SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)

[X] Annual report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended June 27, 1998.

[_] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the Transition period from ___________ to
____________

COMMISSION FILE NUMBER 0-27026

PERICOM SEMICONDUCTOR CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

California 77-0254621
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

2380 Bering Drive
San Jose, California 95131 95131
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (408) 435-0800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

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

Yes [X] No [_]

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on September 15, 1998
as reported by the Nasdaq National Market was approximately $38,950,000.

As of September 15, 1998 the Registrant has outstanding 9,331,699 shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant's Annual Report to Shareholders for the fiscal year
ended June 27, 1998 and the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held December 8, 1998 are incorporated by reference in
Parts II, III and IV of this report on Form 10-K.

PART I

ITEM 1. BUSINESS

Pericom Semiconductor Corporation (the "Company" or "Pericom") designs, develops
and markets high-performance interface integrated circuits ("ICs") used in many
of today's advanced electronic systems. Interface ICs, such as interface logic,
switches and clock management products, transfer, route and time electrical
signals among a system's microprocessor, memory and various peripherals and
between interconnected systems. High-performance interface ICs, which enable
high signal quality, are essential for the full utilization of the available
speed and bandwidth of advanced microprocessors, memory ICs, local area networks
("LANs") and wide area networks ("WANs"). Pericom focuses on high-growth and
high-performance segments of the notebook computing, networking and multimedia
markets, in which advanced system designs require interface ICs with high-speed
performance, reduced power consumption, low-voltage operation, small size and
higher levels of integration.

Pericom has combined its extensive design technology and applications knowledge
with its responsiveness to the specific needs of electronic systems developers
to become a competitive supplier of interface ICs. The Company has evolved from
one product line in fiscal 1992 to four currently -- SiliconInterface,
SiliconSwitch, SiliconClock and SiliconConnect -- with a goal of providing an
increasing breadth of interface IC solutions to its customers. Pericom currently
offers over 300 standard products, of which 82 were introduced during the twelve
months ended June 30, 1998. The Company's customers and OEM end users include
3Com Corporation, Apple Computer, Inc., Ascend Communications, Inc., Avid
Technology, Inc., Bay Networks, Cabletron Systems, Inc., Canon, Inc., Cisco
Systems, Inc., Compaq Computer Corporation, Dell Computer, Digital Equipment
Corporation, Hewlett-Packard Company, Hitachi Ltd., International Business
Machines Corporation, Intel Corporation, Inventec, Inc., Lexmark International
Inc., Motorola, Quanta, Qualcom, Smart Modular Technologies Inc., Solectron
Technology Corporation, Sony Corporation and Toshiba Corporation.

INDUSTRY BACKGROUND

OVERVIEW

The presence of electronic systems and subsystems permeates our everyday life,
as evidenced by the growth of the personal computer, mobile communications,
networking and consumer electronics markets. The growth of these markets has
been driven by systems characterized by ever-improving performance, flexibility,
reliability and multi-functionality, as well as decreasing size, weight and
power consumption. Advances in ICs through improvements in semiconductor
technology have contributed significantly to the increased performance of, and
demand for, electronic systems and to the increasing representation of ICs as a
proportion of overall system cost. This technological progress has occurred at
an accelerating pace, while the cost of electronic systems has remained steady
or declined.

The development of high-performance personal computers, the requirement for
higher network performance and the increased level of connectivity among
different types of electronic devices have driven the demand for high-speed,
high-performance interface circuits to handle the transfer, routing and timing
of digital and analog signals at high speeds with minimal loss of signal
quality. High-speed signal transfer is essential to fully utilize the speed and
bandwidth of the microprocessor, the memory and the LAN or WAN. High signal
quality is equally essential to achieve optimal balance between high data
transmission rates and reliable system operation. Without high signal quality,
transmission errors occur as bandwidth increases. Market requirements for
interface circuits are driven by the same market pressures as those imposed on
microprocessors, including higher speed, reduced power consumption, lower-
voltage operation, smaller size and higher levels of integration.

The problems associated with signal quality that must be addressed by the
interface ICs are magnified by increases in the speeds at which interface ICs
must transfer, route and time electrical signals, the number of

interconnected devices that send or receive signals and the variety of types of
signals processed by the interface ICs. The most significant performance
challenges faced by designers of interface ICs are the requirements to transfer
signals at high speed with low propagation delay, minimize signal degradation
caused by "noise," "jitter," and "skew" and reduce electromagnetic interference
("EMI"). Minimizing propagation delay sources of signal degradation and
interference is needed to enable today's state-of-the-art electronic systems to
function.

Pericom believes that several major market trends make reliable operations of
systems at high frequency and high data transfer rates critical. Multimedia and
high-performance network applications continue to push for more data bandwidth
on system buses and across system boundaries. Computer and networking system
clock frequencies continue to increase at a very rapid rate, shortening the time
available to perform data transfers. While the data transfer rate has typically
increased every few years, the continuing desire for higher system reliability
with minimal system downtime creates increasing pressure to achieve lower data
error rates. Increasing system-wide EMI emissions resulting from higher-
frequency ICs compels system designers to develop and implement new ways to
further reduce these emissions. These factors all increase the need for very
high-speed interface circuits with outstanding performance specifications.

Pericom also believes that electronic systems designers and OEMs have
increasingly required solutions to the technical challenges described above in
order to take advantage of continuing speed and performance enhancements in
microprocessor and memory ICs. These customers have also continued to migrate
from single-part vendors to suppliers who can provide multiple parts for their
systems, both to reduce the number of vendors they must deal with and to address
interoperability requirements among the interface ICs within the system. Due to
the short design times and product life cycles these customers face for their
own products, they are requiring rapid response time and part availability from
interface IC vendors. Interface IC vendors are further required to accomplish
these tasks in a cost-effective manner that flexibly responds to specific
customer needs.

PRODUCTS

The Company has used its expertise in high-performance digital, analog and
mixed-signal IC design, its re-usable core cell library and its modular design
methodology to achieve a rapid rate of new product introductions. The Company
has evolved from one product line in fiscal 1992 to four product lines
currently, with a goal of providing an increasing breadth of product solutions
to its customers. Within each product line, the Company has continued to
introduce products with higher performance, higher levels of integration, and
new features and options.

SILICONINTERFACE

Through its SiliconInterface product line, Pericom offers a broad range of high-
performance 5-volt and 3.3-volt CMOS logic interface circuits. These products
provide logic functions to handle data transfer between microprocessors and
memory, bus exchange, backplane interface, and other logic interface functions
where high-speed, low-power, low-noise and high-output drive characteristics are
essential. The Company's thin and tight-lead-pitch packages allow significant
reduction in board space and provide enhanced switching characteristics. The
Company has two patents that relate to certain SiliconInterface products: one
that relates to mixed-voltage operations that are scaleable for future
generations of low-voltage logic families, and one that relates to a high-speed,
low-noise input/output buffer design. The SiliconInterface product line is used
in a wide array of systems applications, including notebook computers, high-
speed network hubs, routers and switches and multimedia systems.

5-VOLT INTERFACE LOGIC. The Company's high-speed 5-volt interface logic products
in 8-, 16- and 32-bit configurations address specific system applications,
including a "Quiet Series" family for high-speed, low-noise, point-to-point data
transfer in computing and networking systems and a "Balanced Drive" family with
series resistors at output drivers to reduce switching noise in high-capacitive
load switching in the main and cache memories of high-performance computers.

