PMC Sierra (PMCS) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

for the quarterly period ended June 26, 2011

or

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

For the Transition Period from            to            

Commission File Number 0-19084

PMC-Sierra, Inc.

(Exact name of registrant as specified in its charter)

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

1380 Bordeaux Drive

Sunnyvale, CA 94089

(408) 239-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

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

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

As of July 29, 2011, the registrant had 233,640,034 shares of Common Stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements
	-     Condensed Consolidated Statements of Operations		3
	-     Condensed Consolidated Balance Sheets		4
	-     Condensed Consolidated Statements of Cash Flows		5
	-     Condensed Consolidated Statements of Shareholders’ Equity		6
	-     Notes to the Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33
Item 4.	Controls and Procedures		36
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		37
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 3.	Defaults Upon Senior Securities		52
Item 4.	(Removed and Reserved)		52
Item 5.	Other Information		52
Item 6.	Exhibits		52
Signatures			53

Part I—FINANCIAL INFORMATION

Item 1—Financial Statements

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	June 26, 2011			June 27, 2010			June 26, 2011			June 27, 2010
Net revenues	$	171,018		$	160,669		$	328,452		$	313,495
Cost of revenues		52,663			50,064			111,824			99,069
Gross profit		118,355			110,605			216,628			214,426
Other costs and expenses:
Research and development		56,421			43,646			110,920			85,713
Selling, general and administrative		29,366			25,196			61,575			47,581
Amortization of purchased intangible assets		11,031			6,816			22,052			16,652
Restructuring costs and other charges		—			—			—			256
Income from operations		21,537			34,947			22,081			64,224
Other (expense) income:
Gain (loss) on sale of investment securities		167			(429	)		337			(299	)
Amortization of debt issue costs		(50	)		(50	)		(100	)		(100	)
Foreign exchange (loss) gain		(623	)		74			(2,097	)		(915	)
Interest expense, net		(571	)		(25	)		(1,495	)		(146	)
Income before provision for income taxes		20,460			34,517			18,726			62,764
Provision for income taxes		(3,725	)		(4,411	)		(9,648	)		(5,671	)
Net income	$	16,735		$	30,106		$	9,078		$	57,093
Net income per common share - basic	$	0.07		$	0.13		$	0.04		$	0.25
Net income per common share - diluted	$	0.07		$	0.13		$	0.04		$	0.24
Shares used in per share calculation - basic		234,993			230,997			234,526			230,401
Shares used in per share calculation - diluted		237,506			234,925			237,531			234,289

See notes to the condensed consolidated financial statements.

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PMC-Sierra, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

	June 26, 2011			December 26, 2010
ASSETS:
Current assets:
Cash and cash equivalents	$	170,521		$	293,355
Short-term investments		94,016			54,801
Accounts receivable, net of allowance for doubtful accounts of $1,952 (2010 - $1,888)		71,022			69,263
Inventories, net		34,104			51,133
Prepaid expenses and other current assets		21,578			21,559
Income taxes receivable		5,973			4,554
Deferred tax assets		17,222			12,162
Total current assets		414,436			506,827
Investment securities		195,263			235,369
Investments and other assets		6,950			10,687
Prepaid expenses		19,951			22,987
Property and equipment, net		19,249			18,367
Goodwill		520,899			523,712
Intangible assets, net		182,314			202,265
Deferred tax assets		2,071			1,187
Deposits for wafer fabrication capacity		—			5,145
	$	1,361,133		$	1,526,546
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Short-term loan	$	—		$	180,991
Accounts payable		23,353			32,048
Accrued liabilities		70,632			76,566
Liability for unrecognized tax benefit		45,169			40,300
Deferred income taxes		2,660			2,823
Accrued restructuring costs		639			1,604
Deferred income		16,072			18,231
Liability for contingent consideration		29,004			—
Total current liabilities		187,529			352,563
2.25% senior convertible notes due October 15, 2025, net		63,328			61,605
Liability for contingent consideration		—			28,194
Long-term obligations		7,470			8,940
Deferred income taxes		39,579			36,549
Liability for unrecognized tax benefit		18,679			17,908
PMC special shares convertible into 1,029 (2010 - 1,370) shares of common stock		1,228			1,716
Stockholders’ equity:
Common stock, par value $.001: 900,000 shares authorized; 233,535 shares issued and outstanding (2010 - 232,008)		253			252
Additional paid in capital		1,590,867			1,575,949
Accumulated other comprehensive income		2,324			2,072
Accumulated deficit		(550,124	)		(559,202	)
Total stockholders’ equity		1,043,320			1,019,071
		1,361,133			1,526,546

See notes to the condensed consolidated financial statements.

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PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 26, 2011			June 27, 2010
Cash flows from operating activities:
Net income	$	9,078		$	57,093
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,723			25,194
Stock-based compensation		13,361			11,014
Unrealized foreign exchange loss, net		1,828			766
Net amortization of premiums/discounts and accrued interest of investments		2,186			2,083
Accrued interest on short-term loan		589			—
(Gain) loss on disposal of investment securities		(336	)		298
Changes in operating assets and liabilities:
Accounts receivable		(1,759	)		(20,805	)
Inventories		8,017			2,162
Prepaid expenses and other current assets		1,698			2,580
Accounts payable and accrued liabilities		(9,045	)		9,679
Deferred income taxes and income taxes payable		4,208			(11,157	)
Accrued restructuring costs		(970	)		(1,139	)
Deferred income		(2,154	)		2,838
Net cash provided by operating activities		67,424			80,606
Cash flows from investing activities:
Acquisition of Channel Storage business from Adaptec, Inc.		—			(34,250	)
Purchases of property and equipment		(5,861	)		(3,566	)
Purchase of intangible assets		(3,930	)		(1,178	)
Redemption of short-term investments		—			4,314
Disposals of investment securities		72,276			59,098
Purchases of investment securities		(72,957	)		(171,894	)
Net cash used in investing activities		(10,472	)		(147,476	)
Cash flows from financing activities:
Repayment of short-term loan		(180,991	)		—
Proceeds from issuance of common stock		10,454			7,921
Repurchases of common stock		(9,704	)		—
Net cash (used in) provided by financing activities		(180,241	)		7,921
Effect of exchange rate changes on cash and cash equivalents		455			103
Net decrease in cash and cash equivalents		(122,834	)		(58,846	)
Cash and cash equivalents, beginning of period		293,355			192,841
Cash and cash equivalents, end of period	$	170,521		$	133,995

See notes to the condensed consolidated financial statements.

