1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 28, 2001

[ ] 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: _________

MARVELL TECHNOLOGY GROUP LTD.
(Exact name of registrant as specified in its charter)

Bermuda 77-0481679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4th Floor, Windsor Place, 22 Queen Street, P.O. Box HM 1179,
Hamilton, HM EX, Bermuda
(Address, including Zip Code, of Principal Executive Offices)

(441) 296-6395
(Registrant's telephone number, including area code)

N/A
(Former name, former address, and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. [X] Yes [ ] No

Shares Outstanding of the Registrant's Common Stock

Class Outstanding at April 28, 2001
----- -----------------------------

Common stock, $0.002 par value 115,486,942

TABLE OF CONTENTS

PAGE
----

PART I. FINANCIAL INFORMATION

Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at April 30, 2001 and January
31, 2001.............................................................. 1
Condensed Consolidated Statements of Operations for the three months
ended April 30, 2001 and 2000......................................... 2
Condensed Consolidated Statements of Cash Flows for the three months
ended April 30, 2001 and 2000......................................... 3
Notes to the Condensed Consolidated Financial Statements................... 4
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 7
Item 3 Quantitative and Qualitative Disclosures about Market Risk................. 26

PART II. OTHER INFORMATION

Item 1 Legal Proceedings.......................................................... 27
Item 2 Changes in Securities and Use of Proceeds.................................. 27
Item 3 Defaults Upon Senior Securities............................................ 27
Item 4 Submission of Matters to a Vote of Securities Holders...................... 27
Item 5 Other Information.......................................................... 27
Item 6 Exhibits and Reports on Form 8-K........................................... 27

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

APRIL 30, JANUARY 31,
2001 2001
----------- -----------

Current assets:
Cash and cash equivalents ........................................ $ 161,270 $ 184,128
Short-term investments ........................................... 36,939 39,935
Accounts receivable, net of allowances of $1,257 and $1,218 ...... 38,191 37,543
Inventory, net ................................................... 24,256 30,924
Prepaid expenses and other current assets ........................ 9,067 7,717
Deferred income taxes ............................................ 3,762 3,762
----------- -----------
Total current assets ................................... 273,485 304,009
Property and equipment, net ........................................... 35,002 31,184
Goodwill and acquired intangible assets ............................... 1,996,331 2,100,839
Other noncurrent assets ............................................... 11,894 11,454
----------- -----------
Total assets ........................................... $ 2,316,712 $ 2,447,486
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 22,495 $ 24,818
Accrued liabilities .............................................. 7,089 9,521
Accrued employee compensation .................................... 9,584 7,802
Accrued acquisition costs ........................................ 444 29,530
Income taxes payable ............................................. 10,819 9,998
Deferred revenue ................................................. 6,933 6,516
Capital lease obligations ........................................ 22 37
----------- -----------
Total current liabilities .............................. 57,386 88,222
Long-term liabilities ................................................. 2,564 2,598
----------- -----------
Total liabilities ...................................... 59,950 90,820
----------- -----------

Shareholders' equity:
Common stock, $0.002 par value; 242,000,000 shares authorized;
115,486,942 and 115,337,133 shares issued and outstanding ..... 231 231
Additional paid-in capital ....................................... 2,618,418 2,617,490
Deferred stock-based compensation ................................ (24,000) (28,113)
Accumulated other comprehensive income ........................... 40 19
Retained earnings (accumulated deficit) .......................... (337,927) (232,961)
----------- -----------
Total shareholders' equity ............................. 2,256,762 2,356,666
----------- -----------
Total liabilities and shareholders' equity ............. $ 2,316,712 $ 2,447,486
=========== ===========

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS
ENDED APRIL 30,
-------------------------
2001 2000
--------- ---------

Net revenue ..................................................... $ 64,230 $ 29,664
Operating costs and expenses:
Cost of goods sold (1) ..................................... 30,161 13,180
Research and development (2) ............................... 20,066 6,118
Selling and marketing (3) .................................. 9,545 4,084
General and administrative (4) ............................. 2,985 1,504
Amortization of stock-based compensation ................... 4,113 2,261
Amortization of goodwill and acquired intangible assets .... 104,508 --
--------- ---------
Total operating costs and expenses ............... 171,378 27,147
--------- ---------
Operating income (loss) ......................................... (107,148) 2,517
Interest and other income, net .................................. 2,967 240
--------- ---------
Income (loss) before income taxes ............................... (104,181) 2,757
Provision for income taxes ...................................... 785 689
--------- ---------
Net income (loss) ............................................... $(104,966) $ 2,068
========= =========

Net income (loss) per share:
Basic ...................................................... $ (0.93) $ 0.04
========= =========
Diluted .................................................... $ (0.93) $ 0.02
========= =========
Weighted average shares:
Basic ...................................................... 112,517 46,493
========= =========
Diluted .................................................... 112,517 84,796
========= =========

- -----------

(1) Excludes amortization of stock-based compensation of $82 and $114 for the
three months ended April 30, 2001 and 2000.

(2) Excludes amortization of stock-based compensation of $2,693 and $922 for the
three months ended April 30, 2001 and 2000.

(3) Excludes amortization of stock-based compensation of $727 and $1,094 for the
three months ended April 30, 2001 and 2000.

(4) Excludes amortization of stock-based compensation of $611 and $131 for the
three months ended April 30, 2001 and 2000.

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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MARVELL TECHNOLOGY GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

THREE MONTHS
ENDED APRIL 30,
-------------------------
2001 2000
--------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................ $(104,966) $ 2,068
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ............................... 3,474 822
Amortization of goodwill and acquired intangible assets ..... 104,508 --
Amortization of deferred stock-based compensation ........... 4,113 2,261
Changes in assets and liabilities:
Accounts receivable .................................... (648) 1,828
Inventory .............................................. 6,668 (7,320)
Prepaid expenses and other assets ...................... (1,298) (1,522)
Accounts payable ....................................... (2,323) 4,407
Accrued liabilities .................................... (2,432) 113
Accrued employee compensation .......................... 1,782 153
Income taxes payable ................................... 821 545
Deferred revenue ....................................... 417 108
Other .................................................. (34) --
--------- ---------
Net cash provided by operating activities ......... 10,082 3,463
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ................................. -- (3,022)
Purchases of short-term investments ......................... (8,003) --
Maturities of short-term investments ........................ 11,020 --
Purchases of investments .................................... (667) --
Acquisition costs ........................................... (29,086) --
Purchases of property and equipment ......................... (7,117) (2,725)
--------- ---------
Net cash used in investing activities ............. (33,853) (5,747)
--------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of convertible preferred stock ... -- 98
Proceeds from the issuance of common stock .................. 1,037 1,309
Repurchases of common stock ................................. (109) --
Principal payments on capital lease obligations ............. (15) (20)
--------- ---------
Net cash provided by financing activities ......... 913 1,387
--------- ---------
Net decrease in cash and cash equivalents ........................ (22,858) (897)
Cash and cash equivalents at beginning of period ................. 184,128 16,600
--------- ---------
Cash and cash equivalents at end of period ....................... $ 161,270 $ 15,703
========= =========

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Marvell Technology Group Ltd. (the "Company"), a Bermuda exempted company,
was incorporated on January 11, 1995. The Company designs, develops and markets
integrated circuits utilizing proprietary communications mixed-signal
processing, or CMSP, and digital signal processing technologies for
communications-related markets. On January 21, 2001, the Company completed its
acquisition of Galileo Technology Ltd. ("Galileo"), an Israeli company. Galileo
develops high-performance communications internetworking and switching products
for the broadband communications market.

BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and,
in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of April 30, 2001 and the results of its operations and its cash
flows for the three months ended April 30, 2001 and 2000. These condensed
consolidated financial statements and notes thereto are unaudited and should be
read in conjunction with the Company's audited financial statements and related
notes included in the Company's 2001 Annual Report on Form 10-K. The results of
operations for the three months ended April 30, 2001 are not necessarily
indicative of the results that may be expected for any other interim period or
for the full fiscal year.

During fiscal 2000, the Company changed its fiscal year-end and quarter-ends
to the Saturday nearest January 31, April 30, July 31 and October 31. For
presentation purposes, the condensed consolidated financial statements and notes
refer to January 31 as the Company's year-end and April 30, July 31 and October
31 as the Company's quarter-ends.

INVENTORY

Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method. Appropriate consideration is given to
obsolescence, excessive levels, deterioration and other factors in evaluating
net realizable value. Inventory consisted of the following (in thousands):

April 30, January 31,
2001 2001
--------- -----------

Work-in-process ............ $ 13,833 $ 15,530
Finished goods ............. 10,423 15,394
-------- ========
$ 24,256 $ 30,924
======== ========

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MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

NET INCOME (LOSS) PER SHARE

The Company reports both basic net income (loss) per share, which is based
upon the weighted average number of common shares outstanding excluding
contingently issuable or returnable shares, and diluted net income (loss) per
share, which is based on the weighted average number of common shares
outstanding and dilutive potential common shares.