3.3-VOLT INTERFACE LOGIC. Pericom's 3.3-volt interface logic products in 8 to 24
bit configurations address a range of cost and performance requirements. The
Company's 3.3-volt ALVC, LPT, LCX and FCT3 interface logic families offer a
comprehensive range of performance at very low power. The ALVC, LPT and LCX
families allow customers the flexibility to use certain Pericom 3.3-volt
products in pure 3.3-volt or mixed 3.3/5-volt designs. Because a full range of
3.3-volt components is not always available, this flexibility is important as
computer and networking designs make the transition from 5 volts to 3.3 volts.
ALVC, a leading-edge performance family that targets high-speed computer and
networking designs, offers bus hold and 5-volt I/O tolerance options. With 50
products in the family, the Company now offers one of the broadest portfolios of
ALVC logic in the industry. LPT is a mid-range performance family and the
industry's first 3.3-volt CMOS logic family with 5-volt I/O tolerance. LCX is a
relatively slow-speed family that is targeted for low-cost applications. FCT3 is
a mid-range performance family that can interface only with 3.3-volt components.
Increasing networking, PC and memory module manufacturers are demanding
application specific logic products. Pericom believes it is well positioned to
serve this need using its ASIC design methodology and existing cell designs to
achieve rapid product development.

SILICONSWITCH

Through its SiliconSwitch product line, Pericom offers a broad range of high-
performance ICs for switching digital and analog signals. The ability to switch
or route high-speed digital or analog signals with minimal delay and signal
distortion is a critical requirement in many high-speed computers, networking
and multimedia applications. Historically, systems designers have used
mechanical relays, solid-state relays and analog switches, which have
significant disadvantages compared to IC switches: mechanical relays are bulky,
dissipate significant power and have very low response times; solid-state relays
are expensive and dissipate significant power; and traditional analog switches
have relatively high resistance that can cause significant signal distortion.

DIGITAL SWITCH. The Company offers a family of digital switches in 8-, 16- and
32-bit densities that address the switching needs of high-performance systems.
These digital switches offer performance and cost advantages over traditional
switch functions, offering low on-resistance (less than 5 ohms), low propagation
delay (less than 250 picoseconds), low standby power (less than 1 microamp) and
series resistor options that support low EMI emission requirements. Applications
for the Company's digital switches include 5-volt to 3.3-volt signal
translation, high-speed data transfer and switching between microprocessors and
multiple memories, and hot plug interfaces in notebook and desktop computers,
servers and switching hubs and routers. During fiscal year 1998, Pericom
introduced the first 3.3-volt bus switch family. This family offers industry
leading switching speed and are hot-pluggable, allowing live insertion in real
time systems.

ANALOG SWITCH. The Company offers a family of analog switches for low-voltage
(2- to 5-volt) applications such as multimedia audio and video signal switching
with enhanced characteristics such as low power, high bandwidth, low crosstalk
and low distortion to maintain analog signal integrity. Traditional analog
switches cause unacceptable levels of distortion due to high on-resistance. The
Company's analog switches have significantly lower on-resistance, resulting in
significant improvement in bandwidth and distortion. This allows the Company's
analog switches to be used for state-of-the-art video and audio switching
applications where traditional analog switches cannot be used. The Company
recently introduced the first members of a higher voltage (17v) analog switch
family for applications requiring higher signal range, such as instrumentation,
telecommunications and industrial control. The addition of this family
significantly strengthens Pericom's position in the analog switch market.

LAN SWITCH AND VIDEO SWITCH. The Company offers a line of application-specific
standard product ("ASSP") switches for specific applications. These products
include LANSwitches, which are used to switch among multiple LAN protocols
(e.g., Ethernet, FastEthernet and Token Ring) on networking systems, and video
switches, which are used in graphic and multimedia systems to switch among
different

video and audio sources at very high frequencies with minimal distortion, hence
preserving high video and audio fidelity.

SILICONCLOCK

Through its SiliconClock product line, Pericom offers a broad range of general-
purpose solutions including clock buffers, PLL-based zero-delay clock generators
and ASSP PLL-based frequency synthesizer products for Pentium, Pentium Pro and
Pentium II systems, as well as a number of ASSP clock products for laser
printers, networking, set-top box and modem applications. As system designers
use microprocessors and memories that run at increasingly high frequencies,
there is a demand for correspondingly reliable clock management circuits to
generate and distribute high-precision, high-frequency timing control signals
for advanced computer, networking, multimedia and embedded applications. To
enable the reliable operations of these ICs with precise timing, the clock
circuits need to have short propagation delay, low jitter and low pin-to-pin
signal skew.

CLOCK BUFFERS AND ZERO-DELAY CLOCK GENERATOR. Clock buffers receive a digital
signal from a frequency source and create multiple copies of the signal for
distribution across system boards. Pericom offers 3.3-volt and 5-volt clock
buffers for high-speed, low-skew applications in computers and networking
equipment. PLL-based clock generators, also known as zero-delay clock
generators, virtually eliminate propagation delays by synchronizing the clock
outputs with the incoming frequency source. Pericom's 5-volt and 3.3-volt zero-
delay clock generators offer frequencies of up to 134 MHz for applications in
computer servers, PCI bridges and SDRAM modules. Pericom supports the latest
Intel defined PC100 MHz SDRAM registered DIMM memory modules with both a zero
delay clock generator and ALVC logic buffers.

CLOCK FREQUENCY SYNTHESIZERS. Clock frequency synthesizers use single or
multiple PLLs to generate various output frequencies using a crystal oscillator
as an input frequency source. Clock frequency synthesizers are used to provide
critical timing signals to microprocessors, PCI buses, SDRAM and peripheral
functions. Pericom's PLL-based clock synthesizers support Pentium, Pentium Pro
and Pentium II microprocessors and are designed with an emphasis on minimizing
jitter and power consumption. In addition, some of the products come with
integrated serial I2C serial link communications and options for spread-spectrum
selection that meet low EMI requirements for mobile and desktop PC motherboards.
Pericom recently introduced 100MHz clock chipsets (clock synthesizer and buffer)
to support the latest Intel 440BX chipset for both desktop, server and notebook
applications. The Company is an active participant in the development of Intel
defined technology for the next generation PC and server platforms. An agreement
has recently been signed with Rambus Inc. for the development of the Direct
Rambus Clock Generator IC, a key interface component for this high-speed memory
technology. The Company's PLL-based laser printer clock provides a cost-
effective solution for high-speed, high-resolution video clock generation at 40
MHz for low-cost color laser printer controllers and at 80 MHz for high-speed
color laser printer controllers. The Company also offers modem clocks to support
28.8K and 56K rack-mount modem designs.

FLEX CLOCK. To support embedded processor and data transmission operations,
telecom and datacom applications often require unique combinations of
frequencies on the system board. Traditionally, such requirements have been
handled by the simultaneous use of several crystal oscillators. This approach is
costly, however, and requires significant board space. Also, certain uncommon
frequencies require very long purchase order lead times. Supporting quick-turn
customer prototyping as well as volume production requirements, Pericom's
FlexClock product offers customers programmable PLL-based clock synthesizers
that provide multiple customer-specified frequencies in a single IC with short
lead time and with fast factory programming of custom requested frequencies.

