10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ________________________________________________________

FORM 10-Q

 ________________________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

OR

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

For the transition period from          to          .

Commission File Number: 000-23193

 ________________________________________________________

APPLIED MICRO CIRCUITS CORPORATION

(Exact name of registrant as specified in its charter)

 ________________________________________________________ 

Delaware	94-2586591
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
215 Moffett Park Drive, Sunnyvale, CA	94089
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (408) 542-8600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

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  x    No  o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of January 27, 2015, 79,140,131 shares of the registrant’s common stock, $0.01 par value per share, were issued and outstanding.

APPLIED MICRO CIRCUITS CORPORATION

INDEX

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets at December 31, 2014 and March 31, 2014	3
	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended December 31, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	53
Item 6.	Exhibits	53
Signatures		54

2

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	December 31, 2014			March 31, 2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	50,080		$	71,539
Short-term investments-available-for-sale	32,943			35,044
Accounts receivable, net	19,247			25,178
Inventories	24,222			18,946
Other current assets	15,203			16,799
Total current assets	141,695			167,506
Property and equipment, net	20,946			20,746
Goodwill	11,425			11,425
Purchased intangibles, net	—			105
Other assets	3,976			7,754
Total assets	$	178,042		$	207,536
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,155		$	26,194
Accrued payroll and related expenses	5,344			5,532
Veloce accrued liability	8,323			11,985
Other accrued liabilities	8,659			10,877
Deferred revenue	380			567
Total current liabilities	44,861			55,155
Non-current liabilities	4,134			3,145
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 2,000, none issued and outstanding	—			—
Common stock, $0.01 par value:
Authorized shares — 375,000 at December 31, 2014 and March 31, 2014
Issued and outstanding shares —79,136 at December 30, 2014 and 77,677 at March 31, 2014	791			777
Additional paid-in capital	6,022,231			6,005,365
Accumulated other comprehensive loss	(6,299		)	(6,143		)
Accumulated deficit	(5,887,676		)	(5,850,763		)
Total stockholders’ equity	129,047			149,236
Total liabilities and stockholders’ equity	$	178,042		$	207,536

See Accompanying Notes to Condensed Consolidated Financial Statements

3

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net revenues	$	36,747		$	54,844		$	127,964		$	164,379
Cost of revenues	14,842			21,644			52,815			65,383
Gross profit	21,905			33,200			75,149			98,996
Operating expenses:
Research and development	24,721			29,870			82,636			120,926
Selling, general and administrative	8,707			10,930			25,684			29,602
Gain on sale of TPack	—			—			—			(19,699		)
Amortization of purchased intangible assets	—			62			105			254
Restructuring	221			38			1,322			1,130
Total operating expenses	33,649			40,900			109,747			132,213
Operating loss	(11,744		)	(7,700		)	(34,598		)	(33,217		)
Interest income, net	485			525			1,214			4,679
Other (expense) income, net	(10		)	92			(2,536		)	309
Loss before income taxes	(11,269		)	(7,083		)	(35,920		)	(28,229		)
Income tax expense	862			201			993			581
Net loss	$	(12,131	)	$	(7,284	)	$	(36,913	)	$	(28,810	)
Basic and diluted net loss per share	$	(0.15	)	$	(0.10	)	$	(0.47	)	$	(0.40	)
Shares used in calculating basic and diluted net loss per share	78,920			73,989			78,442			71,986

See Accompanying Notes to Condensed Consolidated Financial Statements

4

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net loss	$	(12,131	)	$	(7,284	)	$	(36,913	)	$	(28,810	)
Other comprehensive loss, net of tax:
Unrealized (loss) gain on investments*	(78		)	(179		)	218			(5,404		)
Loss on foreign currency translation	(159		)	(37		)	(374		)	(377		)
Other comprehensiveloss, net of tax	(237		)	(216		)	(156		)	(5,781		)
Total comprehensive loss	$	(12,368	)	$	(7,500	)	$	(37,069	)	$	(34,591	)

* The amounts reclassified from accumulated other comprehensive loss and recorded in interest income, net in the Condensed Consolidated Statement of Operations relating to short-term investments were $0.1 million for the three and nine months ended December 31, 2014 and zero and $3.3 million for the three and nine months ended December 31, 2013, respectively. Refer to Note 2, Certain Financial Statement Information, to the Condensed Consolidated Financial Statements for additional details.

See Accompanying Notes to Condensed Consolidated Financial Statements

5

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	December 31,
	2014			2013
Operating activities:
Net loss	$	(36,913	)	$	(28,810	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation	6,624			7,728
Amortization of purchased intangible assets	105			420
Stock-based compensation expense	14,303			13,430
Veloce acquisition consideration	7,140			42,684
Gain on sale of TPack	—			(19,699		)
Loss on disposals of property and equipment	22			27
Impairment of a strategic investment	2,500			—
Non-cash restructuring charges	14			298
Tax effect on other comprehensive loss	(34		)	—
Changes in operating assets and liabilities:
Accounts receivable, net	5,931			(4,459		)
Inventories	(5,271		)	2,415
Assets held for sale	—			(14,260		)
Other assets	(484		)	16,475
Accounts payable	(3,629		)	(4,423		)
Accrued payroll and other accrued liabilities	(927		)	610
Veloce accrued liability	(8,981		)	(45,432		)
Deferred revenue	(188		)	(449		)
Net cash used for operating activities	(19,788		)	(33,445		)
Investing activities:
Proceeds from sales and maturities of short-term investments	5,075			26,594
Purchases of short-term investments	(2,722		)	(16,241		)
Proceeds from sale of property and equipment	1			20
Purchase of property and equipment	(7,571		)	(5,616		)
Proceeds from sale of strategic equity investment	—			1,286
Proceeds from sale of TPack, net	3,353			29,498
Net cash (used for) provided by investing activities	(1,864		)	35,541
Financing activities:
Proceeds from issuance of common stock	1,890			8,582
Funding of restricted stock units withheld for taxes	(1,609		)	(5,518		)
Other	(88		)	(595		)
Net cash provided by financing activities	193			2,469
Net (decrease) increase in cash and cash equivalents	(21,459		)	4,565
Cash and cash equivalents at beginning of year	71,539			19,065
Cash and cash equivalents at end of period	$	50,080		$	23,630
Supplementary cash flow disclosures:
Cash paid for income taxes	$	643		$	609
Common stock issued for Veloce merger consideration	$	872		$	29,209

