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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 March 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 0-23023

MMC NETWORKS, INC.
(Exact name of registrant as specified in its charter)

Delaware 77-0319809
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1134 E. Arques Avenue
Sunnyvale, CA 94086
(Address of principal offices)
(zip code)

(408) 731-1600
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

The number of shares outstanding of the issuer's common stock as of April 27,
1998 was 29,523,567.

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MMC NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Balance Sheets at March 31, 1998 and 1997................. 3

Condensed Statements of Operations for the three months
ended March 31, 1998 and 1997.......................... 4

Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997........................ 5

Notes to the Condensed Financial Statements......................... 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 8

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................. 14

Item 2. Changes in Securities......................................... 14

Item 3. Defaults Upon Senior Notes.................................... 15

Item 4. Submission of Matters to a Vote of Security Holders........... 15

Item 5. Other Information............................................. 15

Item 6. Exhibits and Reports on Form 8-K.............................. 15

SIGNATURES ................................................................. 16

MMC NETWORKS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

March 31, December 31,
1998 1997
-------- --------

ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 11,742 $ 45,401
Short-term investments ............................................................ 34,319 --
Accounts receivable, net of allowance of $181 ..................................... 5,113 4,526
Finished goods inventories ........................................................ 620 570
Prepaid expenses and other current assets ......................................... 401 382
-------- --------
Total current assets .......................................................... 52,195 50,879
Property and equipment, net ............................................................ 4,114 3,631
Other assets ........................................................................... 213 213
-------- --------
$ 56,522 $ 54,723
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................. $ 2,451 $ 2,626
Accrued expenses .................................................................. 2,510 1,744
Current portion of capital lease obligations ...................................... 347 350
-------- --------
Total current liabilities ..................................................... 5,308 4,720
-------- --------
Capital lease obligations, net of current portion ...................................... 200 286
-------- --------

Stockholders' equity:
Series A Convertible Preferred Stock: $0.001 par value; 0 and 9,378 shares
authorized; no shares issued or outstanding .................................. -- --
Series B Convertible Preferred Stock: $0.001 par value; 0 and 4,121 shares
authorized; no shares issued or outstanding .................................. -- --
Preferred Stock: $0.001 par value; 10,000 and 0 shares authorized; no
shares issued or outstanding ................................................. -- --
Common Stock: $0.001 par value; 100,000 shares authorized; 29,303
and 29,198 shares issued and outstanding ..................................... 25 25
Additional paid-in capital ........................................................ 50,810 50,778
Notes receivable from stockholders ................................................ (172) (181)
Retained earnings (Accumulated deficit) ........................................... 351 (905)
-------- --------
Total stockholders' equity .................................................... 51,014 49,717
-------- --------
$ 56,522 $ 54,723
======== ========

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

MMC NETWORKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
March 31,
----------------------
1998 1997
-------- --------

Revenues ...................................... $ 9,623 $ 3,421
Cost of revenues .............................. 2,936 1,118
-------- --------
Gross profit ................. 6,687 2,303
-------- --------
Operating expenses:
Research and development, net ........ 3,144 1,096
Selling, general and administrative .. 2,097 1,062
-------- --------
Total operating expenses ..... 5,241 2,158
-------- --------
Operating income .............................. 1,446 145
-------- --------
Other income (expense):
Interest income ...................... 529 78
Interest expense ..................... (19) (33)
-------- --------
Total other income ........... 510 45
-------- --------

Income before income taxes .................... 1,956 190
Provision for income taxes .................... 700 4
-------- --------
Net income .................................... $ 1,256 $ 186
======== ========

Basic income per share ........................ $ 0.04 $ 0.02
======== ========
Shares used to compute basic income per share . 29,276 11,281
======== ========

Diluted income per share ...................... $ 0.04 $ 0.01
======== ========
Shares used to compute diluted income per share 33,717 27,076
======== ========

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

MMC NETWORKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three Months
Ended March 31,
-----------------------
1998 1997
-------- ------