SILICONCONNECT

The SiliconConnect product line is the newest and offers the highest complexity
and integration among the Company's products. It consists of a family of PBX
telecom switches and PCI to PCI bridge products currently in development.

The Company has recently started to expand into the telecommunications market
with the introduction of three products for digital switch matrix PBX
applications. For larger scale digital switch matrix applications the Company
offers a PBX switch chipset: the PT9085, which provides serial-to-parallel or
parallel-to-serial conversion, and the PT9080, which provides address and
switching functions for PBX switching stations. The PT8980 offers a PBX switch
solution for medium scale PBX applications.

The Company is continuing to enhance and refine the offerings in its existing
product lines, while working to add next-generation products which address new
market opportunities on a timely basis. In particular, the Company is developing
PCI bridge products targeted for the networking, workstation and PC markets,
additional 3.3-volt and high-voltage digital and analog switches complementing
its current product families, high-speed 2.5 volt interface logic products,
additional high performance frequency synthesizers and clock buffers intended
for new markets or applications. The failure of the Company to complete and
introduce new products in a timely manner at competitive price/performance
levels would materially and adversely affect the Company's business and results
of operations. See "Factors That May Affect Future Results -- Technological
Changes; Dependence on New Products."

CUSTOMERS

The following is a list of selected customers of the Company, including end
users and OEMs:

COMPUTER NETWORKING
Acer 3Com
Apple Ascend Communications
Compaq Bay Networks
Dell Cabletron
Digital Equipment Corporation Cisco
Hitachi Hewlett-Packard
IBM Samsung
Intel
Inventec MULTIMEDIA, PERIPHERALS AND OTHERS
NEC Adaptec
Quanta Avid
Sony Canon
Toshiba Diamond Multimedia
Lexmark
CONTRACT MANUFACTURING Mylex
AVEX Electronics Trident Microsystems
Celestica Xerox
Jabil Circuit
SCI
Smart Modular Technologies
Solectron

The Company's customers include a broad range of end users and OEMs in the
computer, peripherals, networking and contract manufacturing markets. In fiscal
1996, sales to Apple and Pioneer Standard Electronics, Inc., a distributor,
accounted for approximately 20% and 16%, respectively, of net revenues,

and sales to the Company's top five customers accounted for approximately 52%
of net revenues. In fiscal 1997, sales to Harris and IBM accounted for
approximately 17% and 14%, respectively, of the Company's net revenues, and
sales to the Company's top five customers accounted for approximately 47% of net
revenues. In fiscal 1998, sales to Techmosa, a distributor in Taiwan, accounted
for 11% of net revenues, and sales to the Company's top five customers accounted
for 36% of net revenues. See "Factors That May Affect Future Results -- Customer
Concentration."

Contract manufacturers have become important customers for the Company as
systems designers in the Company's target markets are increasingly outsourcing
portions of their manufacturing. In addition, these contract manufacturers are
playing an increasingly vital role in determining which vendors' ICs are
incorporated into new designs.

DESIGN AND PROCESS TECHNOLOGY

The Company's design efforts focus on the development of high-performance
digital, analog and mixed-signal ICs. To minimize design cycle times of high-
performance products, the Company utilizes a modular design methodology that has
enabled it to produce many new products each year and to meet its customers'
need for fast time-to-market response. This methodology uses state-of-the-art
computer-aided design software tools such as HDL description, logic synthesis,
full-chip mixed-signal simulation, and automated design layout and verification
using Pericom's library of high-performance digital and analog core cells. This
family of core cells has been developed over several years and contains high-
performance, specialized digital and analog functions not available in
commercial ASIC libraries. Among these cells are the Company's proprietary
mixed-voltage I/O cells, high-speed, low-noise I/O cells, analog and digital
PLLs, charge pumps and datacom transceiver circuits. Pericom has been granted
four U.S. patents relating to its circuit designs and has several U.S. and
foreign patent applications pending. Another advantage of this modular design
methodology is that it allows the application of final design options late in
the wafer manufacturing process to determine a product's specific function. This
option gives the Company the ability to use pre-staged wafers, which
significantly reduces the design and manufacturing cycle time and enables the
Company to respond rapidly to a customer's prototype needs and volume
requirements.

The Company utilizes advanced CMOS processes to achieve optimal performance and
die cost. The Company's process and device engineers work closely with its
independent wafer foundry partners to develop and evaluate new process
technologies. The Company's process engineers also work closely with circuit
design engineers to optimize the performance and reliability of its cell
library. The Company currently manufactures a majority of its products using 0.5
micron and 0.6 micron CMOS process technologies and is using an advanced 0.35
micron CMOS process, which has been qualified and is in production, in the
design of a number of its new products. The Company is also using a high-voltage
CMOS process developed by one of its foundry partners in the design of new
switch products.

SALES AND MARKETING

The Company markets and distributes its products through a worldwide network of
independent sales representatives and distributors. In fiscal years 1996, 1997
and 1998, international sales comprised 30%, 37% and 45%, respectively, of the
Company's net revenues. The Company has five regional sales offices in the
United States, a sales office in Taiwan and a sales office in Europe. The
Company also supports field sales design-in and training activities with
application engineers. All marketing and product management personnel are
located at the Company's corporate headquarters in San Jose, California. See
"Factors That May Affect Future Results -- Risks of International Sales."

The Company focuses its marketing efforts on product definition, new product
introduction, product marketing, advertising and public relations. The Company
actively seeks cooperative relationships in product development and product
marketing. For example, the Company recently signed an agreement with Rambus to
develop the Direct Rambus Clock Generator IC to support the high-speed Direct
Rambus

memory technology. In February 1996, the Company and Harris entered into
a private label program (the "Harris Agreement") pursuant to which Harris sells
certain of the Company's SiliconInterface products under its own label. The
Company uses advertising both domestically and internationally to market its
products independently and in cooperation with its distributors. Pericom product
information is available on its web site, which contains technical information
on all of its products and offers design modeling support and sample-request
capabilities online. The Company also publishes and circulates technical briefs
relating to its products and their applications.

In March 1995 the Company was issued ISO-9001 certification by the International
Organization for Standards for Quality Management after the Company successfully
completed the required Registration Assessment Audit with Underwriter's
Laboratories, which entails a rigorous quality assessment.

Pericom believes that contract manufacturing customers are growing in importance
and employs sales and marketing personnel who focus on servicing these customers
and on expanding Pericom's product sales via these customers to OEMs. In
addition, Pericom uses programs such as EDI, bonded inventories and remote
warehousing to enhance its service and attractiveness to contract manufacturers.

Sales through domestic and international distributors were approximately 40%,
36% and 49% of the Company's net revenues in fiscal 1996, 1997 and 1998,
respectively. Major distributors in the United States include All American
Semiconductor, Bell Microproducts, Interface Electronics, Pioneer Standard, and
Reptron Electronics. Major international distributors include Ambar (U.K.), Chin
Shang Electronics Corp. (Taiwan), Desner Electronics (Singapore), Internix
(Japan), MCM (Japan) and Techmosa (Taiwan). See "Factors That May Affect Future
Results -- Reliance on Distributors."

