Trident Microsystems (TRIDQ) 10-Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

or

o 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 0-20784

TRIDENT MICROSYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	77-0156584
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
3408 Garrett Drive,
Santa Clara, California 95054-2803	94304-1030
(Address of principal executive offices)	(Zip Code)

(408) 764-8808
(Registrant’s telephone number, including area code)

     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. Yesþ Noo

     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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller Reporting Companyo
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     At October 31, 2008, the number of shares of the Registrant’s common stock outstanding was 62,528,199.

TRIDENT MICROSYSTEMS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2008

INDEX

Part I. Financial Information	3
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the three months ended September 30, 2008 and 2007 (Unaudited)	3
Condensed Consolidated Balance Sheets as of September 30, 2008 and June 30, 2008 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2008 and 2007 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures	35
Part II. Other Information	36
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Submission of Matters to a Vote of Security Holders	47
Item 5. Other Information	48
Item 6. Exhibits	49
Signatures	50
Index to Exhibits	51
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	September 30,
(In thousands, except per share amounts)	2008			2007
Net revenues	$	34,782		$	88,174
Cost of revenues		22,707			46,008
Gross profit		12,075			42,166
Operating expenses:
Research and development		13,065			12,939
Selling, general and administrative		10,105			17,301
Total operating expenses		23,170			30,240
Income (loss) from operations		(11,095	)		11,926
Loss on sale of short-term investments		(8,913	)		—
Impairment loss on short-term investments		(429	)		—
Interest income		1,266			1,508
Other income, net		3,063			2,184
Income (loss) before provision for income taxes		(16,108	)		15,618
Provision for income taxes		1,861			5,559
Net income (loss)	$	(17,969	)	$	10,059
Net income (loss) per share — Basic	$	(0.29	)	$	0.17
Net income (loss) per share — Diluted	$	(0.29	)	$	0.16
Shares used in computing net income per share — Basic		61,152			58,851
Shares used in computing net income per share — Diluted		61,152			63,605

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

3

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			June 30,
(In thousands, except par values)	2008			2008
Assets
Current assets:
Cash and cash equivalents	$	229,357		$	213,296
Short-term investments		741			26,704
Accounts receivable, net of allowance for sales returns of $135 at September 30, 2008 and $300 at June 30, 2008		1,686			4,510
Inventories		9,776			8,680
Prepaid expenses and other current assets		14,145			12,863
Total current assets		255,705			266,053
Property and equipment, net		23,120			23,425
Intangible assets, net		6,798			8,428
Goodwill		1,432			1,432
Other assets		10,416			9,977
Total assets	$	297,471		$	309,315
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	18,120		$	10,889
Accrued expenses and other current liabilities		20,200			22,910
Income taxes payable		15,537			16,309
Total current liabilities		53,857			50,108
Long-term income taxes payable		20,543			21,579
Deferred income tax liabilities		274			370
Total liabilities		74,674			72,057
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.001 par value: 500 shares authorized; none issued and outstanding		—			—
Common stock, $0.001 par value: 95,000 shares authorized; 62,529 and 61,238 shares issued and outstanding at September 30, 2008 and at June 30, 2008, respectively		63			61
Additional paid-in capital		211,867			208,299
Retained earnings		10,981			28,950
Accumulated other comprehensive loss		(114	)		(52	)
Total stockholders’ equity		222,797			237,258
Total liabilities and stockholders’ equity	$	297,471		$	309,315

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

TRIDENT MICROSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	September 30,
(In thousands)	2008			2007
Cash flows from operating activities:
Net income (loss)	$	(17,969	)	$	10,059
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation expense		2,682			10,443
Excess tax benefits from stock-based compensation		(96	)		(246	)
Depreciation and amortization		1,895			831
Amortization of acquisition-related intangible assets		1,243			1,653
Impairment loss on short-term investments		429			—
Impairment loss on acquisition-related intangible assets		387			—
Loss on sale of short-term investments		8,913			—
(Gain) loss on disposal of property and equipment		1			(8	)
Deferred income taxes		(60	)		—
Changes in assets and liabilities:
Accounts receivable		2,824			(19,970	)
Inventories		(1,096	)		(2,887	)
Prepaid expenses and other current assets		2,430			887
Accounts payable		6,937			4,488
Accrued expenses and other current liabilities		(2,653	)		4,628
Income taxes payable		(1,808	)		2,749
Net cash provided by operating activities		4,059			12,627
Cash flows from investing activities:
Proceeds from sale of short-term investments		12,967			—
Other assets		(1,435	)		(1,686	)
Purchases of property and equipment		(499	)		(1,708	)
Proceeds from sale of property and equipment		10			41
Net cash provided by (used in) investing activities		11,043			(3,353	)
Cash flows from financing activities:
Proceeds from issuance of common stock to employees		863			3,179
Excess tax benefits from stock-based compensation		96			246
Net cash provided by financing activities		959			3,425
Net increase in cash and cash equivalents		16,061			12,699
Cash and cash equivalents at beginning of period		213,296			147,562
Cash and cash equivalents at end of period	$	229,357		$	160,261
Supplemental non-cash investing and financing activities:
Receivable from the sale of short-term investments	$	3,592		$	7,762
Accrued expenses related to building construction cost	$	176		$	1,606

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

TRIDENT MICROSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Trident Microsystems, Inc. (“Trident”) and its subsidiaries (collectively the “Company”) design, develop and market integrated circuits for digital media applications, such as digital television, liquid crystal display, or LCD, television and digital set-top boxes. The Company also designs cross-platform software that allows multimedia applications to run on devices in the digital living room such as set-top boxes or digital TV sets.

Since June 2003, the Company has focused its business primarily in the digitally processed televisions (“DPTV”) market and related areas. The Company conducts this business primarily through its Cayman Islands subsidiary, Trident Microsystems (Far East) Ltd., or TMFE. Research and development services relating to existing projects and certain new projects are conducted by both Trident Microsystems, Inc. and its subsidiaries, Trident Multimedia Technologies (Shanghai) Co. Ltd., or TMT, and Trident Microsystems (Beijing) Co., Ltd., or TMBJ. TMBJ was previously a privately held company known as Beijing Tiside Electronics Design Co., Ltd., or Tiside, which the Company acquired in March 2008 and subsequently renamed as TMBJ. Operations and field application engineering support and certain sales activities are conducted through the Company’s Taiwanese subsidiary, Trident Microelectronics Co. Ltd., or TML, and other affiliates. In September 2008, the Company established a new subsidiary in South Korea, Trident Microsystems (Korea) Limited, or TMK, to primarily provide sales liaison and marketing services in South Korea. Trident Multimedia Systems, Inc., or TMS was inactive at September 30, 2008. Trident Technologies, Inc., or TTI, which was 99.9% owned by Trident at September 30, 2008, is in the process of being dissolved.

The Company sells its products primarily to digital television original equipment manufacturers, or OEMs, in Japan, Asia Pacific and Europe, either directly or through their supplier channels. The Company considers these OEMs to be its customers.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. In the opinion of the Company, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the financial position, operating results and cash flows for those periods presented. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2008 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for any other period or for the entire fiscal year ending June 30, 2009.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Impairment Assessment of Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets. Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net purchased tangible and intangible assets acquired.

6

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

The Company performs its annual goodwill impairment analysis in the fourth quarter of each year or more frequently if the Company believes indicators of impairment exist. Factors that the Company considers important which could trigger an impairment review include the following:

• significant underperformance relative to historical or projected future operating results;

• significant negative industry or economic trends; and

• significant decline in the Company’s market capitalization.

The performance of the test involves a two-step process. The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is based on the present value of estimated future cash flows of the reporting units. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that the Company determines that the value of goodwill has become impaired, the Company will record a charge for the amount of impairment during the fiscal quarter in which the determination is made. The Company has two reporting units and performs its impairment review for the reporting unit that carries goodwill.

The Company has two types of intangible assets: acquisition-related intangible assets and purchased intangible assets from third-party vendors. Intangible assets are carried at cost, net of accumulated amortization. Acquisition-related intangible assets with finite lives acquired from the purchase of the minority interest of Trident’s TTI subsidiary are amortized over their estimated useful lives of approximately seven to eight years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. The remaining acquisition-related intangible assets and purchased intangible assets with finite lives are amortized over their estimated useful lives of approximately one to four years using the straight-line method.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,Accounting for Income Taxes (“SFAS No. 109”). Under this method, the Company determines deferred income taxes by using the liability method, under which the expected future tax consequences of timing differences between the book and tax basis of assets and liabilities are recognized as deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets when management estimates, based on available objective evidence, that it is more likely than not that the benefit of deferred tax assets will not be realized.

On July 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation, No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which was issued in June 2006. See Note 8, “Income Taxes,” of these Notes to Condensed Consolidated Financial Statements for a discussion of the impact of FIN 48 in the Company’s condensed consolidated financial statements. The Company recognized potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.

FIN 48 requires that the Company recognize in its condensed consolidated financial statements the impact of a tax position that, based on the technical merits of the position, is more likely than not to be sustained upon examination. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step relates to recognition, where the Company has to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more-likely-than-not criterion. The tax position is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not-recognition threshold will be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold will be de-recognized in the first subsequent financial reporting period in which that threshold is no longer met.

7

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

Reclassifications

The Company has revised the classification of certain amounts from “Research and development” to “Cost of revenues” to conform to the current year presentation. The Company reclassified $1.0 million of expenses from “Research and development” to “Cost of revenues” for the three months ended September 30, 2007. The following table summarizes the amounts as previously reported and as revised:

	Three Months Ended
	September 30, 2007
(In thousands)	As Reported		Revised
Cost of revenues	$	45,035	$	46,008
Gross profit		43,139		42,166
Research and development		13,912		12,939
Total operating expenses		31,213		30,240

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(“SFAS No. 157”) provides a framework that clarifies the fair value measurement objective within GAAP and its application under the various accounting standards where fair value measurement is allowed or required. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 requires fair value measurements to be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007; however, in February 2008, FASB Staff Position (“FSP”) No. 157-2 was issued which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The FSP partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, including interim periods within that fiscal year for items within the scope of the FSP. Effective July 1, 2008, the Company adopted SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities within the scope of FSP No. 157-2. In October 2008, the FASB issued FSP SFAS No. 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(“FSP 157-3”) to clarify the application of the provisions of SFAS No. 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately, including prior periods for which financial statements have not been issued. The partial adoption of SFAS No. 157 and the adoption of FSP 157-3 did not have a material impact on the Company’s consolidated financial position, results of operations and cash flows. The Company is currently assessing the impact of the adoption of SFAS No. 157 as it relates to nonfinancial assets and nonfinancial liabilities and has not yet determined the impact that the adoption will have on its consolidated financial position, results of operations and cash flows. See Note 11, “Fair Value Measurements” of Notes to consolidated financial statements for further information.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Company adopted SFAS No. 159 during the three months ended September 30, 2008 and the adoption did not materially affect its consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations(“SFAS 141R”). The objective of SFAS 141 is to improve the relevance, representational faithfulness, and comparability of the information that a company provides in its financial reports about a business combination and its effects. Under SFAS 141R, a company is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration measured at their fair value at the acquisition date. It further requires that research and development assets acquired in a business combination

8

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

that have no alternative future use be measured at their acquisition-date fair value and then immediately charged to expense, and that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred. Among other changes, this statement also requires that “negative goodwill” be recognized in earnings as a gain attributable to the acquisition, and any deferred tax benefits resulted in a business combination are recognized in income from continuing operations in the period of the combination. SFAS 141R is effective for the Company in the first quarter of fiscal year 2010. The Company is currently evaluating the impact that SFAS 141R may have on its consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a company provides in its consolidated financial statements. SFAS 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations; changes in ownership interest should be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary should be measured at fair value. SFAS 160 is effective for the Company in the first quarter of fiscal year 2010. The Company is currently evaluating the impact SFAS 160 may have on its consolidated financial position, results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities(“SFAS 161”).SFAS 161 amends and expands the disclosure requirements of Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activitiesand requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal year and interim periods beginning after November 15, 2008, with early application encouraged. The Company will adopt SFAS 161 in the first quarter of fiscal year 2010. The Company is currently evaluating the impact that SFAS 161 may have on its consolidated financial position, results of operations and cash flows.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of General Accepted Accounting Principles (“SFAS 162”). SFAS 162 identified the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernment entities that are presented in conformity with generally accepted accounting principles in the United States (“GAAP”). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,The Meaning of Present Fairly in Conformity with GAAP. The Company does not expect that this Statement will result in a change in any of its current accounting practices.

In May 2008, the FSP issued SFAS 142-3,Determination of the Useful Life of Intangible Assets (“SFAS 142-3”)to amend factors a company should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the assets under SFAS 141 and other U.S. GAAP. SFAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, with early adoption prohibited. The Company will adopt SFAS 142-3 in the first quarter of fiscal year 2010. The Company is currently evaluating the impact that SFAS 142-3 may have on its consolidated financial position, results of operations and cash flows.

9

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

2. SHORT-TERM INVESTMENTS

The following tables summarize the Company’s available-for-sale investments:

	As of September 30, 2008
			Gross		Gross
			Unrealized		Unrealized			Estimated Fair
(In thousands)	Historical cost		Gains		Losses			Value
Short-term investments:
Corporate equity securities	$	855	$	—	$	(114	)	$	741

	As of June 30, 2008
			Gross		Gross
			Unrealized		Unrealized			Estimated Fair
	Historical cost		Gains		Losses			Value
Short-term investments:
Corporate equity securities	$	26,756	$	—	$	(52	)	$	26,704

United Microelectronics Corporation

On June 13, 2008, United Microelectronics Corporation (“UMC”) announced a cash dividend of NT$0.75 per common share and a stock dividend of NT$0.45 per common share to its shareholders of record on August 16, 2008. The Company received a $1.2 million cash dividend and 2.3 million shares of stock dividend on September 12, 2008. The Company recorded the $1.2 million cash dividend in “Other income, net” in its Condensed Consolidated Statements of Operations for the three months ended September 30, 2008. In connection with the stock dividend received, the Company reduced the historical unit cost per share of UMC stock that it owned.

During the three month period ended September 30, 2008, the Company sold 50.2 million shares of UMC common stock for net proceeds of $16.6 million and recorded a loss on sale of $8.9 million under “Loss on sale of short-term investments” in its Condensed Consolidated Statements of Operations for the three months ended September 30, 2008. Of the $16.6 million net proceeds, the Company received $13.0 million in September 2008. The remaining $3.6 million was received subsequent to quarter end on October 2, 2008, and was recorded as a receivable under “Prepaid expenses and other current assets” in its Condensed Consolidated Balance Sheet as of September 30, 2008.

As the fair value of UMC’s stock price continued to decrease during the quarter, the $0.7 million fair value of the 2.3 million shares of UMC received as a stock dividend as of September 30, 2008 was lower than the adjusted historical cost. The Company reviewed its investment in UMC in accordance with SFAS No. 115, Staff Accounting Bulletin Topic 5,Miscellaneous Accounting,and FSP SFAS 115-1 and 124- 1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, to determine if the impairment is “temporary” or “other-than-temporary.” The Company determined that the $0.4 million difference between the fair value and the historical cost of the UMC investment represented an other-than-temporary impairment and therefore recorded the amount as an “Impairment loss on short-term investments” in its Condensed Consolidated Statements of Operations for the three months ended September 30, 2008. Subsequent to September 30, 2008, the Company sold its remaining 2.3 million shares of UMC stock after receiving approval from the Taiwanese government and incurred a loss of sale of $46,000.