Cash flows from operating activities:
Net income.......................... $ 1,256 $ 186
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization..... 462 155
Issuance of Common Stock in
exchange for services............ -- 30
Changes in assets and liabilities:
Accounts receivable............. (587) (594)
Inventories..................... (50) 288
Prepaid expenses and other
assets......................... (19) (191)
Accounts payable................ (175) (255)
Accrued expenses................ 766 177
------- ------
Net cash provided by (used in)
operating activities......... 1,653 (204)
------- ------
Cash flows from investing activities:
Sale (purchase) of short-term
investments........................ (34,319) 232
Acquisition of property and
equipment.......................... (945) (404)
------- ------

Net cash used in investing
activities................... (35,264) (172)
------- ------

Cash flows from financing activities:
Proceeds from exercise of stock
options and other................. 32 35
Proceeds from the repayment of notes
receivable from stockholders....... 9 --
Principal payments on capital lease
obligations........................ (89) (64)
------- ------
Net cash used in financing
activities................... (48) (29)
------- ------
Net increase (decrease) in cash and
cash equivalents..................... (33,659) (405)
Cash and cash equivalents at beginning
of period............................ 45,401 4,809
------- ------

Cash and cash equivalents at end of
period............................... $11,742 $4,404
======= ======

Supplemental disclosure:
Cash paid for interest.............. $ 19 $ 33
Cash paid for income taxes.......... $ 233 $ 10

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

MMC NETWORKS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial information
reflects all adjustments including only normal recurring adjustments, necessary
for the fair presentation of the financial position, results of operations and
cash flows for MMC Networks, Inc. ("the Company") for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997. Results for the interim periods
are not necessarily indicative of results for the entire year.

NOTE 2 - EARNINGS PER SHARE

The following table reconciles the numerator and denominator of the basic and
diluted EPS computations for the three months ended March 31, 1998 and 1997:

Three Months Ended March 31,
----------------------------------------------------------------------
1998 1997
------------------------------ -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ------- -------- -------- ------- ----------
(in thousands, except per share data)

Basic income per share:
Net income available to
common stockholders ..... $1,256 29,276 $ 0.04 $ 186 11,281 $ 0.02
======== ==========
Effect of dilutive securities:
Convertible Preferred Stock .. -- -- -- 13,342
Warrants ..................... -- 30 -- 112
Stock options ................ -- 4,411 -- 2,341
-------- ------- -------- -------

Diluted income per share:
Net income available to
common stockholders and
assumed conversions ..... $ 1,256 33,717 $ 0.04 $ 186 27,076 $ 0.01
======= ======= ======== ======== ======= ==========

At March 31, 1998 and 1997, options to purchase a total of 51,000 and 69,000
shares of common stock with average exercise prices of $18.69 and $2.67,
respectively, are considered anti-dilutive because the options' exercise prices
were greater than the average fair market value of the Company's common stock
for the three months then ended and, as such, are excluded from the calculation
of diluted net income per share. Each share of Convertible Preferred Stock
outstanding at March 31, 1997 was converted into one share of Common Stock upon
the completion of the Company's initial public offering effective October 28,
1998.

NOTE 3 - EQUITY

On January 13, 1998, the Company amended its Certificate of Incorporation to
authorize 10,000,000 shares of undesignated Preferred Stock. The Board of
Directors will have the authority to issue the undesignated Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof.

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in the first quarter of 1998. SFAS
130 establishes standards for the reporting of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner sources. Examples
of items to be included in

MMC NETWORKS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS

comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gain/loss on available-for-sale
securities. For the three months ended March 31, 1998 and 1997, comprehensive
income approximated net income.

The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). This statement establishes standards for the way companies report
information about operating segments in financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 has not resulted
in a change in the way the Company reports information and related disclosures.

NOTE 5 - FINANCING AGREEMENTS

In February 1998, the Company entered into a non-recourse receivables purchase
agreement with a bank. The agreement expires in February 1999 and allows the
Company to sell up to $2 million of its accounts receivable to the bank at a
discount rate of 9.5%, less an administrative fee equal to 0.20% of the total
purchased receivable balance. The agreement also provides for the Company to
grant to the bank a continuing lien on and security interest in all purchased
receivables and related property. To date, the Company has not sold any
receivables under this agreement.