MANUFACTURING

The Company has adopted a fabless manufacturing strategy by subcontracting its
wafer production to independent wafer foundries. The Company has established
collaborative relationships with selected independent foundries and targets
additional foundry partners with which it can develop a strategic relationship
to the benefit of both parties. The Company believes that its fabless strategy
enables it to introduce high performance products quickly at competitive cost.
To date, the Company's principal manufacturing relationships have been with
Chartered Semiconductor Manufacturing Pte, Ltd. ("Chartered") and Taiwan
Semiconductor Manufacturing Corporation ("TSMC"). The Company provides Chartered
with new product designs to be used for testing and qualifying advanced
manufacturing processes from development to production. In exchange, Chartered
provides the Company with wafer allocation and early access to process
technology. The Company has also used Austria Mikro Systeme GmbH ("AMS") as a
foundry since 1992. The Company is qualifying a high-voltage CMOS process at New
Japan Radio Corporation ("NJRC") and plans to use this process for some of its
future products. Recently the Company qualified a 0.5micron CMOS process at TSMC
that is currently in production.

The Company relies on foreign subcontractors primarily for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single source
supplier for certain new packages. Although the Company believes that it is not
materially dependent upon any such subcontractor, changes in the Company's or a
subcontractor's business could cause the Company to become materially dependent
on a subcontractor. The Company has from time to time experienced difficulties
in the timeliness and quality of product deliveries from the Company's
subcontractors. Although delays experienced to date have not been material,
there can be no assurance that the Company will not experience similar or more
severe difficulties in the future. The Company generally purchases these single
or limited source components or services pursuant to purchase orders and has no
guaranteed arrangements with such subcontractors. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for any such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors, or any other circumstance that would require the
Company to qualify alternative sources of supply could delay shipments and
result in the loss of customers, or limitations or

reductions in the Company's revenues, or otherwise materially and adversely
affect the Company's business and results of operations. See "Factors That May
Affect Future Results --Dependence on Single or Limited Source Assembly
Subcontractors."

RESEARCH AND DEVELOPMENT

The Company believes that the continued timely development of new interface ICs
is essential to maintaining its competitive position. Accordingly, the Company
has assembled a team of highly skilled engineers whose activities are focused on
the development of signal transfer, routing and timing technologies and
products. Research and development expenses in fiscal 1996, 1997, and 1998 were
$4.4 million, $4.2 million and $5.1 million, respectively.

The success of new products depends on many factors, including product
selection, timely completion of product development, ability to gain access to
advanced fabrication processes, achievement of acceptable wafer fabrication
yield, and the ability to secure sufficient wafer fabrication capacity. There
can be no assurance that the Company will be able to successfully identify new
product opportunities and timely develop and bring to market such new products.
Failure of the Company to complete, introduce and bring to volume production new
products in a timely manner and at competitive price/performance levels could
adversely affect the Company's results of operations. See "Factors That May
Affect Future Results -- Technological Change; Dependence on New Products."

INTELLECTUAL PROPERTY

In the United States, the Company holds ten patents covering certain aspects of
its product designs and has eight additional patent applications pending. The
Company expects to continue to file patent applications where appropriate to
protect its proprietary technologies; however, the Company believes that its
continued success depends primarily on factors such as the technological skills
and innovation of its personnel, rather than on its patents.

The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. Copyrights, mask work protection, trade
secrets and confidential technological know-how are also key elements of the
Company's business. There can be no assurance that any additional patents will
be issued to the Company or that the Company's patents or other intellectual
property will provide meaningful protection from competition. The Company may be
subject to or may initiate interference proceedings in the U.S. Patent and
Trademark Office, which can consume significant financial and management
resources. In addition to the foregoing, the laws of certain territories in
which the Company's products are or may be developed, manufactured or sold may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States. The inability of the Company to protect
its intellectual property adequately could have a material adverse effect on its
business and results of operations.

any litigation involving intellectual property, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringed technology, and may suffer
significant monetary damages, which could include treble damages. In the event
the Company attempts to license any allegedly infringed technology, there can be
no assurance that such a license would be available on reasonable terms or at
all. In the event of a successful claim against the Company and the Company's
failure to develop or license a substitute technology on commercially reasonable
terms, the Company's business and results of operations would be materially and
adversely affected. There can be no assurance that the claims brought by QSI or
any potential infringement claims by other parties (or claims for indemnity from
customers resulting from any infringement claims) will not materially and
adversely affect the Company's business, financial condition and results of
operations.

The process technology used by the Company's independent foundries, including
process technology that the Company has developed with its foundries, can
generally be used by such foundries to produce their own products or to
manufacture products for other companies, including the Company's competitors.
In addition, the Company does not generally have the right to implement the
process technology used to manufacture its products with foundries other than
the foundry with which it has developed such process technology. See "Factors
That May Affect future Results -- Patents and Proprietary Rights."

EMPLOYEES

As of June 30, 1998, the Company had 172 full-time employees, including 33 in
sales, marketing and customer support, 80 in manufacturing, assembly and
testing, 45 in engineering and quality assurance and 14 in finance and
administration, including information systems. The Company has never had a work
stoppage and no employee is represented by a labor organization. The Company
considers its employee relations to be good.

The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each of
whom would be difficult to replace. The Company does not maintain any key person
life insurance policy on any of such persons. The loss of the services of one or
more of the Company's executive officers or key personnel or the inability to
continue to attract qualified personnel could delay product development cycles
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Factors That May Affect Future Results
- -- Dependence on Key Personnel."

FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to other information contained in this Form 10-K, investors should
carefully consider the following factors that may affect future results. This
Form 10-K includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical fact are "forward-looking statements" for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance,
and any statement of assumptions underlying any of the foregoing. In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "will," "expects," "plans," "anticipates," "estimates,"
"potential," or "continue," or the negative thereof or other comparable
terminology. Although the Company believes that the expectations reflected in
the forward-looking statements contained herein are reasonable, there can be no
assurance that such expectations or any of the forward-looking statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements. The Company's future
financial condition and results of operations, as well as any forward-looking
statements, are subject to risks and uncertainties, including but not limited to
the factors set forth in

factors that may affect future results set forth below and elsewhere in this
report. All forward-looking statements and reasons why results may differ
included in this Form 10-K are made as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement or reason why
actual results may differ.

LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

The Company was founded in 1990 and has a limited history of operations, having
shipped its first products in volume in fiscal 1993. There can be no assurance
that any past levels of revenue growth or profitability can be sustained on a
quarterly or annual basis. The Company's expense levels are based in part on
anticipated future revenue levels, which can be difficult to predict. The
Company's business is characterized by short-term orders and shipment schedules.
The Company does not have long-term purchase agreements with any of its
customers, and customers can typically cancel or reschedule their orders without
significant penalty. The Company typically plans its production and inventory
levels based on forecasts, generated with input from customers and sales
representatives, of customer demand which is highly unpredictable and can
fluctuate substantially. If customer demand falls significantly below
anticipated levels, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company has experienced significant fluctuations in its quarterly operating
results in the past three fiscal years and could continue to experience such
fluctuations in the future. The Company's operating results are affected by a
wide variety of factors that could materially and adversely affect net revenues
and results of operations, including a decline in the gross margins of its
products, the growth or reduction in the size of the market for interface ICs,
delay or decline in orders received from distributors, the availability of
manufacturing capacity with the Company's wafer suppliers, changes in product
mix, customer acceptance of the Company's new products, the ability of customers
to make payments to the Company, the timing of new product introductions and
announcements by the Company and its competitors, increased research and
development expenses associated with new product introductions or process
changes, expenses incurred in obtaining and enforcing, and in defending claims
with respect to, intellectual property rights, changes in manufacturing costs
and fluctuations in manufacturing yields, and other factors such as general
conditions in the semiconductor industry. All of the above factors are difficult
for the Company to forecast, and these or other factors can materially and
adversely affect the Company's business, financial condition and results of
operations for one quarter or a series of quarters. The Company's expense levels
are based in part on its expectations regarding future sales and are fixed in
the short term to a large extent. Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected shortfall in sales.
Any significant decline in demand relative to the Company's expectations or any
material delay of customer orders could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to sustain profitability on a
quarterly or annual basis. In addition, it is possible that the Company's
operating results in future quarters may fall below the expectations of public
market analysts and investors, which would likely result in a material drop in
the market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Historically, selling prices in the semiconductor industry generally, as well as
for the Company's products, have decreased significantly over the life of each
product. Beginning late in calendar 1995 the Company experienced a significant
decrease in the selling prices of many of its products, which had a material
adverse effect on the Company's net revenues and overall gross margins. The
Company expects that selling prices for its existing products will continue to
decline over time and that average selling prices for new products will decline
significantly over the lives of these products. Declines in selling prices for
the Company's products, if not offset by reductions in the costs of producing
these products or by sales of new products with higher gross margins, would
reduce the Company's overall gross margins and could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to reduce production
costs or to develop and market new products with higher gross margins. See "--
Technological Change; Dependence on New Products," "--

Competition," "-- Semiconductor Industry Risks" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON INDEPENDENT WAFER FOUNDRIES

In fiscal 1996, 1997 and 1998, approximately 90% of the wafers for the Company's
semiconductor products were manufactured by Chartered, and the remainder of the
Company's wafers were manufactured AMS, NJRC and TSMC. During fiscal 1998, the
Company qualified LG as a foundry supplier. The Company's reliance on
independent wafer suppliers to fabricate its wafers at their production
facilities subjects the Company to such possible risks as potential lack of
adequate capacity and available manufactured products, lack of control over
delivery schedules and the risk of events limiting production and reducing
yields, such as fires or other damage to production facilities or technical
difficulties. Although, to date, the Company has not experienced any material
delays in obtaining an adequate supply of wafers, there can be no assurance that
the Company will not experience delays in the future. Any inability or
unwillingness of the Company's wafer suppliers generally, and Chartered in
particular, to provide adequate quantities of finished wafers to meet the
Company's needs in a timely manner or in needed quantities would delay
production and product shipments and have a material adverse effect on the
Company's business, financial condition and results of operations.

At present, the Company purchases wafers from its wafer suppliers through the
issuance of purchase orders based on rolling six-month forecasts provided by the
Company, and such purchase orders are subject to acceptance by each wafer
foundry. The Company does not have long-term purchase agreements with any of its
wafer suppliers, each of which has the right to reduce or terminate allocations
of wafers to the Company. In the event that these suppliers were unable or
unwilling to continue to manufacture the Company's key products in required
volumes, the Company would have to identify and qualify additional foundries. In
any event, the Company's future growth will also be dependent upon its ability
to identify and qualify new wafer foundries. The qualification process can take
up to six months or longer, and there can be no assurance that any additional
wafer foundries will become available to the Company or will be in a position to
satisfy any of the Company's requirements on a timely basis. The Company also
depends upon its wafer suppliers to participate in process improvement efforts,
such as the transition to finer geometries, and any inability or unwillingness
of such suppliers to do so could delay or otherwise materially adversely affect
the Company's development and introduction of new products. Furthermore, sudden
shortages of raw materials or production capacity constraints can lead wafer
suppliers to allocate available capacity to customers other than the Company or
for internal uses, which could interrupt the Company's ability to meet its
product delivery obligations. Any significant interruption in the supply of
wafers to the Company would adversely affect the Company's operating results and
relations with affected customers. The Company's reliance on independent wafer
suppliers may also impact the length of the development cycle for the Company's
products, which may provide time-to-market advantages to competitors that have
in-house fabrication capacity.

Each of Chartered, TSMC, AMS, LG and NJRC is located outside the United States,
which exposes the Company to risks associated with international business
operations, including foreign governmental regulations, currency fluctuations,
reduced protection for intellectual property, changes in political conditions,
disruptions or delays in shipments and changes in economic conditions in the
countries where these foundries are located, each of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Manufacturing."

TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS

The markets for the Company's products are characterized by rapidly changing
technology, frequent new product introductions and declining selling prices over
product life cycles. The Company's future success is highly dependent upon the
timely completion and introduction of new products at competitive
price/performance levels. The success of new products depends on a variety of
factors, including product selection, product performance and functionality,
customer acceptance, competitive pricing, successful and

timely completion of product development, sufficient wafer fabrication capacity
and achievement of acceptable manufacturing yields by the Company's wafer
suppliers. There can be no assurance that the Company will be able to
successfully identify new product opportunities and develop and bring to market
such new products or that the Company will be able to respond effectively to new
technological changes or new product announcements by others. In addition, the
Company may experience delays, difficulty in procuring adequate fabrication
capacity for the development and manufacture of such products or other
difficulties in achieving volume production of these products. The failure of
the Company to complete and introduce new products in a timely manner at
competitive price/performance levels would materially and adversely affect the
Company's business, financial condition and results of operations.

The Company has relied in the past and continues to rely upon its relationships
with manufacturers of high-performance systems for insights into product
development strategies for emerging system requirements. The Company believes it
will rely on these relationships more in the future as the Company focuses on
the development and production of application specific standard products. The
Company generally incorporates its new products into a customer's product or
system at the design stage. However, these design efforts, which can often
require significant expenditures by the Company, may precede the generation of
volume sales, if any, by a year or more. Moreover, the value of any design win
will depend in large part on the ultimate success of the customer's product and
on the extent to which the system's design accommodates components manufactured
by the Company's competitors. No assurance can be given that the Company will
achieve design wins or that any design win will result in significant future
revenues. To the extent the Company cannot develop or maintain such
relationships, its ability to develop well-accepted new products may be
impaired, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Products" and "Business Research and Development."

CUSTOMER CONCENTRATION

A relatively small number of customers has accounted for a significant portion
of the Company's net revenues in each of the past several fiscal years and the
Company expects this trend to continue for the foreseeable future. In fiscal
1998, sales to one customer accounted for approximately 11% of the Company's net
revenues, and sales to the Company's top five customers accounted for
approximately 36% of net revenues. The Company does not have long-term purchase
agreements with any of its customers. There can be no assurance that the
Company's current customers will continue to place orders with the Company, that
orders by existing customers will continue at the levels of previous periods or
that the Company will be able to obtain orders from new customers. Loss of one
or more of the Company's large customers, or a reduction in the volume of orders
placed by any of such customers, could materially and adversely affect the
Company's business, financial condition and results of operations. See "--
Limited Operating History; Potential Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Customers" and "Business -- Sales and Marketing."

