SECURITIES AND EXCHANGE COMMISSION

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 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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer £ Accelerated Filer S

Non-accelerated Filer £ Smaller Reporting Company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act)

Yes

As of October 29, 2012 the Registrant had outstanding 23,525,000 shares of Common Stock.

Pericom Semiconductor Corporation

Form 10-Q for the Quarter Ended September 29, 2012

INDEX


PART I. FINANCIAL INFORMATION			Page

	Item 1:	Condensed Consolidated Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets as of
		September 29, 2012 and June 30, 2012	3

		Condensed Consolidated Statements of Operations
		for the three months ended September 29, 2012 and
		October 1, 2011	4

		Condensed Consolidated Statements of Comprehensive Income (Loss)
		for the three months ended September 29, 2012 and
		October 1, 2011	5

		Condensed Consolidated Statements of Cash Flows
		for the three months ended September 29, 2012 and
		October 1, 2011	6

		Notes to Condensed Consolidated Financial Statements	7

	Item 2:	Management’s Discussion and Analysis of
		Financial Condition and Results of Operations	21

	Item 3:	Quantitative and Qualitative Disclosures about
		Market Risk	30

	Item 4:	Controls and Procedures	30


PART II. OTHER INFORMATION

	Item 1A:	Risk Factors	30

	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	42

	Item 6:	Exhibits	43

	Signatures		44

PART I. FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

Pericom Semiconductor Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	September 29,	June 30,
	2012	2012
ASSETS
Current assets:
Cash and cash equivalents	$ 31,564	$ 24,283
Short-term investments in marketable securities	79,152	79,924
Accounts receivable
Trade (net of reserves and allowances of $2,661 and $2,566)	24,528	24,010
Other receivables	3,584	3,674
Inventories	17,528	16,604
Prepaid expenses and other current assets	3,082	2,425
Deferred income taxes	1,566	1,549
Total current assets	161,004	152,469

Property, plant and equipment – net	62,525	56,102
Investments in unconsolidated affiliates	2,548	2,474
Deferred income taxes – non-current	2,261	2,447
Long-term investments in marketable securities	12,619	23,628
Goodwill	16,772	16,797
Intangible assets (net of accumulated amortization of $7,433 and $6,629)	12,044	12,831
Other assets	8,942	9,058
Total assets	$ 278,715	$ 275,806

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$ 2,886	$ 1,364
Accounts payable	12,772	14,860
Accrued liabilities	10,472	8,608
Total current liabilities	26,130	24,832

Industrial development subsidy	8,057	8,577
Deferred income taxes	6,120	6,191
Other long-term liabilities	2,500	2,571
Total liabilities	42,807	42,171

Commitments and contingencies (Note 6)

Shareholders’ equity:
Common stock and paid in capital - no par value, 60,000,000 shares	123,499	123,362
authorized; shares issued and outstanding: September 29, 2012,
23,525,000; June 30, 2012, 23,565,000
Retained earnings	101,885	100,694
Accumulated other comprehensive income, net of tax	10,524	9,579
Total shareholders' equity	235,908	233,635
Total liabilities and shareholders' equity	$ 278,715	$ 275,806

See notes to condensed consolidated financial statements.

Pericom Semiconductor Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	September 29,	October 1,
	2012	2011

Net revenues	$ 36,749	$ 35,332
Cost of revenues	22,838	22,795
Gross profit	13,911	12,537
Operating expenses:
Research and development	5,323	5,316
Selling, general and administrative	7,639	7,339
Total operating expenses	12,962	12,655
Income (loss) from operations	949	(118)
Interest and other income, net	635	1,070
Income before income taxes	1,584	952
Income tax expense	500	534
Net income from consolidated companies	1,084	418
Equity in net income of unconsolidated affiliate	108	27
Net income	$ 1,192	$ 445
Basic income per share	$ 0.05	$ 0.02
Diluted income per share	$ 0.05	$ 0.02
Shares used in computing basic income per share	23,543	24,491
Shares used in computing diluted income per share	23,740	24,583

See notes to condensed consolidated financial statements.

Pericom Semiconductor Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended
	September 29,	October 1,
	2012	2011

Net income	$ 1,192	$ 445
Other comprehensive income (loss):
Change in net unrealized gain (loss) on securities available for sale, net of tax	471	(653)
Foreign currency translation adjustment	474	(1,225)
Other comprehensive income (loss), net of tax	945	(1,878)
Comprehensive income (loss)	$ 2,137	$ (1,433)

See notes to condensed consolidated financial statements.

Pericom Semiconductor Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


				Three Months Ended
				September 29,	October 1,
				2012	2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$ 1,192	$ 445
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			2,860	3,070
	Share-based compensation			841	974
	Tax benefit resulting from stock option transactions			159	121
	Loss on disposal of assets			22	-
	Gain on sale of investments			(252)	(295)
	Equity in net income of unconsolidated affiliate			(108)	(27)
	Deferred taxes			(77)	(74)
	Changes in assets and liabilities:
		Accounts receivable		(134)	5,058
		Inventories		(788)	2,940
		Prepaid expenses and other current assets		(196)	(241)
		Other assets		(263)	(117)
		Accounts payable		(2,188)	(3,104)
		Accrued liabilities		1,173	358
		Other long-term liabilities		(327)	(166)
			Net cash provided by operating activities	1,914	8,942

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property, plant and equipment			(8,601)	(1,629)
	Purchase of available-for-sale investments			(20,853)	(31,426)
	Maturities and sales of available-for-sale investments			33,399	30,266
	Change in restricted cash balance			-	(4,774)
			Net cash provided by (used in) investing activities	3,945	(7,563)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from common stock issuance under stock plans			4	-
	Proceeds from short-term debt			2,891	-
	Payments on short-term debt			(1,422)	(1,074)
	Repurchase of common stock			(708)	(3,499)
			Net cash provided by (used in) financing activities	765	(4,573)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS				657	(332)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				7,281	(3,526)
CASH AND CASH EQUIVALENTS:
	Beginning of period			24,283	30,023
	End of period			$ 31,564	$ 26,497

See notes to condensed consolidated financial statements.

Pericom Semiconductor Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared by Pericom Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s financial position as of September 29, 2012, the results of operations for the three months ended September 29, 2012 and October 1, 2011 and cash flows for the three months ended September 29, 2012 and October 1, 2011. This unaudited quarterly information should be read in conjunction with the audited consolidated financial statements of Pericom and the notes thereto included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on August 31, 2012.

The preparation of the interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual amounts could differ from these estimates. The results of operations for the three months ended September 29, 2012 are not necessarily indicative of the results to be expected for the entire year. The three month periods ended September 29, 2012 and October 1, 2011 each had 13 week periods.

The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position or results of operations: advances and trends in new technologies; competitive pressures in the form of new products or price reductions on current products; changes in the overall demand for products offered by the Company; changes in customer relationships; acquisitions and the subsequent integration of the acquired entity with the Company; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations and environmental laws; availability of necessary components; interruptions at wafer suppliers and subcontractors; fluctuations in currencies given the Company’s sales and operations being heavily weighted and paid in foreign currencies; and the Company’s ability to attract and retain employees necessary to support its growth.

These interim condensed consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its wholly owned subsidiaries, Pericom Global Limited (“PGL”), PSE Technology Corporation (“PSE-TW”), Pericom Semiconductor (HK) Limited (“PSC-HK”) and Pericom Asia Limited (“PAL”). PGL has one wholly-owned subsidiary, Pericom International Limited (“PIL”). In addition, PAL has three wholly-owned subsidiaries, PSE Technology (Shandong) Corporation ("PSE-SD") and Pericom Technology Yangzhou Corporation (“PSC-YZ”) for the Jinan, China and Yangzhou, China operations, respectively, and Pericom Technology Inc. (“PTI”). The Company eliminates all intercompany balances and transactions in consolidation.

FISCAL PERIOD – For purposes of reporting the financial results, the Company’s fiscal years end on the Saturday closest to the end of June. The year ended June 30, 2012 is referred to as fiscal year 2012 or fiscal 2012, whereas the current fiscal year 2013 or fiscal 2013 will end on June 29, 2013. Both fiscal 2012 and fiscal 2013 contain 52 weeks or 364 days. Periodically, the Company adds a 53^rd week to a year in order to end that year on the Saturday closest to the end of June.

WARRANTY – The Company offers a standard one-year product replacement warranty. In the past, the Company has not had to accrue for a general warranty reserve, but assesses the level and materiality of return material authorizations (“RMA”s) and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, management may determine to accept product returns beyond the standard one-year warranty period. In those instances, the Company

accrues for the estimated cost at the time management decides to accept the return. Because of the Company’s standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Topic 350 - Intangibles - Goodwill and Other, which amends Topic 350 to allow an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity is not required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. This standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company does not expect the adoption will have an impact on the Company’s consolidated results of operations or financial condition.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income, rather than in a footnote or as part of a statement of changes to shareholder equity. The amendment does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. This standard became effective for the Company’s fiscal year beginning July 1, 2012, with retrospective application required. The adoption of these amended standards affected the presentation of other comprehensive income, as the Company has elected to present two separate but consecutive statements, but did not have an effect on the Company’s consolidated results of operations or financial condition.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment”, which provides updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for the Company’s fiscal year beginning July 1, 2012. The adoption did not have a material effect on the consolidated financial statements.

2. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the activity related to the carrying value of the Company’s goodwill during the three months ended September 29, 2012 and October 1, 2011:




(in thousands)	September 29, 2012		October 1, 2011
Beginning balance	$	16,797	$	16,669
Adjustments		--		(239)
Currency translation adjustments		(25)		121
Ending balance	$	16,772	$	16,551

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. The $239,000 of goodwill adjustment for the three month period ended October 1, 2011 represents post-acquisition working capital adjustments and indemnification claims related to the PTI acquisition in fiscal 2011.

The following table summarizes the components of other intangible assets and related accumulated amortization balances for each of the period-ending dates shown, which were recorded as a result of business combinations:


	September 29, 2012			June 30, 2012
(in thousands)	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net

Customer relationships	$ 5,897	$ (2,128)	$ 3,769	$ 5,906	$ (1,888)	$ 4,018
eCERA trade name	44	(44)	-	44	(43)	1
Core developed technology	13,128	(5,261)	7,867	13,110	(4,698)	8,412

Total amortizable purchased intangible assets	19,069	(7,433)	11,636	19,060	(6,629)	12,431

SaRonix trade name	408	-	408	400	-	400

Total purchased intangible assets	$ 19,477	$ (7,433)	$ 12,044	$ 19,460	$ (6,629)	$ 12,831

Amortization expense related to finite-lived purchased intangible assets was approximately $776,000 and $853,000 for the three month periods ended September 29, 2012 and October 1, 2011, respectively. Amortization of intangible assets for the three month period ended October 1, 2011 included accelerated amortization related to a supplier relationship of approximately $125,000 and subsequent asset write-off.

The Company performs an impairment review of its intangible assets at least annually. Based on the results of its most recent impairment review, the Company determined that no impairment of its intangible assets existed as of June 30, 2012. However, future impairment reviews could result in a charge to earnings.