The Company had two lines of credit, a $5.0 million revolving bank credit
facility under which borrowings accrued interest at the bank's prime rate and a
$3.0 million bank lease line under which borrowings accrued interest at the
bank's prime rate plus 0.5%. These lines-of-credit expired in April 1998. The
Company had not borrowed any funds under either facility as of March 31, 1998.
In conjunction with the expiration of these lines, the Company obtained a letter
of commitment from a bank to enter into a new $8 million revolving credit
facility for which borrowings will bear interest at the bank's prime rate.

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

The following information should be read in conjunction with the interim
condensed financial statements and the notes thereto included in Part I, Item 1
of this Quarterly Report on Form 10-Q and the financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which reflect the Company's
current views with respect to future events which may impact the Company's
results of operations and financial condition. In this report, the words
"anticipates", "believes", "expects", "intends" and similar expressions identify
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties and other factors, including those set forth below under
the caption "Factors Affecting Future Results", which could cause the actual
future results to differ materially from historical results or those described
in the forward-looking statements. Readers are urged to carefully review the
disclosures made by the Company in this Report and in the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Factors Affecting Future Results" of the Company's Annual Report on
Form 10-K previously filed with the Securities and Exchange Commission that
describe certain risks and factors that may affect the Company's business and
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.

BACKGROUND

The Company is a leading developer and supplier of network processors --
high-performance, open-architecture, software-programmable processors optimized
for network applications. The Company's network processors form the core silicon
"engines" of LAN and WAN switches and routers and are designed to allow network
equipment vendors to rapidly develop high-performance, feature-rich,
cost-effective products supporting a broad range of networking functions. MMC
Networks' customers employ the Company's network processors to develop and
market multi-gigabit, wire-speed switches and routers with advanced features
such as Layer 3 switching, internetworking of LANs and WANs, security, class of
service, quality of service and network management.

The Company's current products, the PS1000, ATMS2000 and AF5000 families of
network processors, provide the core functionality of high-performance Fast
Ethernet and Asynchronous Transfer Mode ("ATM") networking equipment. The
Company believes that network equipment vendors are able to reduce design and
development costs and accelerate product development cycles for high-performance
routers and switches by using the Company's products. All of the Company's
products are based on the Company's proprietary ViX(TM) architecture, which
enables network equipment vendors to easily and cost-effectively implement high-
performance, value-added features in their switch and router products.

The Company was incorporated in California in September 1992 and reincorporated
in Delaware in October 1997.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data expressed as
a percentage of the Company's revenue for the interim periods presented.

Three Months Ended March 31,
---------------------------
1998 1997
--------- ---------

Statement of Operations Data:
Revenues ......................................... 100.0% 100.0%
Cost of revenues ................................. 30.5% 32.7%
------ ------
Gross profit ........... 69.5% 67.3%
------ ------
Operating expenses:
Research and development, net ...... 32.7% 32.1%
Selling, general and administrative 21.8% 31.0%
------ ------
Total operating expenses 54.5% 63.1%
------ ------

Operating income ................................. 15.0% 4.2%
Interest income, net ............... 5.3% 1.4%
------ ------
Income before income taxes ....................... 20.3% 5.6%
Provision for income taxes ....................... 7.2% 0.1%
====== ======
Net income ....................................... 13.1% 5.5%
====== ======

Revenues

Revenues increased by 181% to $9.6 million in the first quarter of 1998 from
$3.4 million in the first quarter of 1997. The majority of the revenue growth is
due to increased sales of both the ATMS2000 and PS1000 product families to new
and existing customers. In addition, the first quarter of 1998 included revenues
generated from engineering samples of the company's newest product family,
AnyFlow 5000.

Cost of Revenues; Gross Profit

Cost of revenues increased to $2.9 million in the first quarter of 1998 as
compared to $1.1 million in the first quarter of 1997. The increase in cost of
revenues reflects the increased volume of shipments from period to period and,
as such, gross profit as a percentage of total revenues stayed relatively
constant; 69.5% for the first quarter of 1998 and 67.3% for the first quarter of
1997.