10

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

3. BALANCE SHEET COMPONENTS

The following tables provide details of selected balance sheet components:

	September 30,			June 30,
(Dollars in thousands)	2008			2008
Cash and cash equivalents
Cash	$	55,859		$	37,295
Money market funds		129,697			132,419
Certificates of deposit		43,801			43,582
	$	229,357		$	213,296
Inventories:
Work in process	$	4,463		$	4,170
Finished goods		5,313			4,510
	$	9,776		$	8,680
Property and equipment, net:
Building and leasehold improvements	$	18,900		$	18,738
Machinery and equipment		8,990			8,773
Software		3,343			3,319
Furniture and fixtures		1,515			1,465
Construction in progress		104			103
		32,852			32,398
Accumulated depreciation and amortization		(9,732	)		(8,973	)
	$	23,120		$	23,425
Accrued expenses and other current liabilities:
Compensation and benefits	$	4,039		$	5,927
Royalties		1,067			1,014
Professional fees		1,364			1,572
Deferred revenues less deferred cost of revenues		1,318			1,274
Prior software usage (1)		977			1,387
Contingent liabilities on certain option modifications (2)		4,336			4,336
Others		7,099			7,400
	$	20,200		$	22,910

(1)	See Note 6 “Commitments and Contingencies,” of Notes to Condensed Consolidated Financial Statements.
(2)	See Note 7 “Employee Stock Plans,” of Notes to Condensed Consolidated Financial Statements.

4. GOODWILL AND INTANGIBLE ASSETS

The Company assesses the potential impairment of intangible assets and goodwill on an annual basis, and more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. The Company performs its annual goodwill impairment analysis in the fourth quarter of each fiscal year. Factors the Company considers important which could trigger an interim impairment review include the following:

• significant underperformance relative to historical or projected future operating results;

• significant negative industry or economic trends; and

• significant decline in the Company’s market capitalization.

In the first quarter of fiscal year 2009, the Company’s financial results and outlook continued to be challenged and constrained by the evolving market for its products and by its customers’ shifting market strategies, combined with a difficult macroeconomic environment. In addition, the Company’s market capitalization was below its carrying value. These factors

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were considered indicators of potential impairment as described above. As a result, the Company performed an impairment analysis of its intangible assets in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assetsas of September 30, 2008.

When it is determined that the carrying value of intangible assets or long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company tests the assets for recoverability based on an estimate of future undiscounted cash flows as compared to the asset carrying value. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

In determining the fair value of the intangible assets, the Company considered various factors including Trident’s estimates of future market growth and trends, forecasted revenue and costs, market capitalization, discount rates, expected periods over which the Company’s assets will be utilized and other variables. The Company’s future market growth estimates were based on historical data and internal estimates developed as part of its long-term planning process. The Company believes the estimates stated above are reasonable, but also inherently uncertain. As a result of the analysis, the Company recognized a $0.4 million impairment loss on acquisition-related intangible assets, of which approximately $383,000 related to acquisition-related developed and core technology was included as “Cost of revenues” and the remaining $4,000 related to tradename was included as “Selling, general and administrative expenses” in the Condensed Consolidated Statement of Operations for the three months ended September 30, 2008. The Company will continue to monitor the intangible assets and other long-lived assets for impairment and make appropriate reductions in carrying value when impairment exists.

The carrying values of the Company’s amortized acquisition-related intangible assets after the adjustment for impairment loss as of September 30, 2008 and June 30, 2008 are as follows:

	September 30, 2008										June 30, 2008
			Accumulated										Accumulated
(In thousands)	Gross		Amortization			Impairment			Net		Gross		Amortization			Net
Core and developed technologies	$	24,587	$	(18,235	)	$	(383	)	$	5,969	$	24,587	$	(17,129	)	$	7,458
Customer relationships		2,521		(1,694	)		—			827		2,521		(1,561	)		960
Tradename		14		(8	)		(4	)		2		14		(4	)		10
Total	$	27,122	$	(19,937	)	$	(387	)	$	6,798	$	27,122	$	(18,694	)	$	8,428

Amortization expense (including the impairment loss on acquisition-related intangible assets) of core and developed technologies is recorded in “Cost of revenues,” while the amortization expense (including the impairment loss on acquisition-related intangible assets) of other intangible assets is included in “Selling, general and administrative expenses”. The following summarizes the amortization expense of acquisition-related intangible assets including the impairment loss on acquisition-related intangible assets for the periods indicated:

	Three Months Ended
	September 30,
(In thousands)	2008		2007
Reported as:
Cost of revenues	$	1,489	$	1,486
Selling, general and administrative		141		167
Total	$	1,630	$	1,653

As of September 30, 2008, the Company estimates the amortization expense of acquisition-related intangible assets for the remaining nine months of fiscal year 2009, fiscal years 2010, 2011 and 2012, to be as follows: $2.6 million, $2.4 million, $1.4 million, and $0.4 million, respectively.

As of September 30, 2008, as a result of the impairment triggering factors described above, the Company also performed an interim goodwill impairment analysis for the reporting unit which carries goodwill. The impairment test is a two-step

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process. The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting unit was estimated based on the present value of estimated future cash flows of the reporting units, and the Company used the income approach to determine the future cash flows of the reporting unit. The income approach requires estimates such as expected revenue, gross margin and operating expenses, in order to discount the sum of future cash flows using the Company’s weighted average cost of capital. Based on the goodwill impairment analysis performed in step one, it was determined that the Company’s net book value exceeded its estimated fair value. As a result, the Company performed the second step of the impairment test to determine if any impairment exists. Under step two, if the estimated fair value of the reporting unit’s net assets, other than goodwill is less than the net book value of the goodwill, the goodwill will be impaired. Based on the goodwill impairment analysis performed in step two, the fair value of the reporting unit’s net assets was greater than its carrying value of goodwill primarily due to the $0.4 million impairment loss recognized on the acquisition-related intangible assets. As a result, goodwill was not impaired as of September 30, 2008.

5. GUARANTEES

The Company provides for estimated future costs of warranty obligations in accordance with FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Otherswhich requires an entity to disclose and recognize a liability for the fair value of the obligation it assumes upon issuance of a guarantee. The Company warrants its products against material defects for a period of time, usually between 90 days and one year. The Company replaces defective products that are expected to be returned by its customers under its warranty program and includes such estimated product returns in its “Allowance for sales returns” analysis. The following table reflects the changes in the Company’s accrued product warranty only for expected customer claims related to known product warranty issues during the three months ended September 30, 2008 and 2007:

	Three Months Ended
	September 30,
(In thousands)	2008			2007
Accrued product warranty, at beginning of period	$	256		$	800
Charged to (reversal of) cost of revenues		(256	)		189
Actual product warranty expenditures		—			(55	)
Accrued product warranty, at end of period	$	—		$	934

6. COMMITMENTS AND CONTINGENCIES

Commitments

Lease Commitments

The Company leases facilities under noncancelable operating lease agreements, which expire at various dates through 2012. At September 30, 2008, future minimum lease payments under these non-cancelable operating leases for the remaining nine months of fiscal year 2009, fiscal years 2010, 2011 and 2012 were as follows: $0.8 million, $1.0 million, $0.7 million, and $0.1 million, respectively. Rental expense for the three months ended September 30, 2008 and 2007 was $0.4 million and $0.5 million, respectively.

Purchase Commitments

At September 30, 2008, the Company had purchase commitments in the amount of $12.3 million that were not included in the Condensed Consolidated Balance Sheet at that date. Of this amount, $3.4 million represents purchase commitments by the Company to UMC, its principal foundry. As of September 30, 2008, the Company accrued a reserve of $0.7 million for materials committed to UMC mentioned above which could lead to potential excess inventories in future periods. This reserve was included in “Accrued expenses and other current liabilities” in the condensed consolidated balance sheet as of September 30, 2008. Purchase commitments represent the unconditional purchase order commitments with contract manufacturers and suppliers for wafers and software licensing.

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Contingencies

Shareholder Derivative Litigation

Trident has been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases have been consolidated asIn re Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed in State court,Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that certain of the Company’s current or former officers and directors caused it to grant options at less than fair market value, contrary to its public statements (including its financial statements); and that as a result those officers and directors are liable to the Company. No particular amount of damages has been alleged, and by the nature of the lawsuit no damages will be alleged against the Company. The Board of Directors has appointed a Special Litigation Committee (“SLC”) composed solely of independent directors to review and manage any claims that the Company may have relating to the stock option grant practices investigated by the Special Committee. The scope of the SLC’s authority includes the claims asserted in the derivative actions. In federal court, Trident has moved to stay the case pending the assessment by the SLC that was formed to consider nominal plaintiffs’ claims. In State court, Trident moved to stay the case in deference to the federal lawsuit, and the parties have agreed, with the Court’s approval, to take that motion off of the Court’s calendar to await the assessment of the SLC. The Company cannot predict whether these actions are likely to result in any material recovery by or expense to, Trident. The Company expects to continue to incur legal fees in responding to these lawsuits, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations.

Regulatory Actions

The Department of Justice (“DOJ”) is currently conducting an investigation of the Company in connection with its investigation into its stock option grant practices and related issues, and the Company is subject to a subpoena from the DOJ. The Company is also subject to a formal investigation by the SEC on the same issues. The Company has been cooperating with, and continues to cooperate with, inquiries from the SEC and DOJ investigations. In addition, the Company has received an inquiry from the Internal Revenue Service to which it has responded. The Company is unable to predict what consequences, if any, that any investigation by any regulatory agency may have on it. Any regulatory investigation could result in substantial legal and accounting expenses, divert management’s attention from other business concerns and harm the Company’s business. If a regulatory agency were to commence civil or criminal action against the Company, it is possible that the Company could be required to pay significant penalties and/or fines and could become subject to administrative or court orders, and could result in civil or criminal sanctions against certain of its former officers, directors and/or employees and might result in such sanctions against the Company and/or its current officers, directors and/or employees. Any regulatory action could result in the filing of additional restatements of the Company’s prior financial statements or require that the Company take other actions. If the Company is subject to an adverse finding resulting from the SEC and DOJ investigations, it could be required to pay damages or penalties or have other remedies imposed upon it. The period of time necessary to resolve the investigation by the DOJ and the investigation from the SEC is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of its business. In addition, the Company’s 401(k) plan and its administration were audited by the Department of Labor but no further action was noted.

Indemnification Obligations

The Company indemnifies, as permitted under Delaware law and in accordance with its Bylaws, its officers, directors and members of its senior management for certain events or occurrences, subject to certain limits, while they were serving at the Company’s request in such capacity. In this regard, the Company has received, or expects to receive, requests for indemnification by certain current and former officers, directors and employees in connection with the Company’s investigation of its historical stock option grant practices and related issues, and the related governmental inquiries and shareholder derivative litigation. The maximum amount of potential future indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. The Company has directors’ and officers’ liability insurance policies that may enable it to recover a portion of such future indemnification claims paid, subject to coverage limitations of the policies, and plans to make claims for reimbursement from its insurers of any potentially covered future indemnification payments.

Prior Software Usage

During April 2008, as a result of an internal review it conducted, the Company determined that its use of certain third-party software in prior periods exceeded the levels of usage authorized under license agreements in effect for such periods. The

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Company has negotiated and intends to continue negotiating new license agreements in order to obtain the rights and authorizations necessary to meet its current software usage requirements. The Company believes that it is probable that the licensors of this software will, as part of these negotiations, seek compensation from the Company relating to this prior usage. While the Company cannot predict with certainty the outcome of these negotiations, the Company has recorded $1.0 million as its best estimate of the amount expected to be paid. The amount is included in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. Subsequent to September 30, 2008, the Company reached a settlement with a vendor and recorded a credit of $0.4 million to expenses which is included in “Research and development expenses” in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2008.

General

From time to time, the Company is involved in other legal proceedings arising in the ordinary course of its business. While the Company cannot be certain about the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on the Company’s business, financial position, results of operation or cash flows.

7. EMPLOYEE STOCK PLANS

Equity Incentive Plans

The Company grants nonstatutory and incentive stock options, restricted stock awards, and restricted stock units to attract and retain officers, directors, employees and consultants. As of September 30, 2008, the Company had three equity incentive plans: the 2006 Equity Incentive Plan (the “2006 Plan”), the 2002 Stock Option Plan (the “2002 Plan”) and the 2001 Employee Stock Purchase Plan. Options to purchase Trident’s common stock remain outstanding under three incentive plans which have expired or been terminated: the 1992 Stock Option Plan, the 1994 Outside Directors Stock Option Plan and the 1996 Nonstatutory Stock Option Plan (the “1996 Plan”). In addition, options to purchase Trident’s common stock are outstanding as a result of the assumption by the Company of options granted to TTI’s officers, employees and consultants under the TTI 2003 Employee Option Plan (“TTI Plan”). The options granted under the TTI Plan were assumed in connection with the acquisition of the minority interest in TTI on March 31, 2005 and converted into options to purchase Trident’s common stock. Except for the 1996 Plan, all of the Company’s equity incentive plans, as well as the assumption and conversion of options granted under the TTI Plan, have been approved by the Company’s stockholders.

In May 2006, Trident’s stockholders approved the 2006 Plan, which provides for the grant of equity incentive awards, including stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, deferred compensation awards, cash-based and other stock-based awards and nonemployee director awards of up to 4,350,000 shares. On March 31, 2008, Tridents’ Board of Directors approved an amendment to the 2006 Plan to increase the number of shares available for issuance from 4,350,000 shares to 8,350,000 shares, which was subsequently approved in a special stockholders’ meeting on May 16, 2008. For purposes of the total number of shares available for grant under the 2006 Plan, any shares that are subject to awards of stock options, stock appreciation rights, deferred compensation award or other award that requires the option holder to purchase shares for monetary consideration equal to their fair market value determined at the time of grant shall be counted against the available-for-grant limit as one share for every one share issued, and any shares issued in connection with awards other than stock options, stock appreciation rights, deferred compensation award or other award that requires the option holder to purchase shares for monetary consideration equal to their fair market value determined at the time of grant shall be counted against the available-for-grant limit as 1.38 shares for every one share issued. Stock options granted under the 2006 Plan must have an exercise price equal to the closing market price of the underlying stock on the grant date and expire no later than ten years from the grant date. Options generally become exercisable beginning one year after the date of grant and vest as a percentage of shares annually over a period of three to five years following the date of grant.

Stock options granted under the TTI Plan expire no later than ten years from the grant date. Options granted under the TTI Plan were generally exercisable one or two years after date of grant and vest over a requisite service period of generally two or four years following the date of grant. No further awards may be made under the TTI Plan.

In December 2002, Trident adopted the stockholder-approved 2002 Plan under which shares of common stock could be issued to officers, directors, employees and consultants. Stock options granted under the 2002 Plan must have an exercise

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price equal to at least 85% of the closing market price of the underlying stock on the grant date and expire no later than ten years from the grant date. Options granted under the 2002 Plan were generally exercisable in cumulative installments of one-third or one-fourth each year, commencing one year following date of grant.