The finite-lived purchased intangible assets consist of supplier and customer relationships, trade names and existing and core technology, which have remaining useful lives from one to five years. The Company expects future amortization expense associated with its intangible assets to be:


	Months from September 29, 2012
(in thousands)	Next 12 Months	13-24 Months	25-36 Months	37-48 Months	49-60 Months	Over 60 Months	Total
Customer relationships	$ 963	$ 963	$ 963	$ 880	$ -	$ -	$ 3,769
Core developed technology	2,117	1,880	1,863	1,754	253	-	7,867
	$ 3,080	$ 2,843	$ 2,826	$ 2,634	$ 253	$ -	$ 11,636

3. INCOME PER SHARE

Basic income per share is based upon the weighted average number of common shares outstanding. Diluted income per share reflects the additional potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Basic and diluted income per share for the three month periods ended September 29, 2012 and October 1, 2011 are computed as follows:


	Three Months Ended
	September 29,	October 1,
(in thousands, except per share data)	2012	2011

Net income	$1,192	$445
Computation of common shares outstanding – basic earnings per share:
Weighted average shares of common stock	23,543	24,491

Basic earnings per share	$0.05	$0.02

Computation of common shares outstanding – diluted earnings per share:
Weighted average shares of common stock	23,543	24,491
Dilutive shares using the treasury stock method	197	92
Shares used in computing diluted earnings per share	23,740	24,583

Diluted earnings per share	$0.05	$0.02

Options to purchase 2,061,000 and 2,787,000 shares of common stock, and restricted stock units of 53,000 and 96,000 were outstanding during the three months ended September 29, 2012 and October 1, 2011 respectively, but not included in the computation of diluted earnings per share because the options and units would be anti-dilutive under the treasury stock method.

4. INVENTORIES

Inventories consist of:


	September 29,	June 30,
(in thousands)	2012	2012

Raw materials	$ 7,741	$ 7,371
Work in process	3,673	3,981
Finished goods	6,114	5,252
	$ 17,528	$ 16,604

The Company considers raw material inventory obsolete and reserves it if the raw material has not moved in 365 days. The Company reviews its assembled devices for excess and records a reserve if the quantity of assembled devices in inventory is in excess of the greater of the quantity shipped in the previous twelve months, the quantity in backlog or the quantity forecasted to be shipped in the following twelve months. In certain circumstances, management will determine, based on expected usage or other factors, that inventory considered excess by these guidelines should not be reserved. The Company does occasionally determine that the last twelve months’ sales levels will not continue and reserves inventory in line with the quantity forecasted. As of September 29, 2012, the Company had reserved for $3.8 million of inventory which remained consistent with the inventory reserves at June 30, 2012.

5. ACCRUED LIABILITIES

Accrued liabilities consist of:


	September 29,	June 30,
(in thousands)	2012	2012

Accrued compensation	$ 7,342	$ 5,886
Income taxes payable	732	2
Sales commissions	505	497
Accrued construction liabilities	285	845
Other accrued expenses	1,608	1,378
	$ 10,472	$ 8,608

6. COMMITMENTS AND CONTINGENCIES

The Company’s future minimum commitments at September 29, 2012 are as follows:


	Months from September 29, 2012
(in thousands)	Less than 12 Months	12-24 Months	24-36 Months	36-48 Months	48-60 Months	Total
Short-term debt	$ 2,886	$ -	$ -	$ -	$ -	$ 2,886
Operating lease payments	1,522	526	145	6	-	2,199
Yangzhou capital injection	7,000	8,000	-	-	-	15,000
Total	$ 11,408	$ 8,526	$ 145	$ 6	$ -	$ 20,085

The operating lease commitments are primarily the lease on the Company’s corporate headquarters, which expires in 2013.

The Company has no purchase obligations other than routine purchase orders as of September 29, 2012.

The Company previously entered into an R&D Agreement for its Yangzhou facility that would require the capital injections shown in the table. The Company is currently negotiating with the Yangzhou government to terminate or modify the R&D Agreement. If the termination or modification is successful, some or all of the above capital injections may not be made, although there may be additional terms or conditions involved in any settlement agreement.

7. INDUSTRY AND SEGMENT INFORMATION

The Company has three operating segments which aggregate into one reportable segment, the interconnectivity device supply market. The Company designs, develops, manufactures and markets high performance integrated circuits and frequency control products.

The following table indicates the percentage of the Company’s net revenues and accounts receivable in excess of 10 percent with any single customer:


	Net Revenues
	Three Months Ended
	September 29,	October 1,
	2012	2011
Customer A	18%	16%
Customer B	14%	16%
All others	68%	68%
	100%	100%

	Accounts Receivable
	September 29,	June 30,
	2012	2012
Customer A	23%	26%
Customer B	8%	6%
All others	69%	68%
	100%	100%

For geographical reporting, the Company attributes net revenues to the country where customers are located (the “bill to” location). The Company neither conducts business in nor sells to persons in Iran, Syria, Sudan, or North Korea, countries located in referenced regions identified as state sponsors of terrorism by the U.S. Department of State and subject to U.S. economic sanctions and export controls. The following table sets forth net revenues by country for the three month periods ended September 29, 2012 and October 1, 2011:


	Net Revenues
	Three Months Ended
	September 29,	October 1,
	2012	2011

Taiwan	$ 15,382	$ 16,297
China (including Hong Kong)	14,831	11,584
United States	1,657	1,769
Other (less than 10% each)	4,879	5,682
Total net revenues	$ 36,749	$ 35,332

Long-lived assets consist of all non-monetary assets, excluding financial assets, deferred taxes, goodwill and intangible assets. The Company attributes long-lived assets to the country where they are located. The following table sets forth the Company’s long-lived assets by country of location as of September 29, 2012 and June 30, 2012:


	September 29,	June 30,
	2012	2012

China (including Hong Kong)	$ 36,963	$ 37,761
Taiwan	15,105	15,005
United States	9,526	2,304
Korea	598	650
Others (less than 10% each)	333	382
Total long-lived assets	$ 62,525	$ 56,102

The increase in U. S. assets primarily reflects the acquisition of a new headquarters facility, which was purchased for $7.6 million during the quarter ended September 29, 2012.

8. STOCK REPURCHASE PROGRAM

On April 29, 2008, the Company’s Board of Directors authorized the repurchase of $30 million worth of common stock, and on April 26, 2012, the Board authorized an additional share repurchase program for

$25 million of common stock. The Company may repurchase the shares from time to time in open market or private transactions, at the discretion of the Company’s management.

During the three month period ended September 29, 2012, the Company repurchased 87,630 shares for an aggregate cost of approximately $708,000. During the three month period ended October 1, 2011, the Company repurchased 456,346 shares for an aggregate cost of approximately $3.5 million. Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and the Company expects to fund future stock repurchases from these same sources. As of September 29, 2012, the Company had used up the $30.0 million 2008 authority and had approximately $25.0 million of repurchase authority remaining under the 2012 authority.

9. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

PREFERRED STOCK

The Company’s shareholders have authorized the Board of Directors to issue 5,000,000 shares of preferred stock from time to time in one or more series and to fix the rights, privileges and restrictions of each series. As of September 29, 2012, the Company has issued no shares of preferred stock.

STOCK OPTION PLANS

At September 29, 2012 the Company had four stock incentive plans and an employee stock purchase plan, consisting of the 1995 Stock Option Plan, 2001 Stock Option Plan, SaRonix Acquisition Stock Option Plan, 2004 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan.

Under the four stock incentive plans, the Company has reserved an aggregate of 5.4 million shares of common stock as of September 29, 2012 for issuance to employees, officers, directors, independent contractors and consultants of the Company in the form of incentive or nonqualified stock options, or grants of restricted stock.

The Company may grant stock options at the fair value on the grant date for incentive stock options and nonqualified stock options. Options vest over periods of generally 48 months as determined by the Board of Directors. Options granted under the Plans expire 10 years from the grant date.

The Company estimates the fair value of each employee stock option on the date of grant using the Black-Scholes option valuation model and expenses that value as compensation using a straight-line method over the option’s vesting period, which corresponds to the requisite employee service period. The Company estimates expected stock price volatility based on actual historical volatility for periods that the Company believes represent predictors of future volatility. The Company uses historical data to estimate option exercises, expected option holding periods and option forfeitures. The Company bases the risk-free interest rate for periods within the contractual life of the option on the U.S. Treasury yield corresponding to the expected life of the underlying option.

The value of the Company’s stock options granted under its stock incentive plans during the three months ended September 29, 2012 was estimated at the date of grant using the following weighted average assumptions:


	Three
	Months Ended
	September 29,
	2012
Expected Life	5.9 years
Risk-free interest rate	1.13%
Volatility	54%
Dividend Yield	-

No stock options were granted during the three months ended October 1, 2011. The weighted average fair value of options granted during the three months ended September 29, 2012 was $4.05.

The following table summarizes the Company’s stock option activity for the three months ended September 29, 2012:


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)		(years)	(in thousands)
Options outstanding at June 30, 2012	2,453	$ 10.34	5.12	$ 912

Granted	41	8.04
Exercised	(1)	7.87
Cancelled or expired	(23)	10.36
Options outstanding at September 29, 2012	2,470	$ 10.30	4.88	$ 610

Options vested and expected to vest at September 29, 2012	2,439	$ 10.33	4.84	$ 592
Options exercisable at September 29, 2012	2,105	$ 10.57	4.30	$ 444

At September 29, 2012, 1.8 million shares were available for future grants under the incentive plans. The aggregate intrinsic value of options exercised during the three months ended September 29, 2012 was not significant.

At September 29, 2012, expected future compensation expense relating to options outstanding is $1.3 million, which will be amortized to expense over a weighted average period of 2.1 years.

Additional information regarding options outstanding and exercisable as of September 29, 2012 is as follows:


		Options Outstanding			Exercisable Options
Range of Exercise Prices		Number Outstanding as of September 29, 2012	Weighted Average Remaining Contractual Term (years)	Weighted Average Exercise Price	Number Exercisable as of September 29, 2012	Weighted Average Exercise Price

$ 4.89	$ 8.03	517,000	5.30	$ 7.73	374,000	$ 7.75
8.10	8.70	516,000	4.11	8.46	425,000	8.46
8.71	10.01	527,000	5.55	9.70	423,000	9.65
10.15	14.23	495,000	4.12	10.94	468,000	10.91
14.41	18.10	415,000	5.40	15.81	415,000	15.81
$ 4.89	$ 18.10	2,470,000	4.88	$ 10.30	2,105,000	$ 10.57

Restricted Stock Units

Restricted stock units (“RSUs”) are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of 4 years and are expensed ratably on a straight-line basis over their respective vesting period net of estimated forfeitures. The fair value of RSUs granted pursuant to the Company’s 2004 Stock Incentive Plan is the product of the number of shares granted and the grant date fair value of the common stock. A summary of activity of RSUs for the three months ended September 29, 2012 is presented below:


	Shares	Weighted Average Award Date Fair Value	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)		(years)	(in thousands)
RSUs outstanding at June 30, 2012	504	$ 9.06	1.42	$ 4,535

Awarded	165	8.09
Released	(47)	11.63
Forfeited	(12)	8.56
RSUs outstanding at September 29, 2012	610	$ 8.61	1.61	$ 5,298

RSUs expected to vest after September 29, 2012	536	$ 8.64	1.51	$ 4,651

At September 29, 2012, expected future compensation expense relating to RSUs is $3.6 million, which will be amortized to expense over a weighted average remaining recognition period of 2.5 years.

2010 EMPLOYEE STOCK PURCHASE PLAN

The Company’s 2010 Employee Stock Purchase Plan (the “Stock Purchase Plan”) allows eligible employees of the Company to purchase shares of Common Stock through payroll deductions. The Company reserved 2.0 million shares of the Company’s Common Stock for issuance under this Plan, of which 1.8 million remain available at September 29, 2012. The Stock Purchase Plan permits eligible employees to purchase Common Stock at a discount through payroll deductions during six-month purchase periods. The six-month periods come to an end on or about May 1 and November 1 and the purchases are then made. Thus there were no purchases under the Stock Purchase Plan for the three months ended September 29, 2012 and October 1, 2011. Participants in the Stock Purchase Plan may purchase stock at 85% of the lower of the stock’s fair market value on the first day and last day of the offering period. The maximum number of shares of Common Stock that any employee may purchase during any offering period under the plan is 1,000 shares, and an employee may not accrue more than $10,000 for share purchases in any offering period.