Research and Development Expenses, net

Research and development expenses, net, increased by 187% to $3.1 million in the
first quarter of 1998 as compared to $1.1 million in the first quarter of 1997.
Research and development expenses as a percentage of total revenues remained
relatively constant; 32.7% in the first quarter of 1998 as compared to 32.1% in
the first quarter of 1997. This increase in research and development expenses
from period to period was due to increased expenditures for the development of
new products. Research and development expenses are expected to continue to
increase in absolute dollars over the remainder of 1998.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 97% to $2.1 million in
the first quarter of 1998 as compared to $1.1 million in the first quarter of
1997. The increase in selling, general and administrative expenses was comprised
of increased sales commissions resulting from higher revenues, increased selling
and marketing costs associated with new products, additional personnel and
additional costs related to being a public Company. Selling, general and
administrative expenses decreased as a percentage of revenues to 21.8% in the
first quarter of 1998 from 31.0% in the first quarter of 1997 as revenue growth

surpassed the increase in selling, general and administrative expenses. The
Company expects selling, general and administrative expenses to increase in
absolute dollars over the remainder of 1998.

Interest Income, net

The increase in net interest income is due to increased cash and investment
balances from period to period.

Provision for Income Taxes

The provision for income taxes increased to $700,000 in the first quarter of
1998 from $4,000 in the first quarter of 1997 reflecting effective tax rates
of 35.8% and 2.1%, respectively. Management expects the effective tax rate
for the remainder of 1998 to decrease as the Company utilizes research and
development tax credit carryforwards and deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1998, the Company's cash, cash equivalents and short-term
investments totaled $46.1 million and the Company's working capital was
approximately $46.9 million. Net cash totaling $1.7 million was provided by
operating activities during the three months ended March 31, 1998. This increase
was primarily due to net income adjusted for depreciation and amortization of
$1.7 million. Cash used in investing activities of $35.3 million for the three
months ended March 31, 1998 was comprised of the purchase of short-term
investments of $34.3 million and the acquisition of property and equipment of
$945,000.

In February 1998, the Company entered into a non-recourse receivables purchase
agreement with a bank. The agreement expires in February 1999 and allows the
Company to sell up to $2 million of its accounts receivable to the bank at a
discount rate of 9.5%, less an administrative fee equal to 0.20% of the total
purchased receivable balance. To date, the Company has not sold any receivables
under this agreement.

The Company believes that its existing cash balances together with its available
line of credit, related financing agreement and cash flow expected from future
operations will be sufficient to meet the Company's capital requirements through
the next twelve months, although the Company could be required, or could elect,
to seek to raise additional capital before such time. This is a forward-looking
statement and the actual period of time for which the Company's resources will
be sufficient will depend on many factors, including the rate of revenue growth,
if any, the timing and extent of spending to support product development efforts
and the expansion of sales and marketing efforts, the timing and size of
business or technology acquisitions, the timing of introductions of new products
and enhancements to existing products and market acceptance of the Company's
products. There can be no assurance that additional equity or debt financing, if
required, will be available on acceptable terms or at all.

FACTORS AFFECTING FUTURE RESULTS

As described by the following factors, past financial performance should not be
considered a reliable indicator of future performance and investors should not
use historical trends to anticipate results or trends in future periods.

Fluctuations in Operating Results. Fluctuations in the Company's operating
results have occurred in the past and are likely to occur in the future due to a
variety of factors, any of which may have a material adverse effect on the
Company's operating results. In particular, the Company's quarterly results of