See Accompanying Notes to Condensed Consolidated Financial Statements

6

APPLIED MICRO CIRCUITS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Condensed Consolidated Financial Statements include all the accounts of Applied Micro Circuits Corporation (the "Company") and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In management’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the Company's financial position, results of operations and cash flows. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2014 has been derived from the audited Consolidated Financial Statements as of that date but does not include all disclosures required by U.S. generally accepted accounting principles, or GAAP. These financial statements and accompanying notes should be read in conjunction with the Consolidated Financial Statements and notes thereto in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to its:

• capitalized mask sets including their useful lives, which affect cost of goods sold and property and equipment or Research and Development ("R&D") expenses, if not capitalized;

• inventory valuation, warranty liabilities and revenue reserves, which affect cost of sales, gross margin, and revenues;

• allowance for doubtful accounts, which affects operating expenses;

• unrealized losses or other-than-temporary impairments of short-term investments available for sale, which affect interest income (expense), net;

• valuation of other long-lived assets and goodwill, which affects depreciation and impairment of long-lived assets, impairment of goodwill and apportionment of goodwill related to divestitures;

• valuation of cost method investments, which affects impairment of strategic investments;

• potential costs of litigation, which affect operating expenses;

• valuation of deferred income taxes, which affects income tax expense (benefit); and

• stock-based compensation, which affects gross margin and operating expenses.

The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and actual results, future results of operations will be affected.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which will supersede most of the existing revenue recognition guidance under U.S. GAAP. This ASU requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

7

2. CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable, net:

	December 31, 2014			March 31, 2014
	(In thousands)
Accounts receivable	$	19,612		$	25,629
Less: allowance for bad debts	(365		)	(451		)
	$	19,247		$	25,178

Inventories:

	December 31, 2014		March 31, 2014
	(In thousands)
Finished goods	$	16,618	$	9,375
Work in process	6,494		6,510
Raw materials	1,110		3,061
	$	24,222	$	18,946

Other current assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Prepaid expenses	$	12,843	$	10,978
Executive deferred compensation assets	1,108		1,035
Proceeds receivable from sale of strategic investment	—		3,353
Other	1,252		1,433
	$	15,203	$	16,799

Property and equipment:

	Useful Life	December 31, 2014			March 31, 2014
	(In years)	(In thousands)
Machinery and equipment*	3-5	$	39,520		$	44,503
Leasehold improvements	1-5	10,473			11,574
Computers, office furniture and equipment*	3-5	44,581			43,365
		94,574			99,442
Less: accumulated depreciation and amortization*		(73,628		)	(78,696		)
		$	20,946		$	20,746

*During the three months ended December 31, 2014, the Company wrote off fully depreciated assets with an acquired cost of $11.8 million.

Goodwill and purchased intangibles:

Goodwill is as follows:

8

	December 31, 2014		March 31, 2014
	(In thousands)
Goodwill	$	11,425	$	11,425

Purchase-related intangibles are as follows:

	December 31, 2014								March 31, 2014
	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life
	(In thousands)							(In years)	(In thousands)							(In years)
Developed technology/in-process research and development	$	425,000	$	(425,000	)	$	—	0.0	$	425,000	$	(425,000	)	$	—	0.0
Customer relationships	6,330		(6,330		)	—		0.0	6,330		(6,225		)	105		0.4
Patents/core technology rights/trade name	62,306		(62,306		)	—		0.0	62,306		(62,306		)	—		0.0
	$	493,636	$	(493,636	)	$	—		$	493,636	$	(493,531	)	$	105

Other assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Non-current portion of prepaid expenses	$	2,957	$	4,235
Strategic investments*	500		3,000
Other	519		519
	$	3,976	$	7,754

*Strategic investments

The Company has entered into certain equity investments in privately held businesses to achieve certain strategic business objectives. The Company’s investments in equity securities of privately held businesses are accounted for under the cost method. Under the cost method, strategic investments in which the Company holds less than a 20% voting interest and in which the Company does not have the ability to exercise significant influence are carried at cost reduced by other-than-temporary impairments, as appropriate. The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred. During the three months ended December 31, 2014 and during the three and nine months ended December 31, 2013, the Company did not record any other-than-temporary impairment charges with respect to its strategic investments. During the nine months ended December 31, 2014, the Company recorded an other-than-temporary impairment charge with respect to one of its strategic investments in the amount of $2.5 million.

9

Other accrued liabilities:

	December 31, 2014		March 31, 2014
	(In thousands)
Employee related liabilities	$	1,622	$	1,733
Executive deferred compensation	1,385		1,314
Income taxes	1,870		962
Professional fees	755		1,259
Other	3,027		5,609
	$	8,659	$	10,877

Short-term investments:

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument (in thousands):

	December 31, 2014									March 31, 2014
	Amortized Cost		Gross Unrealized					Estimated Fair Value		Amortized Cost		Gross Unrealized					Estimated Fair Value
			Gains		Losses							Gains		Losses
Cash	$	40,828	$	—	$	—		$	40,828	$	65,867	$	—	$	—		$	65,867
Cash equivalents	9,252		—		—			9,252		5,672		—		—			5,672
U.S. Treasury securities and agency bonds	1,475		—		—			1,475		2,838		—		—			2,838
Corporate bonds	10,911		14		(9		)	10,916		10,599		30		(2		)	10,627
Mortgage-backed and asset-backed securities*	1,614		291		(2		)	1,903		1,793		297		(16		)	2,074
Closed-end bond funds	13,249		2,248		(206		)	15,291		14,373		2,392		(402		)	16,363
Preferred stock	2,406		952		—			3,358		2,406		736		—			3,142
	$	79,735	$	3,505	$	(217	)	$	83,023	$	103,548	$	3,455	$	(420	)	$	106,583
Reported as:
Cash and cash equivalents								$	50,080								$	71,539
Short-term investments available-for-sale								32,943									35,044
								$	83,023								$	106,583

* At December 31, 2014 and March 31, 2014, approximately $1.0 million and $1.1 million of the estimated fair value presented were mortgage-backed securities, respectively.

The established guidelines for measuring fair value and expanded disclosures regarding fair value measurements are defined as a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument measured at fair value on a recurring basis (in thousands):

10

	December 31, 2014								March 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	40,828	$	—	$	—	$	40,828	$	65,867	$	—	$	—	$	65,867
Cash equivalents	9,252		—		—		9,252		5,672		—		—		5,672
U.S. Treasury securities and agency bonds	1,475		—		—		1,475		2,838		—		—		2,838
Corporate bonds	—		10,916		—		10,916		—		10,627		—		10,627
Mortgage-backed and asset-backed securities	—		1,903		—		1,903		—		2,074		—		2,074
Closed-end bond funds	15,291		—		—		15,291		16,363		—		—		16,363
Preferred stock	—		3,358		—		3,358		—		3,142		—		3,142
	$	66,846	$	16,177	$	—	$	83,023	$	90,740	$	15,843	$	—	$	106,583

There were no significant transfers in and out of Level 1 and Level 2 fair value measurement categories during the three and nine months ended December 31, 2014 and 2013.