The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):

Three Months
Ended April 30,
-------------------------
2001 2000
--------- ---------

Numerator:
Net income (loss) ...................................... $(104,966) $ 2,068
========= =========

Denominator:
Weighted average shares of common stock outstanding .... 115,342 49,684
Less: unvested common shares subject to repurchase .... (2,825) (3,191)
--------- ---------
Weighted average shares -- basic ................ 112,517 46,493
--------- ---------
Effect of dilutive securities-
Unvested common shares subject to repurchase ........... -- 3,191
Convertible preferred stock and warrants ............... -- 26,551
Common stock options and warrants ...................... -- 8,561
--------- ---------
Weighted average shares -- diluted .............. 112,517 84,796
========= =========

Basic net income (loss) per share ...................... $ (0.93) $ 0.04
========= =========
Diluted net income (loss) per share .................... $ (0.93) $ 0.02
========= =========

The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the period presented (in thousands):

Three Months
Ended April 30,
2001
---------------

Unvested common shares subject to repurchase ......... 2,825
Common stock options and warrants .................... 9,814

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8

MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

COMPREHENSIVE INCOME (LOSS)

The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards
for reporting and displaying comprehensive income and its components in a full
set of general-purpose financial statements. The components of comprehensive
income (loss), net of tax, are as follows (in thousands):

Three Months
Ended April 30,
-------------------------
2001 2000
--------- ---------

Net income (loss) .................................... $(104,966) $ 2,068
Other comprehensive income (loss):
Unrealized gains on available-for-sale investments ... 21 --
--------- ---------
Total comprehensive income (loss) .................... $(104,945) $ 2,068
========= =========

2. RECENT ACCOUNTING PRONOUNCEMENTS

In the first quarter of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," and Statement of Financial Accounting
Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which establish accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 and SFAS
138 require that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.

For a derivative designated as a fair value hedge, the gain or loss is
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributed to the risk being hedged. For a derivative
designated as a cash flow hedge, the effective portion of the derivative's gain
or loss is initially reported as a component of other comprehensive income and
subsequently reclassified into earnings when the hedged exposure affects
earnings. The ineffective portion of the gain or loss is reported in earnings
immediately. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in earnings in the period of change.

All of the Company's revenues and the majority of its costs are denominated
in United States dollars, and to date the Company has not entered into any
derivative contracts. The Company adopted SFAS No. 133 and 138 on February 1,
2001. The adoption did not have a significant impact on the Company's
consolidated financial statements.

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

This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. These forward-looking statements involve a number of
risks and uncertainties, including those identified in the section of this Form
10-Q titled "Additional Factors that May Affect Future Results," which could
cause actual results to differ from those discussed in the forward-looking
statements. Forward-looking statements in this Form 10-Q are identified by words
such as "believes," "expects," "anticipates," "intends," "estimates," "should,"
"will," "may" and similar expressions. In addition, any statements which refer
to expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. We undertake no obligation to
release publicly the results of any revisions to these forward-looking
statements that could occur after the filing of this Form 10-Q. You are urged to
review carefully our various disclosures in this Form 10-Q and our other reports
filed with the SEC, including our 2001 Annual Report on Form 10-K, that attempt
to advise you of the risks and factors that may affect our business.

OVERVIEW

We design, develop and market integrated circuits using proprietary
communications mixed-signal and digital signal processing technology for
communications-related markets. Our products provide the critical interface
between analog signals and the digital information used in computing and
communications systems and enable our customers to store and transmit digital
information reliably and at high speeds. We were founded in 1995, and our
business has grown rapidly since inception. We are a fabless integrated circuit
company, which means that we rely on independent, third-party contractors to
perform manufacturing, assembly and test functions. This approach allows us to
focus on designing, developing and marketing our products and significantly
reduces the amount of capital we need to invest in manufacturing products. In
January 2001, we acquired Galileo Technology Ltd. in a stock-for-stock
transaction for aggregate consideration of $2.5 billion. Galileo develops
high-performance communications internetworking and switching products for the
broadband communications market. The acquisition has been accounted for using
the purchase method of accounting, and the operating results of Galileo have
been included in our consolidated financial statements from the date of
acquisition.

We develop integrated circuit solutions for the communications and storage
markets. In the communications market, our products include Fast and Gigabit
Ethernet physical layer devices, switched Ethernet controllers and processors,
system controllers, and wide area network communication controllers. We are also
committing resources to the development of wireless local area network products.
Our primary customers for our communications products are leading manufacturers
of high speed networking equipment.

In the storage market, our products include read channel devices and
preamplifiers, as well as integrated products that incorporate the read channel,
the disk drive controller and embedded memory functions in one integrated
circuit, known as a System-On-Chip. Our customers for our storage products are
manufacturers of hard disk drives for the enterprise, mobile and desktop
markets. The storage market is highly competitive and is dominated by a small
number of large companies. These companies have historically experienced
marginal profit levels from sales of their storage products and are under
enormous pricing pressure from their customers, which they typically pass
through to their integrated circuit suppliers.

Historically, a relatively small number of customers have accounted for a
significant portion of our revenue. For the three months ended April 30, 2001,
approximately 44% of our net revenue was derived from sales to three customers
who individually accounted for 10% or more of our net revenue. We expect to
continue to experience significant customer concentration in future periods. In
addition, a significant portion of our sales are made to customers located
outside of the United States, primarily in Asia. Sales to customers in Asia
represented approximately 78% of our net revenue for the three months ended
April 30, 2001. Because many manufacturers and manufacturing subcontractors of
communications and storage devices are located in Asia, we expect that a
significant portion of our revenue will continue to be represented by sales to
customers in that region. All of our sales to date have been denominated in
United States dollars.

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Our sales have historically been made on the basis of purchase orders rather
than long-term agreements. In addition, the sales cycle for our products is
long, which may cause us to experience a delay between the time we incur
expenses and the time revenue is generated from these expenditures. We expect to
increase our research and development, selling and marketing, and general and
administrative expenditures as we seek to expand our operations. We anticipate
that the rate of new orders may vary significantly from quarter to quarter.
Consequently, if anticipated sales and shipments in any quarter do not occur
when expected, expenses and inventory levels could be disproportionately high,
and our operating results for that quarter and future quarters would be
adversely affected.

During fiscal 2000, we changed our fiscal year-end and quarter-ends to the
Saturday nearest January 31, April 30, July 31 and October 31. For presentation
purposes, we refer to January 31 as our year-end and April 30, July 31 and
October 31 as our quarter-ends.

RESULTS OF OPERATIONS

The following table sets forth, for the three months ended April 30, 2001
and 2000, information derived from our condensed consolidated statements of
operations expressed as a percentage of net revenue:

THREE MONTHS ENDED
APRIL 30,
--------------------
2001 2000
------ ------

Net revenue .................................................. 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold ......................................... 47.0 44.4
Research and development ................................... 31.2 20.6
Selling and marketing ...................................... 14.9 13.8
General and administrative ................................. 4.6 5.1
Amortization of stock-based compensation ................... 6.4 7.6
Amortization of goodwill and acquired intangible assets .... 162.7 --
------ ------
Total operating costs and expenses .................... 266.8 91.5
------ ------
Operating income (loss) ...................................... (166.8) 8.5
Interest and other income, net ............................... 4.6 0.8
------ ------
Income (loss) before income taxes ............................ (162.2) 9.3
Provision for income taxes ................................... (1.2) (2.3)
------ ------
Net income (loss) ............................................ (163.4)% 7.0%
------ ------

THREE MONTHS ENDED APRIL 30, 2001 AND 2000

NET REVENUE. We generally recognize product revenue upon shipment of product
to our customers, net of accruals for estimated sales returns and allowances.
However, some of our sales are made through distributors under agreements
allowing for price protection and rights of return on product unsold by the
distributors. We defer recognition of product revenue on sales made through
distributors with rights of return until the distributors sell the product to
end customers.

Net revenue was $64.2 million for the three months ended April 30, 2001 and
$29.7 million for the three months ended April 30, 2000. The increase in revenue
reflects a significant increase in volume shipments of our communications
products, in part due to our acquisition of Galileo. Sales of communications
products totaled $35.6 million in the first quarter of fiscal 2002 compared to
$500,000 in the first quarter of fiscal 2001. Sales of storage products were
$28.6 million in the first quarter of fiscal 2002 compared to $29.2 million in
the first quarter of fiscal 2001. We expect that revenue from sales of storage
products for fiscal 2002 will be relatively consistent with the level of sales
of storage products we reported in fiscal 2001. However, we expect significant
growth in revenue from sales of communications products in fiscal 2002, in part
due to our acquisition of Galileo.

COST OF GOODS SOLD. Cost of goods sold consists primarily of the costs of
manufacturing, assembly and test of integrated circuit devices and related
overhead costs, and compensation and associated costs relating to manufacturing
support, logistics and quality assurance personnel. Gross profit, which equals
net revenue less cost of goods sold, as a percentage of net revenue, decreased
to 53.0% in the three months ended April 30, 2001

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11

from 55.6% in the three months ended April 30, 2000. The decrease in gross
profit in the first quarter of fiscal 2002 compared to the first quarter of
fiscal 2001 primarily resulted from a decrease in average selling prices for our
read channel products due to a product mix change and increased pricing
pressures from our customers as well as from our competitors. Average selling
prices for our read channel products decreased by 6.3% in the first quarter of
fiscal 2002 compared to the first quarter of fiscal 2001. Our gross profits may
decrease as a percentage of revenue in future periods due to changes in the mix
of products sold and increased pricing pressures from our customers and
competitors.

RESEARCH AND DEVELOPMENT. Research and development expense consists
primarily of compensation and associated costs relating to development
personnel, prototype costs, depreciation expenses, and allocated occupancy costs
for these operations. Research and development expense was $20.1 million, or
31.2% of net revenue, for the three months ended April 30, 2001 and $6.1
million, or 20.6% of net revenue, for the three months ended April 30, 2000. The
increase in research and development expense in the first quarter of fiscal 2002
compared to the first quarter of fiscal 2001 was primarily due to the hiring of
additional development personnel and the addition of Galileo's development
personnel which resulted in an increase in salary and related costs of $8.1
million, increased costs of $1.4 million for prototype and related product
tape-out costs for new product initiatives, increased depreciation expense of
$1.5 million arising from purchases property and equipment and the additional
depreciation expense recorded on Galileo's property and equipment, and increased
facility and other allocated expenses of $1.6 million related to our expanding
operations. We expect that research and development expense will increase in
absolute dollars in future periods as we develop new products and hire
additional personnel.