The Company estimates the fair value of stock purchase rights granted under the Company’s Stock Purchase Plan on the date of grant using the Black-Scholes option valuation model. ASC Topic 718 states that a “lookback” pricing provision with a share limit should be considered a combination of stock and a call option. The valuation results for these elements have been combined to value the specific features of the stock purchase rights. The Company bases volatility on the expected volatility of the Company’s stock during the offering period. The expected term is determined by the time from enrollment until purchase, and the Company uses the U.S. Treasury yield for the risk-free interest rate for the offering period.

At September 29, 2012, the Company had $19,000 in unamortized share-based compensation related to its employee stock purchase plan which will be amortized and recognized in the consolidated statement of operations over the next month.

SHARE-BASED COMPENSATION

The following table shows total share-based compensation expense classified by Consolidated Statements of Operations reporting caption for the three months ended September 29, 2012 and October 1, 2011 generated from the plans described above:


	Three Months Ended
	September 29,	October 1,
(in thousands)	2012	2011

Cost of goods sold	$ 52	$ 54
Research and development	322	371
Selling, general and administrative	467	549
Pre-tax share-based compensation expense	841	974
Income tax impact	277	340
Net share-based compensation expense	$ 564	$ 634

Share-based compensation by type of award is as follows:


	Three Months Ended
	September 29,	October 1,
(in thousands)	2012	2011

Stock options	$ 269	$ 419
Restricted stock units	517	491
Stock purchase plan	55	64
Total share-based compensation expense	$ 841	$ 974

The amount of share-based compensation expense capitalized in inventory at September 29, 2012 and June 30, 2012 is immaterial.

10. INCOME TAXES

Accounting for Uncertainty in Income Taxes

The Company’s total amount of unrecognized tax benefits as of September 29, 2012 was $1,773,000. $1,568,000 million of this amount would affect the Company’s effective tax rate if recognized. In addition, as of September 29, 2012 the Company had accrued $281,000 for any interest and penalties related to unrecognized tax benefits.

The Company’s effective tax rate may differ from the federal statutory rate primarily due to state income taxes, stock-based compensation from incentive stock options, differing tax rates in income-earning foreign jurisdictions, and the inability to utilize losses in certain foreign entities to offset domestic income.

The Company is subject to examination by federal, foreign, and various state jurisdictions for the years 2006 through 2012. The Company has been notified that there will be an examination of the federal tax returns for fiscal 2010 and 2011.

Income Tax Expense

Income tax expense for the three months ended September 29, 2012 and October 1, 2011 was $500,000 and $534,000, respectively, and was comprised of domestic federal and state income tax and foreign income and withholding tax. The effective tax rate for the three months ended September 29, 2012 was 32%, which resulted from the allocation of earnings between different tax jurisdictions. The effective tax rate for the three months ended October 1, 2011 was 56%. As of September 29, 2012, the Company has recorded a valuation allowance of $4.3 million against its deferred tax assets.

11. INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company’s investment in an unconsolidated affiliate is as follows:


(in thousands)	September 29, 2012	June 30, 2012

Jiyuan Crystal Photoelectric Frequency Technology Ltd.	$ 2,548	$ 2,474

PSE-TW has a 49% equity interest in Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW and supplies PSE-TW with blanks for its surface mount device (“SMD”) production lines. For the first three months of fiscal 2013 and 2012, the Company’s allocated portion of JCP’s results was income of $108,000 and $27,000, respectively.

12. EQUITY AND COMPREHENSIVE INCOME

Comprehensive income consists of net income, changes in net unrealized gains (losses) on available-for-sale investments and changes in cumulative currency translation adjustments at consolidated subsidiaries. As of September 29, 2012, accumulated other comprehensive income of $10.5 million is made up of $665,000 of unrealized gains on available-for-sale investments, net of tax, and $9.8 million of accumulated currency translation gains.

13. SHORT-TERM DEBT

As of September 29, 2012, the Company’s subsidiary PSE-TW has made short-term borrowings under its credit facilities totaling approximately $2.9 million. The loans are denominated in U.S. Dollars and carry variable rates of interest currently ranging from 1.28% to 1.48% per annum. The loans have maturities ranging from 109 to 176 days. PSE-TW has pledged $4.4 million in land and buildings for the loan and credit facilities.

14. INDUSTRIAL DEVELOPMENT SUBSIDY

As of September 29, 2012, industrial development subsidies in the amount of $12.5 million have been earned and applied for by PSE-SD from the Jinan Hi-Tech Industries Development Zone Commission based on meeting certain pre-defined criteria. The subsidies may be used for the acquisition of assets or to cover business expenses. When a subsidy is used to acquire assets, the subsidy will be amortized over the useful life of the asset. When a subsidy is used for expenses incurred, the subsidy is regarded as earned upon the incurrence of the expenditure. The remaining balance of the subsidies at September 29, 2012 was $8.1 million, which amount is expected to be recognized over the next three to twenty years.

The Company recognized $458,000 and $368,000 of industrial development subsidy as a reduction of cost of goods sold and $45,000 and $45,000 of industrial development subsidy as a reduction of operating expenses in the consolidated statements of operations for the three month periods ended September 29, 2012 and October 1, 2011, respectively.

15. INVESTMENTS IN MARKETABLE SECURITIES

The Company’s policy is to invest in instruments with investment grade credit ratings. The Company classifies its short-term investments as “available-for-sale” securities and the Company bases the cost of securities sold using the specific identification method. The Company accounts for unrealized gains and losses on its available-for-sale securities as a separate component of shareholders’ equity in the consolidated balance sheets in the period in which the gain or loss occurs. The Company classifies its available-for-sale securities as current or noncurrent based on each security’s attributes. At September 29, 2012, a summary of investments by major security type is as follows:


	As of September 29, 2012
(in thousands)	Amortized Cost	Unrealized Gains	Unrealized Losses	Net Unrealized Gains (Losses)	Fair Value
Available-for-Sale Securities
Time deposits	$ 11,509	$ 11	$ -	$ 11	$ 11,520
US Treasury securities	496	2	-	2	498
National government and agency securities	5,990	170	-	170	6,160
State and municipal bond obligations	5,826	6	-	6	5,832
Corporate bonds and notes	48,353	804	(64)	740	49,093
Asset backed securities	9,287	44	(31)	13	9,300
Mortgage backed securities	9,274	138	(44)	94	9,368
Total	$ 90,735	$ 1,175	$ (139)	$ 1,036	$ 91,771

At June 30, 2012 a summary of investments by major security type is as follows:


	As of June 30, 2012
(in thousands)	Amortized Cost	Unrealized Gains	Unrealized Losses	Net Unrealized Gains (Losses)	Fair Value
Available-for-Sale Securities
Time deposits	$ 10,344	$ -	$ -	$ -	$ 10,344
US Treasury securities	3,639	-	(5)	(5)	3,634
National government and agency securities	6,582	167	-	167	6,749
State and municipal bond obligations	1,772	1	(1)	-	1,772
Corporate bonds and notes	61,374	461	(197)	264	61,638
Asset backed securities	10,148	19	(86)	(67)	10,081
Mortgage backed securities	9,313	98	(77)	21	9,334
Total	$ 103,172	$ 746	$ (366)	$ 380	$ 103,552

The above investments are included in short-term and long-term investments in marketable securities on the Company’s condensed consolidated balance sheets.

The following tables show the unrealized losses and fair market values of the Company’s investments that have unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 29, 2012 and June 30, 2012:


	Continuous Unrealized Losses at September 29, 2012
	Less Than 12 Months		12 Months or Longer		Total
(in thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses

US Treasury securities	$ -	$ -	$ -	$ -	$ -	$ -
National government and agency securities	-	-	-	-	-	-
State and municipal bond obligations	-	-	-	-	-	-
Corporate bonds and notes	2,945	19	3,637	45	6,582	64
Asset backed securities	893	1	1,990	30	2,883	31
Mortgage backed securities	50	-	446	44	496	44
	$ 3,888	$ 20	$ 6,073	$ 119	$ 9,961	$ 139

	Continuous Unrealized Losses at June 30, 2012
	Less Than 12 Months		12 Months or Longer		Total
(in thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses

US Treasury securities	$ 3,434	$ 5	$ -	$ -	$ 3,434	$ 5
National government and agency securities	327	-	-	-	327	-
State and municipal bond obligations	1,033	1	-	-	1,033	1
Corporate bonds and notes	12,117	85	3,782	112	15,899	197
Asset backed securities	1,784	15	1,595	71	3,379	86
Mortgage backed securities	659	-	403	77	1,062	77
	$ 19,354	$ 106	$ 5,780	$ 260	$ 25,134	$ 366

The unrealized losses are of a temporary nature due to the Company’s intent and ability to hold the investments until maturity or until the cost is recoverable. The unrealized losses are primarily due to fluctuations in market interest rates. The Company reports unrealized gains and losses on its “available-for-sale” securities in accumulated other comprehensive income in shareholders’ equity.

The Company records gains or losses realized on sales of available-for-sale securities in interest and other income, net on its condensed consolidated statements of operations. The cost of securities sold is based on the specific identification of the security and its amortized cost. For the three months ended September 29, 2012 and October 1, 2011, proceeds from sales and maturities of available-for-sale securities were $33.4 million and $30.3 million, respectively, and realized gains were $252,000 and $295,000, respectively.

The following table lists the fair market value of the Company’s short- and long-term investments by length of time to maturity as of September 29, 2012. Securities with maturities over multiple dates are

mortgage-backed (“MBS”) or asset-backed securities (“ABS”) featuring periodic principle paydowns through 2041.


(in thousands)	September 29, 2012
Contractual Maturities
Less than 12 months	$ 17,247
One to three years	43,045
Over three years	25,193
Multiple dates	6,286
Total	$ 91,771

16. FAIR VALUE MEASUREMENTS

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:


	•		Level 1 - Quoted prices in active markets for identical assets or liabilities.
	•		Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
	•		Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for financial assets measured at fair value on a recurring basis. Most of the investments are classified as Level 2 at September 29, 2012. Level 2 pricing is provided by third party sources of market information obtained through the Company’s investment advisors. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities it holds are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

The Company’s Level 2 securities include time deposits, government securities, corporate debt securities and mortgage-backed and asset-backed securities. Government securities include US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and most are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages.


	As of September 29, 2012
(in thousands)	Fair Value	Level 1	Level 2	Level 3
Investments (1)
Time deposits	$ 12,988	$ -	$ 12,988	$ -
US Treasury securities	498	498	-	-
National government and agency securities	6,160	-	6,160	-
State and municipal bond obligations	5,832	-	5,832	-
Corporate bonds and notes	49,093	-	49,093	-
Asset backed securities	9,300	-	9,300	-
Mortgage backed securities	9,368	-	9,368	-
Total	$ 93,239	$ 498	$ 92,741	$ -


(1)	$1,468 of the time deposits are included in cash and cash equivalents; the balance of the investments are included in short-term and long-term investments in marketable securities on the consolidated balance sheet as of September 29, 2012.

The Company had no transfers into or out of Level 2 during the three months ended September 29, 2012.