The following is a summary of the cost and estimated fair values of available-for-sale securities with stated maturities, which include U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities, by contractual maturity (in thousands):

	December 31, 2014
	Cost		Estimated Fair Value
Less than 1 year	$	5,745	$	5,837
Mature in 1 – 2 years	7,147		7,170
Mature in 3 – 5 years	291		305
Mature after 5 years	817		982
	$	14,000	$	14,294

The following is a summary of gross unrealized losses (in thousands):

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of December 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	3,750	$	(9	)	$	—	$	—		$	3,750	$	(9	)
Mortgage-backed and asset-backed securities	275		(2		)	121					396		(2		)
Closed-end bond funds	61		(2		)	4,255		(204		)	4,316		(206		)
	$	4,086	$	(13	)	$	4,376	$	(204	)	$	8,462	$	(217	)

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	992	$	(2	)	$	—	$	—		$	992	$	(2	)
Mortgage-backed and asset-backed securities	431		(16		)	—		—			431		(16		)
Closed-end bond funds	4,819		(333		)	405		(69		)	5,224		(402		)
	$	6,242	$	(351	)	$	405	$	(69	)	$	6,647	$	(420	)

Other-Than-Temporary Impairment

Based on an evaluation of securities that have been in a loss position, the Company did not recognize any other-than-temporary impairment charges for the three and nine months ended December 31, 2014 and 2013. The Company considered various factors which included a credit and liquidity assessment of the underlying securities and the Company’s intent and

11

ability to hold the underlying securities until the estimated date of recovery of its amortized cost. As of December 31, 2014 and March 31, 2014, the Company also had $3.5 million in gross unrealized gains. The basis for computing realized gains or losses is by specific identification.

Warranty reserves:

The Company's products typically carry a one-year warranty. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates, use of materials, and service delivery costs incurred in correcting any product failure. Should actual product failure rates, use of materials or service delivery costs differ from the Company’s estimates, additional warranty reserves could be required, which could reduce its gross margin.

The following table summarizes warranty reserve activity (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Beginning balance	$	175		$	187		$	199		$	220
Additions during the period	41			54			40			28
Settlements and expirations	(75		)	(39		)	(98		)	(46		)
Change in estimates	67			—			67			—
Ending balance	$	208		$	202		$	208		$	202

Interest income, net (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2014		2013		2014		2013
Interest income	$	362	$	519	$	1,091	$	1,389
Net realized gain on short-term investments	123		6		123		3,290
	$	485	$	525	$	1,214	$	4,679

Net loss per share:

Shares used in basic net loss per share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted net loss per share include the dilutive effect of common shares potentially issuable upon the exercise of stock options and vesting of restricted stock units ("RSUs"). The reconciliation of shares used to calculate basic and diluted net loss per share consists of the following (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net loss	$	(12,131	)	$	(7,284	)	$	(36,913	)	$	(28,810	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	78,920			73,989			78,442			71,986
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	78,920			73,989			78,442			71,986
Basic and diluted net loss per share	$	(0.15	)	$	(0.10	)	$	(0.47	)	$	(0.40	)

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The effect of dilutive securities (comprised of options and restricted stock units) totaling 0.6 million and 0.9 million shares for the three and nine months ended December 31, 2014, respectively, and 1.8 million and 1.4 million shares for the three and nine months ended December 31, 2013, respectively, has been excluded from the diluted net loss per share computation since the Company incurred net losses in the periods presented and their effect would be antidilutive.

3. RESTRUCTURING CHARGES

In April 2014, the Company implemented a plan to reorganize its operations, reduce its workforce and consolidate its facilities. The Company anticipates that this plan will reduce ongoing headcount expenses by approximately $4.6 millionannually and other additional operational expenses by $0.6 million annually. In connection with this plan, the Company incurred cumulative charges of approximately $1.3 million, of which $0.2 million was incurred during the three months ended December 31, 2014. As of December 31, 2014, the Company completed this plan.

The related activity during the nine months ended December 31, 2014 is as follows (in thousands):

	Workforce Reduction			Operating Lease Commitments		Other			Total
Liability, March 31, 2014	$	—		$	—	$	—		$	—
Restructuring charges	1,101			126		95			1,322
Cash payments	(1,101		)	—		(1		)	(1,102		)
Non-cash items				$	20	$	(34	)	$	(14	)
Liability, December 31, 2014	$	—		$	146	$	60		$	206

4. VELOCE

On June 20, 2012, the Company completed its acquisition of Veloce. Veloce has been developing specific ARM-based technology for the Company.

The total estimated purchase price consideration to be paid for Veloce is approximately $178.5 million based on the benchmarks achieved during product simulations. Veloce completed all three performance milestones relating to the project as of March 31, 2014. The consideration relating to the three performance milestones, excluding the value allocated to Veloce stock equivalents that have not yet been allocated to individuals ("Unallocated Veloce Units"), in the amount of $176.4 million, has been recognized as research and development expense through December 31, 2014 compared to $169.3 million as of December 31, 2013. During the three and nine months ended December 31, 2014, the Company paid approximately $1.5 million and $9.0 million, respectively, in cash and issued approximately 39,000 shares and 0.1 million shares, of common stock, respectively, valued at approximately $0.3 million and $0.9 million, respectively, as part of the Veloce acquisition consideration. During the three and nine months ended December 31, 2013, the Company paid approximately $1.2 million and $45.4 million, respectively, in cash and issued approximately 25,000 shares and 3.8 million shares, of common stock, respectively, valued at approximately $0.2 million and $29.2 million, respectively, as part of the Veloce acquisition consideration. The Company is contractually required to distribute all Unallocated Veloce Units within a certain time period. No Unallocated Veloce Units were distributed in the three months ended December 31, 2014. During the nine months ended December 31, 2014, the Company distributed 0.5 million Unallocated Veloce Units which had a related expense of $7.1 million. Former Veloce equity holders subject to vesting requirements will receive their distribution upon satisfaction of such vesting requirements.