SELLING AND MARKETING. Selling and marketing expense consists primarily of
compensation and associated costs relating to sales and marketing personnel,
sales commissions, promotional and other marketing expenses, and allocated
occupancy costs for these operations. Selling and marketing expense was $9.5
million, or 14.9% of net revenue, for the three months ended April 30, 2001 and
$4.1 million, or 13.8% of net revenue, for the three months ended April 30,
2000. The increase in selling and marketing expense in the first quarter of
fiscal 2002 compared to the first quarter of fiscal 2001 was primarily due to
the hiring of additional sales and marketing personnel and the addition of
Galileo's sales and marketing personnel which resulted in an increase in salary
and related costs of $2.7 million, increased sales commissions of $800,000, and
increased facility and other allocated expenses of $900,000 related to our
expanding operations. We expect that selling and marketing expense will increase
in absolute dollars in future periods as we hire additional sales and marketing
personnel, expand our sales and marketing efforts, particularly in the
communications market, and pay increased sales commissions.

GENERAL AND ADMINISTRATIVE. General and administrative expense consists
primarily of compensation and associated costs relating to general and
administrative personnel, fees for professional services and allocated occupancy
costs for these operations. General and administrative expense was $3.0 million,
or 4.6% of net revenue, for the three months ended April 30, 2001 and $1.5
million, or 5.1% of net revenue, for the three months ended April 30, 2000. The
increase in general and administrative expense in absolute dollars in the first
quarter of fiscal 2002 compared to the first quarter of fiscal 2001 was
primarily due to the hiring of additional administrative personnel and the
addition of Galileo's administrative personnel which resulted in an increase in
salary and related costs of $1.1 million. We expect that general and
administrative expense will increase in absolute dollars in future periods as we
hire additional administrative personnel and incur increased legal and other
costs associated with expanding our operations.

AMORTIZATION OF STOCK-BASED COMPENSATION. We have recorded deferred
stock-based compensation in connection with the grant of stock options to our
employees and directors prior to our initial public offering of common stock and
in connection with the assumption of stock options as a result of our
acquisition of Galileo. Deferred stock-based compensation is being amortized
using an accelerated method over the remaining option vesting period.
Amortization expense was $4.1 million, or 6.4% of net revenue, for the three
months ended April 30, 2001 and $2.3 million, or 7.6% of net revenue, for the
three months ended April 30, 2000. The increase in amortization expense in
absolute dollars primarily resulted from additional amounts of deferred
stock-based compensation being recorded in the fourth quarter of fiscal 2001 due
to the assumption of stock options in connection with our acquisition of
Galileo.

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AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS. In connection with
the acquisition of Galileo in the fourth quarter of fiscal 2001, we recorded
$1.7 billion of goodwill and $434.7 million of acquired intangible assets.
Goodwill is being amortized over its estimated economic life of five years, and
acquired intangible assets are being amortized over their estimated economic
lives of five to ten years. Goodwill and acquired intangible asset amortization
expense was $104.5 million, or 162.7% of net revenue, for the three months ended
April 30, 2001.

INTEREST AND OTHER INCOME, NET. Interest and other income, net consists
primarily of interest earned on cash, cash equivalent and short-term investment
balances, offset by interest paid on capital lease obligations. Interest and
other income, net was $3.0 million for the three months ended April 30, 2001 and
$240,000 for the three months ended April 30, 2000. The increase in interest and
other income, net was due to interest being earned on higher invested cash
balances in the first quarter of fiscal 2002 compared to the first quarter of
fiscal 2001. The net proceeds from our initial public offering of common stock
in June 2000, as well as the net cash received as a result of our acquisition of
Galileo in January 2001, contributed to the significant increase in interest and
other income, net in the first quarter of fiscal 2002 compared to the first
quarter of fiscal 2001.

PROVISION FOR INCOME TAXES. Our effective tax rate was (1%) for the three
months ended April 30, 2001 compared to 25% for the three months ended April 30,
2000. Our effective rate for the first quarter of fiscal 2002 was affected by
stock-based compensation expense as well as non-deductible expenses relating to
our acquisition of Galileo in the fourth quarter of fiscal 2001, which was
recorded using the purchase method of accounting. Excluding the effect of
stock-based compensation expense and non-deductible, acquisition-related
expenses, our effective tax rate for the first quarter of fiscal 2002 was 15%.
Our effective tax rate has decreased to 15% in the first quarter of fiscal 2002
from 25% in the first quarter of fiscal 2001 as a result of our acquisition of
Galileo in the fourth quarter of fiscal 2001. A substantial majority of
Galileo's pretax income is generated in Israel, where Galileo's operations have
Approved Enterprise Status. This status provides us with a tax holiday on
undistributed Israeli income. We anticipate that we will start paying some
income tax in Israel beginning in 2004.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity as of April 30, 2001 consisted of $198.2
million of cash, cash equivalents and short-term investments. We raised net
proceeds of $94.0 million through our initial public offering in June 2000. In
addition, we received $70.0 million of cash and cash equivalents and $39.9
million of short-term investments, before acquisition costs, as a result of our
acquisition of Galileo in January 2001.

Net cash provided by operating activities was $10.1 million for the three
months ended April 30, 2001 and $3.5 million for the three months ended April
30, 2000. The cash inflow from operations in the first quarter of fiscal 2002
was primarily a result of our generation of income during the period (excluding
the non-cash impact of depreciation and amortization expenses) and a decrease in
inventory, partially offset by decreases in accounts payable and accrued
liabilities. The cash inflow from operations in the first quarter of fiscal 2001
was primarily due to our generation of income during the period (excluding the
non-cash impact of depreciation and amortization expenses), a decrease in
accounts receivable and an increase in accounts payable, partially offset by
increases in inventory, prepaid expenses and other assets. Due to the nature of
our business, we experience working capital needs for accounts receivable and
inventory. We typically bill customers on an open account basis on net 30-day
payment terms. If sales levels were to increase, it is likely that our levels of
accounts receivable would also increase. Our levels of accounts receivable would
also increase if customers delayed their payments. Additionally, in order to
maintain an adequate supply of product for our customers, we must carry a
certain level of inventory. This inventory level may vary based primarily upon
orders received from customers and our forecast of demand for these products.
Other considerations in determining inventory levels may include the product
life cycle stage of our products and competitive situations in the marketplace.
Such considerations are balanced against risk of obsolescence or potentially
excess inventory levels.

Net cash used in investing activities was $33.9 million for the three months
ended April 30, 2001 and $5.7 million for the three months ended April 30, 2000.
The net cash used in investing activities in the first quarter of fiscal 2002
was primarily due to the payment of $29.1 million of accrued acquisition costs
relating to our acquisition of Galileo, purchases of property and equipment of
$7.1 million, and purchases of short-term

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investments of $8.0 million, partially offset by the proceeds from maturities of
short-term investments of $11.0 million. The net cash used in investing
activities in the first quarter of fiscal 2001 was due to purchases of property
and equipment of $2.7 million as well as an increase in restricted cash of $3.0
million. The increase in restricted cash related to an investment in a
certificate of deposit with a United States bank as security for a standby
letter of credit with a foundry. The standby letter of credit expired on
September 1, 2000.

Net cash provided by financing activities was $913,000 for the three months
ended April 30, 2001 and $1.4 million for the three months ended April 30, 2000.
In the first quarters of fiscal 2002 and 2001, net cash provided by financing
activities was primarily attributable to proceeds from the exercise of stock
options.

Our relationships with our foundries allow us to cancel all outstanding
purchase orders but require us to pay the foundries for expenses they have
incurred in connection with our purchase orders through the date of
cancellation. As of April 30, 2001, our foundries had incurred approximately
$15.3 million of manufacturing expenses on our outstanding purchase orders.

We believe that our existing cash and investment balances and cash generated
by operations are sufficient to meet our capital requirements for at least the
next 12 months. After this period, capital requirements will depend on many
factors, including our rate of sales growth, market acceptance of our products,
costs of securing access to adequate manufacturing capacity, the timing and
extent of research and development projects and increases in operating expenses.
To the extent that our existing cash and investment balances and cash generated
by operations are insufficient to fund our future activities, we may need to
raise additional funds through public or private debt or equity financing.
Although we are currently not a party to any agreement or letter of intent with
respect to a potential acquisition or strategic arrangement, we may enter into
acquisitions or strategic arrangements in the future, which could also require
us to seek additional debt or equity financing. Additional funds may not be
available on terms favorable to us or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

In the first quarter of fiscal 2002, we adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," and Statement of Financial Accounting
Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which establish accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 and SFAS
138 require that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.

All of our revenues and the majority of our costs are denominated in United
States dollars, and to date we have not entered into any derivative contracts.
We adopted SFAS No. 133 and 138 on February 1, 2001. The adoption did not have a
significant impact on our consolidated financial statements.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the following additional factors
may affect our future results. Many of these factors are beyond our control,
including business cycles and seasonal trends of the computing, semiconductor
and related industries.

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THE RECENT SLOWDOWN IN THE WORLDWIDE ECONOMY HAS NEGATIVELY AFFECTED OUR
REVENUES AND OUR RESULTS OF OPERATIONS IN FISCAL 2002.

Over the last several months there has been a slowdown in worldwide
economies, including the United States, that has resulted in delays of new
orders for our products as well as reschedules of existing orders. This slowdown
has been brought about by a number of factors, including concerns about
inflation, decreased consumer confidence and reports of reduced corporate
profits. If economic conditions worsen, our revenues and results of operations
in the remainder of fiscal 2002 and beyond will be materially and adversely
affected.