When assessing marketable securities for other-than-temporary declines in value, a number of factors are considered. Analyses of the severity and duration of price declines, remaining years to maturity, portfolio manager reports, economic forecasts, and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at September 29, 2012 to recover in fair value up to the Company’s cost bases within a reasonable period of time. The Company does not intend to sell investments with unrealized losses before maturity, when the obligors are required to redeem them at full face value or par. The Company believes the obligors have the financial resources to redeem the debt securities. Accordingly, the Company does not consider the investments to be other-than-temporarily impaired at September 29, 2012.

The Company has determined that the amounts reported for cash and cash equivalents, accounts receivable, deposits, accounts payable, accrued liabilities and debt approximate fair value because of their short maturities and/or variable interest rates.

17. SUBSEQUENT EVENT

In October 2012, we began implementation of an operating structure to more efficiently align the Company's transaction flows with the Company's geographic business operations. We have foreign sales offices in Korea, Taiwan, Japan, Singapore and Hong Kong, manufacturing operations in Taiwan and China, and research and development centers in Hong Kong and China. Revenues from non-U.S. regions account for over 90% of all revenue. In addition, nearly all of our suppliers are located in the Asia Pacific region. Based on these factors we have formed new legal entities and begun realigning existing ones, are licensing intellectual property rights and redeploying inventory and fixed assets across different jurisdictions within the worldwide group, and aligning responsibility for key functions accordingly. We expect that the global structure will be completed during the second quarter of fiscal 2013.

Item 2: Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Pericom Semiconductor Corporation

The following information should be read in conjunction with the unaudited financial statements and notes thereto included in Part 1 - Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2012 (the “Form 10-K”).

Factors That May Affect Operating Results

This Quarterly Report on Form 10-Q 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 statements regarding our sales to Taiwan and China, the continuation of a high level of turns orders, higher or lower levels of inventory, future gross profit and gross margin; the plans and objectives of management for future operations; our tax rate; currency fluctuations; the adequacy of allowances for returns, price protection and other concessions; the sufficiency of cash generated from operations and cash balances; our exposure to interest rate risk; expectations regarding our research and development and selling, general and administrative expenses; and our possible future acquisitions and 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 we believe 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. Our 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 (i) in Item 1A, Risk Factors, of Part II of this Form 10-Q, and (ii) in Note 1 to the Notes to Condensed Consolidated Financial Statements. All forward-looking statements and reasons why results may differ included in this Quarterly Report are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Results of Operations

The following table sets forth certain statement of operations data as a percentage of net revenues for the periods indicated.


	Three Months Ended
	September 29,	October 1,
	2012	2011

Net revenues	100.0 %	100.0 %
Cost of revenues	62.1 %	64.5 %
Gross profit	37.9 %	35.5 %
Operating expenses:
Research and development	14.5 %	15.0 %
Selling, general and administrative	20.8 %	20.8 %
Total	35.3 %	35.8 %
Income (loss) from operations	2.6 %	(0.3)%
Interest and other income, net	1.7 %	3.0 %
Income before income taxes	4.3 %	2.7 %
Income tax expense	1.4 %	1.5 %
Net income from consolidated companies	2.9 %	1.2 %
Equity in net income of unconsolidated affiliates	0.3 %	0.1 %
Net income	3.2 %	1.3 %

Net Revenues

The following table sets forth our revenues and the customer concentrations with respect to such revenues for the periods indicated.


	Three Months Ended
(In thousands)	September 29,	October 1,	%
	2012	2011	Change

Net revenues	$ 36,749	$ 35,332	4.0%
% of net sales accounted for by top 5 direct customers (1)	41.7%	51.0%

Number of direct customers that each account for more than 10% of net sales	2	2

% of net sales accounted for by top 5 end customers (2)	29.1%	28.9%

Number of end customers that each account for more than 10% of net sales	-	-

⁽¹⁾

Direct customers purchase products directly from us and include distributors, contract manufacturers and original equipment manufacturers (“OEM”s).

⁽²⁾

End customers are OEMs and their products are manufactured using our products. End customers may purchase directly from us or from distributors or contract manufacturers. For end customer data, we rely on information provided by our direct distribution and contract manufacturing customers.

We design, develop and market high-performance integrated circuits (“ICs” or IC products) and frequency control products (“FCPs” or FCP products) used in many of today's advanced electronic systems. Our IC products include products that support the connectivity, timing and signal conditioning of high-speed parallel and serial protocols that transfer data among a system's microprocessor, memory and various

peripherals, such as displays and monitors, and between interconnected systems. Our FCPs are electronic components that provide frequency references such as crystals, oscillators, and hybrid timing generation products for computer, communication and consumer electronic products. Our analog, digital and mixed-signal ICs, together with our FCP products enable higher system bandwidth and signal quality, resulting in better operating reliability, signal integrity, and lower overall system cost in applications such as notebook computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS and digital media players.

Net revenues consist of product sales, which we generally recognize upon shipment, less an estimate for returns and allowances.

Net revenues increased $1.4 million or 4.0% in the first three months of fiscal 2013 versus the first three months of fiscal 2012. Net revenue for IC and FCP products in the first three months of fiscal 2013 versus the first three months of fiscal 2012 reflected:



	·	a $107,000 increase in sales of IC products to $22.6 million, a 0.5% increase, and
	·	an increase of $1.3 million or 10.3% in sales of our FCP products to $14.1 million.

The following table sets forth net revenues by country as a percentage of total net revenues for the three months ended September 29, 2012 and October 1, 2011:


	Three Months Ended
	September 29,	October 1,
	2012	2011
Taiwan	42%	46%
China (including Hong Kong)	40%	33%
United States	5%	5%
Other (less than 10% each)	13%	16%

Total	100%	100%

Over the past several years, sales to Taiwan and China have constituted the majority of our sales. We expect this trend will continue in the future.

Our net revenue levels have been highly dependent on the number of new orders that are received for products to be delivered to the customer within the same quarter, also called “turns” orders. Because of our lack of visibility into demand when turns orders are high, it is difficult to predict which products to build to match future demand. We believe the current high level of turns orders will continue indefinitely. The sustainability of customer demand is uncertain and our markets are highly dependent on worldwide economic conditions. The high level of turns orders together with the uncertainty of product mix and pricing makes it difficult to predict future levels of sales and may require us to carry higher levels of inventory.

Gross Profit

The following table sets forth our gross profit for the periods indicated:


	Three Months Ended
	September 29,	October 1,	%
(in thousands)	2012	2011	Change

Net revenues	$ 36,749	$ 35,332	4.0%
Gross profit	13,911	12,537	11.0%
Gross profit as a percentage of net revenues (gross margin)	37.9%	35.5%

The increase in gross profit in the first three months of fiscal 2013 as compared to the first three months of fiscal 2012 of $1.4 million is the result of:


	·	a 4.0% increase in sales, which led to $536,000 of increased gross profit, and
	·	a gross margin increase from 35.5% to 37.9%, resulting in an $836,000 improvement in gross profit.

The sales increase was primarily attributable to FCP products, as described above. The gross margin increase resulted primarily from our initiative to focus on higher-margin opportunities in server, storage, networking, telecom and embedded market segments.

Future gross profit and gross margin are highly dependent on the level and product mix of net revenues. This includes the mix of sales between lower margin FCP products and our higher margin integrated circuit products. Although we have been successful at favorably improving our integrated circuit product mix and penetrating new end markets, there can be no assurance that this will continue. Accordingly, we are not able to predict future gross profit levels or gross margins with certainty.

During the three months ended September 29, 2012 and October 1, 2011, gross profit and gross margin benefited as a result of the sale of inventory of $40,000 and $17,000 respectively, that we had previously identified as excess and written down to zero value.

Research and Development (“R&D”)


	Three Months Ended
	September 29,	October 1,	%
(in thousands)	2012	2011	Change

Net revenues	$ 36,749	$ 35,332	4.0%
Research and development	5,323	5,316	0.1%

R&D as a percentage of net revenues	14.5%	15.0%

Research and development expenses consist primarily of costs related to personnel and overhead, non-recurring engineering charges, and other costs associated with the design, prototyping, testing, manufacturing process design support, and technical customer applications support of our products. Expenses for the three month period ended September 29, 2012 as compared to the same period of the prior year included increases of $216,000 in compensation and $128,000 for outside design consultants, partially offset by reductions of $159,000 in depreciation and amortization and $170,000 in departmental overhead expenses.

We believe that continued spending on research and development to develop new products and improve manufacturing processes is critical to our long-term success, and as a result we expect to continue to invest in research and development projects. In the short term, we intend to continue to focus on cost control as business conditions improve. If business conditions deteriorate or the rate of improvement does not meet our expectations, we may implement further cost-cutting actions.

Selling, General and Administrative (“SG&A”)


	Three Months Ended
	September 29,	October 1,	%
(in thousands)	2012	2011	Change

Net revenues	$ 36,749	$ 35,332	4.0%
Selling, general and administrative	7,639	7,339	4.1%

SG&A as a percentage of net revenues	20.8%	20.8%

Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, administration, human resources and general management. The expense increase

of approximately $300,000 for the three month period ended September 29, 2012 as compared to the same period of the prior year is attributable primarily to increased expenditures of $390,000 in compensation expenses, primarily salaries, wages and bonus accrual, partially offset by $83,000 of reduced charges for share-based compensation.

We anticipate that selling, general and administrative expenses will increase in future periods over the long term due to increased staffing levels, particularly in sales and marketing, as well as increased commission expense to the extent we achieve higher sales levels. We intend to continue our focus on controlling costs. If business conditions deteriorate or the rate of improvement does not meet our expectations, we may implement further cost-cutting actions.

Interest and Other Income, Net


	Three Months Ended
	September 29,	October 1,	%
(in thousands)	2012	2011	Change

Interest income	$ 854	$ 933	-8.5%
Other income (expense)	4	(58)	NM
Foreign exchange transaction gain (loss)	(223)	195	NM
Interest and other income, net	$ 635	$ 1,070	-40.7%
NM = not meaningful

Interest and other income for the three month period ended September 29, 2012 decreased $435,000 as compared with the same period of the prior year due primarily to an exchange loss this year as compared with an exchange gain last year due to currency fluctuation combined with somewhat lower returns and realized gains on invested balances this year, partially offset by reductions in other expenses.

Income Tax Expense


	Three Months Ended
	September 29,	October 1,	%
(in thousands)	2012	2011	Change

Pre-tax income	$ 1,584	$ 952	66.4%
Income tax expense	500	534	-6.4%

Effective tax rate	31.6%	56.1%

The decrease in the effective tax rate for the three months ended September 29, 2012 as compared with the same period of the prior year is due primarily to improved current period pre-tax income and reduced pre-tax losses in certain foreign entities.

Our effective tax rate may differ from the federal statutory rate primarily due to state income taxes, research and development tax credits, share-based compensation from incentive stock options, tax-exempt interest income, and differing tax rates in income-earning foreign jurisdictions.

Equity in Net Income of Unconsolidated Affiliate

Equity in net income of unconsolidated affiliate consists of our allocated portion of the net income of Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company located in Science Park of Jiyuan City, Henan Province, China. JCP is a key manufacturing partner of PSE-TW, and PSE-TW has acquired a 49% equity interest in JCP. For the three month periods ended September 29, 2012 and October 1, 2011, the Company’s allocated portion of JCP’s results was income of $108,000 and $27,000, respectively.

Liquidity and Capital Resources

As of September 29, 2012, our principal sources of liquidity included cash, cash equivalents and short-term and long-term investments of approximately $123.3 million as compared with $127.8 million on June 30, 2012.