For accounting purposes, the costs incurred in connection with the development milestones relating to Veloce are considered compensatory and are recognized as R&D expense. These costs are recognized in the Condensed Consolidated Statement of Operations under R&D expense in the periods when certain development and performance milestones became probable of achievement and were deemed earned. However, the value allocated to the Unallocated Veloce Units will not be recognized as R&D expense until distribution of the underlying units occurs. As of December 31, 2014, 0.1 million Unallocated Veloce Units had not been allocated, and the maximum potential additional expense to be recognized associated with these Unallocated Veloce Units is approximately $2.1 million.

Total R&D expenses recognized related to Veloce were zero and approximately $7.1 million during the three and nine months ended December 31, 2014, respectively, and approximately $2.9 million and $42.7 million during the three and nine months ended December 31, 2013, respectively. Veloce consideration that has been accrued as of December 31, 2014 is

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classified as long-term if payments of the consideration are expected to occur beyond a 12 month period. For additional information regarding Veloce, see Note 4, Veloce, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

5. STOCKHOLDERS’ EQUITY

Stock Options

The Company has granted stock options to employees and non-employee directors under several plans. These option plans include two stockholder-approved plans (1992 Stock Option Plan and 2011 Equity Incentive Plan) and one plan not approved by stockholders (2000 Equity Incentive Plan). Certain other outstanding options were assumed through the Company’s various acquisitions.

A summary of the Company's stock option activity and related information during the nine months ended December 31, 2014 is as follows:

	Number of Shares (thousands)		Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at the beginning of the year	2,409		$	10.06
Granted	—		—
Exercised	(54	)	6.32			$	0.2	(1	)
Cancelled	(473	)	13.22
Outstanding at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and expected to vest at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and exercisable at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)

(1) The aggregate pre-tax intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

(2) The aggregate pre-tax intrinsic value is calculated as the difference between the market value as of the end of the third quarter 2014 and the exercise price of the shares. The closing price of the Company’s common stock was $6.52 per share on December 31, 2014.

Restricted Stock Units ("RSUs")

The Company has granted RSUs to employees and non-employee directors pursuant to its 1992 Plan and 2011 Equity Incentive Plan. RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. Generally, RSUs vest ratably on a quarterly basis over four years from the date of grant. For new employees hired, RSUs will generally vest on a quarterly basis over four years provided that no shares will vest during the first year of employment, at the end of which the shares that would have vested during that year will vest and the remaining shares will vest over the remaining 12 quarters.

In November 2013, Dr. Gopi was awarded 500,000 RSUs of which 200,000 RSUs were vested on the grant date and the remaining 300,000 RSUs will vest upon the attainment of certain specified X-Gene^TM and X-Weave®product commercialization goals. The grant-date fair value of these 300,000 performance-based RSUs was $3.3 million.

In May and November 2013 and May and October 2014, the Compensation Committee (the "Committee") authorized market-performance based RSUs ("MSUs"). The MSUs will be earned, if at all, based on the Company's Total Shareholder Return (“TSR”) compared to that of the SPDR S&P Semiconductor Index ("Index”) over a two-year performance period for half of the MSU award and a three-year performance period for the remaining half of the MSU award. The MSUs will vest between ranges of 0% and 150% based on the Company's relative TSR compared to the Index. Total grant-date fair value of these MSUs was $4.5 million.

In May 2014, the Committee authorized an annual incentive compensation plan with respect to fiscal 2015 (the “FY2015 Short-Term Incentive Plan”). The FY2015 Short-Term Incentive Plan will pay-out based on our actual performance as measured against two equally weighted financial measures: revenue and non-GAAPearnings per share. Non-GAAP net income

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(loss) is derived by excluding from net income (loss) the following items required by GAAP: stock-based compensation charges, amortization of purchased intangible assets, Veloce acquisition consideration, restructuring charges, impairment of marketable securities and cost method investments, income taxes effect due to reconciling items, and other one-time and/or non-cash items.Non-GAAP earnings per share is derived by dividing non-GAAP net income (loss) by the weighted average number of common shares outstanding during the applicable periods. The award payouts for each corporate financial measure range from 50% to 150% of the pre-established target level based on the Company's actual performance for fiscal 2015. Awards under the FY2015 Short-Term Incentive Plan will be payable, if at all, in fully vested shares of common stock on or about May 15, 2015.

RSU activity during the nine months ended December 31, 2014 is set forth below (in thousands):

	Number of Shares
Outstanding at the beginning of the year	6,105
Awarded	3,352
Vested	(1,279	)
Cancelled	(3,536	)
Outstanding at the end of the period	4,642

The weighted average remaining contractual term for the RSUs outstanding as of December 31, 2014 was 1.3 years.

As of December 31, 2014, the aggregate pre-tax intrinsic value of RSUs outstanding was $30.3 million which includes performance-based awards which are subject to milestone attainment. The aggregate pretax intrinsic values were calculated based on the closing price of the Company’s common stock of $6.52 on December 31, 2014.

The aggregate pre-tax intrinsic value of RSUs released during the nine months ended December 31, 2014 was $9.8 million. This intrinsic value represents the fair market value of the Company’s common stock on the date of release.

Employee Stock Purchase Plan

Under the Company's 2012 Employee Stock Purchase Plan, or ESPP, the Company reserved 1.8 million shares for issuance. In August 2014, the Company’s stockholders approved the proposal to reserve an additional 2.0 million shares under the ESPP. Under the terms of the ESPP, eligible employees are entitled to purchase common stock, on a semi-annual basis, at a purchase price equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. During the nine months ended December 31, 2014 and 2013, 0.2 million and 0.3 million shares were issued under the ESPP, respectively. At December 31, 2014, 2.3 million shares were available for future issuance under the ESPP.

6. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The Company uses the Black-Scholes model to value stock-based compensation for options and employee stock purchase rights under the ESPP, and the fair market value of the Company's common stock for RSUs. The MSUs were valued using the Monte Carlo pricing model, which uses the Company's stock price, the Index value, expected volatilities of the Company's stock price and the Index, correlation coefficients and risk free interest rates to determine the fair value. The Black-Scholes model determines the fair value of share-based payment awards based on assumptions including the Company’s stock price on the date of grant, volatility over the term of the awards, actual and projected employee stock option exercise behaviors and risk free interest rate.