WE HAVE DEPENDED ON SALES OF OUR READ CHANNEL AND PREAMPLIFIER PRODUCTS FOR A
SIGNIFICANT PORTION OF OUR REVENUE TO DATE, AND GALILEO HAS DEPENDED ON SALES OF
ITS SYSTEM CONTROLLERS AND ETHERNET LAN CONTROLLERS FOR A SIGNIFICANT PORTION OF
ITS REVENUE TO DATE. SIGNIFICANT REDUCTIONS IN ORDERS FOR THESE PRODUCTS, OR THE
DEVICES INTO WHICH SUCH PRODUCTS ARE INCORPORATED, WOULD SIGNIFICANTLY REDUCE
OUR NET REVENUE.

A significant portion of our revenue to date has been derived from sales of
our read channel and preamplifier products. In fiscal 2000 and 2001, we
experienced rapid growth in sales of our read channel and preamplifier products;
however, we anticipate that our sales for these products in fiscal 2002 will be
relatively consistent with the level of sales we reported for these products in
fiscal 2001.

Our read channel and preamplifier products are incorporated into storage
devices by our customers primarily for sale to the personal computer and
computer server markets. Any reduction in the demand for storage devices that
incorporate our products would result in reduced demand for our products and
would harm our sales. The storage market is rapidly evolving and is subject to
substantial fluctuation. For example, the storage market may be affected by:

- shifts in market share among storage device manufacturers, driven by
technological advances, price reductions, the level of end-user
satisfaction with the storage devices and the level of support provided
to the end-users; and

- fluctuations in the market for computing devices and products containing
storage devices.

In addition, a significant portion of Galileo's revenues to date have come
from sales of its system controllers and switched Ethernet LAN controllers, and
we expect that a significant portion of its revenues will continue to come from
these products.

Unless we are able to diversify our sales through increased sales of our
existing broadband communications products and the introduction of new broadband
communications and storage products, we will continue to be dependent on sales
of our read channel and preamplifier products and on Galileo's system
controllers and switched Ethernet LAN controllers.

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.

For the three months ended April 30, 2001, approximately 44% of our net
revenue was derived from sales to three customers who individually accounted for
10% or more of our net revenue. In fiscal 2001, approximately 67% of our net
revenue was derived from sales to three customers who individually accounted for
10% or more of our net revenue, and in fiscal 2000, approximately 98% of our net
revenue was derived from sales to five customers who individually accounted for
10% or more of our net revenue. 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, as well as the continued diversification of our
customer base as we expand into new markets, and will likely continue to
fluctuate dramatically in the future. The loss of any of our largest customers,
a significant reduction in sales we make to them, or any problems we encounter
collecting amounts from them would likely seriously harm our results of
operations and financial condition. 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

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purchase our products at all, to purchase fewer products than they did in the
past, or to alter their purchasing patterns in some other way, particularly
because:

- we do not have any long-term purchase arrangements or contracts with
these or any of our other customers or exclusive arrangements with any
customers;

- 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; and

- our customers purchase integrated circuits from our competitors.

Our customers may also discontinue sales in the markets for which they
purchase our products.

IF WE ARE UNABLE TO DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET
ACCEPTANCE IN A TIMELY MANNER, OUR OPERATING RESULTS AND COMPETITIVE POSITION
WILL BE HARMED.

Our future success will depend on our ability, in a timely and
cost-effective manner, to develop new products for the broadband communications
market and to introduce product enhancements to our read channel and
preamplifier products for the storage market. We must also achieve market
acceptance for these products and enhancements. If we do not successfully
develop and achieve market acceptance for new and enhanced products, our ability
to maintain or increase revenues will suffer. The development of our products is
highly complex. We occasionally have experienced delays in completing the
development and introduction of new products and product enhancements, and we
could experience delays in the future. In particular, we have a limited history
in developing products for the broadband communications market and may encounter
technical difficulties in developing 10 Gigabit Ethernet fiber-optic or other
products for this market that could prevent or delay the successful introduction
of these products. Unanticipated problems in developing broadband communications
products could also divert substantial engineering resources, which may impair
our ability to develop new products and enhancements for the storage market, and
could substantially increase our costs. Even if the new and enhanced products
are introduced to the market, we may not be able to achieve market acceptance of
these products in a timely manner.

Successful product development and market acceptance of our products depends
on a number of factors, including:

- timely and cost-effective completion and introduction of new product
designs;

- adoption of our products by customers that are among the first to adopt
new technologies and by customers perceived to be market leaders;

- timely qualification and certification of our products for use in our
customers' products;

- the level of acceptance of our products by existing and potential
customers;

- cost and availability of foundry, assembly and testing capacity;

- availability, price, performance, power, use and size of our products
and competing products and technologies;

- our customer service and support capabilities and responsiveness;

- successful development of our relationships with existing and potential
customers and strategic partners; and

- our ability to predict and respond to changes in technology, industry
standards or end-user preferences.

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OUR ACQUISITION OF GALILEO AND ANY FUTURE ACQUISITIONS COULD HARM OUR OPERATING
RESULTS AND SHARE PRICE.

We expect to continue to make acquisitions of, and investments in,
businesses that offer complementary products, services and technologies, augment
our market segment coverage, or enhance our technological capabilities. These
acquisitions could materially adversely affect our operating results as a result
of possible concurrent issuances of equity securities. In addition, the purchase
price of these acquired businesses may exceed the current fair values of the net
tangible assets of the acquired businesses. As a result, we would be required to
record material amounts of goodwill and other intangible assets, which would
result in significant amortization charges in future periods. These charges, in
addition to the results of operations of such acquired businesses, could have a
material adverse effect on our business, financial condition and results of
operations. We cannot forecast the number, timing or size of future
acquisitions, or the effect that any such acquisitions might have on our
operating or financial results.

We acquired Galileo Technology Ltd. on January 21, 2001. We accounted for
this acquisition using the purchase method of accounting, and the results of
Galileo's operations are included in our consolidated financial statements from
the closing date of this acquisition. We have recorded the excess of cost over
the fair value of the net tangible assets acquired from our acquisition of
Galileo as goodwill, other intangible assets and deferred stock-based
compensation, all of which will be amortized by charges to operations. The
acquisition of Galileo resulted in aggregate goodwill and other intangible
assets of approximately $2.1 billion and deferred stock-based compensation of
approximately $19.8 million. Goodwill is being amortized over its estimated
economic life of five years, other intangible assets are being amortized over
their estimated economic lives of between five and ten years, and deferred
stock-based compensation is being amortized over the remaining option vesting
periods of no more than four years. We will record significant amounts of
amortization expense over the estimated economic lives of these intangible
assets and over the remaining option vesting periods, which will have a
significant negative impact on our operating results and could cause our stock
price to decline.

Under current generally accepted accounting principles, we are required to
review our intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of these assets may not be
recoverable. Over the last several months, there has been a slowdown in
worldwide economies, including the United States, which has affected our
business. End customers for our products have slowed their purchases of
next-generation technology and have delayed or rescheduled existing orders for
products that incorporate our technology. If such trends continue or if other
presently unforeseen events or changes in circumstances arise which indicate
that the carrying value of our intangible assets may not be recoverable, we will
be required to perform an impairment review of these assets, which have a
carrying value of approximately $2.0 billion as of April 30, 2001. An impairment
review could result in a write-down of these assets to their fair values. In
light of the large carrying value associated with our intangible assets, any
write-down of these assets may result in a significant charge to our statement
of operations in the period any impairment is determined.

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WE MAY NOT SUCCESSFULLY COMPLETE THE INTEGRATION OF OUR BUSINESS OPERATIONS WITH
THOSE OF GALILEO, WHICH COULD HARM OUR OPERATING RESULTS AND SHARE PRICE.

Integrating the operations of Galileo with ours is a difficult, time
consuming and costly task. While we have begun the process of integrating
several of our operations with those of Galileo, the completion of that
integration may distract management from our day-to-day business. We must
successfully integrate, among other things:

- product offerings;

- product development, sales and marketing;

- customer service functions;

- research and development; and

- management information systems.

Among the challenges in integrating the companies is demonstrating to our
respective customers that the acquisition has not and will not result in an
adverse change in business focus and persuading the companies' personnel that
the business cultures are compatible. In addition, Galileo operates in some
locations in which we did not otherwise operate. Therefore, to successfully
integrate Galileo's operations, we will need to retain management, key employees
and business partners of Galileo. If we are not able to effectively complete the
integration of our operations, technology and personnel in a timely and
efficient manner, then we will not realize the benefits we expected from the
acquisition. In particular, if the integration is not successful:

- our operating results may be harmed;

- we may lose key personnel;

- we may not be able to retain or expand our market position; and

- the market price of our common stock may decline.

GALILEO IS INCORPORATED UNDER THE LAWS OF, AND ITS PRINCIPAL OFFICES ARE LOCATED
IN, THE STATE OF ISRAEL AND THEREFORE ITS BUSINESS OPERATIONS MAY BE HARMED BY
ADVERSE POLITICAL, ECONOMIC AND MILITARY CONDITIONS AFFECTING ISRAEL.

Galileo is both incorporated under the laws of and has its principal offices
in the State of Israel. In addition, Galileo maintains its research and
development operations in Israel. Thus, Galileo is directly influenced by the
political, economic and military conditions affecting Israel. Any major
hostilities involving or within Israel could disrupt Galileo's research and
development and other business operations. For example, continued hostilities
between Israel and the Palestinian Authority in recent months caused substantial
political unrest, which could lead to a potential economic downturn in Israel.
Also, the interruption or curtailment of trade between Israel and its present
trading partners or a significant downturn in the economic or financial
condition of Israel could reduce Galileo's sales and its financial results. A
number of countries restrict business with Israel or Israeli companies, and if
the countries in which Galileo's customers or potential customers conduct their
businesses adopt restrictive laws or policies toward Israel or Israeli
businesses this could harm Galileo's ability to retain or increase its sales.