Our investment in debt securities includes government securities, corporate debt securities and mortgage-backed and asset-backed securities. Government securities include US treasury securities, US federal agency securities, foreign government and agency securities, and US state and municipal bond obligations. Many of the municipal bonds are insured; those that are not are nearly all AAA/Aaa rated. The corporate debt securities are all investment grade and nearly all are single A-rated or better. The asset-backed securities are AAA/Aaa rated and are backed by auto loans, student loans, credit card balances and residential or commercial mortgages. Most of our mortgage-backed securities are collateralized by prime residential mortgages issued by government agencies including FNMA, FHLMC and FHLB. Those issued by banks are AAA-rated. At September 29, 2012, unrealized gains on marketable securities net of taxes were $665,000. When assessing marketable securities for other than temporary declines in value, we consider a number of factors. Our analyses of the severity and duration of price declines, portfolio manager reports, economic forecasts and the specific circumstances of issuers indicate that it is reasonable to expect marketable securities with unrealized losses at September 29, 2012 to recover in fair value up to our cost bases within a reasonable period of time. We have the ability and intent to hold investments with unrealized losses until maturity, when the obligors are required to redeem them at full face value or par, and we believe the obligors have the financial resources to redeem the debt securities. Accordingly, we do not consider our investments to be other than temporarily impaired at September 29, 2012.

As of September 29, 2012, $31.6 million was classified as cash and cash equivalents compared with $24.3 million as of June 30, 2012. The maturities of our short term investments are staggered throughout the year so that cash requirements are met. Because we are a fabless semiconductor manufacturer, we have lower capital equipment requirements than other semiconductor manufacturers who own wafer fabrication facilities. For the three month period ended September 29, 2012, we spent approximately $8.6 million on property and equipment which included $7.6 million for our new headquarters facility, compared to $1.6 million for the three month period ended October 1, 2011. We generated approximately $854,000 of interest income for the three month period ended September 29, 2012, as compared with $933,000 of interest income for the three month period ended October 1, 2011. In the longer term we may generate less interest income if our total invested balance decreases and these decreases are not offset by rising interest rates or increased cash generated from operations or other sources.

Our net cash provided by operating activities of $1.9 million for the three months ended September 29, 2012 was primarily the result of non-cash expenses of $2.9 million in depreciation and amortization, $841,000 of share-based compensation expense, and $159,000 of tax benefit from stock option transactions, partially offset by a $252,000 gain on sale of investments in marketable securities and $108,000 equity in net income of unconsolidated affiliate. An additional contribution to cash included an increase of $1.2 million in accrued liabilities. Such contributions were partially offset by increases of $788,000 in inventories, $196,000 in prepaid expenses and other current assets, $263,000 in other assets and $134,000 in accounts receivable, and decreases of $2.2 million in accounts payable and $327,000 in long-term liabilities. Our net cash provided by operating activities was $8.9 million in the three months ended October 1, 2011.

Our cash provided by investing activities of $3.9 million for the three months ended September 29, 2012 was the result of maturities and sales of available for sale investments exceeding purchases of available for sale investments by approximately $12.5 million, partially offset by additions to property and equipment of approximately $8.6 million. Our cash used in investing activities was $7.6 million for the three months ended October 1, 2011.

Our cash provided by financing activities for the three months ended September 29, 2012 of $765,000 was primarily the result of $2.9 million of short-term debt borrowings, partially offset by $1.4 million of repayments of short-term debt and expenditures of $708,000 for repurchase of our common stock. Our cash used in financing activities was $4.6 million for the three months ended October 1, 2011.

A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we may evaluate potential acquisitions of such businesses, products or technologies.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing efforts, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all. We believe our current cash balances and cash flows generated by operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures.

Contractual Obligations and Commitments

Our contractual obligations and commitments at September 29, 2012 are as follows:


		Payments Due by Period
(in thousands)	Total	Less than 1 Year	1 – 3 Years	3 – 5 Years	Thereafter
Short-term debt	$ 2,886	$ 2,886	$ -	$ -	$ -
Operating lease payments	2,199	1,522	671	6	-
Yangzhou capital injection	15,000	7,000	8,000	-	-
Total obligations	$ 20,085	$ 11,408	$ 8,671	$ 6	$ -

We lease certain facilities under operating leases with termination dates on or before December 2013. Generally, these leases have multiple options to extend for a period of years upon termination of the original lease term or previously exercised option to extend.

We have no purchase obligations other than routine purchase orders as of September 29, 2012.

We previously entered into an R&D Agreement for our Yangzhou facility that would require the capital injections shown in the table. We are currently negotiating with the Yangzhou government to terminate or modify the R&D Agreement. If the termination or modification is successful, some or all of the additional capital injections may not be made, although there may be additional terms or conditions involved in any settlement agreement.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, defined by Regulation S-K Item 303(a)(4).

Critical Accounting Policies

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be reasonable given the circumstances. Actual results may vary from our estimates.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we reports in our financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations, and require us to make our most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include revenue recognition and accounts receivable allowances, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; accounting for income taxes, which impacts the income tax provision and net income; impairment of goodwill, other intangible assets and investments, which impacts the goodwill, intangible asset and investment accounts; and stock-based compensation, which impacts costs of goods sold and operating expenses. These policies and the estimates and judgments involved are discussed further below.

REVENUE RECOGNITION. We recognize revenue from the sale of our products upon shipment, provided title and risk of loss has passed to the customer, the price is fixed or determinable and collection of the revenue is reasonably assured. A provision for estimated future returns and other charges against revenue is recorded at the time of shipment. For the three months ended September 29, 2012, the majority of our revenues were from sales to distributors.

We sell products to large, domestic distributors at the price listed in our price book for that distributor. We recognize revenue at the time of shipment. At the time of sale we record a sales reserve for ship from stock and debits (“SSD”s), stock rotations, return material authorizations (“RMA”s), authorized price protection programs, and any special programs approved by management. The sales reserve is offset against revenues, which then leads to the net revenue amount reported.

The market price for our products can be significantly different from the book price at which the product was sold to the distributor. When the market price, as compared with the book price, of a particular sales opportunity from the distributor to their customer would result in low or negative margins to the distributor, a ship from stock and debit is negotiated with the distributor. SSD history is analyzed and used to develop SSD rates that form the basis of the SSD sales reserve recorded each period. We capture these historical SSD rates from our historical records to estimate the ultimate net sales price to the distributor.

Our distribution agreements provide for semi-annual stock rotation privileges of typically 10% of net sales for the previous three-month period. The contractual stock rotation applies only to shipments at book price. Asian distributors typically buy our product at less than book price and therefore are not entitled to the 10% stock rotation privilege. In order to provide for routine inventory refreshing, for our benefit as well as theirs, we grant Asian distributors stock rotation privileges between 1% and 5% even though we are not contractually obligated to do so. Each month a sales reserve is recorded for the estimated stock rotation privilege anticipated to be utilized by the distributors that month. This reserve is the sum of product of each distributor’s net sales for the month and their stock rotation percentage.

From time to time, customers may request to return parts for various reasons including the customers’ belief that the parts are not performing to specification. Many such return requests are the result of customers incorrectly using the parts, not because the parts are defective. These requests are reviewed by management and when approved result in a RMA being established. We are only obligated to accept returns of defective parts. For customer convenience, we may approve a particular return request even though we are not obligated to do so. Each month a sales reserve is recorded for the approved RMAs that have not yet been returned. We do not keep a general warranty reserve because historically valid warranty returns, which are the result of a part not meeting specifications or being non-functional, have been immaterial and parts can frequently be re-sold to other customers for use in other applications.

Price protection is granted solely at the discretion of our management. The purpose of price protection is to reduce the distributor’s cost of inventory as market prices fall, thus reducing SSD rates. Our sales management prepares price protection proposals for individual products located at individual distributors. Our general management reviews these proposals and if a particular price protection arrangement is approved, the dollar impact will be estimated based on the book price reduction per unit for the products approved and the number of units of those products in the distributor’s inventory. A sales reserve is then recorded in that period for the estimated amount.

At the discretion of our management, we may offer rebates on specific products sold to specific end customers. The purpose of the rebates is to allow for pricing adjustments for large programs without affecting the pricing we charge our distributor customers. The rebate is recorded at the time of shipment.

Customers are typically granted payment terms of between 30 and 60 days and they generally pay within those terms. Relatively few customers have been granted terms with cash discounts. Distributors are invoiced for shipments at book price. When they pay those invoices, they claim debits for SSDs, stock rotations, cash discounts, RMAs and price protection when appropriate. Once claimed, these debits are then processed against the approvals.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgments and estimates. Our estimates are based on historical experience rates, inventory levels in the distribution channel, current trends and other related

factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results depend on our ability to make reliable estimates and management believes such estimates are reasonable.

PRODUCT WARRANTY. We offer a standard one-year product replacement warranty. In the past we have not had to accrue for a general warranty reserve, but assess the level and materiality of RMAs and determines whether it is appropriate to accrue for estimated returns of defective products at the time revenue is recognized. On occasion, we may determine to accept product returns beyond the standard one-year warranty period. In those instances, we accrue for the estimated cost at the time the decision to accept the return is made. As a consequence of our standardized manufacturing processes and product testing procedures, returns of defective product are infrequent and the quantities have not been significant. Accordingly, historical warranty costs have not been material.

SHIPPING COSTS. Shipping costs are charged to cost of revenues as incurred.

INVENTORIES. Inventories are recorded at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. We adjust the carrying value of inventory for excess and obsolete inventory based on inventory age, shipment history and our forecast of demand over a specific future period of time. Raw material inventory is considered obsolete and reserved if it has not moved in 365 days. We review our assembled devices for excess and write them off if the quantity of assembled devices in inventory is in excess of the greater of the quantity shipped in the previous twelve months, the quantity in backlog or the quantity forecasted to be shipped in the following twelve months. In certain circumstances, we will determine, based on expected usage or other factors, that inventory considered obsolete by these guidelines should not be written off. We occasionally determine that the last twelve months’ sales levels will not continue and reserve inventory in line with the quantity forecasted. The semiconductor markets that we serve are volatile and actual results may vary from our forecast or other assumptions, potentially impacting our assessment of excess and obsolete inventory and resulting in material effects on our gross margin.

IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS. We perform an impairment review of our goodwill and intangible assets at least annually and more frequently if certain indicators of impairment are present. In the event that management determines that the value of goodwill or intangible assets has become impaired, we will record an expense for the amount impaired during the fiscal quarter in which the determination is made. Based on the results of our most recent impairment review, we determined that no impairment of our goodwill and intangible assets existed as of June 30, 2012. However, future impairment reviews could result in a charge to earnings.

INVESTMENTS. We have made investments including loans, bridge loans convertible to equity, or asset purchases as well as direct equity investments. These loans and investments are made with strategic intentions and have been in privately held technology companies, which by their nature are high risk. These investments are included in other assets in the balance sheet and are carried at the lower of cost, or market if the investment has experienced an other-than-temporary decline in value. We monitor these investments quarterly and make appropriate reductions in carrying value if a decline in value is deemed to be other than temporary.

DEFERRED TAX ASSETS. Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carryforwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If, in the future, we experience losses for a sustained period of time, we may not be able to conclude that it is more likely than not that we will be able to generate sufficient future taxable income to realize our deferred tax assets. If this occurs, we may be required to increase the valuation allowance against the deferred tax assets resulting in additional income tax expense.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

At September 29, 2012 our investment portfolio consisted of investment-grade fixed income securities, excluding those classified as cash equivalents, of $91.8 million. These securities are subject to interest rate risk and will decline in value if market interest rates increase. However, we do not believe that such a decrease would have a material effect on our results of operations over the next fiscal year. Due to the short duration and conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk.