operations may vary significantly due to general business conditions in the
networking equipment and semiconductor industries, changes in demand for the
network equipment products of the Company's customers, the timing and amount of
orders from the Company's network equipment vendor customers, cancellations or
delays of customer product orders, new product introductions by the Company or
its competitors, cancellations, changes or delays of deliveries of products to
the Company by its suppliers, increases in the costs of products from the
Company's suppliers, fluctuations in product life cycles, price erosion,
competition, changes in the mix of products sold by the Company, availability of
semiconductor foundry capacity, variances in the timing and amount of
nonrecurring engineering funding and operating expenses, seasonal fluctuations
in demand, intellectual property disputes and general economic conditions. In
addition, in the past the Company has recognized a substantial portion of its
revenues in the last month of a quarter. Since a large portion of the Company's
operating expenses, including rent, salaries and capital lease expenses, is
fixed and difficult to reduce or modify, if revenue does not meet the Company's
expectations, the material adverse effect of any revenue shortfall will be
magnified by the fixed nature of these operating expenses. All of the above
factors are difficult for the Company to forecast, and these and other factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Customer Concentration. The percentage of total revenues accounted for by the
Company's significant customers (significant customers are those customers
accounting for more than 10% of the Company's total revenues) for the three
months ended March 31, 1998 and 1997 are as follows: Cisco, Mitsui Comtek Corp.,
a non-stocking sales representative for Japan, Cabletron and the U.S. Computer
Division of Hitachi accounted for 30%, 27%, 11% and 10%, respectively, of total
revenues during the first quarter of 1998 and 26%, 19%, less than 1% and 25%,
respectively, of total revenues during the first quarter of 1997.

The Company's customer base is highly concentrated. A relatively small number of
customers has accounted for a significant portion of the Company's revenues to
date, and the Company expects that this trend will continue for the foreseeable
future. Each of the Company's network equipment vendor customers, including
Cisco, Mitsui, Cabletron and Hitachi can cease incorporating the Company's
products with limited notice to the Company and with little or no penalty. The
Company's agreements with network equipment vendor customers do not require
minimum purchases.

The Company's longstanding relationship with Cisco may inhibit other leading
network equipment vendors from adopting the Company's network processors. Cisco
faces intense competition from vendors such as Bay Networks, Inc., 3Com
Corporation and FORE, none of which currently uses the Company's network
processors. Accordingly, the Company's future operating results may be
substantially dependent on Cisco's competitive position in the networking
equipment market. The loss of one or more of the Company's customers or the
inability of the Company to successfully develop relationships with additional
significant network equipment vendors could have a material adverse effect on
the Company's business, financial condition and results of operations.

New Product Development and Technological Change. The data networking and
semiconductor industries are characterized by rapidly changing technology,
frequent product introductions, rapid erosion of average selling prices and
evolving industry standards. Accordingly, the Company's future performance
depends on a number of factors, including the acceptance of network processors
as an alternative to the Application-Specific Integrated Circuit ("ASIC")
components and general purpose processors and the acceptance by the Company's
customers of third party sourcing for network processors as an alternative to
in-house development as well as the Company's ability to identify emerging
technological trends in its target markets, develop and maintain competitive
products, enhance its products by adding innovative features that differentiate
its products from those of competitors, bring products to market on a timely
basis at competitive prices, properly identify target markets and respond
effectively to new technological changes or new product announcements by others.
Products as complex as those offered by the Company frequently contain errors,
defects and bugs when first introduced or as new versions are released. The
Company has in the past experienced such errors, defects and bugs. Delivery of
products with production defects or reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of such

products, which could damage the Company's reputation and adversely affect the
Company's ability to retain its existing customers and to attract new customers.
In addition, the Company must generally incur substantial research and
development costs before the technical feasibility and commercial viability of a
product line can be ascertained. There can be no assurance that revenues from
future products or product enhancements will be sufficient to recover the
development costs associated with such products or enhancements, or that the
Company will be able to secure the financial resources necessary to fund future
development. The inability of the Company and its products to achieve market
acceptance from network equipment vendors and to adequately address any of the
factors discussed above could have a material adverse effect on the Company's
business, financial condition and results of operations.