Effective July 1, 2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to the Company’s employees and directors including stock options based on fair values. The Company’s financial statements for the three months ended September 30, 2008 and 2007 reflect the impact of SFAS 123(R) using the modified prospective transition method. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2008 and 2007 included compensation expense for stock-based payment awards granted prior to, but not yet vested as of, June 30, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the stock-based payment awards granted subsequent to June 30, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company elected to use the straight-line method to expense the value of stock-based compensation attributable to all stock options and awards other than the performance-based restricted stock award with market conditions that was granted to its Chief Executive Officer under the 2006 Plan. For purposes of expensing this single performance-based grant, the Company elected to use the accelerated method.

Valuation Assumptions

Upon adoption of SFAS 123(R), the Company elected to value its stock-based payment awards granted beginning in fiscal year 2006 using the Black-Scholes model, except for the performance-based restricted stock award with market condition granted under the 2006 Plan, for which the Company elected to use a Monte Carlo valuation methodology to value the award.

The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of certain assumptions. The Company’s stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

For the three months ended September 30, 2008 and 2007, the fair value of options granted were estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:

	Three Months Ended
	September 30,
Employee Incentive Plans	2008			2007
Expected term (in years)		3.91			4.25
Expected volatility		61.54	%		43.16	%
Risk-free interest rate		3.10	%		4.55	%
Expected dividend rate		—			—
Weighted average fair value at grant date	$	1.40		$	6.64

The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees. Upon the adoption of SFAS 123(R), the Company continued to use historical volatility in deriving its expected volatility assumption as allowed under SFAS 123(R) and SAB 107 because it believes that future volatility over the expected term of the stock options is not likely to differ from the past. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of Trident’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

As stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2008 and 2007 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. For the

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three months ended September 30, 2008 and 2007, the Company adjusted stock-based compensation expense based on its actual forfeitures.

Stock-Based Compensation Expense

The following table summarizes Trident’s stock-based award activities for the three months ended September 30, 2008 and 2007. The Company has not capitalized any stock-based compensation expense in inventory for the three months ended September 30, 2008 and 2007 as such amounts were immaterial.

	Three Months Ended
	September 30,
(In thousands)	2008		2007
Cost of revenues (1)	$	155	$	276
Resarch and development (1)		1,753		3,929
Selling, general and administrative		774		6,238
Total stock-based compensation expense	$	2,682	$	10,443

(1) The amounts included in the three months ended September 30, 2007 reflect the reclassification of certain prior period balances from “Research and development” to “Cost of revenues” to conform to the current period presentation.

During the three months ended September 30, 2008, total stock-based compensation expense recognized in income before taxes was $2.7 million and there was no related recognized tax benefit. During the three months ended September 30, 2007 total stock-based compensation expense recognized in income before taxes was $10.4 million, and there was no related recognized tax benefit.

The following table summarizes the Company’s stock option activities for the three months ended September 30, 2008:

				Options Outstanding
									Weighted
									Average
									Remaining
							Weighted		Contractual
	Shares Available			Number of			Average Exercise		Term (in		Aggregate
(In thousands, except per share data and contractual term)	for Grant			Shares			Price		Years)		Intrinsic Value
Balance at June 30, 2008		5,408			7,525		$	8.94
Plan shares expired		(89	)		—			—
Granted		(1,446	)		1,446			2.86
Exercised		—			(839	)		1.14
Cancelled, forfeited or expired		512			(512	)		8.80
Restricted stock granted (1)		(1,090	)		—			—
Restricted stock cancellations (1)		192			—			—
Balance at September 30, 2008		3,487			7,620		$	8.64		7.36	$	2,540
Vested and expected to vest at September 30, 2008					7,115		$	8.56		7.27	$	2,478
Exercisable at September 30, 2008					3,290		$	7.38		5.61	$	2,100

(1) Restricted stock is deducted from shares available for grant under the 2006 Plan at a 1 to 1.38 ratio.

The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and Trident’s closing common stock price of $2.40 as of September 30, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. The Company did not recognize any tax benefits upon exercise of stock options for the three months ended September 30, 2008.

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As of September 30, 2008, there was $23.1 million of total unrecognized compensation cost related to stock options granted under all Employee Stock Plans. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.5 years.

Restricted Stock Awards and Restricted Stock Units

The following table summarizes the activity for the Company’s restricted stock awards (RSAs) and restricted stock units (RSUs) for the three months ended September 30, 2008:

	Restricted Stock Awards
	and Restricted Shares
				Weighted Average
				Grant-Date Fair
(In thousands, except per share data)	Number of Shares			Value
Restricted stock balance at June 30, 2008		1,008		$	13.71
Granted		790			4.01
Vested		(110	)		15.25
Forfeited		(139	)		11.16
Restricted stock balance at September 30, 2008		1,549		$	8.88

RSAs and RSUs typically vest over a three to four year period. The fair value of the RSAs and RSUs was based on the closing market price of the Company’s common stock on the date of award. The table above includes an RSA award of 110,000 performance-based shares with vesting subject to achievement of specific market conditions granted under the 2006 Plan. This RSA was granted to the Company’s Chief Executive Officer on October 23, 2007 as part of her initial new hire award. The award vests in four equal tranches, with the vesting of each tranche requiring that Trident’s common stock price target, established by the Compensation Committee, be achieved on or after one of the first four anniversaries of her employment start date. In addition, the CEO needs to be employed with the Company as of each anniversary date in order for vesting to occur.

The fair value of the restricted performance shares with market and service conditions was estimated at grant date using a Monte Carlo valuation methodology with the following weighted-average assumptions: volatility of Trident’s common stock of 62%; internal rate of return of 25%; and risk-free interest rate of 4.41%. The weighted-average grant-date fair value of the restricted performance shares was $9.32. During the three months ended September 30, 2008, stock-based compensation expense was recorded for these restricted performance shares because of service conditions met. As of September 30, 2008, none of these performance-based RSAs were vested.

As of September 30, 2008, there was $13.4 million of total unrecognized compensation expense related to restricted stock awards and units granted under all employee stock plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of 3.2 years.

Contingent Liabilities on Certain Options Modifications

Effective at the close of trading on September 25, 2006, the Company temporarily suspended the ability of optionees to exercise vested options to purchase shares of the Company’s common stock, until the Company became current in the filing of its periodic reports with the SEC and filed a Registration Statement on Form S-8 for the shares issuable under the 2006 Plan (“2006 Plan S-8”). This suspension continued in effect through August 22, 2007, the date of the filing of the 2006 Plan S-8, which followed the Company’s filing, on August 21, 2007, of its Quarterly Reports on Form 10-Q for the periods ended September 30, 2006, December 31, 2006 and March 31, 2007. As a result, the Company extended the exercise period of approximately 550,000 fully vested options held by 10 employees, who were terminated during the suspension period, giving them either 30 days or 90 days after the Company became current in the filings of its periodic reports with the SEC and filed the 2006 Plan S-8 in order to exercise their vested options. During the three months ended September 30, 2007, eight of these ten former employees stated above exercised all of their vested options. However, on September 21, 2007, the SLC decided that it was in the best interests of the Company’s stockholders not to allow the remaining two former employees, as well as the Company’s former CEO and two former non-employee directors, to exercise their vested options during the pendency of the SLC’s proceedings, and extended, until March 31, 2008, the period during which these five former

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employees could exercise approximately 428,000 of their fully vested options. Moreover, the SLC allowed one former employee to exercise all of his fully vested stock options and another former employee agreed to cancel all of such individual’s fully vested stock options during the three months ended December 31, 2007.

On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the two former non-employee directors could exercise their unexpired vested options. On March 31, 2008, the SLC entered into an agreement with the Company’s former CEO allowing him to exercise all of his fully vested stock options. Under this agreement, he agreed that any shares obtained through these exercises or net proceeds obtained through the sale of such shares would be placed in an identified securities brokerage account and not withdrawn, transferred or otherwise removed without either (i) a court order granting him permission to do so or (ii) the written permission of the Company. On May 29, 2008, the SLC permitted one of the Company’s former non-employee directors to exercise his fully vested stock options without seeking the authorization of the SLC and entered into an agreement with the other former non-employee director on terms similar to the agreement entered into with the Company’s former CEO, allowing him to exercise all of his fully vested stock options without seeking the authorization from the SLC. Because Trident’s stock price as of June 30, 2008 was lower than the prices at which the Company’s former CEO and each of the two former directors had desired to exercise their options, as indicated in previous written notices to the SLC, the Company recorded a contingent liability in accordance with SFAS No. 5,Accounting for Contingencies, totaling $4.3 million, which was included in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheet as of June 30, 2008 and the related expenses were included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations as of the fiscal year then ended. The $4.3 million contingent liability remains in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008.

8. INCOME TAXES

The Company adopted the provisions of FIN 48 on July 1, 2007. The Company did not recognize any material additional liability as a result of the implementation of FIN 48. As of July 1, 2007, the Company had total gross unrecognized tax benefits of $40.7 million, the recognition of which would have an effect of $21.4 million on the effective tax rate. Approximately $19.3 million of the unrecognized tax benefits could be subject to a valuation allowance if and when recognized in a future period, which could impact the timing of any related effective tax benefit.

Historically, the Company classified the liability for net unrecognized tax benefits in current income taxes payable. As a result of the adoption of FIN 48, the Company reclassified certain tax liability for unrecognized tax benefits, as well as related potential penalties and interest, from current liabilities to long-term liabilities. The Company’s unrecognized tax benefits at September 30, 2008 relate to various domestic and foreign jurisdictions.

Upon adoption of FIN 48, the Company’s policy is to include interest and penalties related to gross unrecognized tax benefits within the Company’s provision for income taxes. As of September 30, 2008, the Company accrued $81,000 for such interest and penalties.

The Company has substantially concluded all U.S. federal and material state income tax matters for years through fiscal year ended June 30, 1998 and fiscal year ended June 30, 2000. Substantially all material foreign income tax matters have been concluded through calendar year 2001. Over the next twelve months, the Company does not anticipate any material change to the balance of gross unrecognized tax benefits.

9. COMPREHENSIVE INCOME (LOSS)

Under SFAS No. 130,Reporting Comprehensive Income, any unrealized gains or losses on investments which are classified as available-for-sale equity securities are to be reported as a separate adjustment to equity. As of September 30, 2008 and June 30, 2008, the components of accumulated other comprehensive loss related to accumulated unrealized losses, net of tax, totaling $114,000 and $52,000, respectively, on the Company’s investments. During the three months ended September 30, 2008 and 2007, the Company recorded unrealized losses on investments, net of tax, totaling $62,000 and $0.7 million, respectively. For the three months ended September 30, 2008 and 2007, comprehensive income (loss) totaled $(18.0) million and $9.4 million, respectively.

19

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

10. NET INCOME PER SHARE

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

	Three Months Ended
	September 30,
(In thousands, except per share data)	2008			2007
Net income (loss)	$	(17,969	)	$	10,059
Shares used in computing net income (loss) per share — Basic		61,152			58,851
Dilutive potential common shares		—			4,754
Shares used in computing net income (loss) per share — Diluted		61,152			63,605
Net income (loss) per share — Basic	$	(0.29	)	$	0.17
Net income (loss) per share — Diluted	$	(0.29	)	$	0.16

Dilutive potential common shares consist of stock options, RSAs and RSUs. Because the Company incurred losses during the three months ended September 30, 2008, potential common shares totaling 6,707,000 shares have been excluded from the net loss per share computation as their impact would be anti-dilutive. Potential common shares to purchase 2,986,000 shares have been excluded from the computation of diluted net income per share for the three months ended September 30, 2007, using the treasury stock method, because these stock options, restricted stock awards and restricted stock units were anti-dilutive.

11. FAIR VALUE MEASUREMENTS

Effective July 1, 2008, the Company adopted the provisions of SFAS No. 157, as amended. The adoption of this standard was limited to financial assets and liabilities and did not have a material effect on the Company’s financial condition or results of operations.

SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. SFAS No. 157 establishes three levels of inputs that may be used to measure fair value:

Level 1– Quoted prices in active markets for identical assets or liabilities.

Level 2– Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3– Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

20

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis which were comprised of the following types of instruments as of September 30, 2008:

(In thousands)	Total		Level 1		Level 2		Level 3
Money market funds (1)	$	129,697	$	129,697	$	—	$	—
Certificates of deposit (1)		43,801		43,801		—		—
Corporate equity securities (2)		741		741		—		—
Total assets	$	174,239	$	174,239	$	—	$	—

(1)	Included in cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheet.
(2)	Included in short-term investments on the Company’s Condensed Consolidated Balance Sheet.

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis which are presented on the Condensed Consolidated Balance Sheets as of September 30, 2008:

(In thousands)	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	173,498	$	173,498	$	—	$	—
Short-term investments		741		741		—		—
Total assets	$	174,239	$	174,239	$	—	$	—

In accordance with SFAS 157, the Company’s investments in money market funds, certificates of deposit and marketable securities are measured at fair value on a recurring basis. The Company’s cash equivalents and marketable securities are classified within Level 1, as its cash equivalents and marketable securities are valued using quoted market prices.

12. SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Segment and Geographic Information

The Company operates in one reportable segment called digital media solutions. The digital media business segment designs, develops and markets integrated circuits for digital media applications, such as digital television, liquid crystal display, television, or LCD TV and digital set-top boxes. The Company also designs cross-platform software that allows multimedia applications to run on devices in the digital living room such as set-top boxes or digital TV sets.

21

TRIDENT MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

Revenues by region are classified based on the locations of the customer’s principal offices even though its customers’ revenues are attributable to end customers that are located in a different location. The following is a summary of the Company’s net revenues by geographic operations:

	Three Months Ended
	September 30,
(In thousands)	2008		2007
Revenues:
Japan	$	23,955	$	24,822
Asia Pacific		5,589		11,226
Europe		4,733		18,639
South Korea		294		33,345
Americas		211		142
Total	$	34,782	$	88,174

Major Customers

The following table shows the percentage of the Company’s revenues for the three months ended September 30, 2008 and 2007, respectively, that was derived from customers who individually accounted for more than 10% of revenues in each year:

	Three Months Ended
	September 30,
Revenues:	2008			2007
Midoriya		52	%		20	%
Sharp		13	%		—
Samsung		—			36	%
Philips		—			20	%

The Company had a high concentration of accounts receivable with three customers, and they accounted for approximately 83% of the total gross accounts receivable of $1.8 million at September 30, 2008. Vestel, Philips and Midoriya (a distributor supplying Sony) accounted for 36%, 28%, and 19%, respectively, of total gross accounts receivable as of September 30, 2008. In Philips’ case, the Company’s sales are principally made to three contract manufacturers that supply Philips.

13. SUBSEQUENT EVENT

On October 27, 2008, the Company announced its plans to eliminate approximately 100 global positions, which represented approximately 15 percent of its worldwide workforce. The Company expects to incur pre-tax restructuring charges of approximately $1.0 million, primarily for employee-related costs. The Company expects to record most of these restructuring charges in the second quarter of fiscal year 2009 and substantially all of these charges will result in cash expenditures.