When the general economy weakens significantly, as it did in 2008 and 2009, the credit profile, financial strength and growth prospects of certain issuers of interest-bearing securities held in our investment portfolios may deteriorate, and our interest-bearing securities may lose value either temporarily or other than temporarily. We may implement investment strategies of different types with varying duration and risk/return trade-offs that do not perform well. At September 29, 2012, we held a significant portion of our corporate cash in diversified portfolios of investment-grade marketable securities, mortgage- and asset-backed securities, and other securities that had unrealized gains net of tax of $665,000. Although we consider unrealized gains and losses on individual securities to be temporary, there is a risk that we may incur other-than-temporary impairment charges if credit and equity markets are unstable and adversely impact securities issuers.

We transact business in various non-U.S. currencies, primarily the New Taiwan Dollar, the Hong Kong Dollar and the Chinese Renminbi. We are exposed to fluctuations in foreign currency exchange rates on accounts receivable and accounts payable from sales and purchases in these foreign currencies and the net monetary assets and liabilities of our foreign subsidiaries. A hypothetical 10% favorable or unfavorable change in foreign currency exchange rates would have a material impact on our financial position and results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 29, 2012.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 29, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A: Risk Factors

This quarterly report on Form 10-Q contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statement as a result of various factors, including those set forth below. The listing below includes any material changes to and supersedes the description of the risk factors affecting our business previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

RISKS RELATED TO OUR BUSINESS AND OPERATING RESULTS

In the past, our operating results have varied significantly and are likely to fluctuate in the future, making it difficult to predict our future operating results.

We continue to face a challenging business environment and limited visibility on end-market demands. Wide varieties of factors affect our operating results, many of which are beyond our control. These factors and risks include, but are not limited to, the following:

changes in the quantity of our products sold;

changes in the average selling price of our products;

general conditions in the semiconductor industry;

changes in our product mix;

a change in the gross margins of our products;

the operating results of the FCP product line, which normally has a lower profit margin than IC products;

expenses incurred in obtaining, enforcing, and defending intellectual property rights;

the timing of new product introductions and announcements by us and by our competitors;

customer acceptance of new products introduced by us;

delay or decline in orders received from distributors;

growth or reduction in the size of the market for interface ICs;

the availability of manufacturing capacity with our wafer suppliers, especially to support sales growth and new products;

changes in manufacturing costs;

fluctuations in manufacturing yields;

disqualification by our customers for quality or performance related issues;

the ability of customers to pay us;

increased research and development expenses associated with new product introductions or process changes;

the impairment of our goodwill, intangible assets or other long-lived assets; and

fluctuations in our effective tax rate from quarter to quarter.

All of these factors are difficult to forecast and could seriously harm our operating results. Our expense levels are based in part on our expectations regarding future sales and are largely fixed in the short term. Therefore, we may be unable to reduce our expenses fast enough to compensate for any unexpected shortfall in sales. Any significant decline in demand relative to our expectations or any material delay of customer orders could harm our operating results. In addition, if our operating results in future quarters fall below public market analysts' and investors' expectations, the market price of our common stock would likely decrease.

The demand for our products depends on the growth of our end users' markets.

Our continued success depends in large part on the continued growth of markets for the products into which our semiconductor and frequency control products are incorporated. These markets include the following:

computers, notebooks, tablets and connectivity to related peripherals;

data communications and telecommunications equipment including switches and routers;

servers and storage equipment including cloud computing requirements;

consumer electronics equipment; and

embedded systems including video surveillance, medical and automotive.

Any decline in the demand for products in these markets could seriously harm our business, financial condition and operating results. These markets have also historically experienced significant fluctuations in demand. We may also be seriously harmed by slower growth in the other markets in which we sell our products.

Customer demands for the Company’s products are volatile and difficult to predict.

Our business is characterized by short-term orders and shipment schedules. We do not have long-term purchase agreements with any of our customers. Customers can typically cancel or reschedule their orders without significant penalty. We typically plan production and inventory levels based on forecasts of customer demand generated with input from customers and sales representatives. Our customers continuously adjust their inventories in response to changes in end market demand for their products and the availability of semiconductor components. This results in frequent changes in demand for our products. Accordingly, we must rely on multiple assumptions to forecast customer demand. Various external factors that are outside of our control can make it difficult to accurately make such forecasts, and the volatility of customer demand limits our ability to predict future levels of sales and profitability.

Further, as end customer demand can change very quickly, the supply of semiconductors can quickly and unexpectedly match or exceed demand. Also, semiconductor suppliers can rapidly increase production output. This can lead to a sudden oversupply situation and a subsequent reduction in order rates and revenues as customers adjust their inventories to true demand rates. A rapid and sudden decline in customer demand for our products can result in excess quantities of certain of our products relative to demand. Under such circumstances, we may be required to record significant provisions for excess and obsolete inventories. This could materially and adversely affect our results of operations and financial condition.

The markets for our products are characterized by rapidly changing technology, and our financial results could be harmed if we do not successfully develop and implement new manufacturing technologies or develop, introduce and sell new products.

The markets for our products are characterized by rapidly changing technology, frequent new product introductions and declining selling prices over product life cycles. We currently offer a comprehensive portfolio of silicon and quartz based products. Our future success depends upon the timely completion and introduction of new products, across all our product lines, at competitive price and performance levels. The success of new products depends on a variety of factors, including the following:

product performance and functionality;

customer acceptance;

competitive cost structure and pricing;

successful and timely completion of product development;

sufficient wafer fabrication capacity; and

achievement of acceptable manufacturing yields by our wafer suppliers.

Our failure to successfully develop new products that achieve market acceptance in a timely fashion and that can be efficiently and successfully integrated with our customers’ products could adversely affect our ability to grow our business and improve our operating results. The development, introduction and market acceptance of new products is critical to our ability to sustain and grow our business. Any failure to successfully develop, introduce, market and sell new products could materially adversely affect our business and operating results.

We may also experience delays, difficulty in procuring adequate fabrication capacity for the development and manufacture of new products, or other difficulties in achieving volume production of these products. Even relatively minor errors may significantly affect the development and manufacture of new products. If we fail to complete and introduce new products in a timely manner at competitive price and performance levels, our business would be significantly harmed.

If we do not develop products that our customers and end-users design into their products, or if their products do not sell successfully, our business and operating results would be harmed.

We have relied in the past and continue to rely upon our relationships with our customers and end-users for insights into product development strategies for emerging system requirements. We generally incorporate new products into a customer's or end-user's product or system at the design stage. Our success has been, and will continue to be, dependent upon manufacturers designing our connectivity products into their products. To achieve design wins, which are decisions by manufacturers to design our products into their

systems, we must define and deliver cost effective and innovative connectivity solutions on a timely basis that satisfy the manufacturers’ requirements and specifications. Our ability to achieve design wins is subject to numerous risks including competitive pressures as well as technological risks and delays in our product development cycle. However, these design efforts, which can often require significant expenditures by us, may precede product sales, if any, by a year or more. Moreover, the value to us of any design win will depend in large part on the ultimate success of the customer or end-user's product and on the extent to which the system's design accommodates components manufactured by our competitors. If we fail to achieve design wins or if the design wins fail to result in significant future revenues, our operating results would be harmed. If we have problems developing or maintaining our relationships with our customers and end-users, our ability to develop well-accepted new products may be impaired.

Intense competition in the semiconductor industry may reduce the demand for our products or the prices of our products, which could reduce our revenues and gross profits and limit our ability to maintain or grow our business.

The semiconductor industry is intensely competitive, and we expect competition in this industry to continue to increase. This competition has resulted in rapid technological change, evolving standards, reductions in product selling prices and rapid product obsolescence. If we are unable to successfully meet these competitive challenges, we may be unable to maintain and grow our business. Any inability on our part to compete successfully would also adversely affect our results of operations and impair our financial condition.

Our competitors include Analog Devices, Cypress Semiconductor, Fairchild Semiconductor, Hitachi, Integrated Device Technology, Maxim Integrated Products, Motorola, On Semiconductor, NXP, Parade Technologies, PLX Technology, Silicon Laboratories, STMicroelectronics, Texas Instruments, and Toshiba. Most of those competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing customer relationships than we do. We also compete with other major or emerging companies that sell products to certain segments of our markets. Competitors with greater financial resources or broader product lines may have a greater ability to sustain price reductions in our primary markets in order to gain or maintain market share.

We believe that our future success will depend on our ability to continue to improve and develop our products and processes. Unlike us, many of our competitors maintain internal manufacturing capacity for the fabrication and assembly of semiconductor products. This ability may provide them 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 ours may be able to manufacture and sell competitive products at lower prices. Any introduction of products by our competitors that are manufactured with improved process technology could seriously harm our business. As is typical in the semiconductor industry, our competitors have developed and marketed products that function similarly or identically to ours. If our products do not achieve performance, price, size or other advantages over products offered by our competitors, we might lose market share. Competitive pressures could also reduce market acceptance of our products, reduce our prices and increase our expenses.

We also face competition from the makers of ASICs and other system devices. These devices may include interface logic functions that may eliminate the need or sharply reduce the demand for our products in particular applications.

Downturns in the semiconductor industry, rapidly changing technology, accelerated selling price erosion and evolving industry standards can harm our operating results.

The semiconductor industry has historically been cyclical and periodically subject to significant economic downturns, characterized by diminished product demand, accelerated erosion of selling prices and overcapacity, as well as rapidly changing technology and evolving industry standards. In the future, we may experience substantial period-to-period fluctuations in our business and operating results due to general semiconductor industry conditions, overall economic conditions or other factors. Our business is also subject to the risks associated with the effects of legislation and regulations relating to the import or export of semiconductor products.

Recent domestic and worldwide economic conditions adversely affected and could have future adverse effects on our business, results of operations, financial condition and cash flows.

Our revenues and earnings have fluctuated significantly in the past and may fluctuate significantly in the future. General economic or other conditions could cause a downturn in the market for our products or technology. The 2008-2009 financial disruption affecting the banking system, investment banks, insurance companies and the financial markets negatively impacted general domestic and global economic conditions. These economic conditions resulted in our facing a very challenging period leading to reduced sales and earnings in fiscal 2009.

In 2011 and 2012, concerns over European sovereign debt and the ability of countries to borrow funds have again raised questions about the loan portfolios of large international banks, and low economic growth rates have increased the possibility of an economic downturn. There could be a number of effects on our business that could also adversely affect our operating results. Disruptions may result in the insolvency of key suppliers resulting in product delays; the inability of our customers to obtain credit to finance purchases of our products and/or customer insolvencies that cause our customers to change delivery schedules, cancel or reduce orders; a slowdown in global economies which could result in lower end-user demand for our products; and increased impairments of our investments. Net income could vary from expectations depending on the gains or losses realized on the sale or exchange of securities, gains or losses from equity method investments, and impairment charges related to goodwill, intangible assets, long-term assets, investments and marketable securities. Our cash and marketable securities investments represent significant assets that may be subject to fluctuating or even negative returns depending upon interest rate movements and financial market conditions in fixed income securities.

Volatility in the financial markets and overall economic uncertainty increases the risk of substantial quarterly and annual fluctuations in our earnings. Given the current economic environment, we remain cautious and we expect our customers to be cautious as well, which could affect our future results. If the economic recovery slows down or dissipates, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

The complexity of our products makes us susceptible to manufacturing problems, which could increase our costs and delay our product shipments.