Dependence on Independent Manufacturers. Currently, the Company outsources all
manufacturing, assembly and test of its network processors. The Company's
suppliers currently deliver fully assembled and tested products on a turnkey
basis. Only one of the Company's products is currently manufactured by more than
one supplier. The Company depends on its suppliers to deliver sufficient
quantities of finished product to the Company in a timely manner. Since the
Company places its orders on a purchase order basis and does not have a
long-term volume purchase agreement with any of its existing suppliers, these
suppliers may allocate, and in the past have allocated, capacity to the
production of other products while reducing deliveries to the Company on short
notice. Given that the Company must place orders approximately 12 to 14 weeks in
advance of expected delivery, any sudden increase in customer demand not
anticipated by the Company in advance could result in the inability to deliver
product on a timely basis and, as such, may reduce the Company's product
revenues or increase the Company's cost of revenues and could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Competition. The data networking and semiconductor industries are intensely
competitive and are characterized by constant technological change, rapid rates
of product obsolescence and price erosion. The Company's PS1000, ATMS2000 and
AF5000 product families compete with products from companies such as Texas
Instruments Incorporated, Lucent Technologies, Inc., PMC-Sierra Inc./Integrated
Technology Ltd., Galileo Technology Ltd. and I-Cube, Inc. In addition, the
Company expects significant competition in the future from major domestic and
international semiconductor suppliers. The Company also may face competition
from suppliers of products based on new or emerging technologies. Moreover,
several established electronics and semiconductor suppliers have recently
entered or indicated an intent to enter the switching and routing equipment
market. In addition, many of the Company's existing and potential customers
internally develop ASICs, general purpose processors, network processors and
other devices which attempt to perform all or a portion of the functions
performed by the Company's products. Many of the Company's current and
prospective competitors offer broader product lines and have significantly
greater financial, technical, manufacturing and marketing resources than the
Company. Failure of the Company to compete successfully could have a material
adverse effect on its operating results.

Protection of Intellectual Property. The Company relies primarily on a
combination of nondisclosure agreements and other contractual provisions as well
as patent, trademark, trade secret and copyright law to protect its proprietary
rights. There can be no assurance that any patents will issue pursuant to the
Company's current or future patent applications or that patents issued pursuant
to such applications will not be invalidated, circumvented, challenged or
licensed to others. In addition, there can be no assurance that the rights
granted under any such patents will provide competitive advantages to the
Company or be adequate to safeguard and maintain the Company's proprietary
rights. From time to time, third parties, including competitors of the Company,
may assert patent, copyright and other intellectual property rights to
technologies that are important to the Company. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future, that assertions by third parties will not result in costly litigation or
that the Company would prevail in any such litigation or be able to license any
valid and infringed patents from third parties on commercially reasonable terms,
if at all. Failure of the Company to enforce and protect its intellectual
property rights could have a material adverse effect on the Company's business,
financial condition and results of operations.

On October 27, 1997, FORE filed a complaint in the United States District Court
for the Western District of Pennsylvania alleging that the Company willfully
infringed two of FORE's patents. The complaint seeks both a preliminary and a
permanent injunction against the Company, as well as recovery of damages. On
December 17, 1997, FORE filed an amended complaint alleging patent infringement
of an additional patent, seeking identical relief on all three patents and, in
addition, FORE alleged trade secret misappropriation against MMC seeking
preliminary and permanent injunctive relief as well as recovery of damages. On
January 9, 1998, MMC filed a motion to dismiss or transfer the Pennsylvania
action and to transfer the case to the Northern District of California. This
motion is currently pending. At present time litigation has been stayed by joint
stipulation of the parties. The results of litigation are inherently uncertain,
and there can be no assurance that the Company will prevail in any litigation
with FORE. An adverse result in the FORE litigation could have a material effect
on the Company's business, financial condition and results of operations.

Risks Associated with Expansion of International Business Activities.
Substantially all of the Company's sales to date have been to customers located
in the United States, including sales to U.S.-based affiliates of non-U.S.
network equipment vendors. If the Company's international sales increase, the
Company will be subject to additional risks inherent in international
operations. All of the Company's international sales to date are U.S. dollar-
denominated. As a result, an increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products less competitive in
international markets. In addition, the Company procures a portion of its
manufacturing, assembly and test services from suppliers located outside the
United States. International business activities may be limited or disrupted by
the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions and changes in tariffs.
Demand for the Company's products could also be adversely affected by
seasonality of international sales and economic conditions in the Company's
primary overseas markets. These international factors could have a material
adverse effect on future sales of the Company's products to international
customers and, consequently, on the Company's business, financial condition and
results of operations. While the Company has not experienced any revenue
shortfall to date as a result of recent financial difficulties of Asian
economies, any decrease in demand by Company customers for the Company's
products caused by decreased sales by such customers in Asia could have an
adverse effect on the Company's revenues in the future.