WE ARE A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF OUR
CURRENT AND POTENTIAL COMPETITORS, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY
AND INCREASE OR MAINTAIN REVENUES AND MARKET SHARE.

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We may not be able to compete successfully against current or potential
competitors. If we do not compete successfully, our market share and revenues
may not increase or may decline. In addition, most of our current and potential
competitors have longer operating histories, significantly greater resources and
name recognition and a larger base of customers than us. As a result, these
competitors may have greater credibility with our existing and potential
customers. Moreover, our competitors may foresee the course of market
developments more accurately than us. They also may be able to adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than us, which would allow them to respond
more quickly than us to new or emerging technologies or changes in customer
requirements. In addition, new competitors or alliances among existing
competitors could emerge. We expect to face competition in the future from our
current competitors, other manufacturers and designers of integrated circuits,
and innovative start-up integrated circuit design companies. Many of our
customers are also large, established integrated circuit suppliers. Our sales to
and support of such customers may enable them to become a source of competition
to us, despite our efforts to protect our intellectual property rights.

As we have entered the broadband communications market, we have faced
competition from a number of additional competitors who have a longer history of
serving that market. Many of these competitors have established reputations in
that market and long-standing relationships with the customers to whom we intend
to sell our products that could prevent us from competing successfully.
Competition could increase pressure on us to lower our prices and lower our
margins.

DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY IN ACCURATELY
PREDICTING OUR FUTURE SALES AND APPROPRIATELY BUDGETING FOR OUR EXPENSES, AND WE
MAY NOT BE ABLE TO MAINTAIN OUR EXISTING GROWTH RATE.

We were incorporated in 1995 and did not begin generating any meaningful
sales until June 1998. This limited operating experience, combined with the
rapidly changing nature of the markets in which we sell our products, limits our
ability to accurately forecast quarterly and annual sales. Additionally, because
many of our expenses are fixed in the short term or incurred in advance of
anticipated sales, we may not be able to decrease our expenses in a timely
manner to offset any shortfall of sales. We are currently expanding our staffing
and increasing our expense levels in anticipation of future sales growth. If our
sales do not increase as anticipated, significant losses could result due to our
higher expense levels.

Although we have experienced sales and earnings growth in prior quarterly
and annual periods, we may not be able to sustain these growth rates,
particularly in the period of economic slowdown we are currently experiencing.
Accordingly, you should not rely on the results of any prior quarterly or annual
periods as an indication of our future performance.

BECAUSE WE DO NOT HAVE LONG-TERM COMMITMENTS FROM OUR CUSTOMERS, WE MUST
ESTIMATE CUSTOMER DEMAND, AND ERRORS IN OUR ESTIMATES CAN HAVE NEGATIVE EFFECTS
ON OUR INVENTORY LEVELS AND SALES.

Our sales are made on the basis of individual purchase orders rather than
long-term purchase commitments. In addition, our customers may cancel or defer
purchase orders. We have historically placed firm orders for products with our
suppliers up to 16 weeks prior to the anticipated delivery date and typically
prior to receiving an order for the product. Therefore, our order volumes are
based on our forecasts of demand from our customers. This process requires us to
make multiple demand forecast assumptions, each of which may introduce error
into our estimates. If we overestimate customer demand, we may allocate
resources to manufacturing products that we may not be able to sell when we
expect or at all. As a result, we would have excess inventory, which would harm
our financial results. Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity is available, we would forego revenue
opportunities, lose market share and damage our customer relationships. On
occasion, we have been unable to adequately respond to unexpected increases in
customer purchase orders, and therefore, were unable to benefit from this
increased demand.

WE RELY ON INDEPENDENT FOUNDRIES AND SUBCONTRACTORS FOR THE MANUFACTURE,
ASSEMBLY AND TESTING OF OUR INTEGRATED CIRCUIT PRODUCTS, AND THE FAILURE OF ANY
OF THESE THIRD-PARTY VENDORS TO DELIVER PRODUCTS OR OTHERWISE PERFORM AS
REQUESTED COULD DAMAGE OUR RELATIONSHIPS WITH OUR CUSTOMERS, DECREASE OUR SALES
AND LIMIT OUR GROWTH.

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We do not have our own manufacturing, assembly or testing facilities.
Therefore, we must rely on third-party vendors to manufacture, assemble and test
the products we design. We currently rely on Taiwan Semiconductor Manufacturing
Company to produce substantially all of our integrated circuit products. We also
currently rely on Taiwan Semiconductor and other third-party assembly and test
subcontractors to assemble, package and test our products. If these vendors do
not provide us with high quality products and services in a timely manner, or if
one or more of these vendors terminates its relationship with us, we may be
unable to obtain satisfactory replacements to fulfill customer orders on a
timely basis, our relationships with our customers could suffer, our sales could
decrease and our growth could be limited. Other significant risks associated
with relying on these third-party vendors include:

- our customers or their customers may fail to approve or delay approving
our selected supplier;

- we have reduced control over product cost, delivery schedules and
product quality;

- the warranties on wafers or products supplied to us are limited; and

- we face increased exposure to potential misappropriation of our
intellectual property.

We currently do not have long-term supply contracts with any of our
third-party vendors. They therefore are not obligated to perform services or
supply products to us for any specific period, in any specific quantities, or at
any specific price, except as may be provided in a particular purchase order.
None of our third-party foundry or assembly and test subcontractors has provided
contractual assurances to us that adequate capacity will be available to us to
meet future demand for our products. These foundries may allocate capacity to
the production of other companies' products while reducing deliveries to us on
short notice. In particular, foundry customers that are larger and better
financed than us or that have long-term agreements with these foundries may
cause these foundries to reallocate capacity to those customers, decreasing the
capacity available to us. If we need another integrated circuit foundry or
assembly and test subcontractor because of increased demand or the inability to
obtain timely and adequate deliveries from our providers at the time, we might
not be able to develop relationships with other vendors who are able to satisfy
our requirements. Even if other integrated circuit foundries or assembly and
test subcontractors are available at that time to satisfy our requirements, it
would likely take several months to acquire a new provider. Such a change may
also require the approval of our customers, which would take time to effect and
could cause our customers to cancel orders or fail to place new orders.

IF OUR FOUNDRIES DO NOT ACHIEVE SATISFACTORY YIELDS OR QUALITY, OUR
RELATIONSHIPS WITH OUR CUSTOMERS AND OUR REPUTATION WILL BE HARMED.

The fabrication of integrated circuits is a complex and technically
demanding process. Our foundries have from time to time experienced
manufacturing defects and reduced manufacturing yields. In the fourth quarter of
fiscal 2000, we experienced low yields in the production of our newly introduced
read channel product, which decreased our gross profits for that quarter.
Changes in manufacturing processes or the inadvertent use of defective or
contaminated materials by our foundries could result in lower than anticipated
manufacturing yields or unacceptable performance. Many of these problems are
difficult to detect at an early stage of the manufacturing process and may be
time consuming and expensive to correct. Poor yields from our foundries, or
defects, integration issues or other performance problems in our products could
cause us significant customer relations and business reputation problems, harm
our financial results and result in financial or other damages to our customers.
Our customers could also seek damages from us for their losses. A product
liability claim brought against us, even if unsuccessful, would likely be time
consuming and costly to defend. In addition, defects in our existing or new
products could result in significant warranty, support and repair costs, and
divert the attention of our engineering personnel from our product development
efforts.

WE DEPEND ON KEY PERSONNEL WITH WHOM WE DO NOT HAVE EMPLOYMENT AGREEMENTS TO
MANAGE OUR BUSINESS, AND IF WE ARE UNABLE TO RETAIN OUR CURRENT PERSONNEL AND
HIRE ADDITIONAL PERSONNEL, OUR ABILITY TO DEVELOP AND SUCCESSFULLY MARKET OUR
PRODUCTS COULD BE HARMED.

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We believe our future success will depend in large part upon our ability to
attract and retain highly skilled managerial, engineering and sales and
marketing personnel. The loss of any key employees or the inability to attract
or retain qualified personnel, including engineers and sales and marketing
personnel, could delay the development and introduction of, and harm our ability
to sell, our products. We believe that our future success is highly dependent on
the contributions of Sehat Sutardja, our co-founder, President and Chief
Executive Officer, Pantas Sutardja, our co-founder and Vice-President, and Chief
Technology Officer of Marvell Semiconductor, Weili Dai, our co-founder and
Executive Vice President of the Communications Business Group of Marvell
Semiconductor and Avigdor Willenz, our Executive Vice President of the
Communications Business Group of Galileo Technology Ltd. We do not have
employment contracts with these or any other key personnel, and their knowledge
of the business and industry would be extremely difficult to replace.

There is currently a shortage of qualified technical personnel with
significant experience in the design, development, manufacture, marketing and
sales of integrated circuits for use in communications products. In particular,
there is a shortage of engineers who are familiar with the intricacies of the
design and manufacture of products based on analog technology, and competition
for these engineers is intense. Our key technical personnel represent a
significant asset and serve as the source of our technological and product
innovations. We may not be successful in attracting and retaining sufficient
numbers of technical personnel to support our anticipated growth.

OUR RAPID GROWTH HAS STRAINED OUR RESOURCES AND OUR INABILITY TO MANAGE ANY
FUTURE GROWTH COULD HARM OUR PROFITABILITY.

Our rapid growth has placed, and future growth of our operations will
continue to place, a significant strain on our management personnel, systems and
resources. We anticipate that we will need to implement a variety of new and
upgraded operational and financial systems, procedures and controls, including
the improvement of our accounting and other internal management systems. We also
expect that we will need to continue to expand, train, manage and motivate our
workforce. All of these endeavors will require substantial management effort. If
we are unable to effectively manage our expanding operations, our profitability
could be harmed.