The Company did not grant options or employee stock purchase rights during the three months ended December 31, 2014 and 2013. The fair values of the options and employee stock purchase rights granted during the nine months ended December 31, 2014 and 2013 are estimated as of the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

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	Options				Employee Stock Purchase Rights
	Nine months ended December 31,				Nine months ended December 31,
	2014	2013			2014			2013
Expected life (years)	*	4.4			0.5			0.5
Risk-free interest rate	*	0.6		%	0.1		%	0.1		%
Volatility	*	49		%	57		%	57		%
Dividend yield	*	—		%	—		%	—		%
Weighted average fair value	*	$	2.95		$	2.57		$	3.67

* The Company did not grant options during the nine months ended December 31, 2014.

The weighted average grant-date fair value per share of the RSUs awarded was $5.82 and $8.20 during the three and nine months ended December 31, 2014, respectively, compared to $9.84 and $8.57 during the three and nine months ended December 31, 2013, respectively. The weighted average grant-date fair value per share was calculated based on the fair market value of the Company’s common stock on the respective grant dates.

During the fourth quarter of fiscal 2014, the Company revised its estimated forfeiture rate used in determining the amount of stock-based compensation from 6.7% to 5.8% as a result of a decreasing rate of forfeitures in recent periods, which the Company believes is indicative of the rate it will experience during the remaining vesting period of currently outstanding unvested grants.

The following table summarizes stock-based compensation expense related to stock options and RSUs (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by type of grant:
Stock options	$	454		$	648	$	1,160		$	1,987
RSUs	4,428			5,231		13,148			11,454
	4,882			5,879		14,308			13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430

The following table summarizes stock-based compensation expense as it relates to the Company’s Condensed Consolidated Statement of Operations (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by cost centers:
Cost of revenues	$	97		$	118	$	226		$	353
Research and development	2,992			1,545		9,039			4,867
Selling, general and administrative	1,793			4,216		5,043			8,221
	$	4,882		$	5,879	$	14,308		$	13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430

As of December 31, 2014, the amount of unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested stock options and unvested RSUs was $29.8 million which will be recognized over a weighted average period of 2.3 years.

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7. COMMITMENTS AND CONTINGENCIES

Commitments

The following table summarizes the Company's contractual operating leases and other purchase commitments as of December 31, 2014 (in thousands):

Fiscal Years Ending March 31,	Operating Leases		(1)	Purchase Commitments		(2)	Total
2015 (remainder of year)	$	616		$	16,909		$	17,525
2016	1,528			13,368			14,896
2017	1,093			3,241			4,334
2018	632			2,833			3,465
Total minimum payments	$	3,869		$	36,351		$	40,220

(1) Includes the Company's headquarters building lease which expires in August 2015, subject to our right to terminate early upon at least 120 days’ notice.

(2) Includes open purchase orders with terms that generally allow us the option to cancel or reschedule the order, subject to various restrictions and limitations. Also includes the licensing fees relating to the Company's R&D efforts, including licensed intellectual property, or IP, technology, product design, test and verification tools, of $21.1 million.

Legal Proceedings

The Company is currently a party to certain legal proceedings, including those noted in this section. While the Company presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm the Company's financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, unfavorable rulings or other events that could occur. In addition, legal proceedings are expensive to prosecute and defend against and can divert management attention and Company resources away from the Company's business objectives. Unfavorable resolutions could include monetary damages against the Company or injunctions or other restrictions on the conduct of the Company’s business, or preclude the Company from recovering the damages it seeks in legal proceedings it has commenced. It is also possible that the Company could conclude it is in the best interests of its stockholders, employees, and customers to settle one or more such matters, and any such settlement could include substantial payments or the surrender of rights to collect payments from third parties. However, the Company has not reached this conclusion with respect to any material matter at this time.

In 1993, the Company was named as a Potentially Responsible Party (“PRP”) along with more than 100 other companies that used an Omega Chemical Corporation waste treatment facility in Whittier, California (the “Omega Site”). The U.S. Environmental Protection Agency (“EPA”) has alleged that Omega failed to properly treat and dispose of certain hazardous waste materials at the Omega Site. The Company is a member of a large group of PRPs, known as the Omega Chemical Site PRP Organized Group (“OPOG”), that has agreed to fund certain on-going remediation efforts at the Omega Site. In February 2001, the U.S. District Court for the Central District of California (the “Court”) approved a consent decree between EPA and OPOG to study the contamination and evaluate cleanup options at the Omega Site (the Operable Unit 1 or “OU1”). In January 2009, the Court approved two amendments to the consent decree, the first expanding the scope of work to mitigate volatile organic compounds affecting indoor air quality near the Omega Site (the Operable Unit 3 or “OU3”) and the second adding settling parties to the consent decree. Removal of waste materials from the Omega Site has been completed. As part of OU1 and OU3, efforts to remediate the soil and groundwater at the Omega Site, as well as the extraction of chemical vapors from the soil and improving indoor air quality in and around the site, are underway and are expected to be ongoing for several years. In addition, OPOG and EPA are investigating a regional groundwater contamination plume allegedly originating at the Omega Site (the Operable Unit 2 or “OU2”). In September 2011, EPA issued an interim Record of Decision specifying the interim clean-up actions EPA has chosen for OU2, and in September 2012, it issued a special notice letter that triggered the commencement of good faith settlement negotiations with OPOG. In November 2014, EPA submitted a term sheet, accepted by OPOG in December 2014, describing the settlement terms and remediation actions for OU2 that will be set forth in a final consent decree to be filed with the Court. It is anticipated that EPA and OPOG will finalize the remediation consent decree in fiscal year 2016. In December 2013, OPOG retained legal counsel to pursue claims against other PRPs for the regional groundwater contamination and, in December 2014, OPOG retained legal counsel to protect its interests in connection with the bankruptcy proceedings filed by an OPOG member. In November 2007, Angeles Chemical Company, located downstream from the Omega Site, filed a lawsuit (the “Angeles Litigation”) in the Court against OPOG and the PRPs for cost recovery and

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indemnification for future response costs allegedly resulting from the regional groundwater contamination plume described above. In March 2008, the Court granted OPOG’s motion to stay the Angeles Litigation pending EPA’s determination of how to investigate and remediate the regional groundwater. In January 2012, as a result of challenges made by certain PRPs to the criteria previously used to allocate liability among OPOG members, and of the departure of certain PRPs from OPOG, OPOG approved changes to the cost allocation structure that resulted in an increase to the Company’s proportional allocation of liability. In addition, the subsequent departure or bankruptcy of one or more other PRPs from OPOG could have the effect of increasing the proportional liability of the remaining PRPs, including the Company. Although the Company considers a loss relating to the Omega Site probable, its share of any financial obligations for the remediation of the Omega Site, including taking into account the allocation increases described above, is not currently believed to be material to the Company’s financial statements, based on the Company’s approximately 0.5% contribution to the total waste tonnage sent to the site and current estimates of the potential remediation costs. Based on currently available information, the Company has a loss accrual that is not material and believes that the actual amount of its costs will not be materially different from the amount accrued. However, proceedings are ongoing and the eventual outcome of the clean-up efforts and the pending litigation matters is uncertain at this time. Based on currently available information, the Company does not believe that any eventual outcome will have a material adverse effect on its operations.