The manufacture and assembly of our 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 a foundry are cut into individual die. These die are assembled into individual packages and tested for performance. Our wafer fabrication suppliers have from time to time experienced lower than anticipated yields of suitable die. In the event of such decreased yields, we would incur additional costs to sort wafers, an increase in average cost per usable die and an increase in the time to market or availability of our products. These conditions could reduce our net revenues and gross margin and harm our customer relations.

We rely on independent manufacturers who may not be able to meet our manufacturing requirements.

We do not manufacture any of our IC products. Therefore, we are referred to in the semiconductor industry as a "fabless" producer. We depend upon third party foundries to produce wafers and subcontractors to manufacture IC products that meet our specifications. We currently have third party manufacturers located in China, Taiwan, Singapore, Malaysia, India, Korea and Japan that can produce products that meet our needs. However, as the industry continues to progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the industry and our status as a "fabless" IC semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or increase our costs.

Our contracts with our wafer suppliers do not obligate them to a minimum supply or set prices. Any inability or unwillingness of our wafer suppliers generally, and GlobalFoundries, TSMC and MagnaChip in particular, to meet our manufacturing requirements would delay our production and product shipments and harm our business.

In recent years, we purchased over 70% of our wafers from MagnaChip, TSMC and GlobalFoundries, with the balance from other wafer suppliers. Our reliance on independent wafer suppliers to fabricate our wafers at their production facilities subjects us to possible risks such as:

lack of adequate capacity or assured product supply;

lack of available manufactured products;

reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; and

unanticipated changes in wafer prices.

Any inability or unwillingness of our wafer suppliers to provide adequate quantities of finished wafers to meet our needs in a timely manner would delay our production and product shipments and seriously harm our business. In March 2004, GlobalFoundries shut down one of their production facilities used to manufacture our products. We transitioned the production of these products to different facilities. The transfer of production of our products to other facilities subjects us to the above listed risks as well as potential yield or other production problems, which could arise as a result of any change.

At present, we purchase wafers from our suppliers through the issuance of purchase orders based on our rolling nine-month forecasts. The purchase orders are subject to acceptance by each wafer supplier. We do not have long-term supply contracts that obligate our suppliers to a minimum supply or set prices. We also depend upon our wafer suppliers to participate in process improvement efforts, such as the transition to finer geometries. If our suppliers are unable or unwilling to do so, our development and introduction of new products could be delayed. Furthermore, sudden shortages of raw materials or production capacity constraints can lead wafer suppliers to allocate available capacity to customers other than us or for their internal uses, interrupting our ability to meet our product delivery obligations. Any significant interruption in our wafer supply would seriously harm our operating results and our customer relations. Our reliance on independent wafer suppliers may also lengthen the development cycle for our products, providing time-to-market advantages to our competitors that have in-house fabrication capacity.

In the event that our suppliers are unable or unwilling to manufacture our key products in required volumes, we will have to identify and qualify additional wafer foundries. The qualification process can take up to nine months or longer. Furthermore, we are unable to predict whether additional wafer foundries will become available to us or will be in a position to satisfy any of our requirements on a timely basis.

We depend on single or limited source assembly subcontractors with whom we do not have written contracts. Any inability or unwillingness of our assembly subcontractors to meet our assembly requirements would delay our product shipments and harm our business.

We primarily rely on foreign subcontractors for the assembly and packaging of our products and, to a lesser extent, for the testing of finished products. Some of these subcontractors are our single source supplier for some of our packages. In addition, changes in our or a subcontractor's business could cause us to become materially dependent on a single subcontractor. We have from time to time experienced difficulties in the timeliness and quality of product deliveries from our subcontractors and may experience similar or more severe difficulties in the future. We generally purchase these single or limited source components or services pursuant to purchase orders and have no guaranteed arrangements with these subcontractors. These subcontractors could cease to meet our requirements for components or services, or there could be a significant disruption in supplies from them, or degradation in the quality of components or services supplied by them. Any circumstance that would require us to qualify alternative supply sources could delay shipments, result in the loss of customers and limit or reduce our revenues. Introducing new products or transferring existing products to a new third party manufacturer or process may result in unforeseen product specification and operating problems. These problems may affect our shipments and may be costly to correct.

New regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our business reputation and may adversely impact our ability to conduct our business.

In August 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and derivative metals (referred to as “conflict minerals,” regardless of their actual country of origin) in their products. Some of these metals are commonly used in electronic equipment and devices, including our products. These new requirements will require companies to investigate, disclose and report whether or not such metals originated from the Democratic Republic of Congo or adjoining countries. We have a complex supply chain for the components and parts used in each of our products. We have numerous foreign suppliers, many of whom are not obligated by the new law to investigate their own supply chains. As a result, we may incur significant costs to comply with the diligence and disclosure requirements, including costs related to determining the source of any of the relevant metals used in our products. In addition, because our supply chain is complex, we may not be able to sufficiently verify the origin of all the relevant metals used in our products through the due diligence procedures we implement, which may harm our business reputation. Though we do not anticipate that our customers will need to know our conflict mineral status to satisfy their own SEC reporting obligations (if any), we may also face difficulties in satisfying customers if they nonetheless require that we prove or certify that our products are “conflict free.” Key components and parts that can be shown to be “conflict free” may not be available to us in sufficient quantity, or at all, or may only be available at significantly higher cost to us. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. Any of these outcomes could adversely impact our business, financial condition or operating results.

We may experience integration or other problems with potential future acquisitions, which could have an adverse effect on our business or results of operations. New acquisitions could dilute the interests of existing stockholders, and the announcement of new acquisitions could result in a decline in the price of our common stock.

Our previous and potential future acquisitions could result in the following:

large one-time write-offs;

the difficulty in integrating newly-acquired businesses and operations in an efficient and effective manner;

the challenges in achieving strategic objectives, cost savings, and other benefits from acquisitions as anticipated;

the risk of diverting the attention of senior management from other business concerns;

risks of entering geographic and business markets in which we have no or limited prior experience and potential loss of key employees of acquired organizations;

the risk that our markets do not evolve as anticipated and that the technologies and capabilities acquired do not prove to be those needed to be successful in those markets;

potentially dilutive issuances of equity securities;

excessive usages of cash;

the incurrence of debt and contingent liabilities or amortization expenses related to intangible assets;

difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies; and

difficulties in integrating or expanding information technology systems and other financial or business processes that may lead to financial reporting issues.

As part of our business strategy, we may seek acquisition prospects that would complement our existing product offerings, improve our market coverage or enhance our technological capabilities. In addition, from time to time, we invest in other companies, without actually acquiring them, and such investments involve many of the same risks as are involved with acquisitions.

Implementation of new Financial Accounting Standards Board (“FASB”) rules and the issuance of new corporate governance regulations or other accounting regulations, or reinterpretation of existing laws or regulations, could materially impact our business or stated results.

In general, from time to time the government, courts and the financial accounting boards may issue new corporate governance regulations or accounting regulations, or modify or reinterpret existing ones. There

may be future changes in laws, interpretations or regulations that would affect our financial results or the way in which we present them. Additionally, changes in the laws or regulations could have adverse effects on hiring and many other aspects of our business that would affect our ability to compete, both nationally and internationally.

If we are unable to maintain processes and procedures to sustain effective internal control over our financial reporting, our ability to provide reliable and timely financial reports could be harmed and this could have a material adverse effect on our stock price.

Under the rules promulgated under Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, we are required to maintain, and evaluate the effectiveness of, our internal control over financial reporting and disclosure controls and procedures. In our annual reports on Form 10-K for the years ended July 3, 2010, June 27, 2009, June 30, 2007 and July 2, 2005, we reported material weaknesses in our internal control over financial reporting. We have since remediated these deficiencies and continue to spend a significant amount of time and resources to ensure compliance with Section 404 of the Sarbanes Oxley Act of 2002. As reported in Item 9A of our most recent Form 10-K, our management does not believe that we had any material weaknesses in our internal control over financial reporting as of June 30, 2012, and management has determined that as of June 30, 2012, our internal control over financial reporting was effective. However, we have and will continue to evolve our business in a changing marketplace. In addition, we are expanding our overseas operations, and as we grow in these locations, we may have difficulty in recruiting and retaining a complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of U.S. generally accepted accounting principles commensurate with our financial reporting requirements. Due to these factors, there can be no assurance that other material weaknesses or significant deficiencies will not arise in the future. Should we or our independent registered public accounting firm determine in future periods that we have a material weakness in our internal control over financial reporting, the reliability of our financial reports may be impacted, and investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price and we could suffer other materially adverse consequences.

Our finance department has undergone, and continues to undergo, significant changes.

In the past three years, we have undergone significant turnover of personnel in the finance department, including in significant positions. During fiscal 2010, we hired a new Chief Financial Officer and Corporate Controller. During fiscal 2011, we hired a new Accounting Manager and outsourced internal auditing activities to an independent consultant. There can be no assurance that these changes will improve our finance functions, or that the finance personnel turnover we have experienced will not continue. In either event, the reliability of our financial reports may be impacted, and investors may lose confidence in the accuracy or completeness of our financial reports, which could have an adverse impact on our stock price.

Changes to environmental laws and regulations applicable to manufacturers of electrical and electronic equipment are causing us to redesign our products, and may increase our costs and expose us to liability.

The implementation of new environmental regulatory legal requirements, such as lead free initiatives, may affect our product designs and manufacturing processes. The impact of such regulations on our product designs and manufacturing processes could affect the timing of compliant product introductions as well as their commercial success. Redesigning our products to comply with new regulations may result in increased research and development and manufacturing and quality control costs. In addition, the products we manufacture that comply with new regulatory standards may not perform as well as our current products. Moreover, if we are unable to successfully and timely redesign existing products and introduce new products that meet new standards set by environmental regulation and our customers, sales of our products could decline, which could materially adversely affect our business, financial condition and results of operations.

We compete with others to attract and retain key personnel, and any loss of or inability to attract key personnel would harm us.

To a greater degree than non-technology companies, our future success will depend on the continued contributions of our executive officers and other key management and technical personnel. None of these individuals has an employment agreement with us and each one would be difficult to replace. We do not maintain any key person life insurance policies on any of these individuals. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise harm our business, financial condition and results of operations.

Our future success also will depend on our ability to attract and retain qualified technical, sales, marketing, finance and management personnel, particularly highly skilled design, process and test engineers, for whom competition can be intense. During strong business cycles, we expect to experience difficulty in filling our needs for qualified engineers and other personnel. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our revenues, operations and product development efforts could be harmed.

Our limited ability to protect our intellectual property and proprietary rights could harm our competitive position. Litigation regarding intellectual property could divert management attention, be costly to defend and prevent us from using or selling the challenged technology.

Our success depends in part on our ability to obtain patents and licenses and preserve other intellectual property rights covering our products and development and testing tools. In the United States, we currently hold 104 patents covering certain aspects of our product designs and have seven additional patent applications pending. Copyrights, mask work protection, trade secrets and confidential technological know-how are also key to our business. Additional patents may not be issued to us or our patents or other intellectual property may not provide meaningful protection. We may be subject to, or initiate, interference proceedings in the U.S. Patent and Trademark Office. These proceedings can consume significant financial and management resources. We may become involved in litigation relating to alleged infringement by us of others' patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and takes up significant amounts of management's time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business. Also, although we may seek to obtain a license under a third party's intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all.

Because it is important to our success that we are able to prevent competitors from copying our innovations, we intend to continue to seek patent, trade secret and mask work protection for our technologies. The process of seeking patent protection can be long and expensive, and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own.

We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements. In addition, the laws of some territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.

