the market for technology stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. The market price of our common stock might experience

17

significant fluctuations in the future, including fluctuations unrelated to our performance. These fluctuations could materially adversely affect our business relationships, our ability to obtain future financing on favorable terms or otherwise harm our business. In addition, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. This risk is especially acute for us because the extreme volatility of market prices of technology companies has resulted in a larger number of securities class action claims against them. Due to the potential volatility of our stock price, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. This could harm our business and cause the value of our stock to decline.

We have no specific plan for the use of the net proceeds, and our investment of the net proceeds may not yield a favorable return.

        We plan to use most of the net proceeds from this offering for general corporate purposes, including working capital. We may use the net proceeds in ways with which our stockholders may not agree or that prove to be disadvantageous to our stockholders. We may not be able to invest the net proceeds of this offering in a manner that yields a favorable return.return, which could harm our financial position and cause the value of our stock to decline.

After this offering we will continue to be controlled by our executive officers, directors and major stockholders, whose interests may conflict with yours.

        Upon completion of this offering, our executive officers, directors and major stockholders will beneficially own approximately            % of our outstanding common stock, based on shares outstanding as of March 31, 2004.stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over or merging with us.

The provisions of our charter documents might inhibit potential acquisition bids that a stockholder might believe are desirable, and the market price of our common stock could be lower as a result.

        Upon completion of this offering, our Board of Directors will have the authority to issue up to 5,000,000 shares of preferred stock. Our Board of Directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock might delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders might be adversely affected. The issuance of preferred stock might result in the loss of voting control to other stockholders. We have no current plans to issue any shares of preferred stock. Our charter documents also contain other provisions, which might discourage, delay or prevent a merger or acquisition, including:

•

only one of the three classes of directors is elected each year;



•

our stockholders have limited rightsno right to remove directors without cause;



•

our stockholders have no right to act by written consent;



•

our stockholders have limited rightsno right to call a special meeting of stockholders; and



•

stockholders must comply with advance notice requirements to nominate directors or submit proposals for consideration at stockholder meetings.

        These provisions could also have the effect of discouraging others from making tender offers for our common stock. As a result, these provisions might prevent the market price of our common

18

stock from increasing substantially in response to actual or rumored takeover attempts. These provisions might also prevent changes in our management.

You will experience immediate and substantial dilution in the book value of your shares.

        The price for each share in the initial public offering price of our common stock is substantially higher than the book value per share of our outstanding common stock immediately after the offering. Accordingly, if you purchase common stock in the offering, you will incur immediate and substantial dilution of approximately $                        in the book value of our common stock assuming an initial price of $            per shareshare.

        You will experience additional dilution upon the exercise of outstanding options. As of September 30, 2006, there were 3,361,125 shares issuable upon the exercise of outstanding options with a weighted average exercise price of $2.93. In addition, you may experience dilution upon the exercise of options that may be granted in the future. We have reserved an aggregate of 3,500,000 shares for future issuance under our common stock.2007 equity incentive plan and 2007 employee stock purchase plan.

There are a large number of shares of our common stock that may be sold in the market following this offering, which may depress the market price of our common stock.

        The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market after the completion of this offering, or the perception that those sales could occur. These sales or the possibility that they may occur also could make it more difficult for us to raise funds through future offerings of common stock. The number of shares of

common stock available for sale in the public market is limited by restrictions under federal securities laws. In addition, we and the holders of over    % of our common stock, including all of our executive officers and directors, have agreed not to sell shares of our common stock without the consent of the underwriters for 180 days after the day of this prospectus. Merrill Lynch & Co.The joint book-running managers may, however, in itstheir sole discretion and without notice, release all or any portion of the shares from the restrictions in these lock-up agreements.

        Shares of our common stock will become eligible for future sale in the public market as follows, assuming the conditions set forth above are met:follows:

        We intend to register on a Form S-8 registration statementsstatement under the Securities Act of 1933 a total of approximately 3,500,000 shares of common stock reserved for issuance under our stock option and employee stock purchase plans. As of March 31, 2004,September 30, 2006, there were outstanding options to purchase 3,511,2633,361,125 shares of common stock, of which options to purchase 1,946,7172,716,378 shares were vested and exercisable.

19We do not expect to pay any cash dividends for the foreseeable future.