8. SALE OF TPACK A/S

On April 22, 2013, the Company completed the sale of its subsidiary, TPack, and certain intellectual property assets owned by the Company related to TPack's business for an aggregate consideration of $33.5 million, net of working capital adjustments, payable in cash. For additional information regarding this sale, see Note 12, Sale of TPack A/S, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

9. SUBSEQUENT EVENT

On January 23, 2015, the board of directors of the Company approved a restructuring plan to reorganize the Company’s operations and reduce its workforce and related operating expenses. The restructuring plan is intended to increase the Company’s operating efficiencies, improve its business unit alignment and help consolidate its global operating sites. The plan includes eliminating job redundancies, including some currently unfilled positions, and reducing the Company’s current workforce by approximately 40 employees, or approximately 7%. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company has initiated the reduction in its workforce. The Company expects to incur cash expenditures for employee severances of approximately $1.5 million to $1.7 million, payable primarily during the current fiscal year ending March 31, 2015, and expects to incur additional non-cash charges related to the restructuring plan. The Company anticipates that the restructuring plan will reduce its ongoing net operating expenses by approximately $14.0 million to $18.0 million annually.

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

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to the accompanying Condensed Consolidated Financial Statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of our operations. The MD&A is organized as follows:

• Caution concerning forward-looking statements. This section discusses how forward-looking statements made by us in the MD&A and elsewhere in this quarterly report are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.

• Overview. This section provides an introductory overview and context for the discussion and analysis that follows in the MD&A.

• Critical accounting policies. This section discusses those accounting policies that are both considered important to our financial condition and operating results and require significant judgment and estimates on the part of management in their application.

• Results of operations. This section provides an analysis of our results of operations for the three and nine months ended December 31, 2014 and 2013. A brief description is provided of transactions and events that impact the comparability of the results being analyzed.

• Liquidity and capital resources. This section provides an analysis of our cash position and cash flows, as well as a discussion of our financing arrangements and financial commitments.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The MD&A should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this quarterly report. All statements included or incorporated by reference in this quarterly report, for the three and nine months ended December 31, 2014, other than statements or characterizations of historical fact, are forward-looking statements. Any statement that refers to an expectation, projection or other characterization of future events or circumstances, including the underlying assumptions, is a forward-looking statement. We use certain words and their derivatives such as “anticipate”, “believe”, “plan”, “expect”, “estimate”, “predict”, “intend”, “may”, “will”, “should”, “could”, “future”, “potential” and similar expressions in many of the forward-looking statements.

These forward-looking statements include, but are not limited to, statements regarding: anticipated trends and challenges in our business and the markets in which we operate; expectations regarding the growth of next-generation cloud infrastructure and global data center traffic, energy consumption and total cost of ownership; anticipated market penetration by ARM®-based cloud servers and other market and technological trends; our plans and predictions regarding the development, production, performance, sales volumes and general market acceptance of our X-Gene™ Server on a Chip® product family and development platform, our X-Weave® connectivity product family, our HeliX™ family of embedded processor products, and other new products; the timing and scope of customer testing and adoption of such products and their total addressable market and total cost of ownership; product development cycles and schedules; design-win pipeline; our strategy, including our focus on the development roadmap of our X-Gene, X-Weave and HeliX product families and our current connectivity investments in high-growth 10, 40 and 100Gbps (gigabit per second) solutions; the timing and extent of customers’ transition away from older connectivity solutions and toward higher performance solutions; our assumptions and forecasts regarding competitors’ product offerings, pricing and strategies, and our products’ ability to compete; the anticipated amount, form and timing of consideration to be paid in connection with our acquisition of Veloce, and related impact on our share dilution, research and development ("R&D") expense and operating results; our sales and marketing strategy; our expectations regarding adequacy of leased facilities and the future relocation of headquarters facilities; the impact of seasonal fluctuations and economic conditions on our business; our intellectual property; our expectations as to expenses, expense reductions, liquidity and capital resources, including without limitation our expected sources and uses of cash and adequacy of cash reserves; our gross margin and efforts to offset reductions in gross margin; our estimates regarding eventual actual costs compared to amounts accrued in our financial statements; factors affecting demand for our products; our ability to attract and retain qualified personnel; our restructuring activities and related expense and anticipated expense savings; and the impact of accounting pronouncements and our critical accounting policies, judgments, estimates and assumptions on our financial results.

The forward-looking statements are based on our current expectations, estimates and projections about our industry and our business, management's beliefs, and other assumptions made by us. In addition, some of the forward-looking statements included below are based upon statements made by industry experts, analysts, and other third party sources. All forward-looking statements and the expectations, estimates, projections, beliefs and other assumptions on which they are based are

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subject to many risks and uncertainties and are inherently subject to change. We describe many of the risks and uncertainties that we face in Part II, Item 1A, “Risk Factors”, and elsewhere in this report. Our actual results and actual events could differ materially from those anticipated in any forward-looking statement. Readers should not place undue reliance on any forward-looking statement. All forward-looking statements in this report speak only as of the filing date of this report, and except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after such date.

OVERVIEW

The Company

Applied Micro Circuits Corporation (the “Company”, “we” or “our”) is a global leader in silicon solutions for next-generation cloud infrastructure and data centers, as well as connectivity products for edge, metro and long haul communications equipment.

Our corporate headquarters are located in Sunnyvale, California. Sales and engineering offices are located throughout the world. We serve two target markets, Computing and Connectivity. Our products include the X-Gene™ ARM® 64-bit Server on a Chip® solution, or X-Gene. The X-Gene family of products targets existing and emerging hyperscale cloud data center, high performance computing and enterprise applications. X-Gene began sampling in silicon to current and prospective customers as well as ecosystem partners in March 2013, and we began shipping production units during the summer of 2014.

We believe that X-Gene is the first ARM 64-bit server solution to have sampled and to have production units being manufactured and sold. In addition to having a time-to-market advantage, we believe X-Gene will lead the next-generation cloud data center silicon market by addressing the need for high performance, lower power and lower total cost of ownership (“TCO”).