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

Forward-Looking Statements

This Quarterly Report onForm 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for statements about future events, products and future financial performance that are based on the beliefs of, estimates made by and information currently available to the management of Trident Microsystems, Inc. (“we,” “ours” “Trident”, or the” Company”). The outcome of the events described in these forward-looking statements is subject to risks and uncertainties. Actual results and the outcome or timing of certain events may differ significantly from those projected in these forward-looking statements due to the factors listed under “Risk Factors,” and from time to time in our other filings with the SEC. For this purpose, statements concerning industry or market segment outlook, market acceptance of or transition to new products, revenues, earnings growth, other financial results and any statements using the terms “believe,” “expect,” “expectation,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “appear,” “based on,” “may,” “intended,” “potential,” “are emerging” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. Our fiscal year ends on June 30 of each year.

Overview

We design, develop and market integrated circuits for digital media applications, such as digital television, liquid crystal display television, or LCD TV, and digital set-top boxes. Our System-on-chip (“SoC”) semiconductors provide the “intelligence” for these new types of displays by processing and optimizing video and computer graphic signals to produce high-quality and realistic images. Many of the world’s leading manufacturers of consumer electronics and computer display products utilize our technology to enhance image quality and ease of use of their products. Our goal is to provide the best image quality enhanced digital media integrated circuits at competitive prices to our customers.

We sell our products primarily to digital television Original Equipment Manufacturers, or OEMs, in Japan, Asia Pacific and Europe, either directly or through their supplier channels. We consider these OEMs to be our customers. Historically, significant portions of our revenues have been generated by sales to a relatively small number of customers. For the three months ended September 30, 2008, our top two customers accounted for 65% of our total revenues. For the three months ended September 30, 2008, sales to two end customers, Midoriya (a distributor supplying Sony) and Sharp, each accounted for more than 10% of total revenues. Substantially all of our revenues to date have been denominated in U.S. dollars. Our products are manufactured primarily by United Microelectronics Corporation, or UMC, a semiconductor manufacturer located in Taiwan.

Since June 2003, we have focused our business primarily in a growing DPTV market and related areas. We conduct this business primarily through our Cayman Islands subsidiary, Trident Microsystems (Far East) Ltd., or TMFE. Research and development services relating to existing projects and certain new projects are conducted by both Trident Microsystems, Inc. and our subsidiaries, Trident Multimedia Technologies (Shanghai) Co. Ltd., or TMT, and Trident Microsystems (Beijing) Co., Ltd., or TMBJ. TMBJ was previously a privately held company known as Beijing Tiside Electronics Design Co., Ltd., or Tiside, which we acquired in March 2008 and subsequently renamed as TMBJ. Operations and field application engineering support and certain sales activities are conducted through our Taiwanese subsidiary, Trident Microelectronics Co. Ltd., or TML, and other affiliates. In September 2008, we established a new subsidiary in South Korea, Trident Microsystems (Korea) Limited, or TMK, to primarily provide sales liaison and marketing services in South Korea. Trident Multimedia Systems, Inc., or TMS, was inactive at September 30, 2008. Trident Technologies, Inc., or TTI, which was 99.9% owned by Trident at September 30, 2008, is in the process of being dissolved.

References to “we,” “our,” “Trident” or the “Company” in this report refer to Trident Microsystems, Inc. and our subsidiaries, including TMBJ, TMK, TMFE, TML, TMT, TMS, and TTI.

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Critical Accounting Estimates

The preparation of our financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our accounting policies and estimates and make adjustments when facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or conditions. In addition to the accounting policies that are more fully described in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we consider the critical accounting policies described below to be affected by critical accounting estimates. Our critical accounting policies that are affected by accounting estimates include revenue recognition, allowance for sales returns and pricing adjustments, stock-based compensation expense, the assessment of recoverability of long-lived assets including goodwill, acquisition-related intangible assets and purchased intangible assets, investments, inventories, product warranty, income taxes, litigation and other loss contingencies, and accrued expenses. Such accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Condensed Consolidated Financial Statements, and actual results could differ materially from these estimates. Discussion of these critical accounting estimates can be found in theManagement’s Discussion & Analysis of Financial Condition and Results of Operationssection included in our Form 10-K for fiscal 2008. There have been no changes to the description of these critical accounting estimates subsequent to June 30, 2008.

Results of Operations

Financial data for the three months ended September 30, 2008 compared to the three months ended September 30, 2007.

Net Revenues

(Dollars in thousands)	Three Months Ended
	September 30,		September 30,		Percent
Revenues by region (1)	2008		2007		Change
Japan	$	23,955	$	24,822		(3	%)
Asia Pacific		5,589		11,226		(50	%)
Europe		4,733		18,639		(75	%)
South Korea		294		33,345		(99	%)
Americas		211		142		49	%
Total Net revenues	$	34,782	$	88,174		(61	%)

(1) Net revenues by region are classified based on the locations of the customers’ principal offices even though our customers’ revenues may be attributable to end customers that are located in a different location.

Digital media product revenues represented substantially all of our total revenues in the three months ended September 30, 2008 and 2007. Our digital media products include integrated circuit chips used in digital television, LCD TV and digital set-top boxes. Net revenues are revenues less reductions for rebates and allowances for sales returns.

Digital media product revenues decreased $53.4 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 primarily driven by a decrease in unit shipments of digital medial products of 55.9% and a decrease in unit sales price of 10.6% compared to the same period in the prior year.

Net revenues from customers in Japan, Asia Pacific, Europe and South Korea collectively accounted for over 99% of our total revenues in the three months ended September 30, 2008 and 2007. On a country specific basis, net revenues from customers in Japan, Asia Pacific and Europe accounted for 69%, 16%, and 14%, respectively, of our total revenues for the three months ended September 30, 2008 compared to 28%, 13%, and 21%, respectively, for the three months ended September 30, 2007.

During the three months ended September 30, 2008, net revenues decreased in most regions, significantly in South Korea, Europe and Asia Pacific. Revenues in South Korea decreased by approximately $33.1 million primarily due to a major South Korean customer’s shifting strategy to design and produce portions of its silicon products internally rather than outsourcing the design to a third-party vendor. Revenues in Europe decreased by approximately $13.9 million primarily due to (i) lower revenues generated from our existing products that are phasing out of production and (ii) lack of revenues

24

from our new products due to loss of design wins. Asia Pacific revenues decreased by approximately $5.6 million primarily due to the decreased sales of SVP products and intense competition in the market where we sell discrete image process controllers.

Historically, a relatively small number of customers have accounted for a significant portion of our revenues. The following table shows the percentage of our revenues for the three months ended September 30, 2008 and 2007 that were derived from customers who individually accounted for more than 10% of revenues in each year:

	Three Months Ended
	September 30,
Revenues:	2008			2007
Midoriya		52	%		20	%
Sharp		13	%		—
Samsung		—			36	%
Philips		—			20	%

We had a high concentration of accounts receivable with three customers, and they accounted for approximately 83% of the total gross accounts receivable of $1.8 million at September 30, 2008. Vestel, Philips and Midoriya (a distributor supplying Sony) accounted for 36%, 28%, and 19%, respectively, of total gross accounts receivable as of September 30, 2008. For revenues generated from Philips, our sales are principally made to three of Philips’ contract manufacturers. See Note 12 “Segment and Geographic Information and Major Customers,” of Notes to Condensed Consolidated Financial Statements, included in Item 1 of this report.

Gross Margin

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Gross profit	$	12,075		$	42,166			(71	%)
Gross margin		34.7	%		47.8	%

Cost of revenues includes the cost of purchasing wafers manufactured by an independent foundry, costs associated with our purchase of assembly, test and quality assurance services, royalties, product warranty costs, provisions for excess and obsolete inventories, contingent liability reserve, operation support expenses that consist primarily of personnel-related expenses including payroll, stock-based compensation expenses, and manufacturing costs related principally to the mass production of our products, tester equipment rental and amortization of acquisition-related intangible assets and purchased intangible assets.

Gross margin is calculated as net revenues less cost of revenues as a percentage of net revenues. Gross margin has continued to be impacted by our product mix and volume of product sales, including sales to high volume customers at lower margin, royalties, competitive pricing programs, product warranty costs, provisions for excess and obsolete inventories, and costs associated with operational support. Gross margin decreased 13.1 percentage points for the three months ended September 30, 2008 compared to the three months ended September 30, 2007, principally as a result of (i) a 4.6 percentage point decrease in gross margin due to a decrease in sales of previously reserved products, an increase in general inventory reserve and an additional reserve for committed materials with our independent foundry which could lead to potential excess inventories in future periods, (ii) a 4.1 percentage point decrease in gross margin due to a product mix shift from SVP to SoC products, where SoC product line has higher percent of cost per revenues than SVP product line does, which also represents a greater proportion of products sold, (iii) a 2.3 percentage point decrease in gross margin due to a write down of certain intangible assets and (iv) a 1.5 percentage point decrease in gross margin due to an increase in intangible assets amortization as a percentage of decreasing revenues. See Note 4, “Goodwill and Intangible Assets,” of Notes to Condensed Consolidated Financial Statements for additional details.

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The net impact on gross profit of the additions to inventory reserves and sales of previously reserved products is as follow:

	Three Months Ended
	September 30,			September 30,
(In thousands)	2008			2007
Additions to inventory reserves	$	1,385		$	238
Sales of previously reserved products		(1,057	)		(1,737	)
Net (increase) decrease in gross profit	$	328		$	(1,499	)

For the three months ended September 30, 2008, revenues from the sale of previously reserved products were $1.1 million, or 3.0%, of total revenues as compared to $1.7 million, or 2.0%, of total revenues from the same quarter one year earlier. Due to the previously recorded reserves, there was no cost of revenues associated with these product sales, which in effect, provided a benefit to the current income statement to the extent of the selling price. Concurrently, we recorded additional inventory reserves for the three months ended September 30, 2008 in the amount of approximately $1.4 million as compared to approximately $0.2 million for the same three month period of the previous year.

Sales of previously reserved inventory largely depend on the timing of transitions to newer generations of similar products. When we introduce new products that are designed to enhance or replace our older products, we typically provide inventory reserves on our older products based on the expected timing and volume of customer purchases of the new product. The timing and volume of the new product introductions can be significantly affected by events out of our control, including changes in customer product introduction schedules.

We believe that the gross margins of our products will continue to decline over time as we transition from discrete image process controllers to a more competitive SoC environment. We expect ASP’s of existing products to continue to decline but overall blended ASP’s to be relatively flat as our product mix shifts to SoC products. Our strategy is to optimize gross margins by (i) developing new and more advanced products that can add relative value to the selling price, (ii) reducing manufacturing costs by improving production yields, (iii) aggressively developing more cost effective products and (iv) negotiating with the foundry and other manufacturing partners to receive more competitive pricing. There is no assurance that we will be able to develop and introduce new products on a timely basis or that we can reduce manufacturing costs or improve margins.

Research and Development

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Research and development	$	13,065		$	12,939			1	%
As a percentage of total revenues		37.6	%		14.7	%

Research and development expenses consist primarily of personnel-related expenses including payroll expenses, stock-based compensation, engineering costs related principally to the design of our new products and depreciation of property and equipment. Because the number of new designs we release to our third-party foundry can fluctuate from period to period, research, development and related expenses may fluctuate significantly. We anticipate that research and development expenses will remain relatively flat in the following quarters of fiscal year 2009.

Research and development expenses for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 remained relatively flat primarily due to (i) a $1.0 million increase in new product development expenditures, (ii) a $0.4 million increase in training and recruiting fees, (iii) a $0.4 million increase in amortization of intellectual property (“IP”) amortization due to the increased expenditure for third-party IP licenses, (iv) a $0.3 million increase in consulting fees, (v) a $0.3 million increase in salary and payroll-related expenses associated with increased employee headcount in the three months ended September 30, 2008 compared to same period in prior year, partially offset by (vi) a $2.2 million decrease in stock-based compensation expense recognized in accordance with SFAS No. 123(R) primarily due to reversal of the stock-based compensation expenses of the terminated employees during the three months ended September 30, 2008 compared to the same period in the prior year.

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Selling, General and Administrative

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Selling, general and administrative	$	10,105		$	17,301			(42	%)
As a percentage of total revenues		29.1	%		19.6	%

Selling, general and administrative expenses consist primarily of personnel related expenses including stock-based compensation, commissions paid to sales representatives and distributors and professional fees.

The decrease in selling, general and administrative expenses for the three months ended September 30, 2008 resulted primarily from (i) a $5.5 million decrease in stock-based compensation expense principally related to the extension of the option exercise period to certain terminated employees during the three months ended September 30, 2007 that did not occur in the three months ended September 30, 2008, (ii) a $2.1 million decrease in third-party sales representative commission expenses due to decreased product sales and (iii) a $1.4 million decrease in professional fees, partially offset by (iv) a $0.8 million increase in consulting fees. The professional fees related to the cost of the investigation into our historical stock option grant practices were $2.2 million for the three months ended September 30, 2008 compared to $3.8 million for the three months ended September 30, 2007.

Intangible Assets Impairment

In the first quarter of fiscal year 2009, our financial results and outlook continue to be challenged and constrained by the evolving market for its products and by its customers’ shifting market strategies, combined with a difficult macroeconomic environment. In addition, our market capitalization is below our carrying value. These factors are considered indicators of potential impairment, and as a result, we performed an interim impairment analysis of our intangible assets as of September 30, 2008. Based on the results of this intangible assets impairment analysis, we recognized intangible assets impairment charges of $0.4 million on acquisition-related intangible assets, of which approximately $383,000 related to acquisition-related developed and core technology was included as “Cost of revenues” and the remaining $4,000 related to tradename was included as “Selling, general and administrative expenses “ in the Condensed Consolidated Statement of Operations for the three months ended September 30, 2008. Refer to Note 4, “Goodwill and Intangible Assets,” of Notes to Condensed Consolidated Financial Statements in Item 1 of this report for further information.

Loss on Sale of Short-term Investments

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Loss on sale of short-term investments	$	(8,913	)	$	—			(100	%)
As a percentage of total revenues		25.6	%		0.0	%

During the three months ended September 30, 2008, we sold 50.2 million shares of UMC common stock for net proceeds of $16.6 million and recorded a loss on the sale of $8.9 million. In addition, we determined that the decline in the carrying value of our remaining UMC stock was other-than-temporary in accordance with SFAS No. 115 and we recorded a charge of $0.4 million to reflect the impairment as described below. These losses were offset by a $1.2 million cash dividend received from UMC on September 12, 2008. The total impact of our transactions related to the UMC investments was $8.1 million for the three months ended September 30, 2008. Refer to Note 2, “Short-term Investments,” of Notes to Condensed Consolidated Financial Statements in Item 1 of this report for further information.

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Impairment Loss on Short-term Investments

	Three Months Ended
	September 30,			September 30,
(Dollars in thousands)	2008			2007			Percent Change
Impairment loss on short-term investments	$	(429	)	$	—			(100	%)
As a percentage of net revenues		1.2	%		0.0	%

Impairment loss on short-term investments represents a charge recorded when a decline in the fair value of an investment below our cost basis is determined to be other-than-temporary. For the three months ended September 30, 2008, we recorded an impairment charge of $0.4 million to reflect the decrease in carrying value of the UMC securities we hold. We determine whether an impairment charge is other-than-temporary in nature in accordance with SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin Topic 5M,Other-Than-Temporary Impairment of Certain Investments in Debt and Equity Securitiesand FSP FAS 115-1 and 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.See Note 2 “Short-term Investments,” of Notes to the Condensed Consolidated Financial Statements in Item 1 for more detailed information on this impairment charge. Since we sold the remaining 2.3 million shares of UMC stock subsequent to September 30, 2008, there will be no future gains or losses on short-term investments.