---

        We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Our credit line with Mega International Commercial Bank Co., Ltd., prohibits us from paying any cash dividend without the consent of that bank. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about us, including among other things:

•

general economic and business conditions, both nationally and internationally;



•

our expectations and estimates concerning future financial performance, financing plans and the impact of competition;



•

anticipated trends in our business;



•

existing and future regulations affecting our business; and



•

other risk factors set forth under Risk Factors in this prospectus.

        In addition, in this prospectus, the words believe, may, will, estimate, continue, anticipate, intend, expect, could, plan"believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "could," "plan" and similar expressions, as they relate to us, our business or our management, are intended to identify forward-looking statements.

In evaluating these statements, you should specifically consider various factors, including the risk factors described above and in other parts of this prospectus. These factors may cause our actual results to differ materially from those anticipated or implied in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus. In light of these risks and uncertainties, the forward-looking events and circumstances discussed

        Information contained in this prospectus mayconcerning our industry and the projected growth rate of the markets in which we participate is based on industry publications, surveys and forecasts generated by Gartner Dataquest and other sources. We have not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.independently verified their data.

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USE OF PROCEEDS

        At an assumed public offering price of $                  per share, we will receive $                  million from our sale of    shares of common stock in this offering, after deducting the underwriting discount and estimated offering expenses of approximately $     million, andthat includes $     million of estimated offering expenses payable by us on behalf of the underwriting discount.selling stockholders. At an assumed public offering price of $    per share, the selling stockholders will receive $     million from their sale of    shares of our common stock in this offering, after deducting the underwriting discount. We will not receive any portion of the net proceeds received by the selling stockholders from the sale of their shares. If the underwriters exercise their overallotmentover-allotment option in full, we will receive an additional $     million in net proceeds atproceeds.

        The principal purposes of this offering are to obtain additional capital, establish a public offering price of $    per share.

market for our common stock and facilitate our future access to public capital markets. We intend to use the net proceeds of this offering for working capital and other general corporate purposes, including capital expenditures and research and development.

              Although we We may use a portion of the net proceeds to acquire businesses, products or technologies that are complementary to our current or future business and product lines,lines; however, we have never made an acquisition and currently have no specific acquisitions planned. Our management will have significant flexibility in applying the net proceeds of this offering. Pending such uses, we will invest the net proceeds of this offering in investment grade, interest-bearing securities.

DIVIDEND POLICY

        We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings to finance the growth and development of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future. Our line of credit with Chiao TungMega International Commercial Bank Co., Ltd. prohibits us from paying cash dividends without the consent of thethat bank.

21

CAPITALIZATION

        The following table sets forth our cash, and cash equivalents, and short-term investments and capitalization as of December 31, 2003:September 30, 2006:

•

on an actual basis;



•

on a pro forma basis, giving effect to the conversion of all outstanding shares of our redeemable convertible preferred stock into 15,120,168 shares of common stock; and



•

on a pro forma basis as adjusted to reflect the sale of            shares of common stock by us in this offering, at an assumed initial public offering price of $            per share and after deducting the underwriting discount and estimated offering expenses payable by us, including offering expenses payable by us on behalf of the selling stockholders, and the application of the net proceeds of this offering as described under "Use of Proceeds."

        This capitalization table should be read together with "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

(1)

In connection with the offering, our estimated offering expenses are $            , which will be recorded as an issuance cost and therefore, will be recorded as a reduction in additional paid in capital. We will also pay approximately $            representing incremental expenses attributable to the selling stockholders, which will be expensed with a corresponding reduction in retained earnings.

        The information above excludes:

•

3,815,7883,361,125 shares issuable upon the exercise of options outstanding as of December 31, 2003September 30, 2006 under our 1997 and 2000 stock option plans, with a weighted average exercise price of $2.39$2.93 per share;



•

1,169,9391,051,516 shares authorized for future issuance under our 2000 stock option plan;



•

3,000,000 shares authorized for future issuance under our 20042007 equity incentive plan; and



•

500,000 shares authorized for future issuance under our 20042007 employee stock purchase plan.