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PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 26, 2011 AND JUNE 27, 2010

(in thousands)

(unaudited)

	Shares of Common Stock			Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Income (net of tax)			Accumulated Deficit			Total Stockholders’ Equity
Balance at March 28, 2011		233,324		$	253		$	1,591,507		$	2,431		$	(566,859	)	$	1,027,332
Net income		—			—			—			—			16,735			16,735
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax of $245		—			—			—			(654	)		—			(654	)
Change in fair value of investment securities, net of tax of $218		—			—			—			547			—			547
Comprehensive income																	16,628
Conversion of special shares into common shares		266			—			381			—			—			381
Issuance of common stock under stock benefit plans		1,253			1			2,515			—			—			2,516
Stock-based compensation expense		—			—			7,046			—			—			7,046
Benefit of stock option related loss carry-forwards		—			—			(879	)		—			—			(879	)
Repurchases of common stock		(1,308	)		(1	)		(9,703	)		—			—			(9,704	)
Balances at June 26, 2011		233,535		$	253		$	1,590,867		$	2,324		$	(550,124	)	$	1,043,320
Balance at March 29, 2010		228,960		$	249		$	1,532,521		$	1,504		$	(615,377	)	$	918,897
Net income		—			—			—			—			30,106			30,106
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax of $146		—			—			—			(365	)		—			(365	)
Change in fair value of investment securities, net of tax of $98		—			—			—			254			—			254
Comprehensive income																	29,995
Issuance of common stock under stock benefit plans		976			1			1,530			—			—			1,531
Stock-based compensation expense		—			—			5,663			—			—			5,663
Balances at June 27, 2010		229,936		$	250		$	1,539,714		$	1,393		$	(585,271	)	$	956,086
Balance at December 27, 2010		232,008		$	252		$	1,575,949		$	2,072		$	(559,202	)	$	1,019,071
Net income		—			—			—			—			9,078			9,078
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax of $164		—			—			—			(368	)		—			(368	)
Change in fair value of investment securities, net of tax of $247		—			—			—			620			—			620
Comprehensive income																	9,330
Conversion of special shares into common shares		341			—			488			—			—			488
Issuance of common stock under stock benefit plans		2,494			2			9,488			—			—			9,490
Stock-based compensation expense		—			—			13,361			—			—			13,361
Benefit of stock option related loss carry-forwards		—			—			1,284			—			—			1,284
Repurchases of common stock		(1,308	)		(1	)		(9,703	)		—			—			(9,704	)
Balances at June 26, 2011		233,535		$	253		$	1,590,867		$	2,324		$	(550,124	)	$	1,043,320
Balance at December 28, 2009		227,655		$	247		$	1,521,476		$	1,164		$	(642,364	)	$	880,523
Net income		—			—			—			—			57,093			57,093
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax of $160		—			—			—			(359	)		—			(359	)
Change in fair value of investment securities, net of tax of $216		—			—			—			588			—			588
Comprehensive income																	57,322
Issuance of common stock under stock benefit plans		2,281			3			7,224			—			—			7,227
Stock-based compensation expense		—			—			11,014			—			—			11,014
Balances at June 27, 2010		229,936		$	250		$	1,539,714		$	1,393		$	(585,271	)	$	956,086

See notes to the condensed consolidated financial statements.

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PMC-Sierra, Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. Summary of Significant Accounting Policies

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

Basis of presentation. The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and United States Generally Accepted Accounting Principles (“GAAP”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules or regulations. These interim condensed consolidated financial statements are unaudited, but reflect all adjustments which are normal and recurring in nature and are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 26, 2010. The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods. Fiscal 2011 will consist of 53 weeks and will end on Saturday, December 31, 2011. Fiscal 2010 consisted of 52 weeks and ended on Sunday, December 26, 2010. The first two quarters of 2011 and 2010 consisted of 26 weeks each.

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

Recent Accounting Pronouncements.

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

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In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income. This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011 (early adoption is permitted), requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company will adopt this amendment effective the first quarter of fiscal 2012. The adoption of this amended accounting guidance is not expected to have a material impact on our consolidated financial position and results of operations.

NOTE 2. Business Combinations

Acquisition of Wintegra, Inc.

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

Certain key employees entered into Holdback Escrow Agreements, whereby a portion of cash consideration otherwise payable per the Merger Agreement was retained and distributed under certain conditions, including continued employment over a two-year period. This post-combination expense has been included in the Condensed Consolidated Balance Sheet as prepaid expenses and is being amortized straight-line over the two-year period. Amortization for the three and six months ended June 26, 2011 was $0.4 million and $0.9 million, respectively.

In-Process Research and Development (“IPR&D”)

Projects comprising IPR&D at acquisition are progressing as expected.

NOTE 3. Derivative Instruments

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

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As at June 26, 2011, the Company had 44 forward currency contracts (June 27, 2010 – 17) outstanding, all with maturities of less than 12 months, which qualified and were designated as cash flow hedges. The U.S. dollar notional amount of these contracts was $31.4 million (June 27, 2010 – $21.2 million) and the contracts had a fair value gain of $0.8 million (June 27, 2010 – fair value gain of $0.3 million), which was recorded in other comprehensive income net of taxes of $0.2 million for the six months ended June 26, 2011 (net of taxes of $0.2 million for the six months ended June 27, 2010).

NOTE 4. Fair Value Measurements

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

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

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

Level 3 – Pricing inputs include significant inputs that are generally not observable in the marketplace. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and would include in Level 3 all of those whose fair value is based on significant unobservable inputs. The Company’s Level 3 assets include investments in money market funds classified as Cash and cash equivalents as at December 26, 2010 and June 26, 2011. See Note 7. Investment Securities. Level 3 inputs are used on a recurring basis to measure the fair value of the liability for contingent consideration classified as a short-term liability (see Note 13. Contingencies).

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Financial assets measured on a recurring basis as at June 26, 2011 and December 26, 2010, are summarized below:

	Fair value, June 26, 2011
(in thousands)	Level 1		Level 2
Assets:
Corporate bonds and notes(1)	$	219,242	$	—
Money market funds(1)		90,550		—
United States (“US”) treasury and government agency notes(1)		39,790		—
Foreign government and agency notes (1)		24,645		—
US state and municipal securities(1)		5,602		—
Forward currency contracts(2)		—		814
Total assets	$	379,829	$	814

	Fair value, December 26, 2010
(in thousands)	Level 1		Level 2		Level 3
Assets:
Corporate bonds and notes(1)	$	239,503	$	—	$	—
Money market funds (1)		150,964		—		22,444
US treasury and government agency notes (1)		77,220		—		—
Foreign government and agency notes(1)		23,739		—		—
US state and municipal securities (1)		17,530		—		—
Forward currency contracts(2)		—		1,311		—
Total assets	$	508,956	$	1,311	$	22,444

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

(2) Included in Prepaid expenses and other current assets.

The following table is a reconciliation of financial assets measured at fair value on a recurring basis classified as Level 3:

	Six Months Ended
(in thousands)	June 26, 2011			June 27, 2010
Balance - beginning of period	$	22,444		$	23,242
Partial distribution from the Reserve Funds (see Note 7. Investment Securities)		(22,444	)		(4,314	)
Balance - end of period	$	—		$	18,928

The following liabilities have been measured at fair value, as follows:

	Fair value, June  26, 2011
(in thousands)	Level 2		Level 3
Current liabilities:
Liability for contingent consideration (see Note 13. Contingencies)*	$	—	$	29,004
Long-term liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9. Long-Term Debt)		73,466		—
Total liabilities	$	73,466	$	29,004
	Fair value, December  26, 2010
(in thousands)	Level 2		Level 3
Long-term liabilities:
2.25% senior convertible notes due October 15, 2025, net (see Note 9. Long-Term Debt)	$	74,791	$	—
Liability for contingent consideration (see Note 13. Contingencies)*		—		28,194
Total liabilities	$	74,791	$	28,194

* The fair value of the liability for contingent consideration was estimated by applying the income approach. The measure is based on significant inputs that are unobservable in the market, which is a level 3 input. Key assumptions include a discount rate of 4.75 percent and probability-adjusted level of annual revenue.

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NOTE 5. Stock-Based Compensation

The Company has two stock-based compensation programs, which are described below. None of the Company’s stock-based awards under these plans are classified as liabilities. The Company did not capitalize any stock-based compensation cost and recorded compensation expense for the three and six months ended June 26, 2011 and June 27, 2010, as follows:

	Three Months Ended				Six Months Ended
(in thousands)	June 26, 2011		June 27, 2010		June 26, 2011		June 27, 2010
Cost of revenues	$	260	$	229	$	483	$	447
Research and development		2,927		2,181		5,624		4,345
Selling, general and administrative		3,859		3,253		7,254		6,222
Total	$	7,046	$	5,663	$	13,361	$	11,014

The Company received cash of $3.4 million and $10.5 million related to the issuance of stock-based awards during the three and six months ended June 26, 2011, respectively. The Company received cash of $2.2 million and $7.9 million related to the issuance of stock-based awards during the three and six months ended June 27, 2010, respectively.