As a result of this growth, we believe that our current facilities will be
inadequate to meet our requirements past fiscal 2003. We expect we will need to
locate additional space in California, and may find it necessary to vacate our
current locations. Additional space may cost more than our existing facilities,
and if we relocate, we may have to pay rent on two leases for a period of time.
We may also incur significant additional capital expenditures for construction
of tenant improvements. These relocations could also result in temporary
disruptions of operations and diversion of management's attention and resources.

WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS, WHICH MAY HARM OUR
RESULTS OF OPERATIONS, BECAUSE A MAJORITY OF OUR PRODUCTS AND OUR CUSTOMERS'
PRODUCTS ARE MANUFACTURED AND SOLD OUTSIDE OF THE UNITED STATES.

A substantial portion of our business is conducted outside of the United
States and as a result, we are subject to foreign business, political and
economic risks. All of our products are manufactured outside of the United
States. Our current qualified integrated circuit foundries are located in the
same region within Taiwan, and our primary assembly and test subcontractors are
located in the Pacific Rim region. In addition, many of our customers are
located outside of the United States, primarily concentrated in Singapore,
Taiwan and Japan, which further exposes us to foreign risks. Sales to customers
located outside of the United States represented approximately 83% of our
revenues in the first three months of fiscal 2002 and represented approximately
92% and 99% of our revenues in fiscal 2001 and 2000, respectively. We anticipate
that our manufacturing, assembly, testing and sales outside of the United States
will continue to account for a substantial portion of our operations and revenue
in future periods. Accordingly, we are subject to international risks,
including:

- difficulties in obtaining domestic and foreign export, import and other
governmental approvals, permits and licenses;

- compliance with foreign laws;

- difficulties in staffing and managing foreign operations;

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- trade restrictions or higher tariffs;

- transportation delays;

- difficulties of managing distributors, especially because we expect to
continue to increase our sales through international distributors;

- political and economic instability, including hostilities and political
unrest, boycotts, curtailment of trade and other business restrictions;
and

- inadequate local infrastructure.

Because all of our sales to date have been denominated in United States
dollars, increases in the value of the United States dollar will increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, potentially leading to a
reduction in sales and profitability for us in that country. A portion of our
international revenue may be denominated in foreign currencies in the future,
which will subject us to risks associated with fluctuations in exchange rates
for those foreign currencies.

THE CURRENT SHORTAGE OF ELECTRICITY IN CALIFORNIA AND THE CORRESPONDING
INCREASES IN PRICES AND ROLLING BLACKOUTS MAY NEGATIVELY AFFECT OUR RESEARCH AND
DEVELOPMENT AND OTHER OPERATIONS.

California has recently suffered a severe shortage of electricity, which has
resulted in one instance in recent months in which we were subjected to a
"rolling blackout." When we are subjected to rolling blackouts, all electricity
to our facilities is cut off and we are unable to use our computers, telephones
and other equipment that is critical to our research and development and other
functions. Some of our customers who have operations in California are also
being negatively affected by the electricity shortage. The predictions for the
summer of calendar year 2001 are for even more severe electricity shortages,
which may result in substantial down time for California businesses. If we are
subjected to a series of rolling blackouts or to a single extended rolling
blackout, our research and development and other operations will be negatively
affected.

OUR THIRD-PARTY FOUNDRIES AND SUBCONTRACTORS ARE CONCENTRATED IN TAIWAN AND
ELSEWHERE IN THE PACIFIC RIM, AN AREA SUBJECT TO SIGNIFICANT EARTHQUAKE RISKS.
ANY DISRUPTION TO THE OPERATIONS OF THESE FOUNDRIES AND SUBCONTRACTORS RESULTING
FROM EARTHQUAKES OR OTHER NATURAL DISASTERS COULD CAUSE SIGNIFICANT DELAYS IN
THE PRODUCTION OR SHIPMENT OF OUR PRODUCTS.

Substantially all of our products are produced by Taiwan Semiconductor
Manufacturing Company located in Taiwan. Currently our only alternative
manufacturing source is also located in Taiwan. In addition, substantially all
of our assembly and testing facilities are located in Singapore, Taiwan and the
Philippines. The risk of an earthquake in Taiwan and elsewhere in the Pacific
Rim region is a significant risk due to the proximity of major earthquake fault
lines to the facilities of our foundries and assembly and test subcontractors.
In September 1999, a major earthquake in Taiwan affected the facilities of
several of these third-party contractors. As a consequence of this earthquake,
these contractors suffered power outages and disruptions that impaired their
production capacity. The occurrence of an earthquake or other natural disaster
could result in the disruption of our foundry or assembly and test capacity. Any
disruption resulting from such events could cause significant delays in the
production or shipment of our products until we are able to shift our
manufacturing, assembling or testing from the affected contractor to another
third-party vendor. We may not be able to obtain alternate capacity on favorable
terms, if at all.

WE RELY ON THIRD-PARTY DISTRIBUTORS AND THE FAILURE OF THESE DISTRIBUTORS TO
PERFORM AS EXPECTED COULD REDUCE OUR FUTURE SALES.

We sell our communications products to customers primarily through
distributors and manufacturers' representatives. Our relationships with our
distributors and manufacturers' representatives have been established within the
last year, and we are unable to predict the extent to which some of these
distributors and manufacturers' representatives will be successful in marketing
and selling our products. Moreover, many of our

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manufacturers' representatives and distributors also market and sell competing
products. Our representatives and distributors may terminate their relationships
with us at any time. Our future performance will also depend, in part, on our
ability to attract additional distributors or manufacturers' representatives
that will be able to market and support our products effectively, especially in
markets in which we have not previously distributed our products. If we cannot
retain our current distributors or manufacturers' representatives or recruit
additional or replacement distributors or manufacturers' representatives, our
sales and operating results will be harmed. The loss of one or more of our
distributors or manufacturers' representatives could harm our sales and results
of operations. We generally realize a higher gross margin on direct sales and
from sales through manufacturers' representatives than on sales through
distributors. Accordingly, if our distributors were to account for an increased
portion of our net sales, our gross margins would decline.

PRODUCTS THAT CONTAIN ERRORS OR DEFECTS COULD RESULT IN SIGNIFICANT COSTS FOR US
AND HARM OUR REPUTATION.

Our products are complex. Despite demanding testing and quality control, we
cannot be certain that errors and defects will not be found in connection with
the introduction of our products or product enhancements.

We have experienced errors and defects in the past in connection with new
products. Introductions by us of new or enhanced products with reliability,
quality or compatibility problems could significantly delay or hinder market
acceptance of such products, and could adversely affect our ability to retain
our existing customers and to attract new customers. Alleviating these problems
could require significant expenditures of capital and additional development
costs, and diversion of technical and other resources by us. These problems may
also result in claims by our customers or others against us.

OUR FUTURE ACQUISITIONS AND TRANSACTIONS MAY NOT BE SUCCESSFUL.

We expect to continue to make acquisitions of, and investments in,
businesses that offer complementary products, services and technologies, augment
our market segment coverage, or enhance our technological capabilities. We may
also enter into strategic alliances or joint ventures to achieve these goals. We
cannot assure you that we will be able to identify suitable acquisition,
investment, alliance, or joint venture opportunities or that we will be able to
consummate any such transactions or relationships on terms and conditions
acceptable to us, or that such transactions or relationships will be successful.

Any transactions or relationships will be accompanied by the risks commonly
encountered with those matters. Risks that could have a material adverse affect
on our business, results of operations or financial condition include, among
other things:

- the difficulty of assimilating the operations and personnel of an
acquired businesses;

- the potential disruption of our ongoing business;

- the distraction of management from our business;

- the potential inability of management to maximize the financial and
strategic position of us as a result of an acquisition;

- the potential difficulty maintaining uniform standards, controls,
procedures and policies;

- the impairment of relationships with employees and clients as a result
of any integration of new management personnel;

- the risk of entering market segments in which we have no or limited
direct prior experience and where competitors in such market segments
have stronger market segment positions; and

- the potential loss of key employees of an acquired company.

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THE AVERAGE SELLING PRICES OF PRODUCTS IN OUR MARKETS HAVE HISTORICALLY
DECREASED RAPIDLY AND WILL LIKELY DO SO IN THE FUTURE, WHICH COULD HARM OUR
REVENUES AND GROSS PROFITS.

The products we develop and sell are used for high volume applications. As a
result, the prices of those products have historically decreased rapidly. Our
gross profits and financial results will suffer if we are unable to offset any
reductions in our average selling prices by increasing our sales volumes,
reducing our costs, or developing new or enhanced products on a timely basis
with higher selling prices or gross profits. We expect that, as a result of
pricing pressure from our customers, our gross profits on our storage products
are also likely to decrease over the next fiscal year below levels we have
historically experienced. Because we do not operate our own manufacturing,
assembly or testing facilities, we may not be able to reduce our costs as
rapidly as companies that operate their own facilities, and our costs may even
increase. In the past, we have reduced the average selling prices of our
products in anticipation of future competitive pricing pressures, new product
introductions by us or our competitors and other factors. We expect that we will
have to do so again in the future.

WE HAVE A LENGTHY AND EXPENSIVE SALES CYCLE, WHICH DOES NOT ASSURE PRODUCT
SALES, AND WHICH IF UNSUCCESSFUL MAY HARM OUR OPERATING RESULTS.

The sales cycle for our products is long and requires us to invest
significant resources with each potential customer without any assurance of
sales to that customer. Our sales cycle typically begins with a three to six
month evaluation and test period, also known as qualification, during which our
products undergo rigorous reliability testing by our customers.