Our independent foundries use a process technology that may include technology we helped develop with them, that may generally be used by those foundries to produce their own products or to manufacture products for other companies, including our competitors. In addition, we may not have the right to implement key process technologies used to manufacture some of our products with foundries other than our present foundries.

We may not provide adequate allowances for exchanges, returns and concessions.

We recognize revenue from the sale of products when shipped, less an allowance based on future authorized and historical patterns of returns, price protection, exchanges and other concessions. We believe our methodology and approach are appropriate. However, if the actual amounts we incur exceed the allowances, it could decrease our revenue and corresponding gross profit.

Our future tax rates and tax payments could be higher than we anticipate and may harm our results of operations.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. A number of factors, including unanticipated changes in the mix of earnings in countries with differing statutory tax rates or by unexpected changes in existing tax laws or our interpretation of them, could unfavorably affect our future effective tax rate. In the event our management determines it is no longer more likely than not that we will realize a portion of our deferred tax assets we will be required to increase our valuation allowance which will result in an increase in our effective tax rate. Furthermore, our tax returns are subject to examination in all the jurisdictions in which we operate which subjects us to potential increases in our tax liabilities. All of these factors could have an adverse effect on our financial condition and results of operations.

A large portion of our revenues is derived from sales to a few key customers, and the loss of one or more of our key customers, or their key end user customers, could significantly reduce our revenues. In addition, our sales through distributors increase the complexity of our business.

A relatively small number of key customers have accounted for a significant portion of our net revenues in each of the past several fiscal years. In general we expect this to continue for the foreseeable future. We had two direct customers who each accounted for more than 10% of net revenues during the three months ended September 29, 2012. As a percentage of net revenues, sales to our top five direct customers during the three months ended September 29, 2012 totaled 42%.

We do not have long-term sales agreements with any of our customers. Our customers are not subject to minimum purchase requirements, may reduce or delay orders periodically due to excess inventory and may discontinue purchasing our products at any time. Our distributors typically offer competing products in addition to ours. For the three months ended September 29, 2012 and the fiscal year ended June 30, 2012, sales to our domestic and international distributors were approximately 66% and 67% of net revenues, respectively, as compared to approximately 69% of net revenues in the fiscal year ended July 2, 2011 and approximately 62% of net revenues in the fiscal year ended July 3, 2010. Distributors therefore continue to account for a significant portion of our sales. The loss of one or more significant customers, or the decision by a significant distributor to carry additional product lines of our competitors could decrease our revenues.

Selling through distributors increases the complexity of our business, requiring us to, among other matters:

· manage a more complex supply chain;

· manage the level of inventory at each distributor;

· provide for credits, return rights and price protection;

· estimate the impact of credits, return rights, price protection and unsold inventory at distributors; and

· monitor the financial condition and creditworthiness of our distributors.

Any failure to manage these challenges could cause us to inaccurately forecast sales and carry excess or insufficient inventory, thereby adversely affecting our operating results and cash flows.

Because we sell products in foreign markets and have operations outside of the United States, we face foreign business, political, economic and currency risks that could seriously harm us. Almost all of our wafer suppliers and assembly subcontractors are located in Southeast Asia, as are our FCP manufacturing facilities, which exposes us to the problems associated with international operations.

Risks associated with international business operations include the following:

disruptions or delays in shipments;

changes in economic conditions in the countries where these subcontractors are located;

currency fluctuations;

changes in political conditions;

potentially reduced protection for intellectual property;

foreign governmental regulatory requirements and unexpected changes in them;

the burdens of complying with a variety of foreign laws;

import and export controls;

delays resulting from difficulty in obtaining export licenses for technology; and

changes in tax laws, tariffs and other barriers, and freight rates.

Regulatory, geopolitical and other factors could seriously harm our business or require us to modify our current business practices. We are subject to general geopolitical risks in connection with our international operations, such as political and economic instability and changes in diplomatic and trade relationships. Although most of our products are sold in U.S. dollars, we incur a significant amount of certain types of expenses, such as payroll, utilities, capital equipment purchases and taxes in local currencies. The impact of currency exchange rate movements could harm our results and financial condition. In addition, changes in tariff and import regulations and in U.S. and non-U.S. monetary policies could harm our results and financial condition by increasing our expenses and reducing our revenue. Varying tax rates in different jurisdictions could harm our results of operations and financial condition by increasing our overall tax rate.

In the three months ended September 29, 2012, we generated approximately 93% of our net revenues from sales in Asia and approximately 2% from sales outside of Asia and the United States. In fiscal year 2012, we generated approximately 92% of our net revenues from sales in Asia and approximately 3% from sales outside of Asia and the United States. In fiscal year 2011, we generated approximately 90% of our net revenues from sales in Asia and approximately 4% from sales outside of Asia and the United States. We expect that foreign sales will continue to represent a significant portion of net revenues. We intend to continue the expansion of our sales efforts outside the United States. This expansion will require significant management attention and financial resources and further subject us to international operating risks.

We have subsidiaries located in Asia. We manufacture some of our frequency control products in Taiwan as well as in the Jinan Development Zone in the Shandong Province of the PRC. The development of the Jinan facility depends upon various tax concessions, tax rebates and other support from the local governmental entity. There can be no assurance that the local governmental entity will not change their position regarding such tax and other support and such a change might adversely affect the successful completion and profitability of this facility. Currently, as a consequence of changing government positions, we are negotiating a possible termination of an R&D Agreement at Yangzhou, as further described in Note 6 of Notes to Consolidated Financial Statements in this report.

We are expanding our presence in China with manufacturing and research and development activities. We will be subject to increased risks relating to foreign currency exchange rate fluctuations that could have a material adverse effect on our business, financial condition and operating results. The value of the Chinese renminbi against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions. Significant future appreciation of the renminbi could increase our component and other raw material costs as well as our labor costs, and could adversely affect our financial results. To the extent that we need to convert United States dollars into renminbi for our operations, appreciation of renminbi against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our renminbi into United States dollars for other business purposes and the United States dollar appreciates against the renminbi, the United States dollar equivalent of the renminbi we convert would be reduced. The Chinese government recently announced that it is pegging the exchange rate of the renminbi against a number of currencies, rather than just the United States dollar. Fluctuations in the renminbi exchange rate could increase and could adversely affect our ability to operate our business.

In addition, there is a potential risk of conflict and further instability in the relationship between Taiwan and the People’s Republic of China (“PRC”). Conflict or instability could disrupt the operations of one of our principal wafer suppliers, several of our assembly subcontractors located in Taiwan, and our FCP manufacturing operations in Taiwan and the PRC.

Our operations and financial results could be severely harmed by natural disasters.

Our headquarters and some of our major suppliers' manufacturing facilities are located near major earthquake faults. In particular, our Asian operations and most of our third party service providers involved in the manufacturing of our products are located within relative close proximity. Therefore, any disaster

that strikes within or close to that geographic area could be extremely disruptive to our business and could materially and adversely affect our operating results and financial condition.

One of the foundries we use is located in Taiwan, which suffered a severe earthquake during fiscal 2000. We did not experience significant disruption to our operations as a result of that earthquake. Taiwan is also exposed to typhoons and tsunamis, which can affect not only foundries we rely upon but also our PSE-TW subsidiary. In March 2011, an earthquake and tsunami occurred off the northeast coast of Japan which disrupted the global supply chain for core materials manufactured in Japan that are incorporated in our products and manufacturing equipment. Thailand experienced floods in the quarter ended December 31, 2011, which interrupted the industry’s supply chain for storage products and impacted our sales as well. If a major earthquake, typhoon, tsunami or other natural disaster were to affect our operations or those of our suppliers, our product supply could be interrupted, which would seriously harm our business. Natural disasters could also affect the operations of the distributors and contract manufacturers we sell to, as well as the operations of our end use customers, which would adversely affect our operations and financial results. Natural disasters anywhere in the world may potentially adversely affect us by harming or causing interruptions to our supply chain or the supply chains of our suppliers, direct customers or end use customers.

RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK

Our stock has been and will likely continue to be subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control.

The trading price of our common stock has been and is likely to continue to be highly volatile. The securities markets have experienced significant price and volume fluctuations in the past, and the market prices of the securities of semiconductor companies have been especially volatile. This market volatility, as well as general economic, market or political conditions, including the current global economic situation, could reduce the market price of our common stock in spite of our operating performance. Our stock price could fluctuate widely in response to factors some of which are not within our control, including:

general conditions in the semiconductor and electronic systems industries;

actual or anticipated fluctuations in our operating results;

changes in expectations as to our future financial performance;

announcements of technological innovations or new products by us or our competitors;

changes in earnings estimates by analysts; and

price and volume fluctuations in the overall stock market, which have particularly affected the market prices of many high technology companies.

Our shareholder rights plan may adversely affect existing shareholders.

On March 6, 2012, we adopted a shareholder rights plan that may have the effect of deterring, delaying, or preventing a change in control that otherwise might be in the best interests of our shareholders. Under the rights plan, we declared a dividend of one preferred share purchase right for each share of our common stock held by shareholders of record as of March 6, 2012. Each right entitles shareholders, after the rights become exercisable, to purchase one one-thousandth of a share of our Series D Junior Participating Preferred Stock.

In general, the rights become exercisable when a person or group acquires 15% or more of our common stock or a tender offer for 15% or more of our common stock is announced or commenced. After such event, our other stockholders may purchase from us additional shares of our common stock at a 50% discount to the then-current market price. The rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The rights should not interfere with any merger or other business combination approved by our Board of Directors since the rights may be redeemed by us at $0.001 per right at any time before any person or group acquire 15% or more of our outstanding common stock. These rights expire in March 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 29, 2008, our Board of Directors authorized the repurchase of $30 million worth of common stock, and on April 26, 2012, the Board authorized an additional share repurchase program for $25 million of common stock. We were authorized to repurchase the shares from time to time in the open market or private transactions, at the discretion of our management. The following table summarizes the stock repurchase activity during the three months ended September 29, 2012.


Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum $ Value That May Yet be Purchased Under the Plans or Programs
July, 2012	14,292	$7.99	5,590,847	$ 25,586,613
August, 2012	47,362	8.10	5,638,209	25,203,138
September, 2012	25,976	8.09	5,664,185	24,993,060

Total	87,630	$8.08	5,664,185	$ 24,993,060

Current cash balances and the proceeds from stock option exercises and purchases in the stock purchase plan have funded stock repurchases in the past, and we expect to fund future stock repurchases from these same sources.

Item 6.

Exhibits.


Exhibit Number	Exhibit Description

10.1	Purchase and Sale Agreement, dated July 6, 2012, between Pericom Semiconductor Corporation and Barber Lane Investors, LLC for the acquisition of the office building at 1545 Barber Lane, Milpitas, California, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2012, and incorporated herein by reference.
10.2	First Amendment to the Purchase and Sale Agreement between Pericom Semiconductor Corporation and Barber Lane Investors, LLC dated August 6, 2012, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2012, and incorporated herein by reference.
31.1	Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Aaron Tachibana, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Alex C. Hui, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Aaron Tachibana, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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.

Pericom Semiconductor Corporation

(Registrant)

Date:

November 2, 2012

By: /s/ Alex C. Hui

Alex C. Hui

Chief Executive Officer

By: /s/ Aaron Tachibana

Aaron Tachibana

Chief Financial Officer

California (State or Other Jurisdiction of Incorporation or Organization)	77-0254621 (I.R.S. Employer Identification No.)
3545 North First Street San Jose, California 95134 (408) 435-0800 (Address of Principal Executive Offices and Issuer’s Telephone Number, Including Area Code)