Equity Award Plans

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

The 2008 Plan was approved by stockholders at the 2008 Annual Meeting. The 2008 Plan became effective on January 1, 2009 (the “Effective Date”). It is a successor to the 1994 Incentive Stock Plan (the “1994 Plan”) and the 2001 Stock Option Plan (the “2001 Plan”). Up to 30,000,000 shares of our common stock have been initially reserved for issuance under the 2008 Plan. The implementation of the 2008 Plan did not affect any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date. To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares thereunder, the number of shares of common stock subject to those terminated options and restricted stock units will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the 1994 Plan or the 2001 Plan. In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination. In 2010, the Company assumed the stock option plans and all outstanding stock options of Wintegra, Inc. as part of that business combination.

Activity under the option plans during the six months ended June 26, 2011 was as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)		Aggregate intrinsic value at June 26, 2011
Outstanding, December 26, 2010		28,120,086		$	8.40
Granted		4,953,543		$	7.30
Exercised		(1,073,487	)	$	5.43
Forfeited		(2,394,953	)	$	12.06
Outstanding, June 26, 2011		29,605,189		$	8.02		6.61	$	17,698,736
Exercisable, June 26, 2011		17,648,381		$	8.58		5.09	$	11,162,627

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The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at June 26, 2011. No adjustment was required with respect to fully vested options that expired during the six months ended June 26, 2011. During the three and six months ended June 26, 2011, $0.9 million and $0.6 million were recorded for forfeitures, respectively. During the three and six months ended June 27, 2010, $0.7 million and $2.5 million were recorded for forfeitures, respectively.

The fair value of the Company’s stock option awards granted to employees during the six months ended June 26, 2011 was estimated using a lattice-binomial valuation model. This model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

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

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

	Three Months Ended						Six Months Ended
	June 26, 2011			June 27, 2010			June 26, 2011			June 27, 2010
Expected life (years)		4.6			4.5			4.5			4.5
Expected volatility		42	%		54	%		42	%		54	%
Risk-free interest rate		2.0	%		2.5	%		2.0	%		2.4	%

The weighted average grant-date fair value per stock option granted during the three and six months ended June 26, 2011, was $2.59 and $2.60, respectively. The total intrinsic value of stock options exercised during the three and six months ended June 26, 2011 was $1.3 million and $2.7 million, respectively.

As of June 26, 2011, there was $28.5 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the plans, which is expected to be recognized over an average period of 2.9 years.

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Restricted Stock Units

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

A summary of RSU activity during the six months ended June 26, 2011 is as follows:

	Restricted Stock Units			Weighted Average Remaining Contractual Term		Aggregate intrinsic value at June 26, 2011
Unvested shares at December 26, 2010		2,648,756			—		—
Awarded		1,606,138			—		—
Released		(779,958	)		—		—
Forfeited		(148,061	)		—		—
End of Period		3,326,875			1.97	$	23,820,425
Restricted Stock Units vested and expected to vest June 26, 2011		2,666,985			1.91	$	19,095,611

The intrinsic value of RSUs vested during the three and six months ended June 26, 2011 was $5.7 million and $6.0 million, respectively. As of June 26, 2011, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested RSUs was $17.3 million, which is expected to be recognized over the next 3.1 years.

Employee Stock Purchase Plan

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

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

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During the first half of 2011, 753,193 shares were issued under the ESPP at a weighted average price of $5.96 per share. As of June 26, 2011, 12,000,000 shares were available for future issuance under the 2011 Plan compared to 8,798,638 under the ESPP as at December 26, 2010.

The weighted average grant-date fair value per ESPP award granted during the first half of 2011 was $2.11.

For the period ending June 26, 2011, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $0.5 million which is expected to be recognized over the next two months.

NOTE 6. Balance Sheet Items

a. Inventories.

Inventories (net of reserves of $8.5 million and $8.6 million at June 26, 2011 and December 26, 2010, respectively) were as follows:

(in thousands)	June 26, 2011		December 26, 2010
Work-in-progress	$	15,977	$	19,046
Finished goods		18,127		32,087
	$	34,104	$	51,133

b. Product warranties.

The Company provides a limited warranty on most of its standard products and accrues for the estimated cost at the time of shipment. The Company estimates its warranty costs based on historical failure rates and related repair or replacement costs. The change in the Company’s accrued warranty obligations from December 27, 2010 to June 26, 2011, and for the same period in the prior year were as follows:

	Six Months Ended
(in thousands)	June 26, 2011			June 27, 2010
Balance, beginning of the period	$	5,457		$	6,097
Accrual for new warranties issued		982			1,066
Reduction for payments and product replacements		(120	)		(165	)
Adjustments related to changes in estimate of warranty accrual		(832	)		(580	)
Balance, end of the period	$	5,487		$	6,418

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

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c. Restructuring and Other Costs

The activity related to excess facility accruals under the Company’s restructuring plans during the first six months of 2011, by year of plan, was as follows:

Excess facility costs
(in thousands)	2007			2005			2001			Total
Balance at December 26, 2010	$	231		$	1,143		$	230		$	1,604
Cash payments		(135	)		(697	)		(133	)		(965	)
Balance at June 26, 2011	$	96		$	446		$	97		$	639

The remaining balance relates only to excess facilities for the remaining plans, namely the 2007, 2005, and 2001 plans. Payments for excess facilities under these restructuring plans extend to October 2011.

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NOTE 7. Investment Securities

The Company’s available for sale investments, by investment type, consists of the following as at June 26, 2011 and December 26, 2010:

	June 26, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash equivalents:
Money market funds	$	90,550	$	—	$	—		$	90,550
Total cash equivalents		90,550		—		—			90,550
Short-term investments:
Corporate bonds and notes		64,283		2,290		—			66,573
US treasury and government agency notes		10,026		219		—			10,245
Foreign government and agency notes		13,080		277		—			13,357
US states and municipal securities		3,800		41		—			3,841
Total short-term investments		91,189		2,827		—			94,016
Long-term investment securities:
Corporate bonds and notes		151,321		1,359		(11	)		152,669
US treasury and government agency notes		29,345		200		—			29,545
Foreign government and agency notes		11,170		118		—			11,288
US states and municipal securities		1,720		41		—			1,761
Total long-term investment securities		193,556		1,718		(11	)		195,263
Total	$	375,295	$	4,545	$	(11	)	$	379,829

* Gross unrealized gains include accrued interest on investments of $2.2 million. The remainder of the gross unrealized gains and losses are included in the Condensed Consolidated Balance Sheet as Accumulated other comprehensive income.