Qualification is followed by a 12 to 18 month development period by our
customers and an additional three to six month period before a customer
commences volume production of equipment incorporating our products. This
lengthy sales cycle creates the risk that our customers will decide to cancel or
change product plans for products incorporating our integrated circuits. During
our sales cycle, our engineers assist customers in implementing our products
into the customers' products. We incur significant research and development and
selling, general and administrative expenses as part of this process, and this
process may never generate related revenues. We derive revenue from this process
only if our design is selected. Once a customer selects a particular integrated
circuit for use in a storage product, the customer generally uses solely that
integrated circuit for a full generation of its product. Therefore, if we do not
achieve a design win for a product, we will be unable to sell our integrated
circuit to a customer until that customer develops a new product or a new
generation of its product. Even if we achieve a design win with a customer, the
customer may not ultimately ship products incorporating our products or may
cancel orders after we have achieved a sale. In addition, we will have to begin
the qualification process again when a customer develops a new generation of a
product for which we were the successful supplier.

Also, during the final production of a mature product, our customers
typically exhaust their existing inventory of our integrated circuits.
Consequently, orders for our products may decline in those circumstances, even
if our products are incorporated into both our customers' mature and replacement
products. A delay in a customer's transition to commercial production of a
replacement product may cause the customer to lose sales, which would delay our
ability to recover the lost sales from the discontinued mature product. In
addition, customers may defer orders in anticipation of new products or product
enhancements from us or our competitors.

WE ARE SUBJECT TO THE CYCLICAL NATURE OF THE INTEGRATED CIRCUIT INDUSTRY. THE
CURRENT AND ANY FUTURE DOWNTURNS WILL LIKELY REDUCE OUR REVENUE AND RESULT IN
EXCESS INVENTORY.

The integrated circuit industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand. The industry has experienced, and is currently
experiencing, significant downturns, often connected with, or in anticipation
of, maturing product cycles of both integrated circuit companies' and their
customers' products and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production overcapacity,
high inventory levels and accelerated erosion of average selling prices. The
current downturn and any future downturns may reduce our

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revenue or our percentage of revenue growth on a quarter-to-quarter basis and
result in us having excess inventory.

Furthermore, any upturn in the integrated circuit industry could result in
increased competition for access to third-party foundry, assembly and test
capacity.

WE ARE DEPENDENT UPON THE HARD DISK DRIVE INDUSTRY, WHICH IS HIGHLY CYCLICAL AND
EXPERIENCES RAPID TECHNOLOGICAL CHANGE.

Sales to customers in the hard disk drive industry represented approximately
45% of our net revenue in the first three months of fiscal 2002. The hard disk
drive industry is intensely competitive, and the technology changes rapidly. As
a result, this industry is highly cyclical, with periods of increased demand and
rapid growth followed by periods of oversupply and subsequent contraction. These
cycles may affect us as our customers are suppliers to this industry. Hard disk
drive manufacturers tend to order more components than they may need during
growth periods, and sharply reduce orders for components during periods of
contraction. In addition, advances in existing technologies and the introduction
of new technologies may result in lower demand for disk drive storage devices,
thereby reducing demand for our products.

Rapid technological changes in the hard disk drive industry often result in
significant and rapid shifts in market share among the industry's participants.
If the hard disk drive manufacturers supplied by our customers do not retain or
increase market share, our sales may decrease.

WHEN DEMAND FOR FOUNDRY CAPACITY IS HIGH, WE MAY TAKE VARIOUS ACTIONS TO TRY TO
SECURE SUFFICIENT CAPACITY, WHICH MAY BE COSTLY AND HARM OUR OPERATING RESULTS.

Availability of foundry capacity has in the recent past been reduced due to
strong demand. In order to secure sufficient foundry capacity when demand is
high, we may enter into various arrangements with suppliers that could be costly
and harm our operating results, including:

- - option payments or other prepayments to a foundry;

- - nonrefundable deposits with or loans to foundries in exchange for capacity
commitments;

- - contracts that commit us to purchase specified quantities of integrated
circuits over extended periods;

- - issuance of our equity securities to a foundry;

- - investment in a foundry; and

- - other partnership relationships with foundries.

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

THE DEVELOPMENT AND EVOLUTION OF MARKETS FOR OUR INTEGRATED CIRCUITS ARE
DEPENDENT ON FACTORS, SUCH AS INDUSTRY STANDARDS, OVER WHICH WE HAVE NO CONTROL.
FOR EXAMPLE, IF OUR CUSTOMERS ADOPT NEW OR COMPETING INDUSTRY STANDARDS WITH
WHICH OUR PRODUCTS ARE NOT COMPATIBLE OR FAIL TO ADOPT STANDARDS WITH WHICH OUR
PRODUCTS ARE COMPATIBLE, OUR EXISTING PRODUCTS WOULD BECOME LESS DESIRABLE TO
OUR CUSTOMERS AND OUR SALES WOULD SUFFER.

The emergence of markets for our integrated circuits is affected by a
variety of factors beyond our control. In particular, our products are designed
to conform to current specific industry standards. Our customers may not adopt
or continue to follow these standards, which would make our products less
desirable to our customers

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and reduce our sales. Also, competing standards may emerge that are preferred by
our customers, which could also reduce our sales and require us to make
significant expenditures to develop new products.

We have made a significant investment in the development and production of
our Gigabit Ethernet products. However, the Gigabit Ethernet technology is
relatively new compared to the more established 10 and 100 megabits per second
Fast Ethernet technologies. If the Gigabit Ethernet technology does not achieve
widespread market acceptance, our Gigabit Ethernet products may never be
profitable.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WHICH WOULD NEGATIVELY
AFFECT OUR ABILITY TO COMPETE.

We believe one of our key competitive advantages results from our collection
of proprietary technologies that we have developed since our inception. If we
fail to protect these intellectual property rights, competitors could sell
products based on technology that we have developed, which could harm our
competitive position and decrease our revenues. We believe that the protection
of our intellectual property rights is and will continue to be important to the
success of our business. We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods, to protect our proprietary technologies. We also enter into
confidentiality or license agreements with our employees, consultants and
business partners, and control access to and distribution of our documentation
and other proprietary information. As of April 30, 2001, we have been issued
several United States patents and have a number of pending United States patent
applications. However, a patent may not be issued as a result of any
applications or, if issued, claims allowed may not be sufficiently broad to
protect our technology. In addition, it is possible that existing or future
patents may be challenged, invalidated or circumvented. Despite our efforts,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or proprietary technology. Monitoring unauthorized use of our
technology is difficult, and the steps that we have taken may not prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.

SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY IN OUR INDUSTRY MAY CAUSE US
TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SUBJECT US TO
LIABILITY, REQUIRE US TO STOP SELLING OUR PRODUCTS OR FORCE US TO REDESIGN OUR
PRODUCTS.

Litigation involving patents and other intellectual property is widespread
in the high-technology industry and is particularly prevalent in the integrated
circuit industry, where a number of companies aggressively bring numerous
infringement claims to protect their patent portfolios. We may become a party to
litigation in the future either to protect our intellectual property or as a
result of an alleged infringement of others' intellectual property. These
lawsuits could subject us to significant liability for damages and invalidate
our proprietary rights. These lawsuits, regardless of their success, would
likely be time-consuming and expensive to resolve and would divert management
time and attention. Any potential intellectual property litigation also could
force us to do one or more of the following:

- stop selling products or using technology that contain the allegedly
infringing intellectual property;

- pay damages to the party claiming infringement;

- attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and

- attempt to redesign those products that contain the allegedly infringing
intellectual property.

WE ARE INCORPORATED IN BERMUDA, AND, AS A RESULT, IT MAY NOT BE POSSIBLE FOR OUR
SHAREHOLDERS TO ENFORCE CIVIL LIABILITY PROVISIONS OF THE SECURITIES LAWS OF THE
UNITED STATES.

We are organized under the laws of Bermuda. As a result, it may not be
possible for our shareholders to effect service of process within the United
States upon us, or to enforce against us in United States courts judgments based
on the civil liability provisions of the securities laws of the United States.
Most of our executive officers and directors are residents of the United States.
However, there is significant doubt as to

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whether the courts of Bermuda would recognize or enforce judgments of United
States courts obtained against us or our directors or officers based on the
civil liability provisions of the securities laws of the United States or any
state or hear actions brought in Bermuda against us or those persons based on
those laws. The United States and Bermuda do not currently have a treaty
providing for the reciprocal recognition and enforcement of judgments in civil
and commercial matters. Therefore, a final judgment for the payment of money
rendered by any federal or state court in the United States based on civil
liability, whether or not based solely on United States federal or state
securities laws, would not be automatically enforceable in Bermuda.

OUR BYE-LAWS CONTAIN A WAIVER OF CLAIMS OR RIGHTS OF ACTION BY OUR SHAREHOLDERS
AGAINST OUR OFFICERS AND DIRECTORS, WHICH WILL SEVERELY LIMIT OUR SHAREHOLDERS'
RIGHT TO ASSERT A CLAIM AGAINST OUR OFFICERS AND DIRECTORS UNDER BERMUDA LAW.

Our Bye-laws contain a broad waiver by our shareholders of any claim or
right of action, both individually and on our behalf, against any of our
officers and directors. The waiver applies to any action taken by an officer or
director, or the failure of an officer or director to take any action, in the
performance of his or her duties with or for us, other than with respect to any
matter involving any fraud or dishonesty on the part of the officer or director.
This waiver will limit the rights of our shareholders to assert claims against
our officers and directors unless the act complained of involves actual fraud or
dishonesty. Thus, so long as acts of business judgment do not involve actual
fraud or dishonesty, they will not be subject to shareholder claims under
Bermuda law. For example, shareholders will not have claims against officers and
directors for a breach of trust, unless the breach rises to the level of actual
fraud or dishonesty.

WE ARE SUBJECT TO UNCERTAINTY REGARDING HOW THE UNITED STATES FEDERAL INCOME TAX
LAWS APPLY TO OUR BUSINESS. IF OUR APPLICATION OF THE TAX CODE IS INCORRECT, OUR
OPERATING RESULTS COULD BE HARMED.