COMPETITION

The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high-performance ICs include product features and
performance, product quality, price, success in developing new products,
adequate wafer fabrication capacity and sources of raw materials, efficiency of
production, timing of new product introductions, ability to protect intellectual
property rights and proprietary information, and general market and economic
conditions. The Company's competitors include Cypress Semiconductor Corporation,
Integrated Circuit Systems, Inc., Integrated Device Technology, Inc., Maxim
Integrated Products, Inc., Quality Semiconductor, Inc. and Texas Instruments,
Inc., most of which have substantially greater financial, technical, marketing,
distribution and other resources, broader product lines and longer-standing
customer relationships than the Company. The Company also competes with other
major or emerging companies that sell products to certain segments of the
markets addressed by the Company. Competitors with greater financial resources
or broader product lines may also have greater ability than the Company to
engage in sustained price reductions in the Company's primary markets in order
to gain or maintain market share.

The Company believes that its future success will depend on its ability to
continue to improve and develop its products and processes. Unlike the Company,
many of the Company's competitors maintain internal manufacturing capacity for
the fabrication and assembly of semiconductor products, which may provide such
competitors with more reliable manufacturing capability, shorter development and
manufacturing cycles and time-to-market advantages. In addition, competitors
with their own wafer fabrication facilities that are capable of producing
products with the same design geometries as those of the Company may be able to
manufacture and sell competitive products at lower prices. Introduction of
products by competitors that are manufactured with improved process technology
could materially and adversely affect the Company's business and results of
operations. As is typical in the semiconductor industry, competitors of the
Company have developed and marketed products having functionality similar or
identical to the Company's products, and the Company expects this trend to
continue in the future. To the extent the Company's products do not achieve
performance, price, size or other advantages over products offered by
competitors, the Company is likely to experience greater price competition with
respect to such products. The Company also faces competition from the makers of
microprocessors and other system devices, including application specific
integrated circuits ("ASICs") that have been and may be developed for particular
systems. These devices may include interface logic functions, which may
eliminate the need or sharply reduce the demand for the Company's products in
particular applications. There can be no assurance that the Company will be able
to compete successfully in the future or that competitive pressures will not
materially and adversely affect the Company's financial condition and results of
operations. Competitive pressures could also reduce market acceptance of the
Company's products and result in price reductions and increases in expenses that
could materially and adversely affect the Company's business, financial
condition and results of operations. See "-- Dependence on Independent Wafer
Foundries," "-- Dependence on Single or Limited Source Assembly Subcontractors,"
"Business -- Manufacturing" and "Business -- Competition."

VARIATION IN PRODUCTION YIELDS

The manufacture and assembly of semiconductor products is highly complex and
sensitive to a wide variety of factors, including the level of contaminants in
the manufacturing environment, impurities in the materials used and the
performance of manufacturing personnel and production equipment. In a typical
semiconductor manufacturing process, silicon wafers produced by the foundry are
sorted and cut into individual die that are then assembled into individual
packages and tested for performance. The Company's wafer fabrication suppliers
have from time to time experienced lower-than-anticipated yields of good die, as
is typical in the semiconductor industry. In the event of such decreased yields,
the Company would incur additional costs to sort wafers, an increase in average
cost per usable die and an increase in the time to market for its products.
These conditions could reduce the Company's net revenues and gross margin, and
have an adverse effect on the Company's business and results of operations, and
relations with affected customers. No assurance can be given that the Company or
its suppliers will not experience yield problems in the future which could
result in a material adverse effect on the Company's business and results of
operations. See "Business -- Manufacturing."

SEMICONDUCTOR INDUSTRY RISKS

The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, characterized by diminished product
demand, accelerated erosion of selling prices, overcapacity and rapidly changing
technology and evolving industry standards. Beginning late in calendar 1995 the
Company experienced a significant decrease in the selling prices of many of its
products, attributable primarily to a significant downward trend in pricing
experienced in the semiconductor industry. It is uncertain how long these
conditions will continue. Accordingly, the Company may in the future experience
substantial period-to-period fluctuations in business and results of operations
due to general semiconductor industry conditions, overall economic conditions or
other factors. The Company's business is also subject to the risks associated
with the effects of legislation and regulations relating to the import or export
of semiconductor products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Manufacturing,"
"Business -- Sales and Marketing" and "Business -- Competition."

RELIANCE ON DISTRIBUTORS; PRODUCT RETURNS

Sales through domestic and international distributors represented 40%, 36% and
49% of the Company's net revenues in fiscal 1996, 1997 and 1998, respectively.
The Company's distributors are not subject to minimum purchase requirements, may
reduce or delay orders periodically due to excess inventory and can discontinue
selling the Company's products at any time. The Company recognizes revenue and
related gross profit from sales of products through distributors when shipped.
Domestic distributors are generally permitted a return allowance of 10% of their
net purchases every six months. Although the Company believes that, to date, it
has provided adequate allowances for exchanges, returns, price protection and
other concessions and, to date, amounts incurred have not been material, there
can be no assurance that actual amounts incurred will not exceed the Company's
allowances, particularly in connection with the introduction of new products,
enhancements to existing products or price reductions. The Company's
distributors typically offer competing products. The loss of one or more
distributors, or the decision by one of the distributors to reduce the number of
the Company's products offered by such distributor or to carry the product lines
of the Company's competitors, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Sales and Marketing."

MANAGEMENT OF GROWTH

The Company has recently experienced and may continue to experience growth in
the number of its employees and the scope of its operations, resulting in
increased responsibilities for management personnel. To manage recent and
potential future growth effectively, the Company will need to continue to
implement and improve its operational, financial and management information
systems and to hire, train, motivate and manage a growing number of employees.
The future success of the Company also will depend on its ability to attract and
retain qualified technical, marketing and management personnel, particularly
highly skilled design, process and test engineers, for whom competition is
intense. In particular, the current availability of qualified engineers is
limited, and competition among companies for skilled and experienced engineering
personnel is very strong. During strong business cycles, the Company expects to
experience continued difficulty in filling its needs for qualified engineers and
other personnel. The Company intends to implement a new management information
system over the next six months. There can be no assurance that the Company will
not encounter difficulties as it seeks to integrate this new system into its
operations. There can be no assurance that the Company will be able to achieve
or manage effectively any such growth, and failure to do so could delay product
development cycles or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company's future success will depend to a large extent on the continued
contributions of its executive officers and other key management and technical
personnel, none of whom has an employment agreement with the Company and each of
whom would be difficult to replace. The Company does not maintain any key person
life insurance policy on any such persons. The loss of the services of one or
more of the Company's executive officers or key personnel or the inability to
continue to attract qualified personnel could delay product development cycles
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."

PATENTS AND PROPRIETARY RIGHTS

The Company's success depends in part on its ability to obtain patents and
licenses and preserve other intellectual property rights covering its products
and development and testing tools. In the United States, the Company holds ten
patents covering certain aspects of its product designs and has eight additional
patent applications pending. Copyrights, mask work protection, trade secrets and
confidential technological know-how are also key elements of the Company's
business. There can be no assurance that any additional patents will be issued
to the Company or that the Company's patents or other intellectual property will
provide meaningful protection from competition. The Company may be subject to or
may initiate interference proceedings in the U.S. Patent and Trademark Office,
which can consume significant financial and

management resources. In addition to the foregoing, the laws of certain
territories in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. The
inability of the Company to protect its intellectual property adequately could
have a material adverse effect on its business, financial condition and results
of operations.