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	December 26, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash equivalents:
Corporate bonds and notes	$	30,321	$	—	$	—		$	30,321
US treasury and government agency notes		75,346		—		—			75,346
Money market funds		125,940		21		—			125,961
Foreign government and agency notes		802		—		—			802
US states and municipal securities		8,800		—		—			8,800
Total cash equivalents		241,209		21		—			241,230
Short-term investments:
Corporate bonds and notes		36,139		2,483		(1	)		38,621
US treasury and government agency notes		1,193		261		—			1,454
Foreign government and agency notes		7,435		279		—			7,714
US states and municipal securities		6,940		72		—			7,012
Total short-term investments		51,707		3,095		(1	)		54,801
Long-term investment securities:
Corporate bonds and notes		169,590		1,338		(367	)		170,561
US treasury and government agency notes		47,877		188		(198	)		47,867
Foreign government and agency notes		15,065		158		—			15,223
US states and municipal securities		1,720		—		(2	)		1,718
Total long-term investment securities		234,252		1,684		(567	)		235,369
Total	$	527,168	$	4,800	$	(568	)	$	531,400

* Gross unrealized gains include accrued interest on investments of $2.7 million. The remainder of the gross unrealized gains and losses are included in the Condensed Consolidated Balance Sheet as Accumulated other comprehensive income.

As of June 26, 2011 and December 26, 2010, the fair value of certain of the Company’s available-for-sale securities was less than their cost basis. Management reviews various factors in determining whether to recognize an impairment charge related to these unrealized losses, including the current financial and credit market environment, the financial condition, near-term prospects of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment, length of time the investment has been in a loss position and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of market value. As of June 26, 2011, the Company determined that the unrealized losses are temporary in nature and recorded them as a component of Accumulated other comprehensive income.

The investments in the Reserve Funds, classified as cash and cash equivalents on the consolidated balance sheet, net of provision, totaling $22.4 million at December 26, 2010 relate to shares of the Reserve International Liquidity Fund, Ltd. (the “International Fund”) and the Reserve Primary Fund (the “Primary Fund”, together the “Reserve Funds”).

As at December 26, 2010, all the underlying investments held in the Reserve Funds have matured or were sold, and securities are held only in overnight notes.

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During 2010, the Primary Fund entered into liquidation proceedings which were supervised by the U.S. Securities and Exchange Commission, and the Company received partial distributions of its holdings. During the fourth quarter of 2010, the U.S. District Court for the Southern District of New York entered into final judgment accepting a proposed settlement agreement with respect to the International Fund. Subsequent to the year-ended December 26, 2010, that judgment became final. As a result, the Company recognized recovery of impairment on investment securities of $3.8 million, based on partial distributions received from these settlements. The courts set aside certain amounts of cash held by the Reserve Funds for legal and administrative costs, and if the cash is not all consumed, we could potentially receive a further distribution.

During the first quarter of 2011, the Company received $22.4 million on December 31, 2010 from the International Fund.

As of June 26, 2011, the Reserve Funds continue to be in the process of liquidation.

NOTE 8. Short-Term Loan

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

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

In the first quarter of 2011, the Company incurred $0.3 million in Interest expense, net related to the short-term loan that the Company obtained to facilitate this acquisition. The Company did not incur any such interest expense during the second quarter of 2011. To date, the Company incurred $1.4 million in Interest expense, net related to the short-term loan, which is included in Other Income, net, in the Condensed Consolidated Statement of Operations.

NOTE 9. Long-Term Debt

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

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

As at June 26, 2011, net of repurchases completed to date, the carrying amount of the equity component is $35.2 million (December 26, 2010 - $35.2 million) and the carrying of the debt component is $63.3 million (December 26, 2010 - $61.6 million), which represents the principal amount of $68.3 million (December 26, 2010 - $68.3 million) net of the unamortized discount of $5.0 million (December 26, 2010 - $6.7 million). The $1.7 million increase in the debt component relates to accretion which was recorded in Interest expense, net in the Condensed Consolidated Statements of Operations. The balance of deferred debt issue costs as at June 26, 2011 is $0.3 million (December 26, 2010 - $0.4 million).

NOTE 10. Income Taxes

The Company recorded a provision for income taxes of $3.7 million and $9.6 million for the three and six months ended June 26, 2011 respectively, and $4.4 million and $5.7 million for the three and six months ended June 27, 2010, respectively.

The Company’s effective tax rate was 18% and 52% for the three and six months ended June 26, 2011, and 13% and 9%, for the three and six months ended June 27, 2010, respectively.

For the three months ended June 26, 2011, compared to the same period last year, the decrease in the provision for income taxes of approximately $0.7 million was mainly the result of foreign exchange translation and mix of income across our foreign subsidiaries. The corresponding increase of 5% in the effective tax rate comparing the same periods is mainly due to a change in the mix of income across our foreign subsidiaries.

For the six months ended June 26, 2011, compared to the same period last year, the increase in the provision for income taxes of approximately $3.9 million was mainly the result of foreign exchange translation of a foreign subsidiary. The corresponding increase of 43% in the effective tax rate comparing the same periods is mainly due to changes in the mix of income including foreign exchange effects, across our subsidiaries, partially offset by an increase in foreign deferred tax assets.

Generally, the difference between our effective tax rates and the 35% federal statutory rate results primarily from foreign earnings taxed at rates lower than the federal statutory rate, permanent differences arising from stock based compensation, foreign exchange translation of a foreign subsidiary, investment tax credits earned, non-deductible intangible asset amortization and in-process research and development, the effect of intercompany transactions, changes in valuation allowance, changes in accruals related to the unrecognized tax benefit liabilities, and the utilization of stock option related loss carry-forwards recorded in equity in the three and six months ended June 26, 2011 and June 27, 2010.

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As at June 26, 2011, the Company’s liability for unrecognized tax benefits on a world-wide consolidated basis was $63.8 million. Recognition of an amount different from this estimate would affect the Company’s effective tax rate.

NOTE 11. Net Income Per Share

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

	Three Months Ended				Six Months Ended
(in thousands, except per share amounts)	June 26, 2011		June 27, 2010		June 26, 2011		June 27, 2010
Numerator:
Net income	$	16,735	$	30,106	$	9,078	$	57,093
Denominator:
Basic weighted average common shares outstanding (1)		234,993		230,997		234,526		230,401
Dilutive effect of employee stock options and awards		2,513		3,928		3,006		3,889
Diluted weighted average common shares outstanding(1)		237,506		234,925		237,531		234,289
Basic net income per share	$	0.07	$	0.13	$	0.04	$	0.25
Diluted net income per share	$	0.07	$	0.13	$	0.04	$	0.24

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

NOTE 12. Stock Repurchase Program

On May 5, 2011, the Board of Directors of the Company authorized a share repurchase plan for fiscal year 2011. Under this authorization, the Company may repurchase common stock to offset dilution from employee equity grants and stock purchases, at an aggregate cost not exceeding $40 million. As of June 26, 2011, the Company had repurchased 1,307,642 shares for approximately $9.7 million in cash, under this program. The repurchased shares were retired immediately. Accordingly, the repurchased shares were recorded as a reduction of common stock and additional paid-in capital.

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NOTE 13. Contingencies

Contingent consideration

In connection with the November 18, 2010 acquisition of Wintegra, the Company has a potential additional earn-out based purchase consideration ranging from nil to $60 million, calculated on the basis of Wintegra’s 2011 revenue as described in the Agreement and Plan of Merger dated as of October 21, 2010. As at June 26, 2011, the Company has recorded a liability for this contingent consideration at an estimated amount of $29 million. Any changes in this estimate are recorded as a component of operating income. Changes in market conditions may lead to changes in the assumptions used in our quarterly revaluation, which could lead to an adjustment to the fair value of this contingent consideration, and these changes could be material. During the three and six months ended June 26, 2011, the Company recorded accretion of the Liability for contingent consideration in the amount of $0.3 million and $0.8 million, respectively, which was recognized as Interest expense, net on the Condensed Consolidated Statement of Operations. As at June 26, 2011, this liability was classified as short-term.