Interest Income

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Interest income	$	1,266		$	1,508			(16	%)
As a percentage of total revenues		3.6	%		1.7	%

We invest our cash and cash equivalents in interest-bearing accounts consisting primarily of money market funds and certificates of deposits. The decrease in interest income for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily attributable to a decrease in interest rates during the three months ended September 30, 2008 as the average interest rate decreased from 0.9% during the three months ended September 30, 2007 to 0.6% during the three months ended September 30, 2008.

Other Income, Net

	Three Months Ended
	September 30,			September 30,			Percent
(Dollars in thousands)	2008			2007			Change
Other income, net	$	3,063		$	2,184			40	%
As a percentage of total revenues		8.8	%		2.5	%

Other income, net primarily represents dividend income received from our UMC investments, gains or losses from the sale of our other investments, and the foreign currency remeasurement gain or loss. The increase in other income, net for the three months ended September 30, 2008 compared to the three months ended September 30, 2007, was primarily attributable to (i) a $2.0 million foreign currency remeasurement gain related to income taxes payable in foreign jurisdictions, which resulted from the relative strengthening of the U.S. dollar in the first quarter of fiscal year 2009, partially offset by (ii) a $0.7 million increase in foreign currency remeasurement loss in our daily operations and (iii) a $0.6 million decrease in dividend income from UMC investments.

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Provision for Income Taxes

	Three Months Ended
	September 30,			September 30,
	2008			2007			Change
Effective income tax rate		(11.55	%)		35.59	%		(47.15	%)

A provision for income taxes of $1.9 million and $5.6 million was recorded for the three months ended September 30, 2008 and 2007, respectively. The decrease in our effective tax rate from the three months ended September 30, 2007 to the three months ended September 30, 2008 was primarily due to the amortization of foreign taxes associated with intercompany profit on assets remaining within Trident’s consolidated group, partially offset by decreased pre-tax income generated from our operations in foreign jurisdictions where we were subject to tax. We continued to incur the amortization of foreign taxes associated with intercompany profit on assets remaining within Trident’s consolidated group during the three months ended September 30, 2008 albeit we incurred significant operating losses in the quarter.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments at the end of each period were as follows:

	September 30,		June 30,		Increase/
(In thousands)	2008		2008		(Decrease)
Cash, cash equivalents and short-term investments:
Cash and cash equivalents	$	229,357	$	213,296	$	16,061
Short-term investments		741		26,704		(25,963	)
Total	$	230,098	$	240,000	$	(9,902	)

At September 30, 2008, approximately $41.1 million or 18% of our total cash, cash equivalents and short-term investments, was held in the United States. The remaining balance, representing approximately $189.0 million, or 82% of total cash, cash equivalents and short-term investments, was held outside the United States, primarily in Hong Kong, and could be subject to additional taxation if it were to be repatriated to the United States. The net decrease in cash, cash equivalents and short-term investments is primarily due to the sale of our UMC stock holdings as we incurred a net loss of $8.9 million during September 2008.

Our primary cash inflows and outflows for the three months ended September 30, 2008 and 2007 were as follows:

	Three Months Ended
	September 30,		September 30,
(In thousands)	2008		2007
Net cash flow provided by (used in):
Operating activities	$	4,059	$	12,627
Investing activities		11,043		(3,353	)
Financing activities		959		3,425
Net increase in cash and cash equivalents	$	16,061	$	12,699

Cash Flows from Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in current assets and liabilities. For the three months ended September 30, 2008 compared to the three months ended September 30, 2007, cash provided by operating activities decreased by $8.6 million primarily due to net loss in the first quarter of fiscal year 2009 versus net income in the first quarter of fiscal year 2008 resulting from a significant decrease in sales demand, offset by slight decreases in accrued expenses and income tax payable.

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As of September 30, 2008, accounts receivable decreased compared to September 30, 2007, primarily due to decrease in sales demand. The decreased sales demand also led to decreased inventories. Accrued expenses decreased primarily due to payment of professional fees relating to the close to the completion of our investigation into our historical stock option granting practices and related accounting.

Cash Flows from Investing Activities

Cash provided by investing activities consists primarily of the sale of short-term investments, capital expenditures and purchases of intellectual property. The increase in net cash provided by investing activities in the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily attributable to (i) $13.0 million cash proceeds received from the sale of short-term investments and (ii) $1.2 million less cash paid for purchases of property and equipment due to the completion of the building construction in Shanghai in September 2007.

Cash Flows from Financing Activities

Cash provided by financing activities consists of cash proceeds from issuance of common stock to employees and excess tax benefit from stock-based compensation. The decrease in net cash provided by financial activities in the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily attributable to a $2.3 million decrease in cash proceeds from issuance of common stock to employees due to the decrease in number of stock option exercises.

Liquidity

Our liquidity is affected by many factors, some of which result from the normal ongoing operations of our business and some of which arise from uncertainties and conditions in Asia and the global economy. Although the majority of our cash, cash equivalents and short-term investments are held outside the United States, and, therefore, might be subjected to the factors described above, we believe our current resources are sufficient to meet our needs for at least the next twelve months. We will consider transactions to finance our activities, including debt and equity offerings and new credit facilities or other financing transactions, as needed in the future. We believe our current reserves are adequate.

Days Sales Outstanding

Trade accounts receivable days sales outstanding were 4 days as of September 30, 2008 compared to 30 days as of September 30, 2007.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of September 30, 2008, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

	Payments Due By Period
	Less than 1
(In millions)	Year		1 - 3 Years		3 - 5 Years		Beyond		Total
Operating Leases (1)	$	1.2	$	1.4	$	0.1	$	—	$	2.7
Purchase obligations (2)		12.1		0.2		—		—		12.3
Total	$	13.3	$	1.6	$	0.1	$	—	$	15.0

(1)	We lease office space and have entered into other lease commitments in North America as well as various locations in Japan, South Korea, China and Taiwan. Operating leases include future minimum lease payments under all our noncancelable operating leases as of September 30, 2008.
(2)	Purchase obligations primarily represent unconditional purchase order commitments with contract manufacturers and suppliers for wafers and software licensing.

As of September 30, 2008, long-term income tax payable under FIN 48 was $20.5 million. We are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond twelve months due to uncertainties in the timing of tax audit outcomes. Accordingly, we have excluded this obligation from the schedule summarizing our significant obligations to make future payments under contractual obligations as of September 30, 2008 presented above.

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Contingencies

Shareholder Derivative Litigation

Trident has been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases have been consolidated asIn re Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed in State court,Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that certain of our current or former officers and directors caused us to grant options at less than fair market value, contrary to our public statements (including our financial statements); and that as a result those officers and directors are liable to us. No particular amount of damages has been alleged, and by the nature of the lawsuit no damages will be alleged against us. The Board of Directors has appointed an SLC composed solely of independent directors, to review and manage any claims that we may have relating to the stock option grant practices investigated by the Special Committee. The scope of the SLC’s authority includes the claims asserted in the derivative actions. In federal court, Trident has moved to stay the case pending the assessment by the SLC that was formed to consider nominal plaintiffs’ claims. In State court, Trident moved to stay the case in deference to the federal lawsuit, and the parties have agreed, with the Court’s approval, to take that motion off of the Court’s calendar to await the assessment of the SLC. We cannot predict whether these actions are likely to result in any material recovery by or expense to Trident. We expect to continue to incur legal fees in responding to these lawsuits, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations.

Regulatory Actions

The DOJ is currently conducting an investigation of us in connection with our investigation into our stock option grant practices and related issues, and we are subject to a subpoena from the DOJ. We are also subject to a formal investigation by the SEC on the same issues. We have been cooperating with, and continue to cooperate with, inquiries from the SEC and DOJ investigations. In addition, we have received an inquiry from the Internal Revenue Service to which we have responded. We are unable to predict what consequences, if any, that any investigation by any regulatory agency may have on it. Any regulatory investigation could result in our business being adversely impacted. If a regulatory agency were to commence civil or criminal action against us, it is possible that we could be required to pay significant penalties and/or fines and could become subject to administrative or court orders, and could result in civil or criminal sanctions against certain of our former officers, directors and/or employees and might result in such sanctions against us and/or our current officers, directors and/or employees. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take other actions. If we are subject to an adverse finding resulting from the SEC and DOJ investigations, we could be required to pay damages or penalties or have other remedies imposed upon us. The period of time necessary to resolve the investigation by the DOJ and the investigation from the SEC is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. In addition, our 401(k) plan and its administration were audited by the Department of Labor but no further action was noted.

Special Litigation Committee

As discussed in the section “Contingent Liabilities on Certain Options Modifications” of Note 7, “Employee Stock Plans,” of Notes to Condensed Consolidated Financial Statements, effective at the close of trading on September 25, 2006, we temporarily suspended the ability of optionees to exercise vested options to purchase shares of our common stock, until we became current in the filing of our periodic reports with the SEC and filed a Registration Statement on Form S-8 for the shares issuable under the 2006 Plan (“2006 Plan S-8”). This suspension continued in effect through August 22, 2007, the date of the filing of the 2006 Plan S-8, which followed our filing, on August 21, 2007, of our Quarterly Reports on Form 10-Q for the periods ended September 30, 2006, December 31, 2006 and March 31, 2007. As a result, we extended the exercise period of approximately 550,000 fully vested options held by 10 employees, who were terminated during the suspension period, giving them either 30 days or 90 days after we became current in the filings of our periodic reports with the SEC and filed the 2006 Plan S-8 in order to exercise their vested options. During the three months ended September 30, 2007, eight of these ten former employees stated above exercised all of their vested options. However, on September 21, 2007, the SLC decided that it was in the best interests of our stockholders not to allow the remaining two former employees, as well as the our former CEO and two former non-employee directors, to exercise their vested options during the pendency of the SLC’s proceedings, and extended, until March 31, 2008, the period during which these five former employees could exercise approximately 428,000 of their fully vested options. Moreover, the SLC allowed one former employee to exercise all of his fully vested stock options and another former employee agreed to cancel all of such individual’s fully vested stock options during the three months ended December 31, 2007.

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On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the two former non-employee directors could exercise their unexpired vested options. On March 31, 2008, the SLC entered into an agreement with our former CEO allowing him to exercise all of his fully vested stock options.  Under this agreement, he agreed that any shares obtained through these exercises or net proceeds obtained through the sale of such shares would be placed in an identified securities brokerage account and not withdrawn, transferred or otherwise removed without either (i) a court order granting him permission to do so or (ii) the written permission of us. On May 29, 2008, the SLC permitted one of our former non-employee directors to exercise his fully vested stock options without seeking the authorization of the SLC and entered into an agreement with the other former non-employee director on terms similar to the agreement entered into with our former CEO, allowing him to exercise all of his fully vested stock options without seeking the authorization from the SLC. Because Trident’s stock price as of June 30, 2008 was lower than the prices at which our former CEO and each of the two former directors had desired to exercise their options, as indicated in previous written notices to the SLC, we recorded a contingent liability in accordance with SFAS No. 5,Accounting for Contingencies, totaling $4.3 million, which was included in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheet as of June 30, 2008 and the related expenses were included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations as of fiscal year then ended. The $4.3 million contingent liability remains in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. 

Indemnification Obligations

We indemnify, as permitted under Delaware law and in accordance with our Bylaws, our officers, directors and members of our senior management for certain events or occurrences, subject to certain limits, while they were serving at our request in such capacity. In this regard, we have received, or expect to receive, requests for indemnification by certain current and former officers, directors and employees in connection with our investigation of our historical stock option grant practices and related issues, and the related governmental inquiries and shareholder derivative litigation. The maximum amount of potential future indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. We have directors’ and officers’ liability insurance policies that may enable us to recover a portion of such future indemnification claims paid, subject to coverage limitations of the policies, and plan to make claim for reimbursement from our insurers of any potentially covered future indemnification payments.

Prior Software Usage

During April 2008, as a result of an internal review we conducted, we determined that our use of certain third-party software in prior periods exceeded the levels of usage authorized under license agreements in effect for such periods. We have negotiated and intend to continue negotiating new license agreements in order to obtain the rights and authorizations necessary to meet our current software usage requirements. We believe that it is probable that the licensors of this software will, as part of these negotiations, seek compensation from us relating to this prior usage. While we cannot predict with certainty the outcome of these negotiations, we have recorded $1.0 million as our best estimate of the amount expected to be paid. The amount is included in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. Subsequent to September 30, 2008, the Company reached a settlement with a vendor and recorded a credit of $0.4 million to expenses, which is included in “Research and development expenses” in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2008.

General

From time to time, we are involved in other legal proceedings arising in the ordinary course of our business. While we cannot be certain about the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on our business, financial position, results of operation or cash flows.

Off-Balance Sheet Arrangements

None

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(“SFAS No. 157”) provides a framework that clarifies the fair value measurement objective within GAAP and its application under the various accounting standards where fair value measurement is allowed or required. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market

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participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 requires fair value measurements to be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007; however, in February 2008, FASB Staff Position (“FSP”) No. 157-2 was issued which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The FSP partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, including interim periods within that fiscal year for items within the scope of the FSP. Effective July 1, 2008, we adopted SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities within the scope of FSP No. 157-2. In October 2008, the FASB issued FSP SFAS No. 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(“FSP 157-3”) to clarify the application of the provisions of SFAS No. 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately, including prior periods for which financial statements have not been issued. The partial adoption of SFAS No. 157 and the adoption of FSP 157-3 did not have a material impact on our consolidated financial position, results of operations and cash flows. We are currently assessing the impact of the adoption of SFAS No. 157 as it relates to nonfinancial assets and nonfinancial liabilities and has not yet determined the impact that the adoption will have on our consolidated financial position, results of operations and cash flows. See Note 11, “Fair Value Measurements” of Notes to consolidated financial statements for further information.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. We adopted SFAS No. 159 during the first quarter of fiscal year 2009 and the adoption did not materially affect our consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations(“SFAS 141R”). The objective of SFAS 141 is to improve the relevance, representational faithfulness, and comparability of the information that a company provides in its financial reports about a business combination and its effects. Under SFAS 141R, a company is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration measured at their fair value at the acquisition date.  It further requires that research and development assets acquired in a business combination that have no alternative future use be measured at their acquisition-date fair value and then immediately charged to expense, and that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred.  Among other changes, this statement also requires that “negative goodwill” be recognized in earnings as a gain attributable to the acquisition, and any deferred tax benefits resulted in a business combination are recognized in income from continuing operations in the period of the combination. SFAS 141R is effective in our first quarter of fiscal year 2010. We are currently evaluating the impact that SFAS 141R may have on our consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”).  The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a company provides in its consolidated financial statements. SFAS 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity.  It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations; changes in ownership interest should be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary should be measured at fair value. SFAS 160 is effective in our first quarter of fiscal year 2010. We are currently evaluating the impact SFAS 160 may have on our consolidated financial position, results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities(“SFAS 161”).SFAS 161 amends and expands the disclosure requirements of Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activitiesand requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal year and interim periods beginning after November 15, 2008, with early application encouraged.  We will adopt SFAS 161 in the first quarter of fiscal year 2010. We are currently evaluating the impact that SFAS 161 may have on our consolidated financial position, results of operations and cash flows.