RISKS OF INTERNATIONAL SALES

Sales outside of the United States accounted for approximately 30%, 37% and 45%
of the Company's net revenues in fiscal 1996, 1997 and 1998, respectively. The
Company expects that export sales will continue to represent a significant
portion of net revenues. The Company intends to expand its operations outside of
the United States, which will require significant management attention and
financial resources and further subject the Company to international operating
risks. These risks include unexpected changes in regulatory requirements, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs and other barriers and restrictions, and the burdens of complying with a
variety of foreign laws. The Company is also subject to general geopolitical
risks in connection with its international operations, such as political and
economic instability and changes in diplomatic and trade relationships. In
addition, because the Company's international sales are denominated in U.S.
dollars, increases in the value of the U.S. dollar could increase the price in
local currencies of the Company's products in foreign markets and make the
Company's products relatively more expensive than competitors' products that are
denominated in local currencies, and there can be no assurance that the Company
will not be materially and adversely affected by fluctuating exchange rates.
There can be no assurance that regulatory, geopolitical and other factors will
not materially and adversely affect the Company's business, financial condition
and results of operations in the future or require the Company to modify its
current business practices. See "Business -- Customers" and "Business -- Sales
and Marketing."

DEPENDENCE ON SINGLE OR LIMITED SOURCE ASSEMBLY SUBCONTRACTORS

The Company primarily relies on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. Some of these subcontractors are the Company's single source
supplier for certain new packages. Although the Company believes that it is not
materially dependent upon any such subcontractor, changes in the Company's or a
subcontractor's business could cause the Company to become materially dependent
on a subcontractor. The Company has from time to time experienced difficulties
in the timeliness and quality of product deliveries from the Company's
subcontractors. Although delays experienced to date have not been material,
there can be no assurance that the Company will not experience similar or more
severe difficulties in the future. The Company generally purchases these single
or limited source components or services pursuant to purchase orders and has no
guaranteed arrangements with such subcontractors. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for any such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors, or any other circumstance that would require the
Company to qualify alternative sources of supply could delay shipments and
result in the loss of customers, or limitations or reductions in the Company's
revenues, or otherwise materially and adversely affect the Company's business,
financial condition and results of operations. Each of the Company's assembly
subcontractors is located outside the United States, which exposes the Company
to risks associated with international business operations, including foreign
governmental regulations, currency fluctuations, reduced protection for
intellectual property, changes in political conditions, disruptions or delays in
shipments and changes in economic conditions in the countries where these
subcontractors are located, any of which could have a

material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."

ITEM 2. PROPERTIES

The Company leases approximately 34,500 square feet of space in San Jose,
California in which its headquarters, technology and product development and
testing facilities are located. The facility is leased through 2001 with certain
renewal options. The Company also has sales offices located in San Jose,
California, Laguna Niguel, California, Marlborough, Massachusetts and Cary,
North Carolina as well as in Taiwan and the United Kingdom. The Company believes
its current facilities are adequate to support its needs through the end of
fiscal 1999.

ITEM 3. LEGAL PROCEEDINGS

The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that the Company will not be subject to infringement claims by other parties. In
May 1995, Quality Semiconductor, Inc. ("QSI"), a competitor of the Company,
brought a lawsuit against the Company in the United States District Court for
the Northern District of California, San Francisco Division, claiming
infringement of one of its patents by certain features in certain of the
Company's bus switch products and seeking injunctive relief and unspecified
monetary damages. The court has issued a claim construction order, at this time
there is no discovery or motions pending. The Company believes that it has
meritorious defenses, that the products involved are not material to the
Company's business and that the resolution of this matter will not have a
material adverse effect on the Company's business, financial position or results
of operations. However, any litigation, whether or not determined in favor of
the Company, can result in significant expense to the Company and can divert the
efforts of the Company's technical and management personnel from productive
tasks. In the event of an adverse ruling in any litigation involving
intellectual property, the Company might be required to discontinue the use of
certain processes, cease the manufacture, use and sale of infringing products,
expend significant resources to develop non-infringing technology or obtain
licenses to the infringed technology, and may suffer significant monetary
damages, which could include treble damages. In the event the Company attempts
to license any allegedly infringed technology, there can be no assurance that
such a license would be available on reasonable terms or at all. In the event of
a successful claim against the Company and the Company's failure to develop or
license a substitute technology on commercially reasonable terms, the Company's
business and results of operations would be materially and adversely affected.
There can be no assurance that the claims brought by QSI or any potential
infringement claims by other parties (or claims for indemnity from customers
resulting from any infringement claims) will not materially and adversely affect
the Company's business, financial condition and results of operations.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to page 21 of
the Company's 1998 Annual Report to Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is incorporated by reference to page 2 of
the Company's 1998 Annual Report to Shareholders.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information required by this item is incorporated by reference to pages 3 to
6 of the Company's 1998 Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference to the
information appearing under the caption "Market Risk Disclosure" under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing on page 6 of the Company's 1998 Annual Report to
Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are incorporated by reference to
pages 7 to 20 of the Company's 1998 Annual Report to Shareholders. The
unaudited quarterly results of operations are incorporated by reference to page
21 of the Company's 1998 Annual Report to Shareholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company and their respective ages as
of June 30, 1998 are as follows:

NAME Age Position(s)
---- --- -----------

Alex Chi-Ming Hui 42 Chief Executive Officer, President and Director
Chi-Hung (John) Hui, Ph.D.(1) 43 Vice President, Technology and Director
Patrick B. Brennan 60 Vice President, Finance and Administration
Tat C. Choi, Ph.D. 43 Vice President, Design Engineering
Mark Downing 38 Vice President, Marketing
Daniel W. Wark 42 Vice President, Operations
Glen R. Wiley 47 Vice President, Sales
Tay Thiam Song (1) (2) 43 Director
Jeffery Young (1) (2) 49 Director

____________

(1) Member of Audit Committee.
(2) Member of Compensation Committee.

Alex Chi-Ming Hui has been Chief Executive Officer, President and a member of
the Board of Directors of the Company since its inception in June 1990. From
August 1982 to May 1990, Mr. Hui was employed by LSI Logic Corporation, most
recently as its Director of Advanced Development. From August 1980 to July 1982,
Mr. Hui was a member of the technical staff of Hewlett-Packard Company. Mr. Hui
holds a B.S.E.E. from the Massachusetts Institute of Technology and an M.S.E.E.
from the University of California at Los Angeles.

Chi-Hung (John) Hui, Ph.D., has been Vice President, Technology and a member of
the Board of Directors of the Company since its inception in June 1990. From
August 1987 to June 1990, Dr. Hui was employed by Integrated Device Technology,
most recently as Manager of its Research and Development Department. From August
1984 to August 1987, Dr. Hui was a member of the technical staff of Hewlett-
Packard Company. Dr. Hui holds a B.S.E.E. from Cornell University and an
M.S.E.E. and a Ph.D. in Electrical Engineering from the University of California
at Berkeley.