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

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

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

OVERVIEW

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

Our current revenues are generated by a portfolio of approximately 600 products which we have designed and developed or acquired. Our products address three market segments:

• Our Storage network market segment (“Storage”) is primarily our storage products supplied directly to Original Equipment Manufacturers (“OEMs”) and channel customers. We also include printer ASICs in this market segment as they are most aligned with our Enterprise storage customers. Currently, this market segment represents 57% of our net revenues;

• Our Optical network market segment (“Optical”) includes our Wide Area Network communication products focused on Metro and access networks, including SONET, ATM and Fiber to the Home. Currently, this market segment represents 27% of our net revenues; and

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• Our Mobile network market segment (“Mobile”) includes Mobile Backhaul, T1/E1 and SERDES devices sold into Mobile access markets and other small volume products sold in to Wireless infrastructure markets. Currently, this market segment represents 16% of our net revenues.

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

Results of Operations

Second Quarter of 2011 and 2010

Net revenues

	Second Quarter
($ millions)	2011		2010		Change
Net revenues	$	171.0	$	160.7		6	%

Overall net revenues for the second quarter of 2011 increased $10.3 million, compared to the second quarter of 2010. This year over year increase was mainly the result of incremental net revenues from acquisitions completed in 2010, which contributed to a year over year increase in sales volumes of our Storage and Mobile product offerings of 18% and 34%, respectively. This was partially offset by lower volumes of our Optical product offerings compared to the second quarter of 2010.

In Storage, our increase in net revenues was driven by higher shipments of 6Gb/s Serial Attached SCSI (“SAS”) and channel products. We anticipate continued growth in this market segment as customers migrate from 3G to 6G platforms. In 2011, we also had a full quarter of revenue from our channel products, compared to only one month of such revenues in the comparable period in 2010, due to the timing of our acquisition of the Channel Storage business from Adaptec, Inc. in June 2010. Our net revenues from Storage increased 13% relative to the first quarter of 2011.

In Optical, our net revenues for the second quarter of 2011 decreased 19% compared to the same quarter in 2010 as Asia customers worked through existing inventories and as OEM customers built out their networks at lower rates than in past years. We believe Asia has returned to near end market run rates while North America continues to work down inventory. Our net revenues from Optical increased 8% relative to the first quarter of 2011.

In Mobile, our net revenues for the second quarter of 2011 increased 34% compared to the same quarter in 2010 mainly due to our acquisition of Wintegra, Inc. in November, 2010. Our net revenues from Mobile decreased 4% relative to the first quarter of 2011, which was attributable to lower volumes due to continued inventory consumption by customers as well as push outs of two major OEM platform launches. We currently anticipate that customers will roll out these platforms later in the year resulting in a resumption of growth.

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Gross profit

	Second Quarter
($ millions)	2011			2010			Change
Gross profit	$	118.4		$	110.6			7	%
Percentage of net revenues		69	%		69	%

Total gross profit increased by $7.8 million in the second quarter of 2011 on higher net revenues compared to the same period in 2010 and gross profit as a percentage of net revenues remained the same at 69% for both periods.

Sequentially, gross profit as a percentage of net revenues was 7% higher as compared to the first quarter of 2011 primarily due to $9 million of expense related to our acquisition of Wintegra in November 2010, specifically, the effect of fair value adjustments related to inventory acquired from Wintegra and sold during the first quarter of 2011.

Other costs and expenses

	Second Quarter
($ millions)	2011			2010			Change
Research and development	$	56.4		$	43.6			29	%
Percentage of net revenues		33	%		27	%
Selling, general and administrative	$	29.4		$	25.2			17	%
Percentage of net revenues		17	%		16	%
Amortization of purchased intangible assets	$	11.0		$	6.8			62	%
Percentage of net revenues		6	%		4	%

Research and Development and Selling, General and Administrative Expenses

Our research and development (“R&D”) expenses increased by $12.8 million in the second quarter of 2011 as compared to the same period last year. This was primarily the result of the increase in R&D expense from our acquisition of the Channel Storage business and Wintegra in 2010. The remainder of the increase was due to various items including increased payroll related costs due to the combination of completing planned hiring and the effect of foreign exchange on our foreign operations, and higher product related tapeout costs in the second quarter of 2011 compared to 2010.

Sequentially, R&D expenses were $1.9 million higher in the second quarter as compared to the first quarter of 2011 due to planned investments in R&D projects and annual merit increases, partially offset by lower employee-related benefit costs as annual limits for certain contributions are reached in the normal course during the second quarter.

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Selling, general and administrative, or SG&A, expenses increased by $4.2 million in the second quarter of 2011 as compared to the same period in the prior year. This was primarily the result of the increase in SG&A expenses from acquisitions completed during 2010, including acquisition-related integration costs.

Sequentially, SG&A expenses were $2.8 million lower in the second quarter as compared to the first quarter of 2011 due to $3.4 million lease exit costs related to the exit of the Mission Towers lease recognized in the first quarter of 2011, and annual merit increases, partially offset by lower employee-related benefit costs as annual limits for certain contributions are reached in the normal course during the second quarter.

Amortization of purchased intangible assets

Amortization expense for acquired intangible assets related to developed technology, in-process research and development, customer relationships, trademarks and backlog increased by $4.2 million in the second quarter of 2011 compared to the same period in 2010. The increase was due to amortization related to the intangible assets identified in the purchase price allocation for our acquisitions of the Channel Storage business from Adaptec, and Wintegra, Inc., which resulted in an increase of $0.5 million and $5.4 million, respectively. Partially offsetting this increase in amortization, intangibles related to the acquisition of Passave, Inc. became fully amortized early in the second quarter of 2010, resulting in a $1.7 million decrease.

Other expense and Provision for income taxes

	Second Quarter
($ millions)	2011			2010			Change
Gain (loss) on sale of investment securities	$	0.2		$	(0.4	)		150	%
Amortization of debt issue costs	$	(0.1	)	$	(0.1	)		—	%
Foreign exchange (loss) gain	$	(0.6	)	$	0.1			(700	)%
Interest expense, net	$	(0.6	)	$	—			—	%
Provision for income taxes	$	(3.7	)	$	(4.4	)		16	%

Gain (loss) on sale of investment securities

In the second quarter of 2011 and 2010, we realized a gain on sale of investment securities of $0.2 million and a loss of $0.4 million, respectively, related to the disposition of investment securities.

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Amortization of debt issue costs

We recorded amortization of debt issue costs of $0.1 million in the second quarter of 2011 and 2010, relating to our senior convertible notes.

Foreign exchange (loss) gain

We recognized a net foreign exchange loss of $0.6 million in the second quarter of 2011 compared to a net foreign exchange gain of $0.1 million in the second quarter of 2010. This was primarily due to foreign exchange loss on the revaluation of our foreign denominated assets and liabilities. The foreign exchange (loss) gain was driven by the foreign exchange rate between the United States Dollar and these foreign currencies, appreciating by approximately 1% during the second quarter of 2011.

Interest expense, net

Net interest expense increased by $0.6 million in the second quarter of 2011 compared to the second quarter of 2010. During the second quarter of 2011, we recorded interest expense relating to the accretion of the liability for contingent consideration in the amount of $0.3 million.

Provision for income taxes

SeePart I – Financial Information. Item 1. Financial Statements -Note 10. Income Taxes.

First Six Months of 2011 and 2010

Net revenues

	First Six Months
($ millions)	2011		2010		Change
Net revenues	$	328.5	$	313.5		5	%

Net revenues for the first six months of 2011 were $328.5 million compared to $313.5 million for the same period of 2010, an increase of 5%. On a year over year basis, net revenues generated from our product offerings in Storage, Optical and Mobile increased (decreased) by 17%, (24%), and 41%, respectively.