As part of our current base business, we offer a line of embedded computing products based on Power Architecture, sometimes referred to as PowerPC products. Our HeliX™ family of processing products is based on the ARM Instruction Set Architecture (“ISA”) and represents the future of our new embedded processor offerings, as sales of our legacy PowerPC products continue to be in secular decline. Our embedded processor products are currently deployed in applications such as control- and data-plane functionality, wireless access points, residential gateways, wireless base stations, storage controllers, network attached storage, network switches and routing products, and multi-function printers.

The connectivity portion of our base business includes a broad array of physical layer (“PHY”), framer and mapper solutions that are high-speed, high-bandwidth, high-reliability communications products. Our highly integrated framer-PHY silicon solutions transmit and receive signals and are used in high-speed optical network infrastructure equipment. For Optical Transport Network (“OTN”) applications, our framer products incorporate our industry-leading forward error correction ("FEC") technology to significantly improve reach. In July 2013, we announced the X-Weave® family of connectivity products, designed to meet the needs of public cloud, private cloud, and enterprise data centers. The X-Weave family includes products spanning 100Gbps to 240Gbps of connectivity with unique multi-protocol features and high density.

Since the start of fiscal 2014, we have invested a total of $229.2 millionin the R&D of new products, including high-speed, high-bandwidth and low-power products that often combine the functions of multiple existing products into single highly-integrated solutions. A considerable portion of this investment is directed to our ARM 64-bit based server product development. Our products and our customers’ products are highly complex. Due to this complexity, it often takes several years to complete the development and qualification of a product before it enters into volume production. Accordingly, some major products in development during the last few years have not yet started to generate significant revenues. In addition, demand for our products can be impacted by economic downturns, cyclicality in the telecommunications market, competitive and technological developments, and other factors described elsewhere in this report.

Acquisition of Veloce

On June 20, 2012, we completed the acquisition of Veloce. Veloce has been developing specific ARM-based technology for us. The total estimated purchase price consideration to be paid for Veloce is approximately $178.5 million based on the benchmarks achieved during product simulations. The consideration that we are obligated to pay upon completion of the respective performance milestones can be settled in cash or our common stock (or a combination of cash and stock), at our election. During the three and nine months ended December 31, 2014, we paid approximately $1.5 million and $9.0 million, respectively, in cash and issued approximately 39,000 shares and 0.1 million shares, of common stock, respectively, valued at approximately $0.3 million and $0.9 million, respectively, as part of the Veloce acquisition consideration. During the three and

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nine months ended December 31, 2013, we paid approximately $1.2 million and $45.4 million, respectively, in cash and issued approximately 25,000 shares and 3.8 million shares, of common stock, respectively, valued at approximately $0.2 million and $29.2 million, respectively, as part of the Veloce acquisition consideration.

For accounting purposes, the costs to be incurred in connection with the development milestones relating to Veloce are considered compensatory and are recognized as R&D expense. Recognition of these costs as expense occurred when certain development and performance milestones became probable of achievement and were deemed earned. However, the value allocated to Veloce stock equivalents that had not yet been allocated to individuals (“Unallocated Veloce Units”) will not be recognized as R&D expense until distribution of the underlying units occurs. As of December 31, 2014, 0.1 million Unallocated Veloce Units remain to be allocated, and the maximum potential additional expense to be recognized associated with these Unallocated Veloce Units is approximately $2.1 million.

Veloce completed all three performance milestones relating to the project as of March 31, 2014. Cumulative R&D expenses recognized in connection with the achievement of the three performance milestones through December 31, 2014 were $176.4 million. Total R&D expenses recognized related to Veloce were zero and approximately $7.1 million during the three and nine months ended December 31, 2014, respectively, and approximately $2.9 million and $42.7 million during the three and nine months ended December 31, 2013, respectively. Veloce consideration that has been accrued as of December 31, 2014, is classified as long-term if payments of the consideration are expected to occur beyond a 12 month period.

As of December 31, 2014, we had paid $164.0 million of the total Veloce acquisition consideration, and we expect that approximately an additional $2.4 million will be paid in cash and/or stock by March 31, 2015. The $164.0 million paid to date includes approximately $89.2 million in cash and the issuance of 9.8 million shares of common stock valued at approximately $74.8 million.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with GAAP in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. See Note 1, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements for details. The methods, estimates and judgments we use in applying these critical accounting policies have a significant impact on the results we report in our financial statements. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, Our actual results may differ materially and adversely from management’s estimates. To the extent there are material differences between our estimates and actual results, our future results of operations will be affected.

There have been no significant changes in our critical accounting policies during the three and nine months ended December 31, 2014, as compared to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended March 31, 2014.

RESULTS OF OPERATIONS

Summary Financials

The following tables present a summary of our results of operations for the three and nine months ended December 31, 2014 and 2013 (dollars in thousands):

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	Three Months Ended December 31,
	2014					2013
	Amount			% of Net Revenue		Amount			% of Net Revenue		Increase (Decrease)			% Change
Net revenues	$	36,747		100.0	%	$	54,844		100.0	%	$	(18,097	)	(33.0	)%
Cost of revenues	14,842			40.4		21,644			39.5		(6,802		)	(31.4	)
Gross profit	21,905			59.6		33,200			60.5		(11,295		)	(34.0	)
Total operating expenses	33,649			91.6		40,900			74.7		(7,251		)	(17.7	)
Operating loss	(11,744		)	(32.0	)	(7,700		)	(14.2	)	4,044			52.5
Interest and other income, net	475			1.3		617			1.1		(142		)	(23.0	)
Loss before income taxes	(11,269		)	(30.7	)	(7,083		)	(13.1	)	4,186			59.1
Income tax expense	862			2.3		201			0.4		661			328.9
Net loss	$	(12,131	)	(33.0	)%	$	(7,284	)	(13.5	)%	$	4,847		66.5	%

	Nine months ended December 31,
	2014					2013
	Amount			% of Net Revenue		Amount			% of Net Revenue		Increase (Decrease)			% Change
Net revenues	$	127,964		100.0	%	$	164,379		100.0	%	$	(36,415	)	(22.2	)%
Cost of revenues	52,815			41.3		65,383			39.8		(12,568		)	(19.2	)
Gross profit	75,149			58.7		98,996			60.2		(23,847		)	(24.1	)
Total operating expenses	109,747			85.8		132,213			80.4		(22,466		)	(17.0	)
Operating loss	(34,598		)	(27.1	)	(33,217		)	(20.2	)	1,381			4.2
Interest and other (expense) income, net	(1,322		)	(1.0	)	4,988			3.0		(6,310		)	(126.5	)
Loss before income taxes	(35,920		)	(28.1	)	(28,229		)	(17.2	)	7,691			27.2
Income tax expense	993			0.8		581			0.5		412			70.9
Net loss	$	(36,913	)	(28.9	)%	$	(28,810	)	(17.7	)%	$	8,103		28.1	%

Net Revenues. We generate revenues primarily through sales of our integrated circuit, or IC, products and printed circuit board assemblies to original equipment manufacturers, or OEMs, who in turn supply their equipment principally to data centers and communications service providers.