As a Bermuda corporation, we are subject to United States federal income tax
at regular corporate rates and to United States branch profits tax, in each case
to the extent that our income is effectively connected with the conduct of a
trade or business in the United States. The determination of whether income of a
foreign corporation is effectively connected with the conduct of a trade or
business in the United States and, therefore, is subject to United States tax,
involves a consideration of all the facts and circumstances and the application
of legal standards that are uncertain. There have been few court cases or
rulings by the Internal Revenue Service addressing the application of these
legal standards, and we believe that none of these cases or rulings relate to
facts precisely like ours. Our position is that our business operations do not
generate any income that is effectively connected with a United States trade or
business. Because of the uncertainty as to how United States federal income tax
laws apply to the way we conduct our business, we believe the Internal Revenue
Service may disagree with our past or future positions as to the amount of
effectively connected income that we earn. Therefore, if our positions are
disallowed, the amount we have accrued in our financial statements for United
States federal income taxes may be insufficient to the extent of the difference
between the income tax rate ultimately determined to apply and the tax rate that
we have used to accrue for income taxes in our financial statements. In
addition, we could be required to make significant cash payments for back taxes
and interest based on the difference between the income tax rate ultimately
determined to apply and the effective rate at which we paid those taxes.

TAX BENEFITS WE RECEIVE MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH WOULD
INCREASE OUR COSTS.

Under current Bermuda law, we are not subject to tax on our income or
capital gains. We have obtained from the Minister of Finance of Bermuda under
the Exempt Undertakings Tax Protection Act 1966, as amended, an undertaking
that, in the event that Bermuda enacts any legislation imposing tax computed on
income or capital gains, those taxes should not apply to us until March 28,
2016. However, this exemption may not be extended beyond that date.

The Economic Development Board of Singapore granted Pioneer Status to our
wholly-owned subsidiary in Singapore in July 2000 for a period of at least six
years, commencing July 1, 1999. As a result, we anticipate that a significant
portion of the income we earn in Singapore during this period will be exempt
from the 26% Singapore tax rate. We are required to meet several requirements as
to investment, headcount and activities in Singapore to retain this status. If
our Pioneer Status is terminated early, our financial results could be harmed.

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The Israeli government has granted Approved Enterprise Status to our
wholly-owned subsidiary in Israel, which provides for a tax holiday on
undistributed Israeli income. We expect that we will start paying some income
tax in Israel beginning in 2004. In order to maintain our qualification, we must
continue to meet specified conditions, including the making of investments in
fixed assets in Israel.

IF WE ARE CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR SHAREHOLDERS
MAY SUFFER ADVERSE TAX CONSEQUENCES.

Because we are incorporated in Bermuda and have operations in the United
States, Israel and Singapore, we are subject to special rules and regulations,
including rules regarding a passive foreign investment company, or PFIC. We
believe that we are not a PFIC, and we expect to continue to manage our affairs
so that we will not become a PFIC. However, whether we should be treated as a
PFIC is a factual determination that is made annually and is subject to change.
If we are classified as a PFIC, then each United States holder of our common
stock would, upon qualifying distributions by us or upon the pledge or sale of
their shares of common stock at a gain, be liable to pay tax at the then
prevailing rates on ordinary income plus an interest charge, generally as if the
distribution or gain had been earned ratably over the shareholder's holding
period. In addition to the risks related to PFIC status, we and our shareholders
could also suffer adverse tax consequences if we are classified as a foreign
personal holding company, a personal holding company or a controlled foreign
corporation.

OUR OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK, AND THREE
EXISTING DIRECTORS, WHO ARE ALSO SIGNIFICANT SHAREHOLDERS, ARE RELATED BY BLOOD
OR MARRIAGE. THESE FACTORS MAY ALLOW THE OFFICERS AND DIRECTORS AS A GROUP OR
THE THREE RELATED DIRECTORS TO CONTROL THE ELECTION OF DIRECTORS AND THE
APPROVAL OR DISAPPROVAL OF SIGNIFICANT CORPORATE ACTIONS.

As of April 30, 2001, our executive officers and directors beneficially
owned or controlled, directly or indirectly, approximately 52% of the
outstanding shares our common stock. Additionally, Sehat Sutardja and Weili Dai
are husband and wife and Sehat Sutardja and Pantas Sutardja are brothers. All
three are directors and together they held approximately 31% of our outstanding
common stock as of April 30, 2001. As a result, if the directors and officers as
a group or any of Sehat Sutardja, Pantas Sutardja and Weili Dai act together,
they will significantly influence, and will likely control, the election of our
directors and approval or disapproval of our significant corporate actions. This
influence over our affairs might be adverse to the interests of other
shareholders. In addition, the voting power of these officers or directors could
have the effect of delaying or preventing an acquisition of us on terms that
other shareholders may desire.

Under Bermuda law all of our officers, in exercising their powers and
discharging their duties, must act honestly and in good faith with a view to our
best interests and exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. Majority shareholders
do not owe fiduciary duties to minority shareholders. As a result, the minority
shareholders will not have a direct claim against the majority shareholders in
the event the majority shareholders take actions that damage the interests of
minority shareholders. Class actions and derivative actions are generally not
available to shareholders under the laws of Bermuda, except the Bermuda courts
would be expected to follow English case law precedent, which would permit a
shareholder to bring an action in our name if the directors or officers are
alleged to be acting beyond our corporate power, committing illegal acts or
violating our Memorandum of Association or Bye-laws. In addition, minority
shareholders would be able to challenge a corporate action that allegedly
constituted a fraud against them or required the approval of a greater
percentage of our shareholders than actually approved it. The winning party in
such an action generally would be able to recover a portion of attorneys' fees
incurred in connection with the action.

CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY COULD CAUSE US TO INCUR
SUBSTANTIAL COSTS AND DIVERT OUR MANAGEMENT'S ATTENTION AND RESOURCES.

In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of its
securities. Companies in the integrated circuit industry and other technology
industries are particularly vulnerable to this kind of litigation due to the
high volatility of their stock prices.

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Accordingly, we may in the future be the target of securities litigation.
Securities litigation could result in substantial costs and could divert the
attention and resources of our management.

FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE.

Future sales of a substantial number of shares of our common stock in the
public market could cause our stock price to decline. As of April 30, 2001, we
had 115,486,942 shares of common stock outstanding. None of these shares are
currently subject to any underwriter's lock-up agreements. The market price of
our stock could drop significantly if the holders of these shares sell them or
are perceived by the market as intending to sell them. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional stock.

OUR BYE-LAWS CONTAIN PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CORPORATE CONTROL, EVEN IF THE CHANGE IN CORPORATE CONTROL WOULD BENEFIT OUR
SHAREHOLDERS.

Our Bye-laws contain change in corporate control provisions which include:

- authorizing the issuance of preferred stock without shareholder
approval;

- providing for a classified board of directors with staggered, three-year
terms; and

- requiring two-thirds of the outstanding shares to approve amendments to
our Bye-laws.

These change in corporate control provisions could make it more difficult
for a third-party to acquire us, even if doing so would be a benefit to our
shareholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. Our cash equivalents and short-term investments are
exposed to financial market risk due to fluctuations in interest rates, which
may affect our interest income. As of April 30, 2001, our cash equivalents and
short-term investments consisted of money market securities; corporate debt
securities; State, county and municipal debt securities; and foreign government
securities. Due to the short-term nature of our investment portfolio, we would
not expect our operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates. We do not use
our investment portfolio for trading or other speculative purposes.

FOREIGN CURRENCY EXCHANGE RISK. All of our sales and the majority of our
expenses to date have been denominated in United States dollars, and, as a
result, we have relatively little exposure to foreign currency exchange risk. We
do not currently enter into forward exchange contracts to hedge exposures
denominated in foreign currencies or any other derivative financial instruments
for trading or speculative purposes. However, in the event our exposure to
foreign currency risk increases, we may choose to hedge those exposures in the
future.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to claims and litigation proceedings arising in the normal
course of business. Although the legal responsibility and financial impact with
respect to such claims and litigation cannot currently be ascertained, we do not
believe that these matters will result in our payment of monetary damages, net
of any applicable insurance proceeds, that, in the aggregate, would be material
in relation to our consolidated financial position or results of operations.

ITEM 2. CHANGES IN 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.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as part of this report:

10.13 Technology License Agreement dated April 23, 2001 by and between
Marvell International Limited and ARM Limited

(b) Reports on Form 8-K:

On February 5, 2001, we filed a current report on Form 8-K in connection
with the completion of our acquisition of Galileo Technology Ltd.

On February 23, 2001, we filed a current report on Form 8-K in
connection with the issuance of a press release dated February 22, 2001
announcing our fiscal 2001 fiscal year and fourth quarter results.

On March 20, 2001, we filed amendment No. 1 to our current report on
Form 8-K filed on February 5, 2001, reporting additional financial
information related to our acquisition of Galileo Technology Ltd.

On April 6, 2001, we filed a current report on Form 8-K in connection
with our issuance of a press release dated April 5, 2001, which updated
our first quarter and fiscal 2002 financial outlook.

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SIGNATURES

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

MARVELL TECHNOLOGY GROUP LTD.

June 12, 2001 By: /s/ GEORGE A. HERVEY
----------------------- -----------------------------------
Date George A. Hervey
Vice President and Chief Financial
Officer

28
31

EXHIBIT INDEX

Exhibit
Number Description
- ----------- ------------------------------------------------------------------

10.13 Technology License Agreement dated April 23, 2001 by and between
Marvell International Limited and ARM Limited*

- -----------

* Certain portions of this exhibit have been omitted pursuant to a confidential
treatment request filed separately with the Securities and Exchange
Commission.