In Storage, our increased net revenues were driven by higher shipments of our 6Gb/s SAS devices. This increase was offset by declines in volumes of our laser printer products. In 2011, we also had six full months of revenues from our channel products, compared to only one month of such revenues in the comparable period in 2010 due to the timing of our acquisition of the Channel Storage business from Adaptec, Inc. in June 2010.

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In Optical, we shipped fewer units of our products in the first half of 2011 than in the first half of 2010. We are recovering back to end market levels and are seeing the continuation of the early stage growth of our Optical Transport Network (“OTN”) product, as revenues in the second quarter improved compared to revenues in the first quarter of 2011.

In Mobile, our increase in net revenues was attributable to sales of our wireless access products, coming from the acquisition of Wintegra, Inc, which we completed in the fourth quarter of 2010. This increase was partially offset by a decrease in volumes shipped of our wireless infrastructure products.

Gross profit

	First Six Months
($ millions)	2011			2010			Change
Gross profit	$	216.6		$	214.4			1	%
Percentage of net revenues		66	%		68	%

Total gross profit increased by $2.2 million in the first six months of 2011 compared to the same period in 2010 and gross profit as a percentage of net revenues decreased by 2% to 66% from 68%. The decrease is due to $9 million of fair value adjustments related to inventory acquired from Wintegra in November 2010 and sold during the first three months of 2011. As a result, gross profit as a percentage of net revenues for the six months ended June 26, 2011 would have been 69% had it not been for this item. Other than the effect of purchase accounting, the underlying increase in gross profit is primarily due to product mix.

Other costs and expenses:

	First Six Months
($ millions)	2011			2010			Change
Research and development	$	110.9		$	85.7			29	%
Percentage of net revenues		34	%		27	%
Selling, general and administrative	$	61.6		$	47.6			29	%
Percentage of net revenues		19	%		15	%
Amortization of purchased intangible assets	$	22.1		$	16.7			32	%
Percentage of net revenues		7	%		5	%
Restructuring costs and other charges	$	—		$	0.3			(100	)%
Percentage of net revenues		—	%		—	%

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Research and Development and Selling, General and Administrative Expenses

Our research and development (“R&D”) expenses increased by $25.2 million in the first six months of 2011 as compared to the same period last year. This was primarily from our acquisitions of the Channel Storage business and Wintegra in 2010. The remainder of the increase was due to increased payroll-related costs from the completion of planned hiring and the effect of foreign exchange on our foreign operations. Also, tape-out related costs were higher in the first six months of 2011 compared to 2010.

Our selling, general and administrative, or SG&A, expenses increased by $14 million in the first six months of 2011 as compared to the same period last year. This was primarily the result of the increase in SG&A expenses to support increased business activities resulting from our acquisitions completed during 2010 and acquisition-related integration costs. During the first six months of 2011, we also recognized lease exit costs of $3.4 million related to the exit of the Mission Towers lease, partially offset by a reduction in other expenses.

Amortization of purchased intangible assets

Amortization expense for acquired intangible assets related to developed technology, customer relationships, trademarks and backlog increased by $5.4 million in the first six months of 2011 compared to the same period in 2010. The increase was the result of amortization related to the intangible assets identified in the purchase price allocation for our acquisitions of the Channel Storage business from Adaptec, and Wintegra, Inc., in the amount of $1.4 million and $10.8 million, respectively, partially offset by intangibles related to the acquisition of Passave, Inc. becoming fully amortized early in the second quarter of 2010, resulting in a $6.8 million decrease.

Restructuring costs and other charges

We incurred restructuring costs and other charges in the first six months of 2011 and 2010 of nil and $0.3 million, respectively. Our restructuring activities are nearing completion.

Other expense and Provision for income taxes

	First Six Months
($ millions)	2011			2010			Change
Gain (loss) on sale of investment securities	$	0.3		$	(0.3	)		200	%
Amortization of debt issue costs	$	(0.1	)	$	(0.1	)		—	%
Foreign exchange loss	$	(2.1	)	$	(0.9	)		(133	)%
Interest expense, net	$	(1.5	)	$	(0.1	)		(1,400	)%
Provision for income taxes	$	(9.6	)	$	(5.7	)		(68	)%

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Gain on sale of investment securities

In the first six months of 2011 and 2010, we realized a gain on sale of investment securities of $0.3 million and a loss of $0.3 million, respectively, related to the disposition of investment securities.

Amortization of debt issue costs

We recorded amortization of debt issue costs of $0.1 million in the first six months of 2011 and 2010, relating to our senior convertible notes.

Foreign exchange loss

Our net foreign exchange loss was $2.1 million and $0.9 million in the first six months of 2011 and 2010, respectively, which was primarily due to foreign exchange loss on the revaluation of our foreign denominated assets and liabilities. The foreign exchange loss was driven by the foreign exchange rate between the United States Dollar and these foreign currencies depreciating by approximately 2% during the first half of 2011 compared to depreciating by approximately 1% during the first half of 2010.

Interest expense, net

Net interest expense increased by $1.4 million in the first six months of 2011 compared to the same period last year. During the first half of 2011, we recorded the interest expense relating to the accretion of the liability for contingent consideration in the amount of $0.8 million. In addition, we recognized $0.3 million interest expense on our short-term loan related to our acquisition of Wintegra, Inc., which was fully repaid during January of 2011.

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Provision for income taxes

SeePart I – Financial Information. Item 1. Financial Statements -Note 10. Income Taxes.

Critical Accounting Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect our reported assets, liabilities, revenue and expenses, and related disclosure of our contingent assets and liabilities. For a full discussion of our accounting estimates and assumptions that we have identified as critical in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 26, 2010, which also provides commentary on our most critical accounting estimates.

As discussed more fully in our Form 10-K for the year ended December 26, 2010 inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in theCritical Accounting Policies and Estimates section andItem 8. Financial Statements and Supplementary Data, inNote 1. Summary of Significant Accounting Policies, goodwill is reviewed for impairment annually and more frequently if an event occurs or circumstances change that could reduce the fair value below its carrying value.

There were no indications of impairment to goodwill or intangible assets during the first six months of 2011. Changes in the estimated fair values of these assets in the future could result in impairment charges or changes to our expected amortization, which could be material.

Business Outlook

We expect our revenues for the third quarter of 2011 to be approximately $171 million to $181 million. As in the past, and consistent with business practice in the semiconductor industry, a portion of our revenues is likely to be derived from orders placed and shipped during the same quarter, which we call our “turns business.” Our turns business varies from quarter to quarter. We expect the turns percentage from the beginning of the third quarter to be approximately 16% in the third quarter of 2011.

We anticipate our third quarter 2011 gross margin percentage to be in the range of 68.8% to 69.8%, which includes approximately $0.3 million stock-based compensation expense. As in past quarters this could vary depending on the volumes of products sold, since many of our costs are fixed. Gross margin percentage will also vary depending on the mix of products sold.

We expect our third quarter 2011 research and development and selling, general and administrative expenses to be approximately $96.8 million to $98.8 million, respectively including, stock-based compensation expense of approximately $5.8 million to $6.8 million, and amortization of purchased intangible assets related to our past acquisitions of $11 million.

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We anticipate that net interest expense will be approximately $0.8 million in the third quarter of 2011 as interest income earned from our cash position will be offset by interest expense incurred on our outstanding senior convertible notes and the accretion of the liability for contingent consideration.