22        The number of shares authorized for future issuance under our 2007 equity incentive plan and 2007 employee stock purchase plan reflected above does not include shares that may be available for future issuance pursuant to the automatic share reserve increase provisions of these plans. The share reserve for our 2007 equity incentive plan will automatically increase on April 1 of each year, from 2008 to 2017, by an amount equal to the lesser of (a) five percent of the number of shares issued and outstanding as of the immediately preceding March 31, or (b) a lesser amount determined by the Board. The share reserve for our 2007 employee stock purchase plan will automatically increase on April 1 of each year, from 2008 to 2017, by an amount equal to the lesser of (x) one percent of the number of shares issued and outstanding as of the immediately preceding March 31, or (y) 250,000 shares.

DILUTION

        Purchasers of our common stock in this offering will experience immediate and substantial dilution in the pro forma net tangible book value of their common stock. The pro forma net tangible book value of our common stock as of December 31, 2003September 30, 2006 was $$34.7 million, or $$1.62 per share. Pro forma net tangible book value per share represents the amount of our total assets, excluding net intangible assets, less our total liabilities, divided by the total number of shares of common stock outstanding, after giving effect to the conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 15,120,168 shares of common stock. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and the pro forma net tangible book value per share of our common stock immediately after the offering. After giving effect to our sale of            shares of common stock in this offering, at an assumed initial public offering price of $            per share, and after deducting the underwriting discount and estimated offering expenses payable by us, the pro forma net tangible book value of our common stock would have been $             million, or $            per share. This represents an immediate increase in net tangible book value of $            per share to existing stockholders and an immediate dilution of $            per share to new investors. The following table illustrates this per share dilution:

        The following table summarizes, on a pro forma as adjusted basis, as of December 31, 2003:September 30, 2006:

•

the number of shares of common stock purchased from us;



•

the total consideration paid to us;



•

the average price per share paid by existing stockholders; and



•

the price per share paid by new investors in this offering at an assumed public offering price of $            , before deducting the underwriting discount and estimated offering expenses payable by us.

        If the underwriters' overallotmentover-allotment option is exercised in full, the number of shares held by new investors willwould increase to            , or    % of the total shares of common stock outstanding after this offering. After giving effect to the exercise of the underwriters' over-allotment option in full, the pro forma net tangible book value of our common stock would be $            million, or $            per share. This would represent an immediate increase in net tangible book value of $            per share to existing stockholders and an immediate dilution of $            per share to new investors.

        The information in the above table excludes 1,985,7273,361,125 shares issuable upon exercise of options outstanding at December 31, 2003September 30, 2006 under our 1997 and our 2000 stock option plan,plans, with a weighted

average exercise price of $1.20 per share, 1,830,061 shares issuable upon exercise of options outstanding at December 31, 2003 under our 2000 stock option plan, with a weighted average exercise price of $3.69$2.93 per share. To the extent these options are exercised, or shares are issued under these plans, there will be further dilution to the new investors. Assuming the exercise of all outstanding options as of September 30, 2006:

23

•

the pro forma net tangible book value of our common stock would have been $1.80 per share, representing an immediate dilution of $            per share to new investors (or $            , if the underwriters' over-allotment option is exercised in full);



•

the number of shares purchased by existing stockholders would have been 24,760,079;



•

the total consideration paid by existing stockholders would have been $19.4 million; and



•

the average price per share paid by existing stockholders would have been $0.78.

SELECTED CONSOLIDATED FINANCIAL DATA

        You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated statement of operations data set forth below for the fiscal years ended March 31, 2001, 20022004, 2005 and 20032006 and the selected consolidated balance sheet data as of March 31, 20022005 and 20032006 are derived from, and are qualified by reference to, our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data set forth below for the fiscal years ended March 31, 19992002 and 20002003 and the selected consolidated balance sheet data as of March 31, 1999, 20002002, 2003 and 20012004 are derived from audited consolidated financial statements not included in this prospectus. The selected consolidated statement of operations data set forth below for the ninesix month periods ended December 31, 2002September 30, 2005 and 20032006, and the selected consolidated balance sheet data as of December 2003September 30, 2006 are derived from and are qualified by reference to, our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements include, in the opinion of our management, all adjustments, consisting only of normal, recurring adjustments, that we considermanagement considers necessary for a fair presentationstatement of our financial position andthe results of operations. Thethose periods. Our historical results of operations for the nine months ended December 31, 2003 are not necessarily indicative of the results that mayto be expected for the full fiscal year ending March 31, 2004, orin any other future period.