Patrick B. Brennan has been Vice President, Finance and Administration of the
Company since March 1993. From February 1991 to March 1993, Mr. Brennan was
employed by Datacord, Inc., a subsidiary of Newell Research, Inc., as its Vice
President, Finance, and from July 1985 to February 1991, he was employed as the
Vice President, Finance of SEEQ Technology, Inc. From January 1980 to June 1985,
he was employed by National Semiconductor Corporation, most recently as Vice
President and Treasurer. Mr. Brennan holds a B.S. in Business Administration
from Arizona State University.

Tat C. Choi, Ph.D., joined the Company in April 1998 as Vice President, Design
Engineering. From September 1996 to March 1998, Dr. Choi was employed by
Anacor, Inc., an engineering design service consulting firm that he founded.
Prior to Anacor, Inc. Dr. Choi was employed by Chrontel, Inc. most recently as
its Vice President, Engineering from September 1989 to August 1996. Dr. Choi
was employed by Advanced Micro Devices from February 1983 to August 1989 as a
Senior Member of Technical Staff. Dr. Choi holds a B.S. and M.S. in Electrical
Engineering form the University of Minnesota and a Ph.D. in EECS from the
University of California at Berkeley.

Mark Downing has been the Vice President, Marketing of the Company since October
1997. From March 1988 to October 1997, Mr. Downing was employed by National
Semiconductor Corporation most recently as the Marketing Director for Power
Management Products. Mr. Downing also held other senior marketing management
positions at National Semiconductor Corporation in the Amplifier Products,
Automotive Products and Analog Products divisions. Prior to National
Semiconductor Corporation Mr. Downing was employed by Ferranti Electronics Ltd.
from September 1983 to February 1988 most recently as a Senior Product Marketing
Engineer. Mr. Downing holds a B.S. in Physics from Aston University of
Birmingham, England and an MBA from Open University of Milton Keynes, England.

Daniel W. Wark joined the Company in April 1996 as its Director of Operations
and became its Vice President, Operations in July 1997. From May 1983 to
December 1995, Mr. Wark was employed by Linear Technology Corporation
("Linear"), most recently as Director of Corporate Services. Other positions
that Mr. Wark held at Linear included Managing Director of its Singapore
Operations and Production Control Manager. Prior to his employment with Linear,
Mr. Wark was employed by National Semiconductor Corporation and Avantek, Inc.
Mr. Wark holds a B.S. in Business Administration from San Jose State University
and an APICS certification.

Glen R. Wiley has been Vice President, Sales of the Company since April 1997.
From April 1992 to November 1996, Mr. Wiley was the Vice President of Sales at
Orbit Semiconductor, and from January 1990 to March 1992, he served as Vice
President of Pro Associates, a manufacturers' representative firm. From January
1989 to December 1989, Mr. Wiley was employed by Gazelle Microcircuits as its
Western Area Sales Manager, and from February 1980 to December 1988, he served
as a Senior Account Salesman with Pro Associates. Mr. Wiley holds a B.A. in
English from Humboldt State University.

Tay Thiam Song has been a member of the Board of Directors since June 1992. Mr.
Tay resides in Singapore, and, since 1985, has been serving as the Executive
Director of various companies in Singapore and Malaysia, including Daiman Group
(a Malaysian public company) and Chye Seng Tannery (Pte) Ltd. Mr. Tay holds a
B.A. in Accounting from the North East London Polytechnic University.

Jeffrey Young has been a member of the Board of Directors since August 1995.
Since 1988, Mr. Young has been a resident of Singapore and has served as the
Executive Director of Daiman Roof Tiles Sdn. Bhd., a subsidiary of the Daiman
Group, and Great Wall Brick Work Sdn. Bhd., and as a Director of Daiman
Singapore (Pte) Ltd., Teletel System (Pte) Ltd. and Daiman Investments
(Australia) Pty. Ltd. Mr. Young holds a B.S. from the Electronic College of
Canton, People's Republic of China.

All directors of the Company serve until the next annual meeting of the
shareholders of the Company and until their successors have been duly elected
and qualified. Each officer serves at the discretion of the Board of Directors.
Mr. Hui and Dr. Hui are brothers, and Mr. Young and Mr. Tay are brothers-in-law.
There are no other family relationships among any of the directors, officers or
key employees of the Company.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
section captioned "Executive Compensation" contained in the Company's Definitive
Proxy Statement related to the Annual Meeting of Shareholders to be held
December 8, 1998, to be filed by the Company with the Securities and Exchange
Commission (the "Proxy Statement").

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
section captioned "Certain Transactions" contained in the Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

(1) Financial Statements

The following financial statements of Pericom Semiconductor
Corporation are incorporated by reference to pages 7 to 20 of
the Company's 1998 Annual Report to Shareholders:

Independent Auditors' Report
Balance Sheets - June 30, 1997 and 1998
Statements of Income - Years Ended June 30, 1996, 1997 and 1998
Statements of Shareholders' Equity - Years Ended June 30, 1996,
1997 and 1998
Statements of Cash Flows - Years Ended June 30, 1996, 1997 and
1998
Notes to Financial Statements

(2) Financial Statement Schedules

The following financial statement schedule of the Registrant is
filed as part of this report.

Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.

(3) Exhibits

13.1 1998 Annual Report to Shareholders
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the Year Ended
June 30, 1998
27.2 Financial Data Schedule for the Years Ended
June 30, 1996 and June 30, 1997 and for the
Quarters Ended September 30, 1995, December 31,
1995 and March 31, 1996
27.3 Financial Data Schedule for the Quarters Ended
September 31, 1996, December 31, 1996 and
March 31, 1997

(b) Reports on Form 8-K:

The Company filed no reports on Form 8-K during the fourth
quarter ended June 30, 1998.

See list of exhibits under (a)(3) above.

(d) Financial Statement Schedules:

See list of schedules under (a)(2) above.

SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) 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.

PERICOM SEMICONDUCTOR CORPORATION

By: /s/ ALEX C. HUI
-------------------------------
Alex C. Hui
Chief Executive Officer and
President

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ ALEX C. HUI Chief Executive Officer, President and Director September 22, 1998
- --------------------------------- (Principal Executive Officer)
Alex C. Hui

/s/ PATRICK B. BRENNAN Vice President, Finance & Administration September 22, 1998
- --------------------------------- (Principal Financial Officer and Accounting
Patrick B. Brennan Officer)

/s/ JOHN CHI-HUNG HUI Vice President, Technology and Director September 22, 1998
- ---------------------------------
John Chi-Hung Hui

/s/ JEFFREY YOUNG Director September 22, 1998
- ---------------------------------
Jeffrey Young

/s/ TAY THIAM SONG Director September 22, 1998
- ---------------------------------
Tay Thiam Song

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

We have audited the financial statements of Pericom Semiconductor Corporation as
of June 30, 1998 and 1997 and for each of the three years in the period ended
June 30, 1998 and have issued our report thereon dated July 23, 1998; such
financial statements and report are incorporated by reference in this 1998
Annual Report on Form 10-K. Our audits also included the financial statement
schedule of Pericom Semiconductor Corporation, listed in Item 14(a)(2). Such
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ DELOITTE & TOUCHE, LLP

San Jose, California
July 23, 1998

SCHEDULE II

PERICOM SEMICONDUCTOR CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
--------- -------- ---------- ------
Accounts receivable allowances
June 30,

1996 $ 735 $870 --- $1,605
1997 1,605 19 426 1,198
1998 1,198 401 40 1,559