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In May 2008, the FASB issued SFAS No. 162,The Hierarchy of General Accepted Accounting Principles (“SFAS 162”). SFAS 162 identified the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernment entities that are presented in conformity with generally accepted accounting principles in the United States (“GAAP”). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,The Meaning of Present Fairly in Conformity with GAAP. We do not expect that this Statement will result in a change in any of our current accounting practices.

In May 2008, the FSP issued SFAS 142-3,Determination of the Useful Life of Intangible Assets (“SFAS 142-3”)to amend factors a company should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the assets under SFAS 141 and other U.S. GAAP. SFAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, with early adoption prohibited.  We will adopt SFAS 142-3 in the first quarter of fiscal year 2010. We are currently evaluating the impact that SFAS 142-3 may have on our consolidated financial position, results of operations and cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to three primary types of market risks: foreign currency exchange rate risk, interest rate risk and investment risk.

Foreign currency exchange rate risk

We currently have operations in the United States, Taiwan, China, Hong Kong, Japan and South Korea. The functional currency of all of our operations is the U.S. dollar. Approximately $189.0 million or 82% of our cash, cash equivalents, and short-term investments (including investments in UMC) are held outside the United States and a majority of it is denominated in U.S. dollars. In addition, income taxes payable in foreign jurisdictions are denominated in foreign currencies and are subject to foreign currency exchange rate risk. Although personnel and facilities-related expenses are primarily incurred in local currencies due to the location of our subsidiaries outside the United States, substantially all of our other expenses are incurred in U.S. dollars.

While we expect our international revenues to continue to be denominated primarily in U.S. dollars, an increasing portion of our international revenues may be denominated in foreign currencies in the future. In addition, our operating results may become subject to significant fluctuations based upon changes in foreign currency exchange rates of certain currencies in relation to the U.S. dollar. We analyze our exposure to currency fluctuations and may engage in financial hedging techniques in the future to attempt to minimize the effect of these potential fluctuations; however, exchange rate fluctuations may adversely affect our financial results in the future. Since we have research and development facilities in Shanghai and Beijing, China and sales liaison offices in Shanghai, Beijing, Shenzhen, China and South Korea, a large percentage of our international operational expenses are denominated in foreign currencies. As a result, exchange rate volatility, particularly in China’s currency, Renminbi, could negatively or positively affect our operating costs in the future.

Interest rate risk

We currently maintain our cash equivalents primarily in money market funds, certificates of deposit and other highly liquid investments. We do not have any derivative financial instruments. We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of September 30, 2008, we have approximately $229.4 million in cash and cash equivalents, of which $55.9 million is cash, $129.7 million is invested in money market funds and $43.8 million is invested in certificates of deposit. We will continue to invest a significant portion of our existing cash equivalents in interest bearing, investment grade securities, with maturities of less than three months. We do not believe that our investments, in the aggregate, have significant exposure to interest rate risk.

Investment risk

We are exposed to market risk as it relates to changes in the market value of our investments in public companies. We invest in equity instruments of public companies for business and strategic purposes and we have classified these securities as

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available-for-sale. These available-for-sale equity investments are invested in a foreign technology company and are subject to significant fluctuations in fair market value due to the volatility of the stock market and the industry in which this company participates. As of September 30, 2008, we had available-for-sale equity investments with a fair market value of $0.7 million after we sold substantially all of our UMC investments. Our objective in managing our exposure to stock market fluctuations is to minimize the impact of stock market declines to our earnings and cash flows. However, the existence of a number of external factors such as continued market volatility, as well as mergers and acquisitions, could have a negative material impact on our results of operations in future periods.

We are also exposed to changes in the value of our investments in privately-held companies, including privately-held start-up companies. Long-term equity investments in technology companies are primarily carried at cost. However, the carrying values of these long-term equity investments could be impaired due to the volatility of the industries in which these companies participate and other factors such as the continuing deterioration of macroeconomic conditions. The balance of our long-term equity investments in privately-held companies was approximately $2.1 million, which is included in “Other assets” on the Condensed Consolidated Balance Sheet as of September 30, 2008.

ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures.
 

Under the supervision and with the participation of our chief executive officer and our chief financial officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, at the level of reasonable assurance, our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

(b)  Changes in Internal Controls. 

There have been no other changes in our internal control over financial reporting during the three months ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Shareholder Derivative Litigation

Trident has been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases have been consolidated asIn re Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed in State court,Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that certain of our current or former officers and directors caused us to grant options at less than fair market value, contrary to our public statements (including our financial statements); and that as a result those officers and directors are liable to us. No particular amount of damages has been alleged, and by the nature of the lawsuit no damages will be alleged against us. The Board of Directors appointed an SLC, composed solely of independent directors, to review and manage any claims that we may have relating to the stock option grant practices investigated by the Special Committee. The scope of the SLC’s authority includes the claims asserted in the derivative actions. In federal court, Trident has moved to stay the case pending the assessment by the SLC that was formed to consider nominal plaintiffs’ claims. In State court, Trident moved to stay the case in deference to the federal lawsuit, and the parties have agreed, with the Court’s approval, to take that motion off of the Court’s calendar to await the assessment of the SLC. We cannot predict whether these actions are likely to result in any material recovery by or expense to, Trident. We expect to continue to incur legal fees in responding to these lawsuits, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations.

Regulatory Actions

The DOJ is currently conducting an investigation of us in connection with our investigation into our stock option grant practices and related issues, and we are subject to a subpoena from the DOJ. We are also subject to a formal investigation by the SEC on the same issues. We have been cooperating with, and continue to cooperate with, inquiries from the SEC and DOJ investigations. In addition, we have received an inquiry from the Internal Revenue Service to which we have responded. We are unable to predict what consequences, if any, that any investigation by any regulatory agency may have on it. Any regulatory investigation could result in our business being adversely impacted. If a regulatory agency were to commence civil or criminal action against us, it is possible that we could be required to pay significant penalties and/or fines and could become subject to administrative or court orders, and could result in civil or criminal sanctions against certain of our former officers, directors and/or employees and might result in such sanctions against us and/or our current officers, directors and/or employees. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take other actions. If we are subject to an adverse finding resulting from the SEC and DOJ investigations, we could be required to pay damages or penalties or have other remedies imposed upon us. The period of time necessary to resolve the investigation by the DOJ and the investigation from the SEC is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. In addition, our 401(k) plan and its administration were audited by the Department of Labor but no further action was noted.

Special Litigation Committee

Effective at the close of trading on September 25, 2006, we temporarily suspended the ability of optionees to exercise vested options to purchase shares of our common stock, until we became current in the filing of our periodic reports with the SEC and filed a Registration Statement on Form S-8 for the shares issuable under the 2006 Plan (“2006 Plan S-8”). This suspension continued in effect through August 22, 2007, the date of the filing of the 2006 Plan S-8, which followed our filing, on August 21, 2007, of our Quarterly Reports on Form 10-Q for the periods ended September 30, 2006, December 31, 2006 and March 31, 2007. As a result, we extended the exercise period of approximately 550,000 fully vested options held by 10 employees, who were terminated during the suspension period, giving them either 30 days or 90 days after we became current in the filings of our periodic reports with the SEC and filed the 2006 Plan S-8 in order to exercise their vested options. During the three months ended September 30, 2007, eight of these ten former employees stated above exercised all of their vested options. However, on September 21, 2007, the SLC decided that it was in the best interests of our stockholders not to allow the remaining two former employees, as well as the our former CEO and two former non-employee directors, to exercise their vested options during the pendency of the SLC’s proceedings, and extended, until March 31, 2008, the period during which these five former employees could exercise approximately 428,000 of their fully vested options. Moreover, the SLC allowed one former employee to exercise all of his fully vested stock options and another former employee agreed to cancel all of such individual’s fully vested stock options during the three months ended December 31, 2007.

On January 31, 2008, the SLC extended, until August 31, 2008, the period during which the two former non-employee directors could exercise their unexpired vested options. On March 31, 2008, the SLC entered into an agreement with our

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former CEO allowing him to exercise all of his fully vested stock options.  Under this agreement, he agreed that any shares obtained through these exercises or net proceeds obtained through the sale of such shares would be placed in an identified securities brokerage account and not withdrawn, transferred or otherwise removed without either (i) a court order granting him permission to do so or (ii) the written permission of us. On May 29, 2008, the SLC permitted one of our former non-employee directors to exercise his fully vested stock options without seeking the authorization of the SLC and entered into an agreement with the other former non-employee director on terms similar to the agreement entered into with our former CEO, allowing him to exercise all of his fully vested stock options without seeking the authorization from the SLC. Because Trident’s stock price as of June 30, 2008 was lower than the prices at which our former CEO and each of the two former directors had desired to exercise their options, as indicated in previous written notices to the SLC, we recorded a contingent liability in accordance with SFAS No. 5,Accounting for Contingencies, totaling $4.3 million, which was included in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheet as of June 30, 2008 and the related expenses were included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations as of fiscal year then ended. The $4.3 million contingent liability remains in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. 

Indemnification Obligations

We indemnify, as permitted under Delaware law and in accordance with our Bylaws, our officers, directors and members of our senior management for certain events or occurrences, subject to certain limits, while they were serving at our request in such capacity. In this regard, we have received, or expect to receive, requests for indemnification by certain current and former officers, directors and employees in connection with our investigation of our historical stock option granting practices and related issues, and the related governmental inquiries and shareholder derivative litigation. The maximum amount of potential future indemnification is unknown and potentially unlimited; therefore, it cannot be estimated. We have directors’ and officers’ liability insurance policies that may enable us to recover a portion of such future indemnification claims paid, subject to coverage limitations of the policies, and plan to make claim for reimbursement from our insurers of any potentially covered future indemnification payments.

Prior Software Usage

During April 2008, as a result of an internal review we conducted, we determined that our use of certain third-party software in prior periods exceeded the levels of usage authorized under license agreements in effect for such periods. We have negotiated and intend to continue negotiating new license agreements in order to obtain the rights and authorizations necessary to meet our current software usage requirements. We believe that it is probable that the licensors of this software will, as part of these negotiations, seek compensation from us relating to this prior usage. While we cannot predict with certainty the outcome of these negotiations, we have recorded $1.0 million as its best estimate of the amount expected to be paid. The amount is included in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. Subsequent to September 30, 2008, we reached a settlement with a vendor and recorded a credit of $0.4 million to expenses, which is included in “Research and development expenses” in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2008.

General

From time to time, we are involved in other legal proceedings arising in the ordinary course of our business. While we cannot be certain about the ultimate outcome of any litigation, management does not believe any pending legal proceeding will result in a judgment or settlement that will have a material adverse effect on our business, financial position, results of operation or cash flows.

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ITEM 1A. RISK FACTORS

Set forth below and elsewhere in this Quarterly Report on Form 10-Q are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained herein. The description below includes any material changes to and supersedes the description of risk factors affecting our business previously disclosed in “Part I, Items 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occur, our business, operating results, and financial condition could be materially adversely affected.

As a result of the difficult global macroeconomic and industry conditions, we have implemented a restructuring and workforce reductions, which may adversely affect the morale and performance of our personnel and our ability to hire new personnel

In connection with our efforts to streamline operations, reduce costs and better align our staffing and structure with current demand for our products, we implemented a restructuring of our company during the second quarter of fiscal year 2009 and reduced our workforce and implemented other cost saving initiatives. We will record a restructuring charge in the second quarter of fiscal year 2009 as a result of these actions, and may implement further restructurings or work force reductions in future periods. Our restructuring may yield unanticipated consequences, such as attrition beyond our planned reduction in workforce and loss of employee moral and decreased performance. In addition, the recent trading levels of our stock have decreased the value of our stock options granted to employees under our stock option plan. As a result of these factors, our remaining personnel may seek employment with companies that they perceive as having less volatile stock prices. Continuity of personnel can be a very important factor in the sales and implementation of our products and completion of our research and development efforts.

If we engage in further cost-cutting or workforce reductions, we may be unable to successfully implement new products or enhancements or upgrades to our products.

We expect to continue to introduce new and enhanced products, and our future financial performance will depend on customer acceptance of our new products and any upgrades or enhancements that we may make to our products. However, if our recent efforts to streamline operations and reduce costs and workforce are insufficient to bring our structure in line with current demand for our products, we may be forced to make additional workforce reductions or implement further cost saving initiatives. These actions could impact our research and development and engineering activities, which may slow our development of new or enhanced products. We may be unable to successfully introduce new or enhanced products, and may lose customer satisfaction, which could impact our reputation and future sales of our products

A decline in revenues may have a disproportionate impact on operating results and require reductions in our operating expense levels.

Because expense levels are relatively fixed in the near term for a given quarter and are based in part on expectations of our future revenues, any decline in our revenues to a level that is below our expectations would have a disproportionately adverse impact on our operating results for that quarter. If revenues decline significantly, we may be required to incur restructuring charges in connection with efforts to contain and reduce costs.

The impact of changes in global economic conditions on our current and potential customers may adversely affect our revenues and results of operations.

Our operating results have been adversely affected over the past quarters by the reduced levels of capital spending and by the overall weak economic conditions affecting our current and potential customers. The economic environment that we are faced in fiscal year 2008 was uncertain, and that uncertainty continues in fiscal year 2009. Because customers of our customers may defer purchases of products manufactured by our customers using our products, our customers have and may continue to defer purchases from us until general economic conditions improve, and weak economic conditions may continue to adversely impact our business for at least the next few quarters.

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We depend on a small number of large customers for a significant portion of our sales. The loss of, or a significant reduction or cancellation in sales to, any key customer would significantly reduce our revenues.

We are and will continue to be dependent on a limited number of distributors and customers for a substantial amount of our revenue. Sales to customers in Japan, Asia Pacific, Europe and South Korea collectively accounted for over 99% of our total revenues in the three months ended September 30, 2008 and 2007.

For the three months ended September 30, 2008, approximately 65% of our revenues were derived from sales to two customers, Midoriya (a distributor supplying Sony) and Sharp, and each individually accounted for more than 10% of total revenues during this period. Of these customers, Midoriya accounted for approximately 52% and Sharp accounted for approximately 13%. Sales to our largest customers have fluctuated significantly from period to period primarily due to the timing and number of design wins with each customer and will likely continue to fluctuate dramatically in the future.

Accordingly, a reduction in purchases of our products by any of these customers could cause our revenues to decline during the period and have a material adverse impact on our financial results. We may be unable to replace any such lost revenues by sales to any new customers or increased sales to existing customers. Our operating results in the foreseeable future will continue to depend on sales to a relatively small number of customers, as well as the ability of these customers to sell products that incorporate our products. In the future, these customers may decide not to purchase our products at all, purchase fewer products than they did in the past, or alter their purchasing patterns in some other way, particularly because:

• substantially all of our sales are made on a purchase order basis, which permits our customers to cancel, change or delay product purchase commitments with little or no notice to us and without penalty;

• our customers may purchase integrated circuits from our competitors;

• our customers may develop their own solutions; or

• our customers may discontinue sales or lose market share in the markets for which they purchase our products.

As a result of our investigation into our historical stock option granting practices and the restatement of our previously-filed financial statements, we are subject to civil litigation claims and regulatory investigations that could have a material adverse effect on our business, customer relationships, results of operations and financial condition.