Expected Volatility of Stock Price. In recent years the stock market in general,
and the market for shares of high technology, data networking and semiconductor
companies in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. The
trading price of the Company's Common Stock is expected to be subject to extreme
fluctuations in response to both business-related issues, such as quarterly
variations in operating results, announcements of new products by the Company or
its competitors, the gain or loss of significant network equipment vendor
customers, and stock market-related influences, such as changes in analysts'
estimates, the presence or absence of short-selling of the Company's Common
Stock and events affecting other companies that the market deems to be
comparable to the Company. In addition, technology stocks have from time to time
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of these companies. Trading
prices of many high technology, data networking and semiconductor stocks,
including the Common Stock of the Company, are at or near their historical highs
and reflect price/earnings ratios substantially above historical norms. There
can be no assurance that the trading price of the Company's Common Stock will
remain at or near its current level.

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.

ITEM 2. CHANGES IN SECURITIES
The following table lists the amount of expenses incurred for the Company's
account in connection with the issuance and distribution of 4,025,000 shares of
the Common Stock issued in the Company's initial public offering on October
28, 1998.
[CAPTION]

Direct or indirect payments to directors
or officers of the Company or their associates;
to persons owning ten percent or more of
any class of equity securities of the Direct or indirect
Company; and to affiliates of the Company payments to others
----------------------------------------------- --------------------

Underwriting discounts and commissions..... $0 $3,099,250
Finders' fees.............................. $0 $0
Expenses paid to or for underwriters....... $0 $0
Other expenses through March 31, 1998...... $0 $1,189,811
---------------
Total expenses............................. $0 $4,289,061

Gross proceeds of IPO ..................... $0 $44,275,000
Less total expenses................... $0 $4,289,061
----------------
Net proceeds of IPO........................ $0 $39,985,939
================

The following table lists the amount of net offering proceeds to the Company
used for each of the purposes listed below for the period from December 31, 1997
through March 31, 1998.

Direct or indirect payments to directors
or officers of the Company or their associates;
to persons owning ten percent or more of any
class of equity securities of the Company; Direct or indirect
and to affiliates of the Company payments to others
----------------------------------------------- ------------------

Construction of plants, building and
facilities.......................... $0 $0
Purchase and installation of machinery
and equipment....................... $0 $0
Purchase of real estate............... $0 $0
Acquisition of other business(es)..... $0 $0
Repayment of indebtedness............. $0 $0
Working Capital....................... $0 $39,985,939
Temporary investment
Asset-backed securities............... $0 $0
Municipal bonds....................... $0 $0
Commercial paper....................... $0 $0
Other purposes
Acquisition of minority equity
interests in other corporations..... $0 $0

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) Exhibits

Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Non-Recourse Receivables Purchase Agreement dated February
9, 1998, by and between Silicon Valley Financial Services, a
division of Silicon Valley Bank, and the Registrant. 27
Financial Data Schedule as of March 31, 1998 and for the 3
months then ended.

27 Financial Data Schedule as of March 31, 1998 and for the 3
months then ended.

27.1 Restated Financial Data Schedule as of December 31, 1997
and 1996 and for the 12 months then ended.

27.2 Restated Financial Data Schedule as of September 30, 1997
and for the 9 months then ended.

27.3 Restated Financial Data Schedule as of June 30, 1997 and for
the 6 months then ended.

(b) Reports on Form 8-K

The Company filed no reports on Form 8-K during the three months
ended March 31, 1998.

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.

Dated: May 1, 1998 MMC NETWORKS, INC.

By: /s/ Prabhat K. Dubey
--------------------------
Prabhat K. Dubey
President, Chief Executive
Officer and Director

By: /s/ Uday Bellary
---------------------------
Uday Bellary
Vice President, Finance,
Chief Financial Officer and
Assistant Secretary
(Principal Financial and
Accounting Officer)