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(1)

In fiscal 2002, we received $3.5 million of refunds from the United States Customs Service, or USCS, in connection with the revocation by the United States Department of Commerce of an order that had imposed a duty on us for selling our Taiwan-manufactured products in the U.S. at less than their fair market value. The revocation followed a ruling in our favor by the Court of International Trade. Of this amount, $2.2 million was credited to cost of revenues, $396,000 was credited to interest income, and the remaining $985,000 was credited to a receivable from the USCS that had been recorded on the date of the refund order.

(2)

In fiscal 2003, we received $876,000 of refunds from the USCS, of which $792,000 was credited to the receivable from the USCS and $84,000 was credited to interest income.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this prospectus. The following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this prospectus.

Overview

        We are a fabless semiconductor company that designs, develops and markets Very Fast and Ultra-Fast SRAM ICsSRAMs primarily for the networking and telecommunications markets. We were founded in March 1995 to develop SRAMs then targeted primarilyprincipally at the personal computer, or PC, market. We shipped our first products in commercial volumes in fiscal 1998. During that year, we changed our focus from marketing commodity SRAMs in the highly competitive PC market to developing and concentrated our efforts on the development ofmarketing advanced Very Fast and Ultra-Fast SRAMs for the networking and telecommunications markets. Subsequent to fiscal 1998, product sales in these markets have represented approximately 80%70% to 90% of our net revenues. We are subject to the highly cyclical nature of the semiconductor industry, which has experienced significant fluctuations, often in connection with fluctuations in demand for the products in which ICssemiconductor devices are used. Beginning in fiscal 2001, the networking and telecommunications markets experienced an extended period of severe contraction. During this market contraction, during which our operating results sharply declined. Between fiscal 2004 and fiscal 2006, demand for networking and telecommunications equipment recovered. In recent quarters, demand for networking and telecommunicationssuch equipment has accelerated and as a result, our operating results have improved.

        Revenues.    Our revenues are derived primarily from sales of our Very Fast and Ultra-Fast SRAM products. Sales to networking and telecommunications OEMs accounted for 70% to 80% of our net revenues during our last three fiscal years. We also sell our products to OEMs that manufacture products for defense applications such as radar and guidance systems, for professional audio applications such as sound mixing systems, for test and measurement applications such as high-speed testers, for automotive applications such as smart cruise control and voice recognition systems, and for medical applications such as ultrasound and CAT scan equipment. As is typical in the semiconductor industry, the selling prices of our products generally decline over the life of the product. Our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products. Although we expect the average selling prices of individual products to decline over time, we believe that, over the next several quarters, our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price, higher density products. Our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but, particularly in periods of increasing demand, can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity byfrom TSMC, our independent wafer foundriessupplier, and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities.

        We sell our products through our direct sales force, international and domestic sales representatives and distributors. Revenues from product sales are generally recognized upon shipment, net of sales returns and allowances. Sales to distributors that have product return or price protection rights are recorded as deferred revenues for financial reporting purposes and recognized as revenues when the products are sold by the distributors to the end-user.

              Historically, a small number of customers have accounted for a substantial portion of our net revenues, and we expect that significant customer concentration will continue for the foreseeable future. Many of our end-users use contract manufacturers to manufacture their equipment. Accordingly, a significant percentage of our net revenues are derived from sales to these contract manufacturers and to consigned warehouses who purchase products from us for use by contract manufacturers. In addition, a significant portion of our sales are made to foreign and domestic distributors who resell our products to end-users, as well as their contract manufacturers. Direct sales to contract manufacturers accounted for 38.5% of our net revenues during the nine months ended December 31, 2003, and 39.3% and 31.7% of our net revenues for fiscal 2003 and 2002, respectively. Sales to foreign and domestic distributors accounted for 46.6% of our net revenues during the nine

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months ended December 31, 2003, and 40.0% and 40.1% of our net revenues for fiscal 2003 and 2002, respectively. For the periods indicated below, the following customers accounted for 10% or more of our net revenues:

Cisco Systems, the largest end-user of our products, accounted for approximately one quarter to one third of our net revenues for the nine months ended December 31, 2003, fiscal 2003 and fiscal 2002. Cisco Systems purchases our products directly, through our distributors and through Cisco's contract manufacturers and consigned warehouses.

              A significant portion of our net revenues are derived from sales to customers located outside the United States. The percentage of our net revenues by country are set forth in the following table: