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 September 30, 1997    

OR

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

For the transition period from  __________  to _____________    

               Commission File Number :   0-22738   

                    QUICKTURN DESIGN SYSTEMS, INC. 
        (Exact name of registrant as specified in its charter)     

                DELAWARE                         77-0159619
     (State or other jurisdiction of         (I.R.S. Employer
    incorporation or organization)          Identification No.)
    

              55 W. Trimble Road, San Jose, California 95131
            (Address of principal executive offices) (zip code)

   Registrant's telephone number, including area code: (408) 914-6000

              440 Clyde Avenue, Mountain View, California 94043
            -----------------------------------------------------
         (Former name or former address, if changed since last report)

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     [     ]   
    
As of November 4, 1997 there were 17,572,744 shares of the registrant's 
common stock outstanding. 

This quarterly report on Form 10-Q contains 18 pages, of which this is 
page 1. 



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                     QUICKTURN DESIGN SYSTEMS, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
                             (UNAUDITED)




                                                     Three Months Ended            Nine Months Ended
                                                        September 30,                 September 30,
                                                  -------------------------     -------------------------
                                                     1997           1996*          1997           1996*
                                                  ----------     ----------     ----------     ----------
                                                                                   
Revenue
    Product revenue                               $  22,174      $  23,134      $  56,663      $  63,878
    Maintenance and service revenue                   7,890          5,653         21,241         15,036
                                                  ----------     ----------     ----------     ----------
         Total revenue                               30,064         28,787         77,904         78,914

Cost of revenue
    Cost of product revenue                           6,420          6,816         19,193         19,553
    Cost of maintenance and service revenue           2,393          1,666          4,846          3,986
                                                  ----------     ----------     ----------     ----------
         Total cost of revenue                        8,813          8,482         24,039         23,539
                                                           
         Gross profit                                21,251         20,305         53,865         55,375

Operating expenses
    Research and development                          5,884          5,158         17,555         14,106
    Sales and marketing                               9,389          8,318         26,710         23,471
    General and administrative                        3,034          1,790          8,391          5,108
    Acquisition and merger related costs             18,031            ---         19,231            ---
                                                  ----------     ----------     ----------     ----------
         Total operating expenses                    36,338         15,266         71,887         42,685
                                                                          
         Operating income (loss)                    (15,087)         5,039        (18,022)        12,690
         
Other income, net                                       636            533          1,546          1,332
                                                  ----------     ----------     ----------     ----------
    Net income (loss) before provision for                 
     (benefit from) income taxes                    (14,451)         5,572        (16,476)        14,022
                                                                          
Provision for (benefit from) income taxes            (6,925)         1,700         (7,552)         4,416
                                                  ----------     ----------     ----------     ----------
    Net income (loss)                             $  (7,526)      $  3,872      $  (8,924)      $  9,606
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------
         

Net income (loss) per share                        $  (0.43)       $  0.22       $  (0.53)       $  0.54
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------
Number of shares used in per share calculations      17,462         17,967         16,954         17,756
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------


* 1996 has been restated to reflect the February 1997 merger of the Company 
and SpeedSim, Inc., which was accounted for as a pooling of interests.    

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


                                     -  2 -



                           QUICKTURN DESIGN SYSTEMS,  INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                       (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
                                     (UNAUDITED)




                                                           September 30,  December 31,
                                                                1997          1996*       
                                                           -------------  ------------
                                                                    
ASSETS
  Current assets
    Cash and cash equivalents                               $  17,390     $  25,790
    Marketable securities                                      16,223        10,614
    Accounts receivable, net of allowance for doubtful 
      accounts of $1,840 in 1997 and 1996                      25,531        21,768
    Inventories                                                10,168        10,141
    Prepaid expenses and other current assets                   2,664         2,991
    Deferred income taxes                                       5,871         5,871
                                                            ----------    ----------
      Total current assets                                     77,847        77,175
  Marketable securities                                        16,837        18,198
  Fixed assets, net                                            10,360        11,243
  Deferred income taxes                                         9,864         2,939
  Other assets                                                  1,669         2,422
                                                            ----------    ----------
                                                            $ 116,577     $ 111,977 
                                                            ----------    ----------
                                                            ----------    ----------
LIABILITIES
  Current liabilities
    Current portion of long term debt                       $   1,437     $   3,502
    Accounts payable                                            4,814           894
    Accrued liabilities                                        15,138        14,586
    Deferred revenue                                            7,680         8,950
                                                            ----------    ----------
      Total current liabilities                                29,069        27,932
                                                            ----------    ----------

STOCKHOLDERS' EQUITY
    Common stock, $.001 par value:
      Authorized:  40,000,000 shares
      Issued and outstanding: 17,532,455 shares in 1997;
      16,526,904 shares in 1996                                    18            17
    Additional paid-in capital                                 90,018        77,545
    Cumulative translation adjustment                            (301)         ---  
    Unrealized holding gain on marketable securities               78            10
    Retained earnings (accumulated deficit)                    (1,682)        7,242
    Deferred compensation                                        (623)         (769)
                                                            ----------    ----------
      Total stockholders' equity                               87,508        84,045
                                                            ----------    ----------
                                                            $ 116,577     $ 111,977
                                                            ----------    ----------
                                                            ----------    ----------


* December 31, 1996 has been restated to reflect the February 1997 merger of 
the Company and SpeedSim, Inc., which was accounted for as a pooling of 
interests.

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

                                       -  3  -



                            QUICKTURN DESIGN SYSTEMS, INC.
                   Condensed Consolidated Statements of Cash Flows
                                (AMOUNTS IN THOUSANDS)     
                                     (UNAUDITED)


                                                                           Nine Months Ended
                                                                             September 30,
                                                                      --------------------------
                                                                         1997           1996*
                                                                      -----------     ----------
                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                     $  (8,924)      $  9,606
Adjustments to reconcile net income (loss) to net cash                         
provided by (used in) operating activities                                     
   Depreciation and amortization                                          6,075          5,872
   Amortization of deferred compensation                                    146           --- 
   Write off of Arkos acquisition                                        18,031           --- 

Changes in current assets and liabilities
   Accounts receivable                                                   (3,763)         1,546
   Inventories                                                           (4,199)        (2,254)
   Prepaid expenses and other current assets                                327           (282)
   Deferred tax asset                                                    (6,925)          --- 
   Accounts payable and accrued liabilities                               4,472         (1,340)
   Deferred revenue                                                      (1,270)         6,328
                                                                      -----------     ----------
     Net cash provided by operating activities                            3,970         19,476
                                                                      -----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of fixed assets                                           (5,077)        (4,537)
   Sale of marketable securities                                         12,055         16,102
   Purchase of marketable securities                                    (16,235)       (16,865)
   Purchase of Arkos                                                     (5,000)          --- 
   Increase (decrease) in other assets                                    1,279          1,510
                                                                      -----------     ----------
     Net cash used in investing activities                              (12,978)        (6,810)
                                                                      -----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Payments of long term debt                                            (2,065)        (3,072)
   Proceeds from stock issuances                                          2,974          2,173
                                                                      -----------     ----------
     Net cash provided by (used in) financing activities                    909           (899)
                                                                      -----------     ----------

Effect of exchange rate changes on cash and cash equivalents               (301)          --- 

Net increase (decrease) in cash and cash equivalents                     (8,400)        11,767

Cash and cash equivalents at beginning of period                         25,790         17,658
                                                                      -----------     ----------
Cash and cash equivalents at end of period                            $  17,390       $ 29,425
                                                                      -----------     ----------
                                                                      -----------     ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid during the period for
     Interest                                                         $     232       $    355
     Income taxes                                                     $   2,494       $  4,607

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES                        
   Unrealized holding loss (gain) on marketable securities            $     (68)      $    162
   Increase in inventory reserves related to Arkos purchase           $   4,172       $   --- 
   Assets acquired in Arkos purchase                                  $     641       $   --- 
   Common stock and warrants issued in Arkos purchase                 $   9,500       $   --- 




* 1996 has been restated to reflect the February 1997 merger of the Company 
and SpeedSim, Inc., which was accounted for as a pooling of interests.

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

                                       -  4  -



                            QUICKTURN DESIGN SYSTEMS, INC.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  The condensed consolidated financial statements are unaudited (except for 
the balance sheet information as of December 31, 1996, which is derived from 
audited financial statements after giving effect to restatement for the 
SpeedSim Merger-see Note 4, below) and reflect all adjustments (consisting 
only of normal recurring adjustments) which are, in the opinion of 
management, necessary for a fair presentation of the financial position and 
operating results for the interim periods. The condensed consolidated 
financial statements should be read in conjunction with the consolidated 
financial statements and notes thereto, together with Management's Discussion 
and Analysis of Financial Condition and Results of Operations contained in 
the Company's 1996 Annual Report to Stockholders.  The results of operations 
for the nine months ended September 30, 1997 are not necessarily indicative 
of the results for the entire fiscal year ending December 31, 1997, or any 
future interim period.

2.  Inventories comprise:  (in thousands) 

                                          September 30,  December 31,
                                              1997           1996
                                          -------------  ------------
                                           (unaudited)
Raw materials                               $  5,136       $  8,431
Work in process                                5,032          1,710
                                            ---------      ---------
                                            $ 10,168       $ 10,141
                                            ---------      ---------
                                            ---------      ---------

3.  Reclassification: Certain prior year amounts have been reclassified to 
conform to the current year presentation.

4.  SpeedSim Merger:  In February 1997, the Company acquired SpeedSim, Inc. 
("SpeedSim"), a provider of cycle-based simulation software for the 
verification of digital logic designs (the "SpeedSim Merger"), for 2.8 
million shares of Quickturn common stock.  The acquisition was accounted for 
as a pooling of interests.  The Company incurred direct transaction costs of 
approximately $1.2 million associated with the acquisition, which were 
charged to operations during the quarter ended March 31, 1997.  All financial 
information herein has been restated to include the operations of SpeedSim.

5.  Arkos Acquisition:  In June 1997, pursuant to an Asset Purchase Agreement 
among the Company, Synopsys, Inc. ("Synopsys") and Arkos Design, Inc. 
("Arkos"), the Company purchased from Synopsys certain assets relating to 
Synopsys' emulation business, including all the outstanding capital stock of 
Arkos (the "Arkos Acquisition"). The consideration paid by the Company was 
valued at $14,500,000 and consisted of $5,000,000 cash, 500,000 shares of 
Quickturn Common Stock and warrants to purchase 1,000,000 shares of Quickturn

                                 - 5 -



Common Stock. The exercise price of the warrants is $13.34 per share. The 
acquisition was accounted for as a purchase.  The Company recognized charges 
of $18.0 million in the third quarter of 1997, which represented a write off 
of the portion of the purchase price which was allocated to in-process 
research and development and marketing rights, the accrual of certain 
liabilities incurred in connection with the acquisition and other costs 
related to the acquisition.  The balance of the purchase price, consisting of 
intellectual property of $541,000 and fixed assets of $100,000, will be 
amortized over three to five years.

6.  Recent Accounting Pronouncements:  In February 1997, The Financial 
Accounting Standards Board issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS 
NO. 128 ("SFAS 128"), EARNINGS PER SHARE, which specifies the computation, 
presentation and disclosure requirements for earnings per share.  SFAS 128 
supercedes ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 and is effective for 
financial statements issued for periods ending after December 15, 1997.  SFAS 
128 requires restatement of all prior-period earnings per share data 
presented after the effective date.  SFAS 128 will not have a material impact 
on the Company's financial position, results of operations, cash flows or 
earnings per share.

In June 1997, the Financial Accounting Standards Board issued STATEMENT OF 
FINANCIAL ACCOUNTING STANDARDS NO. 130 ("SFAS 130"), REPORTING COMPREHENSIVE 
INCOME. This statement establishes requirements for disclosure of 
comprehensive income and becomes effective for the Company for fiscal years 
beginning after December 15, 1997, with reclassification of earlier financial 
statements for comparative purposes.  Comprehensive income generally 
represents all changes in stockholders' equity except those resulting from 
investments or contributions by stockholders.  The Company is evaluating 
alternative formats for presenting this information, but does not expect this 
pronouncement to materially impact the Company's results of operations.

In June 1997, the Financial Accounting Standards Board issued STATEMENT OF 
FINANCIAL ACCOUNTING STANDARDS NO. 131 ("SFAS 131"), DISCLOSURES ABOUT 
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.  This statement 
establishes standards for disclosure about operating segments in annual 
financial statements and selected information in interim financial reports.  
It also establishes standards for related disclosures about products and 
services, geographic areas and major customers.  This statement supercedes 
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 14, FINANCIAL REPORTING FOR 
SEGMENTS OF A BUSINESS ENTERPRISE.  The new standard becomes effective for 
fiscal years beginning after December 15, 1997, and requires that comparative 
information from earlier

                                       - 6 -



years be restated to conform to the requirements of this standard. The 
Company is evaluating the requirements of SFAS 131 and the effects, if any, 
on the Company's current reporting and disclosures. 

7.  Fiscal Year: Effective in 1997, the Company changed its fiscal year to 
December 31 from a 52-week or 53-week year, ending on the last Sunday in 
December. The change had no significant impact on the current period results 
of operations.

8.  Derivatives:  The Company uses forward foreign exchange contracts to 
hedge certain assets denominated in foreign currencies.  For these 
instruments, risk reduction is assessed on a transaction basis and the 
instruments are designated and effective as a hedge and are highly inversely 
correlated to the hedged item as required by generally accepted accounting 
principles. Gains and losses on these hedges are included in the carrying 
amount of the assets and are ultimately recognized in income as part of those 
carrying amounts.  If a hedging instrument ceases to qualify as a hedge, any 
subsequent gains and losses are recognized currently in income.  The Company 
does not use any derivatives for trading or speculative purposes.  If a 
derivative ceases to qualify for hedge accounting, it is accounted for on a 
mark to market basis.


                                 - 7 -



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

RESULTS OF OPERATIONS

TOTAL REVENUE

The Company's 1997 third quarter revenue of $30.1 million represented a 4% 
increase compared to the third quarter revenue in the prior fiscal year and a 
14% increase compared to revenue in the second quarter of 1997.   Revenue for 
the first nine months of 1997 of $77.9 million was a decrease of 1% from the 
first nine months of the prior year.  The revenue increase in the third 
quarter of the current year over the second quarter of the current year was 
primarily attributable to increased total sales volume of emulation capacity, 
as represented by the number of gates of verification capacity purchased by 
the customer.  The revenue decrease in the first nine months of the current 
year compared to the same period last year was primarily attributable to the 
delay of customer purchase decisions for the Company's emulation products in 
the first quarter of 1997.  The Company believes that the delay in purchase 
decisions was due to customers reacting to structural changes within their 
respective segments of the electronics industry, including customer corporate 
restructurings and management changes that resulted in design project 
decision delays, and to near term uncertainty in the emulation industry 
generated by new competition in the Company's market.  As compared to the 
third quarter and first nine months of 1996, product revenue for the third 
quarter and first nine months of 1997 decreased 4% and 11%, respectively, due 
primarily to the delay of customer purchase decisions as discussed above.  
Maintenance and engineering services revenue increased 40% and 41% over the 
third quarter and first nine months of 1996, respectively. The increase in 
maintenance and service revenue is primarily attributable to a larger number 
of maintenance contracts on customers' installed systems and to increased 
sales of the Company's custom engineering services.  International sales 
accounted for approximately 35% and 19% of total revenue in the third 
quarters of the current and prior fiscal years, respectively.   For the first 
nine months of the current and prior fiscal years, international sales were 
approximately 34% and 33% of total revenue, respectively.  The increases in 
international sales as a percentage of total revenue in the third quarter and 
first nine months of 1997 were primarily due to increased volume of emulation 
sales in Japan.  Revenue from most international customers is denominated in 
U.S. dollars.  However, receivables from certain other international 
customers are denominated in local currencies.  Such receivables are hedged, 
where practicable, by forward exchange contracts to minimize the impact of 
foreign exchange rate movements on the Company's operating results. There 
have been no material gains or losses associated with the Company's hedging 
program. However, there can be no assurance that fluctuations in the currency 
exchange rates in the future will not have a material adverse impact on the 
receivables derived from foreign currency denominated sales and thus the 
Company's operating results and financial condition.  See Note 2 of the Notes 
to Consolidated Financial Statements in the Company's 1996 Annual Report to 
Stockholders.

                                    - 8 -



Many of the Company's customers order on an as-needed basis and often delay 
delivery of firm purchase orders until the commencement dates of such 
customers' development projects are determined.  Moreover, a significant 
portion of the Company's revenue in each quarter generally results from 
shipments in the last few weeks of the quarter;  therefore, a delay in the 
shipment of a few orders can have a significant impact upon total revenue and 
results of operations in a given quarter.

A relatively limited number of customers have historically accounted for a 
substantial portion of the Company's revenue.  These customers represent 
early adopters of emulation technology, typically for the design of complex 
integrated circuits.  In particular, the Company's top ten customers 
represented 58% of total revenue in the third quarters of both 1997 and 1996. 
In the first nine months of 1997 and 1996, the top ten customers accounted 
for 44% and 52% of total revenue, respectively.  The Company expects that 
sales of its products to a relatively limited number of customers will 
continue to account for a high percentage of revenue for the foreseeable 
future.  The loss of a major customer or any reduction in orders by such a 
customer could have an adverse effect on the Company's financial condition or 
results of operations.  The Company believes that in the future its results 
of operations in a quarterly period could be impacted by the timing of 
customer development projects and related purchase orders for the Company's 
emulation systems, new product announcements and releases by the Company, and 
economic conditions generally and in the electronics industry specifically.

GROSS MARGINS

Gross margins were 71% and 68% in the third quarter and second quarter of the 
current year, respectively, and were 71% in the third quarter of the prior 
year. Gross margins associated with product revenues were 71% and 61% in the 
third quarter and second quarter of the current year, respectively, and 71% 
in the third quarter of the prior year.  The increase in product gross 
margins in the third quarter as compared to the second quarter was due 
primarily to a larger revenue base in the quarter over which to spread fixed 
manufacturing costs. There can be no assurance that this increase can be 
maintained as the Company expects competitive pressures to increase in its 
market from existing companies and new entrants.  Maintenance and service 
gross margins were 70% and 88% in the third and second quarter of the current 
year, respectively, compared to 71% in the third quarter of the prior year.  
The decrease in maintenance and service gross margins in the third quarter 
was due mainly to an increase in field support required to service new and 
existing contracts.  There can be no assurance that the Company will be able 
to sustain its recent gross margins. Furthermore, to the extent that the 
Company's cost reduction goals are achieved, any resulting cost savings that 
are passed on to the Company's customers may also have an adverse effect on 
gross margins.

RESEARCH AND DEVELOPMENT

Research and development expenses increased by 14% in the third quarter of 
1997 compared to the third quarter of the previous year.  This increase was 
primarily attributable to increased staffing and prototype and equipment 
costs necessary to enhance current products and to develop the next 
generation emulation and cycle-based simulation products.  As a percentage of 
                                           
                                           
                                      - 9 -
                                           


total revenue, research and development expenses were approximately 20% for 
the third quarter of the current year and 18% for the third quarter of the 
previous year.  For the nine month periods in the current and prior fiscal 
years, research and development expenses were 23% and 18% of total revenue, 
respectively.  The Company expects to continue to invest a significant amount 
of its resources in research and development.

SALES AND MARKETING

Sales and marketing expenses increased 13% in the third quarter of 1997 
compared to the third quarter of the previous year.  This increase was 
largely due to headcount increases to support both domestic and foreign 
markets.  As a percentage of total revenue, sales and marketing expenses were 
approximately 31% and 29% in the third quarters of the current and prior 
fiscal years, respectively.  For the nine month periods in the current and 
prior year, sales and marketing expenses were 34% and 30% of total revenue, 
respectively.  The Company expects that sales and marketing expenses will 
continue to increase in dollar amounts as the Company expands its sales and 
marketing efforts.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased by 69% in the third quarter of 
1997  compared to the third quarter of the previous year.  This increase was 
largely due to increased legal costs related to a patent infringement lawsuit 
filed  by the Company in January 1996.  See "Part II., Item 1. Legal 
Proceedings" of this Form 10-Q. As a percentage of total revenue, general and 
administrative expenses were approximately 10%  and 11% for the third quarter 
and the first nine months of the current year, respectively, and 6% for the 
third quarter and first nine months of the prior year.  The Company expects 
general and administrative expenses to increase in 1997 due primarily to 
continued legal costs.

ACQUISITION AND MERGER RELATED COSTS

In connection with its merger with SpeedSim, Inc. (the "SpeedSim Merger"), 
the Company recorded one-time charges of $1.2 million in the first quarter of 
1997 that included fees for investment banking, legal and accounting services 
and other costs of consolidating.  In connection with the Company's 
acquisition of the assets of Arkos (the "Arkos Acquisition"), the Company 
incurred charges of $18.0 million in the third quarter of 1997 representing 
the allocation of the purchase price and the accrual of certain liabilities 
and other costs.  The balance of the purchase price will be amortized over 
three to five years.  See Note 5 of the Notes to Condensed Consolidated 
Financial Statements.