Liquidity & Capital Resources

Our principal sources of liquidity are cash from operations, short-term investments and long-term investment securities. We employ these sources of liquidity to support ongoing business activities, acquire or invest in critical or complementary technologies, purchase capital equipment, repay our short-term loan, and finance working capital. The combination of cash, cash equivalents, short-term investments, and long-term investment securities at June 26, 2011 totaled $459.8 million, which is comprised of the following:

	June 26, 2011
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash and cash equivalents:
Cash	$	79,971	$	—	$	—		$	79,971
Money market funds		90,550		—		—			90,550
Total cash and cash equivalents		170,521		—		—			170,521
Short-term investments:
Corporate bonds and notes		64,283		2,290		—			66,573
US treasury and government agency notes		10,026		219		—			10,245
Foreign government and agency notes		13,080		277		—			13,357
US states and municipal securities		3,800		41		—			3,841
Total short-term investments		91,189		2,827		—			94,016
Long-term investment securities:
Corporate bonds and notes		151,321		1,359		(11	)		152,669
US treasury and government agency notes		29,345		200		—			29,545
Foreign government and agency notes		11,170		118		—			11,288
US states and municipal securities		1,720		41		—			1,761
Total long-term investment securities		193,556		1,718		(11	)		195,263
Total	$	455,266	$	4,545	$	(11	)	$	459,800

* Gross unrealized gains include accrued interest on investments of $2.2 million. The remainder of the gross unrealized gains and losses is included in the Condensed Consolidated Balance Sheet as Accumulated other comprehensive income.

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Our cash and cash equivalents, short-term investments, and long-term investment securities balances as at June 26, 2011 were not all available in the United States.

In the first half of 2011, we received a $22.4 million distribution from the Reserve International Fund. Our remaining investments in the Reserve Funds total $8 million, which were written down to nil in September 2009. While we expect any future distributions to be nominal, changes in the future liquidation process and related legal proceedings of the Reserve Funds could result in further adjustments to the fair value and classification of these investments. See our SeePart I – Financial Information. Item 1. Financial Statements - Note 7. Investment Securities for further details.

As of June 26, 2011, we had $63.3 million of senior convertible notes outstanding, recorded on our Condensed Consolidated Balance Sheet. The face value of the senior convertible notes as at June 26, 2011 was $68.3 million.

Operating Activities

During the first six months of 2011, we generated net positive operating cash flows of $67.4 million, compared to $80.6 million generated in the first six months of 2010.

While the cash generation in both periods was strong, the decrease of $13.2 million was mainly due to lower net income adjusted for non-cash items, including approximately $7 million of acquisition related expenses, partially offset by favorable change in working capital items.

Investing Activities

We used net cash of $10.5 million for investing activities in the first six months of 2011, which included $73.0 million for the purchase of investment securities, $9.8 million for the purchase of property, equipment and intellectual property, offset by the receipt of $72.3 million in proceeds from the disposal of investment securities.

Financing Activities

In the first six months of 2011, we used $181 million to repay the short-term loan obtained to fund our acquisition of Wintegra, Inc. and $9.7 million to repurchase common stock. The repurchased shares were retired immediately. We generated $10.5 million from the issuance of common shares under our employee stock option plans.

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As of June 26, 2011, we had cash commitments made up of the following:

	Payments due in:
(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations:
Minimum Rental Payments	$	35,917	$	4,705	$	13,026	$	10,106	$	8,080
Estimated Operating Cost Payments		10,495		1,833		4,155		2,908		1,599
Liability for contingent consideration (see Note 13. Contingencies)		30,400		30,400		—		—		—
Long Term Debt:
Principal Repayment		68,340		—		—		—		68,340
Interest Payments		22,298		769		3,076		3,076		15,377
Purchase and other Obligations		15,972		6,735		9,237		—		—
Total	$	183,422	$	44,442	$	29,494	$	16,090	$	93,396

In addition to the amounts shown in the table above, we have recorded a $63.8 million liability for unrecognized tax benefits as of June 26, 2011, and we are uncertain as to if or when such amounts may be realized.

Purchase obligations, as noted in the above table, are comprised of commitments to purchase design tools and software for use in product development. Excluded from these purchase obligations are commitments for inventory or other expenses entered into in the normal course of business. We estimate these other commitments to be approximately $31.5 million at July 22, 2011 for inventory and other expenses that will be received within 90 days and that will require settlement 30 days thereafter.

Also, in addition to the amounts shown in the table above, we expect to use approximately $12.6 million of cash in the remainder of 2011 for property and equipment and purchases of intellectual property.

On October 21, 2010, we entered into a definitive agreement to acquire Wintegra, Inc. for cash consideration of $240 million less cash on hand at the closing date, subject to certain adjustments. Additional cash consideration of up to $60 million may be paid if certain growth and performance milestones are reached by the end of 2011. We have included this contingent consideration in the table above, at its estimated fair value as of June 26, 2011.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

Based on a sensitivity analysis performed on the financial instruments held at June 26, 2011, the impact to the fair value of our investment portfolio by a shift in the yield curve of plus, or minus, 50, 100, or 150 basis points would result in a decline, or increase, in portfolio value of approximately $1.8 million, $3.7 million, and $5.5 million, respectively.

Senior Convertible Notes:

At June 26, 2011, $68.3 million in face value of our 2.25% senior convertible notes were outstanding. Because we pay fixed interest coupons on our senior convertible notes, market interest rate fluctuations do not impact our debt interest payments. However, the fair value of our senior convertible notes will fluctuate as a result of changes in the price of our common stock, changes in market interest rates, and changes in our credit worthiness.

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

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

Foreign Currency:

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

Through our operations in Canada and elsewhere outside of the United States, we incur research and development, sales, customer support and administrative expenses in various foreign currencies. We are exposed, in the normal course of business, to foreign currency risks on these expenditures, primarily in Canada. In our effort to manage such risks, we have adopted a foreign currency risk management policy intended to reduce the effects of potential short-term fluctuations on our operating results stemming from our exposure to these risks. As part of this risk management, we enter into foreign exchange forward contracts. These forward contracts offset the impact of exchange rate fluctuations on forecasted cash flows or firm commitments. We limit the forward contracts operational period to 12 months or less and we do not enter into foreign exchange forward contracts for trading purposes. Because we do not engage in foreign exchange risk management techniques beyond these periods, our cost structure is subject to long-term changes in foreign exchange rates. In the event that one of the counterparties to our forward currency contracts failed to complete the terms of their contracts, we would purchase foreign currencies at the spot rate as of the date the funds were required. If the counterparties to our foreign forward currency contracts that matured in the fiscal quarter ended June 26, 2011, had not fulfilled their contractual obligations and we were required to purchase the foreign currencies at the spot market rate on respective settlement dates, our operating income for the first six months of 2011 would have decreased by $2.5 million. See Part I – Financial Information. Item 1. Financial Statements – Note 3. Derivative Instruments for further details.

We attempt to limit our exposure to foreign exchange rate fluctuations from our foreign currency net asset or liability positions. In the first six months of 2011, we recorded a $1.2 million foreign exchange loss on the revaluation of our net tax liabilities in a foreign jurisdiction. The revaluation of our foreign income tax liabilities was required because of fluctuations in the value of the United States dollar against other currencies. Our operating income would be materially impacted by a shift in the foreign exchange rates between United States and foreign currencies that are material to our business. For example, a five percent shift in the foreign exchange rates between United States dollar and Canadian dollar would impact our pre-tax income by approximately $2.6 million.

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Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

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

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the first six months of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

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ITEM 1A. RISK FACTORS.

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

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

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

In the recent past, financial markets in the United States, Europe and Asia experienced extreme disruption, including among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of other securities. Governments took unprecedented actions intended to address extreme market conditions that include severely restricted credit and declines in real estate values.