As previously described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 3 of Notes to Condensed Consolidated Financial Statements, included in Part II, Item 8 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2006 filed on August 7, 2007, we conducted an investigation into our historical stock option practices and related accounting. Based upon the findings of the investigation, we restated our financial statements for each of the years ended June 30, 1993 through June 30, 2005, and restated our financial statements for the interim first three quarters of fiscal year 2006 as well.

Our past stock option granting practices and the restatement of our prior financial statements have exposed and may continue to expose us to greater risks associated with litigation, regulatory proceedings and government inquiries and enforcement actions, as described in Part II, Item 1, “Legal Proceedings.” Any of these actions could result in civil and/or criminal actions seeking, among other things, injunctions against us and the payment of significant fines and penalties by us. In addition, the restatements of our previous financial results and the ongoing regulatory proceedings and government inquiries could impact our relationships with customers and our ability to generate revenues.

We face risks related to SEC, DOJ, and other investigations into our historical stock option grant practices and related accounting, which could require significant management time and attention, and could require us to pay fines or other penalties.

The DOJ is currently conducting an investigation of us in connection with our investigation into our stock option grant practices and related issues, and we are subject to a subpoena from the DOJ. We are also subject to a formal investigation from the SEC on the same issue. We have been cooperating with, and continue to cooperate with, inquiries from the SEC and DOJ. We are unable to predict what consequences, if any, that any investigation by any regulatory agency may have on us. Any regulatory investigation could result in substantial legal and accounting expenses, divert management’s attention from other business concerns and harm our business. Any civil or criminal action commenced against us by a regulatory agency could result in administrative orders against us, the imposition of significant penalties and/or fines against us, and/or the imposition of civil or criminal sanctions against us or certain of our former officers, directors and/or employees. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take

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other actions. If we are subject to an adverse finding resulting from the SEC and DOJ investigations, we could be required to pay damages or penalties or have other remedies imposed upon us. The period of time necessary to resolve the investigations by the DOJ and the SEC is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business.

We have been named as a party to derivative action lawsuits, and we may be named in additional litigation, all of which will require significant management time and attention and result in significant legal expenses and may result in an unfavorable outcome which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Trident has been named as a nominal defendant in several purported shareholder derivative lawsuits concerning the granting of stock options. The federal court cases have been consolidated asIn re Trident Microsystems Inc. Derivative Litigation, Master File No. C-06-3440-JF. A case also has been filed in State court,Limke v. Lin et al., No. 1:07-CV-080390. Plaintiffs in all cases allege that certain of our current or former officers and directors caused us to grant options at less than fair market value, contrary to our public statements (including our financial statements), and that this represented a breach of their fiduciary duties to us, and as a result those officers and directors are liable to us. No particular amount of damages has been alleged, and by the nature of the lawsuit no damages will be alleged against us. Our Board of Directors has appointed a Special Litigation Committee (“SLC”) composed solely of independent directors to review and manage any claims that we may have relating to the stock option grant practices and related issues investigated by the Special Committee. The scope of the SLC’s authority includes the claims asserted in the derivative actions. In federal court, Trident has moved to stay the case pending the assessment by the SLC that was formed to consider nominal plaintiffs’ claims. In State court, Trident moved to stay the case in deference to the federal lawsuit, and the parties have agreed, with the Court’s approval, to take that motion off the Court’s calendar to await the assessment of the SLC. We cannot predict whether these actions are likely to result in any material recovery by or expense to, Trident. We expect to continue to incur legal fees in responding to these lawsuits, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of defending such litigation may be significant. The amount of time to resolve this and any additional lawsuits is unpredictable and these actions may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows.

We are subject to the risks of additional lawsuits in connection with our historical stock option grant practices and related issues, the resulting restatements, and the remedial measures we have taken.

In addition to the possibilities that there may be additional governmental actions and shareholder lawsuits against us, we may be sued or taken to arbitration by former officers and employees in connection with their stock options, employment terminations and other matters. These lawsuits may be time consuming and expensive, and cause further distraction from the operation of our business. The adverse resolution of any specific lawsuit could have a material adverse effect on our business, financial condition and results of operations.

The operation of our business could be adversely affected by the transition of key personnel as we rebuild our executive leadership team and make additional organizational changes.

Our Chief Executive Officer joined us in October 2007 and has made several organizational changes including to our management team. Our Chief Financial Officer was appointed in July 2008 after having served as our Interim Chief Financial Officer since January 2008, replacing our former Chief Financial Officer who resigned in January 2008. In January 2008, we also appointed a Vice President, Human Resources. In February 2008, our former President resigned. In July 2008, our Vice President of Worldwide Sales resigned after only serving in this role since he was hired in March 2008. In August 2008, our Senior Vice President of Strategic Marketing was appointed to serve as our Chief Marketing Officer. In September 2008, we appointed a Senior Vice President, Engineering. We appointed two new members of our Board of Directors, one in January 2008 and the other in April 2008. Previously, in fiscal year 2007, we retained two individuals as a General Counsel and a Chief Accounting Officer. We may add additional senior executives in the future. It is important to our success that our Chief Executive Officer continues building an effective management team and global organization. Accordingly, a substantial number of our senior executives have been employed by us for less than one year, and it may take some time for each of the new members of our management team to become fully integrated into our business. Our failure to manage these transitions, or to find and retain experienced management personnel, could adversely affect our ability to compete effectively and could adversely affect our operating results.

Intense competition exists in the market for digital media products.

The digital media market in which we compete is intensely competitive and characterized by rapid technological change and declining average unit selling prices. We expect competition to increase in the future from existing competitors and from other companies that may enter our existing or future markets with solutions which may be less costly or provide higher

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performance or more desirable features than our products. Competition typically occurs at the design stage, when customers evaluate alternative design approaches requiring integrated circuits. Because of short product life cycles, there are frequent design win competitions for next-generation systems.

We believe the digital media market will remain competitive, and will require us to incur substantial research and development, technical support, sales and other expenditures to stay competitive in this market. In the digital media market, our principal competitors are captive solutions from large TV OEMs as well as merchant solutions from Broadcom Corporation, Media Tek Ltd., Micronas AG, Morning Star, NXP Semiconductors, ST Microelectronics, Toshiba and Zoran Corporation. Industry consolidation has been occurring recently as some of our competitors have acquired other competitors or divisions of companies that provide them with the opportunity to compete against us. Many of our current competitors and many potential competitors, including these merged entities, have significantly greater technical, manufacturing, financial and marketing resources. Some of them may also have broader product lines and longer standing relationships with key customers and suppliers than we have, which makes competing more difficult. Therefore, we expect to devote significant resources to the DPTV/SVP and HiDTV market even though some of our competitors are substantially more experienced than we are in this market.

The level and intensity of competition has increased over the past year and we expect competition to continue to increase in the future. Competitive pricing pressures have resulted in reductions in average selling prices of our existing products, and continued or increased competition could require us to further reduce the prices of our products, affect our ability to recover costs or result in reduced gross margins. If we are unable to timely and cost-effectively integrate more functionality onto single chip designs to help our customers reduce costs, we may lose market share, our revenues may decline and our gross margins may decrease significantly.

Our success depends upon the digital media market and we must continue to develop new products and to enhance our existing products.

The digital media industry is characterized by rapidly changing technology, frequent new product introductions, and changes in customer requirements. Our future success depends on our ability to anticipate market needs and develop products that address those needs. As a result, our products could quickly become obsolete if we fail to predict market needs accurately or develop new products or product enhancements in a timely manner. The long-term success in the digital media business will depend on the introduction of successive generations of products in time to meet the design cycles as well as the specifications of original equipment manufacturers of televisions. The digital media industry is characterized by an increasing level of integration and incorporation of greater numbers of features on a single chip, in order to permit enhanced systems at the same or lower cost. Our failure to predict market needs accurately or to timely develop new products or product enhancements, including integrated circuits with increasing levels of integration and new features, at competitive prices, will harm market acceptance and sales of our products. If the development or enhancement of these products or any other future products takes longer than we anticipate, or if we are unable to introduce these products to market, our sales could decrease. Even if we are able to develop and commercially introduce these new products, the new products may not achieve widespread market acceptance necessary to provide an adequate return on our investment.

If we do not achieve additional design wins in the future, our ability to sell additional products could be adversely affected.

Our future success depends on manufacturers of consumer televisions and other digital media products designing our products into their products. To achieve design wins with OEM customers and original design manufacturers, or ODMs, we must define and deliver cost-effective, innovative and high performance integrated circuits on a timely basis, before our competitors do so. In addition, some OEM customers have begun to utilize digital video processor components produced by their own internal affiliates, which decreases our opportunity to achieve design wins. Thus, even if we achieve a design win with an ODM, their OEM customer may subsequently elect to purchase an integrated digital media solution from the ODM that does not incorporate our products. Once a supplier’s products have been designed into a system, a manufacturer may be reluctant to change components due to costs associated with qualifying a new supplier and determining performance capabilities of the component. Customers can choose at any time to discontinue using our products in their designs or product development efforts. Accordingly, we may face narrow windows of opportunity to be selected as the supplier of component parts by significant new customers. It may be difficult for us to sell to a particular customer for a significant period of time once that customer selects a competitor’s product, and we may not be successful in obtaining broader acceptance of our products. If we are unable to achieve broader market acceptance of our products, we may be unable to maintain and grow our business and our operating results and financial condition will be adversely affected.

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The average selling prices of our products may decline over relatively short periods.

Average selling prices for our products may decline over relatively short time periods. On average, we have experienced average selling price declines over the course of the last twelve months of anywhere from approximately 8% to 59% per year depending on the product. This annual pace of price decline for products or technology is generally expected in the consumer electronics industry. It is also possible for the pace of average selling price declines to accelerate beyond these levels for certain products in a commoditizing market. When our average selling prices decline, our gross profits decline unless we are able to sell more products or reduce the cost to manufacture our products. We generally attempt to combat average selling price declines by designing new products for reduced costs, innovating to integrate additional functions or features and working with our manufacturing partners to reduce the costs of manufacturing existing products. We have in the past and may in the future experience declining sales prices, which could negatively impact our revenues, gross profits and financial results. We therefore need to sell our current products in increasing volumes to offset any decline in their average selling prices, and introduce new products, which we may not be able to do, or do on a timely basis.

We have recorded an impairment charge to intangible assets, and may be required to record future charges to earnings if our goodwill or intangible assets become impaired.

We are required under generally accepted accounting principles in the United States to review our goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include a decline in stock price and market capitalization, and slower growth rates and changes in our financial results and outlook. We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined. We have recorded such a charge totaling $0.4 million for impaired intangible assets in the three months ended September 30, 2008. In determining the fair value of intangible assets in connection with our impairment analysis, we consider various factors including Trident’s estimates of future market growth and trends, forecasted revenue and costs, market capitalization, discount rates, expected periods over which our assets will be utilized and other variables. Although our market capitalization was less than our net book value as of September 30, 2008, we believe it is primarily due to market conditions and temporary in nature. Our growth estimates were based on historical data and internal estimates developed as part of our long-term planning process. We base our fair value estimates on assumptions believed to be reasonable, but which are inherently uncertain. If conditions are different from management’s estimates at the time of an acquisition or market conditions change subsequently, we may incur future charges for impairment of our goodwill or intangible assets, which could adversely impact our results of operations.

We may face risks resulting from the failure to allow former employees to exercise stock options.

On September 21, 2007, the SLC extended, until March 31, 2008, the period during which five former employees, including our former CEO, and two former non-employee directors, could exercise certain of their vested options.  After we became current in the filing of our periodic reports with the SEC and filed a registration statement on Form S-8 covering shares issuable under our 2006 Equity Incentive Plan, these five individuals requested to exercise certain of their vested options.  However, the SLC initially decided that it was in the best interests of our stockholders not to allow these five individuals to exercise their vested options during the pendency of the SLC’s proceedings. During the three month period ended December 31, 2007, the SLC allowed one former employee to exercise all of his fully vested stock options and another former employee agreed to cancel all of such individual’s fully vested stock options. During the three month period ended March 31, 2008, the SLC entered into agreement with our former CEO, allowing him to exercise all of his fully vested stock options and extended, until August 31, 2008, the period during which the two former non-employee directors could exercise their unexpired vested options. However, on May 29, 2008, the SLC permitted one of our former non-employee directors to exercise his fully vested stock options without seeking the authorization of the SLC and entered into an agreement with the other former non-employee director on terms similar to the agreement entered into with our former CEO, allowing him to exercise all of his fully vested stock options without seeking the authorization from the SLC. Because Trident’s stock price during fiscal year 2008 was lower than the prices at which our former CEO and each of the two former directors had desired to exercise their options, as indicated in previous written notices to the SLC, we recorded a contingent liability totaling $4.3 million, which was included in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of June 30, 2008 and the related expenses were included in “Selling, General, and Administrative Expenses” in the Condensed Consolidated Statements of Operations for the fiscal year ended June 30, 2008. The $4.3 million contingent liability remains in “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheet as of September 30, 2008. We may incur charges in the future related to claims that may be made by these individuals which may be material.

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We do not have long-term commitments from our customers, and plan purchases based upon our estimates of customer demand, which may require us to contract for the manufacture of our products based on inaccurate estimates.

Our sales are made on the basis of purchase orders rather than long-term purchase commitments. Our customers may cancel or defer purchases at any time. This requires us to forecast demand based upon assumptions that may not be correct. If our customers or we overestimate demand, we may create inventory that we may not be able to sell or use, resulting in excess inventory, which could become obsolete or negatively affect our operating results. Conversely, if our customers or we underestimate demand, or if sufficient manufacturing capacity is not available, we may lose revenue opportunities, damage customer relationships and we may not achieve expected revenue.

Our dependence on sales to distributors increases the risks of managing our supply chain and may result in excess inventory or inventory shortages.

Currently, the majority of our sales through distributors are made by companies that function as purchasing conduits for each of two large Japanese OEM customers. Generally, the distributors take certain inventory positions and resell to their respective OEM customers. We have a more traditional distributor relationship with our remaining distributors that involves the distributor taking inventory positions and reselling to multiple customers. In our distributor relationships, we do not recognize revenue until the distributors sell the product through to their end user customers. These distributor relationships reduce our ability to forecast sales and increases risks to our business. Since our distributors act as intermediaries between us and the end user customers, we must rely on our distributors to accurately report inventory levels and production forecasts. This requires us to manage a more complex supply chain and monitor the financial condition and credit worthiness of our distributors and the end user customers. Our failure to manage one or more of these risks could result in excess inventory or shortages that could adversely impact our operating results and financial condition.

Product supply and demand in the semiconductor industry is subject to cyclical variations.

The semiconductor industry is subject to cyclical variations in product supply and demand. Downturns in the industry often occur in connection with, or anticipation of, maturing product cycles for both semiconductor companies and their customers and declines in general economic conditions. These downturns have been characterized by abrupt fluctuations in product demand and production capacity and accelerated decline of average selling prices. The recent emergence of a number of negative economic factors, including heightened fears of a recession, could lead to such a downturn. We cannot predict whether we will achieve timely, cost-effective access to that capacity when needed, or what capacity patterns may emerge in the future. A downturn in the semiconductor industry could harm our sales and revenues if demand for our products drops, or cause our gross margins to suffer if average selling prices decline.

The process of restating our financial statements, making the associated disclosures, and complying with SEC requirements are subject to uncertainty.