OTHER INCOME, NET

Other income, net increased by $103,000 in the third quarter and by $214,000 
in the first nine months of 1997 compared to the third quarter and nine month 
periods in 1996, respectively, due primarily to reduced interest expenses 
related to the decreased level of debt associated with maturing equipment 
leases.

                                        - 10 -
                                           


PROVISION FOR INCOME TAXES

The effective tax rates of 48%  and 46% for the three and nine months ended 
September 30, 1997, respectively, reflect a tax benefit in excess of the 
federal statutory rate of 35% primarily because of federal and state general 
business credits and interest income on investments in tax-exempt 
obligations.   The effective tax rate of 31% for both the three and nine 
months ended September 30, 1996 were lower than the statutory federal rate of 
35% primarily because of federal and state general business credits, interest 
income on investments in tax-exempt obligations and benefit from foreign 
sales corporation.

NET INCOME (LOSS) AND QUARTERLY RESULTS

Net loss in the third quarter of 1997 was $7.5 million which included 
one-time charges for the Arkos Acquisition.  Net income in the third quarter 
without the charges for the Arkos Acquisition and its related income tax 
benefit was $2.5 million, compared to net income of $3.9 million in the third 
quarter of 1996. This decrease in net income without the charges for the 
Arkos Acquisition was due primarily to an increase in operating expenses. 

FACTORS AFFECTING OPERATING RESULTS

COMPETITION

The EDA industry is highly competitive and rapidly changing.  The Company 
faces significant competition for emulation-based system-level verification 
and cycle-based simulation, in addition to competition from traditional 
design verification methodologies which rely on the approach of building and 
then testing complete system prototypes.  Because of customers' requirements 
for a design verification methodology which reduces the number of costly 
design iterations and improves product quality, the Company expects 
competition in the market for system-level verification and cycle-based 
simulation to increase as other companies attempt to  introduce  emulation 
and cycle-based simulation products  and  product  enhancements.    Moreover, 
the Company competes  with companies  that have significantly  greater  
financial,  technical  and marketing resources, greater name recognition and 
larger installed customer bases than the Company.   In  addition,  many  of  
these  competitors  have established relationships with current and potential 
customers of the Company. Increased competition could result in price 
reductions, reduced margins and loss of market share, all of which could 
materially adversely affect the Company. The Company believes that the 
principal competitive factors in the EDA market are quality of results, the 
mission-critical nature of the technology, technical support, product 
performance, reputation, price and support of industry standards.   The 
Company believes that it currently competes favorably with respect to these 
factors.  However, there can be no assurance that the Company will be able to 
compete successfully against current and future competitors or that 
competitive pressures faced by the Company will not materially adversely 
affect its business, operating results and financial condition.  

In addition, competitors may resort to litigation as a means of competition. 
Such litigation may result in substantial costs to the Company and 
significant diversion of management time.  In 1995, Mentor Graphics 
Corporation, ("Mentor") filed suit against the Company for declarative 

                                  - 11 -



judgment of non-infringement, invalidity and unenforceability of several of 
the Company's patents.  Six of the Company's patents are now involved in the 
disputes and the Company has filed counterclaims against Mentor  and Mentor's 
French subsidiary, Meta Systems ("Meta"), for infringement and threatened 
infringement of those six patents.  Furthermore, in January 1996, the Company 
filed a complaint with the International Trade Commission, seeking to stop 
unfair importation of hardware logic emulation systems manufactured by Meta 
on the grounds that such systems  infringe the  Company's  patents.   See 
Part II, Item 1 below, for a more detailed discussion  of  these and  other  
litigation matters.    See  Note  14  of  the  Notes to Consolidated 
Financial Statements in the Company's 1996 Annual Report to Stockholders. 
Although patent and intellectual property disputes in the EDA industry are 
often settled through licensing, cross-licensing or similar arrangements, 
costs associated with such litigation and arrangements may be substantial.

RISKS ASSOCIATED WITH THE SPEEDSIM MERGER 

On February 7, 1997, the Company completed the SpeedSim Merger.  There can be 
no assurance that the Company will not incur additional charges in subsequent 
quarters to reflect costs associated with the SpeedSim Merger or that 
management will be successful in its efforts to integrate the operations of 
the merged companies.  Although the Company believes the SpeedSim Merger is 
in the best interest of the Company and its stockholders, there are 
significant risks associated with these types of transactions, including but 
not limited to: (i) difficulties in the  integration   of SpeedSim, (ii) 
difficulties in maintaining revenue levels during product transitions, (iii) 
difficulties or delays in achieving product and technology integration 
benefits, and (iv) increased competition from other software companies.  
Moreover, SpeedSim is a company in the early stages of development.  As a 
result, the Company believes that the increases in operating expenses 
associated with the development and integration of these new technologies 
could, in the near term, greatly exceed any associated increases in revenue 
which could have an adverse impact on operating results.