Currently, these conditions have not impaired our liquidity for operational purposes. There can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies, which may impair our liquidity in the future. The tightening of credit in financial markets adversely affects the ability of customers and suppliers to obtain financing for significant purchases and operations and could result in a decrease in or cancellation of orders for our products. Our global business is also adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending, and in the financial strength of our customers and suppliers. We are unable to predict the likely duration and severity of the disruptions in financial markets and adverse economic conditions in the U.S. and other countries.

Finally, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to access such capital markets, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.

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

• variations in our turns business;

• short order lead time;

• customer inventory levels;

• production schedules; and

• fluctuations in demand.

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As a result of this uncertainty in the demand for our products, our past operating results may not be indicative of our future operating results.

Fluctuations in demand is dependent on, among other things the size of the markets for our products, the rate at which such markets develop, and the level of capital spending by end customers. We cannot assure you of the rate, or extent to which, capital spending by end customers will grow, if at all. Furthermore, industry growth rates may not be as forecast, which may result in our spending on product development being either insufficient for or in excess of actual market requirements.

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

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

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

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

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

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

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

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

We depend on a limited number of customers for large portions of our net revenues. During the rolling twelve month period ended June 26, 2011 and June 27, 2010, we had one end customer that accounted for more than 10% of our revenues, namely Hewlett-Packard Company. During the first six months of 2011, our top ten customers accounted for more than 60% of our net revenues. During the first six months of 2010, our top ten customers accounted for more than 70% of our net revenues. We do not have long-term volume purchase commitments from any of our major customers. We sell our products solely on the basis of purchase orders. Those customers could decide to cease purchasing products with little or no notice and without significant penalties. A number of factors could cause our customers to cancel or defer orders, including interruptions to their operations due to a downturn in their industries, delays in manufacturing their own product offerings into which our products are incorporated, and natural disasters. Accordingly, our future operating results will continue to depend on the success of our largest customers and on our ability to sell existing and new products to these customers in significant quantities.

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

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

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

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

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

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

Our results of operations are increasingly dependent on our sales in China, which on a bill-to basis, accounted for over 30% of our net revenues in the first six months of 2011 and 2010. Government agencies in China have broad discretion and authority over all aspects of the telecommunications and information technology industry in China; accordingly their decisions may impact our ability to do business in China. Therefore, significant changes in China’s political and economic conditions and governmental policies could have a substantial negative impact on our business. While the growth of Fiber-To-The-Home technology in China has continued to be strong, a slowdown in that growth would have an adverse impact on our operating results.

In addition to selling our products in a number of countries, an increasing portion of our research and development and manufacturing is conducted outside North America, in particular, in India and China. The geographic diversity of our business operations could hinder our ability to coordinate design, manufacturing and sales activities. If we are unable to develop systems and communication processes to support our geographic diversity, we may suffer product development delays or strained customer relationships.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We are subject to income taxes in both the United States and international jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions where the ultimate tax determination is uncertain. Additionally, our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file. Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals. Should additional taxes be assessed as a result of new legislation, an audit or litigation, if our effective tax rate should change as a result of changes in federal, international or state and local tax laws, or if we were to change the locations where we operate, there could be a material effect on our income tax provision and results of operations in the period or periods in which that determination is made, and potentially to future periods as well. During the second quarter of 2008, one of our foreign subsidiaries settled several ongoing tax matters for less than had been accrued as part of its liability for unrecognized tax benefits, resulting in the recognition of tax benefits of $124.1 million. As a result of this settlement, we agreed to pay $18.0 million in cash and utilize $31.6 million in investment tax credits.

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

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

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

We regularly limit our exposure to foreign exchange rate fluctuations from our foreign net asset or liability positions. We recorded a net $1.2 million foreign exchange loss on the revaluation of our income tax liability, net of deferred tax assets, in the first six months of 2011 because of the fluctuations in the U.S. dollar against certain foreign currencies. A five percent shift in the foreign exchange rates between the U.S. and Canadian dollar would cause an approximately $2.6 million impact to our pre-tax net income.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We do not own or operate a wafer fabrication facility. In the first six months of 2011, three outside wafer foundries supplied more than 95% of our semiconductor wafer requirements. Our wafer foundry suppliers also make products for other companies and some make products for themselves, thus we may not have access to adequate capacity or certain process technologies. We have less control over delivery schedules, manufacturing yields and costs than competitors with their own fabrication facilities. If the wafer foundries we use are unable or unwilling to manufacture our products in required volumes, or at specified times, we may have to identify and qualify acceptable additional or alternative foundries. This qualification process could take six months or longer. We may not find sufficient capacity quickly enough, if ever, at an acceptable cost, to satisfy our production requirements.

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

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

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

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

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

We do not have sufficient business interruption insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could have a material adverse effect on our business. We are vulnerable to a major earthquake and other calamities. We have operations in seismically active regions in Japan, British Columbia, Canada and California, and we rely on third-party suppliers, including wafer fabrication and testing facilities, in seismically active regions in Asia. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major earthquake in any of their regions. We are unable to predict the effects of any such event, but the effects could be seriously harmful to our business.

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

We have operations, mainly research and development facilities, located in Israel and India which employ approximately 268 and 120 people, respectively. A catastrophic event, such as a terrorist attack, that results in the destruction or disruption of any of our critical business or information technology systems in Israel or India could harm our ability to conduct normal business operations and our operating results.

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

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

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

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

To compete effectively, we must protect our intellectual property. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We hold numerous patents and have a number of pending patent applications. However, our portfolio of patents includes some that expired in 2010 and some that are expiring in subsequent years, which could have a negative effect on our ability to prevent competitors from duplicating certain of our products.

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

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

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

Vigorous protection and pursuit of intellectual property rights or positions characterize the semiconductor industry. This often results in expensive and lengthy litigation. We, and our customers or suppliers, may be accused of infringing patents or other intellectual property rights owned by third parties in the future. An adverse result in any litigation could force us to pay substantial damages, stop manufacturing, using and selling the infringing products, spend significant resources to develop non-infringing technology, discontinue using certain processes or obtain licenses to the infringing technology. In addition, we may not be able to develop non-infringing technology or find appropriate licenses on reasonable terms or at all.

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

The majority of our customers are required to obtain licenses from and pay royalties to third parties for the sale of systems incorporating our semiconductor devices. Customers may also make claims against us with respect to infringement.

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

We have significant debt in the form of senior convertible notes.

At June 26, 2011, we have $63.3 million carrying value ($68.3 million of face value) of our 2.25% senior convertible notes outstanding. Our debt could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes, and could make us vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. On October 15, 2025, we are obliged to repay the full remaining principal amount of the notes that have not been converted into our common stock, but we are also subject to certain triggering events that may cause the notes to be repaid earlier.

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

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

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

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

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

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

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

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

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

On May  25, 2011, our stockholder rights plan expired by its terms.

Item 6. Exhibits

Exhibit No.	Description	Form	File No.	Filing Date	Exhibit No. as Filed	Filed with this 10-Q
31.1	Certification of Chief Executive Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002						X
31.2	Certification of Chief Financial Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002						X
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)						X
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)						X
101.INS	XBRL Instance Document						X
101.SCH	XBRL Taxonomy Extension Schema Document						X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document						X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document						X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document						X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document						X

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SIGNATURES

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

	PMC-SIERRA, INC.
	(Registrant)
Date:August 4, 2011	/s/    Michael W. Zellner
	Michael W. Zellner
	Vice President, Chief Financial Officer and
	Principal Accounting Officer

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