The issues surrounding our historical stock option grant practices are complex. We did not pre-clear our filings with the SEC during August 2007 and September 2007, and if the SEC determined to review our filings, there can be no assurance that we will not be required to amend our Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and the restatements included therein. In addition to the cost and time to amend financial reports, such amendments may be adversely received by investors resulting in a decline in our common stock price.

We have had fluctuations in quarterly results in the past and may continue to experience such fluctuations in the future.

Our quarterly revenue and operating results have varied in the past and may fluctuate in the future due to a number of factors including:

• our ability to develop, introduce, ship and support new products and product enhancements, especially our newer SoC products, and to manage product transitions;

• new product introductions by our competitors;

• delayed new product introductions;

• uncertain demand in the digital media markets in which we have limited experience;

• our ability to achieve required product cost reductions;

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• the mix of products sold and the mix of distribution channels through which they are sold;

• fluctuations in demand for our products, including seasonality;

• unexpected product returns or the cancellation or rescheduling of significant orders;

• our ability to attain and maintain production volumes and quality levels for our products;

• unfavorable responses to new products;

• adverse economic conditions, particularly in the United States and Asia; and

• unexpected costs associated with our investigation of our historical stock option grant practices and related issues, and any related litigation or regulatory actions.

These factors are often difficult or impossible to forecast or predict, and these or other factors could cause our revenue and expenses to fluctuate over interim periods, increase our operating expenses, or adversely affect our results of operations or business condition.

We are vulnerable to undetected product problems.

Although we establish and implement test specifications, impose quality standards upon our suppliers and perform separate application-based compatibility and system testing, our products may contain undetected defects, which may or may not be material, and which may or may not have a feasible solution. Although we have experienced such errors in the past, significant errors have generally been detected relatively early in a product’s life cycle and therefore the costs associated with such errors have been immaterial. We cannot ensure that such errors will not be found from time to time in new or enhanced products after commencement of commercial shipments. These problems may materially adversely affect our business by causing us to incur significant warranty and repair costs, diverting the attention of our engineering personnel from our product development efforts and causing significant customer relations problems. Defects or other performance problems in our products could result in financial or other damages to our customers or could damage market acceptance of our products. Our customers could seek damages from us for their losses as a result of problems with our products or order less of our products, which would harm our financial results.

Our reliance upon one independent foundry could make it difficult to maintain product flow and affect our sales.

If the demand for our products grows, we will need to increase our material purchases, contract manufacturing capacity and internal test and quality functions. Any disruptions in product flow could limit our ability to meet orders, impact our revenue and our ability to increase sales, adversely affect our competitive position and reputation and result in additional costs or cancellation of orders.

We do not own or operate fabrication facilities and do not manufacture our products internally. We currently rely principally upon one independent foundry to manufacture our products in wafer form and other contract manufacturers for assembly and testing of our products. Generally, we place orders by purchase order, and the foundry is not obligated to manufacture our products on a long-term fixed-price basis, so it is not obligated to supply us with products for any specific period of time, in any specific quantity or at any specific price, except as may be provided in a particular purchase order. Our requirements typically represent only a small portion of the total production capacity of our foundry and our contract manufacturers. Our foundry and contract manufacturers could re-allocate capacity to other customers, even during periods of high demand for our products. We have limited control over delivery schedules, quality assurance, manufacturing yields, potential errors in manufacturing and production costs. We could experience an interruption in our access to certain process technologies necessary for the manufacture of our products. From time to time, there are manufacturing capacity shortages in the semiconductor industry. If we encounter shortages and delays in obtaining components, our ability to meet customer orders would be materially adversely affected. In addition, during periods of increased demand, putting pressure on the foundry to meet orders, we may have reduced control over pricing and timely delivery of components, and if the foundry increases the cost of components or subassemblies, our margins will be adversely affected, and we may not have alternative sources of supply to manufacture such components.

Constraints or delays in the supply of our products, whether because of capacity constraints, unexpected disruptions at the foundry or assembly or testing houses, delays in additional production at existing foundries or in obtaining additional production from existing or new foundries, shortages of raw materials, or other reasons, could result in the loss of customers and other material adverse effects on our operating results, including effects that may result should we be forced to purchase

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products from higher cost foundries or pay expediting charges to obtain additional supplies. In addition, to the extent we elect to use multiple sources for certain products, our customers may be required to qualify multiple sources, which could adversely affect their desire to design-in our products and reduce our revenues.

If we have to qualify a new contract manufacturer or foundry for any of our products, we may experience delays that result in lost revenues and damaged customer relationships.

We rely on a single supplier to manufacture our products in wafer form. The lead time required to establish a relationship with a new foundry is long, and it takes time to adapt a product’s design to a particular manufacturer’s processes. Accordingly, there is no readily available alternative source of supply for any specific product. This could cause significant delays in shipping products if we have to change our source of supply and manufacture quickly, which could damage our relationships with current and prospective customers and harm our sales and financial results.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavourably affected by changes in tax laws or the interpretation of tax laws, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. We are also subject to the interpretations of foreign regulatory bodies in connection with reviews conducted of our subsidiaries and their operations, including the review of our proposed plan for liquidating TTI in Taiwan. While we believe our tax reserves adequately provide for any tax contingencies, the ultimate outcomes of any current or future tax audits are uncertain, and we can give no assurance as to whether an adverse result from one or more of them will have a material effect on our financial position, results of operation or cash flows.

Our success depends to a significant degree on the continued employment of key personnel, some of whom have only worked together for a short period of time.

Our success depends to a significant degree upon the continued contributions of the principal members of our technical sales, marketing and engineering teams many of whom perform important management functions and would be difficult to replace. During the past year, we hired several members of our current executive management team. We have reorganized our sales, marketing and engineering teams and continue to make changes. We depend upon the continued services of key management personnel at our overseas subsidiaries, especially in China and Taiwan. Our officers and key employees are not bound by employment agreements for any specific term, and may terminate their employment at any time. In order to continue to expand our product offerings both in the U.S. and abroad, we must hire and retain a number of research and development personnel. Hiring technical sales personnel in our industry is very competitive due to the limited number of people available with the necessary technical skills and understanding of our technologies. Our ability to continue to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful in the future. Competition for highly skilled personnel continues to be increasingly intense, particularly in the areas where we principally operate, specifically in China, Taiwan and Northern California. If we are not successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs, our business may be harmed.

Changes in our business and product strategy will affect our operations.

Our principal design, development and marketing effort focuses primarily on our digital media products. These products are now our only product line and our success in the near term depends upon the growth of the market for these products and our success in this market. Our success in the longer term will also depend on our ability to develop and introduce other digital media products. We plan to continue developing the next generation DPTV and HDTV, as well as other advanced products for digital TV and digital STB for the digital media market in Japan, South Korea, Europe, and Asia Pacific. While we anticipate this market to generate an increasing percentage of our revenues, we have limited experience with digital video television. There can be no guarantee that our digital media products will be accepted by the market or increase our revenues or profitability.

The market price of our common stock has been, and may continue to be volatile.

The market price of our common stock has been, and may continue to be volatile. Factors such as new product announcements by us or our competitors, quarterly fluctuations in our operating results and unfavorable conditions in the digital media market, failure to obtain design wins, as well as the results of our investigation of our historical stock option grant practices and related issues, and any litigation or regulatory actions arising as a result, may have a significant impact on

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the market price of our common stock. For example, the price of our common stock declined by more than 80% from the beginning until the end of the fiscal year 2008. These conditions, as well as factors that generally affect the market for stocks and stocks in high-technology companies in particular, could cause the price of our stock to fluctuate from time to time or to decline.

We currently rely on certain international customers for a substantial portion of our revenue and are subject to risks inherent in conducting business outside of the United States.

As a result of our focus on digital media products, we expect to be primarily dependent on international sales and operations, particularly in Japan, South Korea, Europe, and Asia Pacific. Our revenues may continue to be highly concentrated in a small number of geographic regions in the future. There are a number of risks arising from our international business, which could adversely affect future results, including:

• exchange rate variations, tariffs, import restrictions and other trade barriers;

• potential adverse tax consequences;

• challenges in effectively managing distributors or representatives to maximize sales;

• difficulties in collecting accounts receivable;

• political and economic instability, civil unrest, war or terrorist activities that impact international commerce;

• difficulties in protecting intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States; and

• unexpected changes in regulatory requirements, such as delays by the U.S. Federal Communications Commission in imposing its pending requirement that all new televisions have a digital receiver by February 2009.

Our international sales currently are U.S. dollar-denominated. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. We cannot be sure that our international customers will continue to be willing to place orders in U.S. dollars. If they do not, our revenues and operating results would become subject to foreign exchange fluctuations.

Our success depends in part on our ability to protect our intellectual property rights, which may be difficult.

The digital media market is a highly competitive industry in which we, and most other participants, rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect proprietary rights. The competitive nature of our industry, rapidly changing technology, frequent new product introductions, changes in customer requirements and evolving industry standards heighten the importance of protecting proprietary technology rights. Since the United States Patent and Trademark Office keeps patent applications confidential until a patent is issued, our pending patent applications may attempt to protect proprietary technology claimed in a third-party patent application. Our existing and future patents may not be sufficiently broad to protect our proprietary technologies as policing unauthorized use of our products is difficult. The laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our technology and products more likely in these countries. Our competitors may independently develop similar technology, duplicate our products or design around any of our patents or other intellectual property. If we are unable to adequately protect our proprietary technology rights, others may be able to use our proprietary technology without having to compensate us, which could reduce our revenues and negatively impact our ability to compete effectively. We have in the past, and may in the future, file lawsuits to enforce our intellectual property rights or to determine the validity or scope of the proprietary rights of others. As a result of any such litigation or resulting counterclaims, we could lose our proprietary rights and incur substantial unexpected operating costs. Any action we take to protect our intellectual property rights could be costly and could absorb significant management time and attention. In addition, failure to adequately protect our trademark rights could impair our brand identity and our ability to compete effectively.

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We have been involved in intellectual property infringement claims, and may be involved in others in the future, which can be costly.

Our industry is very competitive and is characterized by frequent litigation alleging infringement of intellectual property rights. Numerous patents in our industry have already been issued and as the market further develops and additional intellectual property protection is obtained by participants in our industry, litigation is likely to become more frequent. From time to time, third parties have asserted and are likely in the future to assert patent, copyright, trademark and other intellectual property rights to technologies or rights that are important to our business. Historically we have been involved in such disputes. In addition, we have and may in the future enter into agreements to indemnify our customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. Litigation or other disputes or negotiations arising from claims asserting that our products infringe or may infringe the proprietary rights of third parties, whether with or without merit, has been and may in the future be, time-consuming, resulting in significant expenses and diverting the efforts of our technical and management personnel. We do not have insurance against our alleged or actual infringement of intellectual property of others. Any such claims that may be filed against us in the future, if resolved adversely to us, could cause us to stop sales of our products which incorporate the challenged intellectual property and could also result in product shipment delays or require us to redesign or modify our products or to enter into licensing agreements. These licensing agreements, if required, would increase our product costs and may not be available on terms acceptable to us, if at all. If there is a successful claim of infringement or we fail to develop non-infringing technology or license the proprietary rights on a timely and reasonable basis, our business could be harmed.

If necessary licenses of third-party technology are not available to us or are very expensive, our products could become obsolete.

From time to time, we may be required to license technology from third parties to develop new products or product enhancements. Third-party licenses may not be available on commercially reasonable terms, if at all. If we are unable to obtain any third-party license required to develop new products and product enhancements, or if our licensor’s technology is no longer available to us because it is determined to infringe another third-party’s intellectual property rights, we may have to obtain substitute technology of lower quality or performance standards or at greater cost, either of which could seriously harm the competitiveness of our products.

Our operations are vulnerable to interruption or loss due to natural disasters, power loss, strikes and other events beyond our control, which would adversely affect our business.

We conduct a significant portion of our activities including manufacturing, administration and data processing at facilities located in the State of California, Taiwan and other seismically active areas that have experienced major earthquakes in the past, as well as other natural disasters. This coverage may not be adequate or continue to be available at commercially reasonable rates and terms. A major earthquake or other disaster affecting our suppliers’ facilities and our administrative offices could significantly disrupt our operations, and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace our suppliers’ manufacturing facilities and our administrative offices; these delays could be lengthy and result in large expenses. In addition, our administrative offices in the State of California may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. In addition, our products are typically shipped from a limited number of ports, and any natural disaster, strike or other event blocking shipment from these ports could delay or prevent shipments and harm our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit	Description
3.1	Restated Certificate of Incorporation.(1)
3.2	Certificate of Amendment of Restated Certificate of Incorporation.(2)
3.3	Amended and Restated Bylaws.(3)
3.4	Amendment to Article VIII of the Bylaws.(4)
4.1	Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2	Specimen Common Stock Certificate.(5)
4.3	Form of Amended and Restated Rights Agreement between the Company and Mellon Investor Services, LLC, as Rights Agent dated as of July 23, 2008 (including as Exhibit A the Form of Certificate of Amendment of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).(6)
31.1	Rule 13a – 14(a) Certification of Chief Executive Officer. (7)
31.2	Rule 13a – 14(a) Certification of Chief Financial Officer. (7)
32.1	Section 1350 Certification of Chief Executive Officer. (7)
32.2	Section 1350 Certification of Chief Financial Officer. (7)

(1)	Incorporated by reference to exhibit of the same number to the Company’s Annual Report on Form 10-K for the year ended June 30, 1993.
(2)	Incorporated by reference to Exhibit 99.4 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008.
(3)	Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended December 31, 2003.
(4)	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007.
(5)	Incorporated by reference to exhibit of the same number to the Company’s Registration Statement on Form S-1 (File No. 33-53768).
(6)	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008.
(7)	Filed herewith.
(*)	Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.

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SIGNATURES

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

	TRIDENT MICROSYSTEMS, INC. (Registrant)
Dated: November 7, 2008	By:	/s/Pete J. Mangan
		Pete J. Mangan
		Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

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Index to Exhibits

Exhibit	Description
3.1	Restated Certificate of Incorporation.(1)
3.2	Certificate of Amendment of Restated Certificate of Incorporation.(2)
3.3	Amended and Restated Bylaws.(3)
3.4	Amendment to Article VIII of the Bylaws.(4)
4.1	Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2	Specimen Common Stock Certificate.(5)
4.3	Form of Amended and Restated Rights Agreement between the Company and Mellon Investor Services, LLC, as Rights Agent dated as of July 23, 2008 (including as Exhibit A the Form of Certificate of Amendment of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).(6)
31.1	Rule 13a – 14(a) Certification of Chief Executive Officer. (7)
31.2	Rule 13a – 14(a) Certification of Chief Financial Officer. (7)
32.1	Section 1350 Certification of Chief Executive Officer. (7)
32.2	Section 1350 Certification of Chief Financial Officer. (7)

(1)	Incorporated by reference to exhibit of the same number to the Company’s Annual Report on Form 10-K for the year ended June 30, 1993.
(2)	Incorporated by reference to Exhibit 99.4 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008.
(3)	Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended December 31, 2003.
(4)	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2007.
(5)	Incorporated by reference to exhibit of the same number to the Company’s Registration Statement on Form S-1 (File No. 33-53768).
(6)	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008.
(7)	Filed herewith.
(*)	Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.

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