RISKS ASSOCIATED WITH THE ARKOS ACQUISITION

On June 14, 1997, the Company completed the Arkos Acquisition.   There can be 
no assurance that, in addition to the $18.0 million charge recognized in the 
third quarter of 1997, the Company will not incur charges in subsequent 
quarters to reflect costs associated with the Arkos Acquisition or that 
management will be successful in its efforts to transition existing Synopsys 
customers using the Arkos product to Quickturn products.  Although the  
Company  believes  the Arkos  Acquisition  is  in  the  best   interest  of  
the  Company  and its stockholders, there are significant risks associated 
with these types of transactions, including but not limited to: (i) 
difficulties in the transition of customer projects from Arkos to Quickturn 
products, (ii) difficulties in maintaining revenue levels during product 
transitions, (iii) difficulties or delays in achieving product and technology 
integration benefits, and (iv) increased competition from other companies.

                                   - 12 -



OTHER FACTORS

Other factors which could adversely affect the Company's quarterly operating 
results in the future include efficiencies as they relate to managing 
inventories and fixed assets, the timing of expenditures in anticipation of 
increased sales, customer product delivery requirements and shortages of 
components or labor.  Moreover, a significant portion of the Company's total 
revenue in each quarter generally results from shipments in the last few 
weeks of the quarter; therefore, a delay in the shipment of a few orders can 
have a significant impact upon total revenue and results of operations in a 
given quarter.  Additionally, as a significant portion of the Company's total 
revenue and net income may come from international operations, fluctuations 
of the U.S. dollar against foreign currencies and the seasonality of 
Asia-Pacific, European, and other international markets could impact the 
Company's results of operations and financial condition in a particular 
quarter.

Due to the factors above, the Company's future earnings and stock price may 
be subject to significant volatility, particularly on a quarterly basis.  Any 
shortfall in total revenue or earnings from levels expected by securities 
analysts has had and could in the future have an immediate and significant 
adverse effect on the trading price of the Company's common stock. 
Additionally, the Company may not learn of such shortfalls until late in a 
fiscal quarter, which could result in an even more immediate and adverse 
effect on the trading price of the Company's common stock.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased by $8.4 million from December 31, 1996 to 
September 30, 1997.  Net cash provided by operations was $4.0 million, due 
primarily to $18.0 million write off of the Arkos acquisition, net of income 
taxes and $6.0 million of depreciation and amortization, partially offset by 
a net loss of $8.9 million, increased deferred tax asset of $6.9 million and 
increased inventories of $4.2 million. Net cash used in investing activities 
was $13.0 million due primarily to purchases of marketable securities of 
$16.2 million, the cash paid for the purchase of fixed assets of $5.1 million 
and the purchase of Arkos assets of $5.0 million, offset by sales of 
marketable securities of $12.1 million.   Net cash provided by financing  
activities was $909,000 due to proceeds from stock issuance of $3.0 million, 
offset by payments of capital lease obligations of $2.1 million.

The Company believes that its cash and cash equivalents, together with its 
existing credit facility and the cash flows expected to be generated by 
operations, will be sufficient to meet its anticipated cash needs for working 
capital, capital expenditures and marketing expansion through at least 1998. 
Thereafter, if cash generated from operations is insufficient to satisfy the 
Company's liquidity requirements, the Company may sell additional equity or 
debt securities or obtain additional credit facilities.

                                   - 13 -



PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In January 1996, the Company filed a complaint with the International Trade 
Commission (the "ITC") in Washington, DC, seeking to stop unfair importation 
of logic emulation systems manufactured by Meta Systems, a subsidiary of 
Mentor.  In the complaint, the Company alleges that Mentor's hardware logic 
emulation systems infringe the Company's patents.  In July 1996, the ITC 
Administrative Law Judge issued an Initial Determination granting a Temporary 
Exclusion Order stopping the importation of Mentor's emulation systems into 
the U.S., absent the posting of a bond by Mentor.  The ITC Initial 
Determination included a Cease and Desist Order against all sales activities  
regarding unbonded Mentor emulation products imported into the U.S.  In 
August 1996, the ITC ratified the judges' Initial Determination.   Mentor and 
Meta appealed the Temporary Exclusion Order to the Federal Circuit Court of 
Appeals, asking that the ITC's Interpretation of Quickturn's patent claims be 
overturned.  On August 15, 1997, the Federal Circuit Court of Appeals 
affirmed the ITC's decision granting temporary relief to the Company and 
adopted the patent claim interpretation of the ITC as being correct and 
derived in accordance with the Federal Circuit's case law.  Meanwhile, on 
August 1, 1997, the ITC Administrative Law Judge issued an Initial 
Determination that Mentor's SimExpress emulation systems and components, 
including software components, infringe five of the Company's patents.  The 
Administrative Law Judge recommended that the ITC issue a Permanent Exclusion 
Order prohibiting the importation of infringing SimExpress systems and 
components. The Administrative Law Judge further recommended that the ITC 
issue a Cease and Desist Order prohibiting Mentor from distributing any 
SimExpress software of non-U.S. origin in the United States.  On October 2, 
1997, the ITC ratified the Administrative Law Judge's Initial Determination.  
The ITC has until December 1, 1997, to act upon the Administrative Law 
Judge's recommendations, after which President Clinton will have 60 days to 
review the ITC's actions.  

The Company also is engaged in a Federal District Court case with Mentor and 
Meta involving six of the Company's patents.  Mentor and Meta are seeking a 
declaratory judgment of noninfringement, invalidity and unenforceability of 
the patents in dispute, and the Company has filed counteractions against 
Mentor and Meta for infringement and threatened infringement of the six 
patents.  Mentor has also claimed in this Federal District Court case that 
press releases issued by the Company were defamatory and interfered with 
Mentor's prospective economic relations. On August 1, 1997, the U.S. District 
Court in Oregon granted Quickturn's motion for a preliminary injunction 
against Mentor's domestic emulation activities.  Quickturn's motion asked the 
District Court to prohibit Mentor from manufacturing, assembling, marketing, 
loaning or otherwise distributing emulation products and components in the 
United States, which products and components infringe certain claims in 
Quickturn's U.S. Patent No. 5,036,473. In August 1997, the Oregon District 
Court entered its preliminary injunction order against Mentor and Meta.

                                  - 14 -



In August 1997, a preliminary injunction sought by Mentor Graphics' German 
subsidiary, Mentor Graphics (Deutschland) GmbH, was issued by a regional 
court in Munich, enjoining agents of the Company from making certain 
statements concerning U.S. litigation matters between the Company and Mentor 
Graphics.  The Company has retained counsel in Germany and expects to resolve 
this matter in the near future.  On October 17, 1997, the Company filed a 
complaint alleging infringement of the German part of the Company's European 
patent No. 0 437 491 81 against Mentor Graphics (Deutschland) GmbH, in the 
District Court of Dusseldorf.  The Company has not yet received a response to 
its complaint.

Aptix Corporation ("Aptix") also filed a suit against the Company alleging 
various violations of the antitrust laws and unfair competition. This case is 
currently in the discovery phase.

The Company has mounted vigorous defenses against Mentor's defamation and 
tortious interference claims and the antitrust and unfair competition claims 
by Aptix.  The outcome of these actions cannot be predicted with certainty.

The Company is engaged in certain other legal and administrative proceedings 
incidental to its normal business activities.  While it is not possible to 
determine the ultimate outcome of these actions at this time, management 
believes that any liabilities resulting from such proceedings,  or claims 
which are pending or known to be threatened, will not have a material adverse 
effect on the Company's consolidated financial position or results of 
operations.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    Exhibit 11.1:  Statement of computation of earnings per share.

    Exhibit 27:    Financial Data Schedule

(b) REPORT ON FORM 8-K

No reports on Form 8-K were filed in the quarter ended September 30, 1997.



                                   - 15 -




                                  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.


                                          QUICKTURN DESIGN SYSTEMS, INC.
                                          ------------------------------
                                                  (Registrant)

Date   November 10, 1997             By:  /s/ Raymond K. Ostby
     ---------------------              ----------------------------------
                                              Raymond K. Ostby,
                                           Vice-President, Finance and 
                                         Administration, Chief Financial
                                             Officer and Secretary 
                                        (Principal Accounting Officer and
                                             Duly Authorized Officer)



                                    - 16 -