We classify our revenues into two categories, Connectivity and Computing, based on the markets that the underlying products serve. We use information from each category to analyze our performance and success in the related markets, including our strategy to focus on the transition to the high-growth data center market. As an ongoing part of our business, from time to time we seek to monetize our intellectual property, or IP, investments through IP licensing or sales arrangements with customers, suppliers and other business partners that have operations beyond IP licensing. The revenue related to the sale and licensing of IP included in Connectivity revenues was $3.9 million and $6.0 million, or 10.7% and 4.7% of net revenues, for the three and nine months ended December 31, 2014, respectively. The revenue related to the sale and licensing of IP included in Connectivity revenues was $0.2 million and $0.7 million, or 0.4% each of net revenues, for the three and nine months ended December 31, 2013, respectively. For the reported periods, there was no revenue related to the sale or licensing of IP included in Computing revenues.

For the three and nine months ended December 31, 2014, our OTN and 10Gbps or faster Ethernet products represented 96% and 91%, respectively, of our Connectivity revenues, and our SONET/SDH and legacy switch products represented 4% and 9%, respectively, of our Connectivity revenues. For the three and nine months ended December 31, 2013, our OTN and 10Gbps or faster Ethernet products represented 89% and 85%, respectively, of our Connectivity revenues, and our SONET/SDH and legacy switch products represented 11% and 15%, respectively, of our Connectivity revenues. We expect our SONET/SDH and legacy switch products to continue to decline, as Connectivity customers continue to transition to higher speed, lower power products.

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On a sell-through basis, excluding certain non-cancelable non-returnable inventory, we had approximately 64 days of inventory in the distributor channel at December 31, 2014 as compared to 70days at December 31, 2013. The decrease in inventory days was primarily due to the timing of sell-through of distributor inventory.

The book-to-bill ratio is another metric commonly used by investors to compare and evaluate technology and semiconductor companies. The book-to-bill ratio is a demand-to-supply ratio that compares the total amount of orders received to the total amount of orders filled. This ratio tells whether the company has more orders than it delivered (if greater than 1), has the same amount of orders than it delivered (equals 1), or has less orders than it delivered (under 1). Though the ratio provides an indicator of whether orders are rising or falling, it does not consider the timing of orders or if the orders will result in future revenues and the effect of changing lead times on bookings. In addition, orders within any given period can fluctuate for a variety of reasons such as product phase-out decisions, which can cause customers to place final, non-recurring “last time buy” orders for the “end of life” product, or other agreements with customers to accelerate, delay, increase or decrease orders in a given period. Our quarterly book-to-bill ratio at December 31, 2014, March 31, 2014 and December 31, 2013 was 1.0, 1.0 and 0.9, respectively.

Net revenues to customers or IP licensees that individually accounted for at least 10% of total net revenues were as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2014		2013		2014		2013
Avnet (distributor)	26	%	27	%	26	%	28	%
Wintec (global logistics provider)**	16	%	26	%	18	%	22	%
IP Licensee	11	%	*		*		*

*     Less than 10% of total net revenues for period indicated.

**     Wintec provides vendor managed inventory support primarily for Cisco Systems, Inc.

We expect that our largest customers collectively will continue to account for a substantial portion of our net revenue for the foreseeable future.

Based on ship to location, net revenues by geographic region were as follows (in thousands):

	Three Months Ended December 31,								Nine Months Ended December 31,
	2014				2013				2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Amount		% of Net Revenue		Amount		% of Net Revenue
United States of America	$	15,056	41.0	%	$	25,753	47.0	%	$	53,583	42.0	%	$	79,250	48.2	%
Taiwan	6,424		17.5		3,577		6.4		10,387		8.1		9,663		5.8
Hong Kong	5,165		14.1		5,301		9.7		18,651		14.6		14,980		9.1
China	155		0.4		552		1.0		399		0.3		2,993		1.8
Europe	4,181		11.4		9,576		17.5		18,108		14.2		28,532		17.4
Japan	3,973		10.8		6,011		11.0		18,996		14.8		15,095		9.2
Malaysia	553		1.5		1,484		2.7		3,643		2.8		4,377		2.7
Singapore	1,222		3.3		2,434		4.4		4,021		3.1		7,872		4.8
Other Asia	15		—		100		0.2		173		0.1		1,204		0.7
Other	3		—		56		0.1		3		—		413		0.3
	$	36,747	100.0	%	$	54,844	100.0	%	$	127,964	100.0	%	$	164,379	100.0	%

Cost of Revenues. Cost of revenues consists primarily of the cost of semiconductor wafers and other materials, and the cost of assembly and test. Cost of revenue also includes personnel related costs (including stock-based compensation) and overhead related to our operations.

Research and Development. R&D expenses consist primarily of salaries and related costs (including stock-based compensation) of employees engaged in research, design and development activities including amounts relating to Veloce, costs related to engineering licenses and design tools, subcontracting costs and facilities expenses. We believe that a continued

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commitment to R&D is vital to our goal of maintaining a leadership position with innovative products. In addition to our internal R&D programs, our business strategy includes acquiring products, technologies or businesses from third parties.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist primarily of personnel related costs (including stock-based compensation), professional and legal fees, corporate branding and facilities expenses.

Comparison of the Three and Nine Months Ended December 31, 2014 to the Three and Nine Months Ended December 31, 2013

Net Revenues. Net revenues for the three and nine months ended December 31, 2014 were $36.7 million and $128.0 million, representing a decrease of 33.0% and 22.2% from our net revenues of $54.8 million and $164.4 million for the three and nine months ended December 31, 2013. The following table presents revenues for Computing and Connectivity (dollars in thousands):

	Three Months Ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Computing	$	14,184	38.6	%	$	28,821	52.6	%	$	(14,637	)	(50.8	)%
Connectivity	22,563		61.4		26,023		47.4		(3,460		)	(13.3	)
Total	$	36,747	100.0	%	$	54,844	100.0	%	$	(18,097	)	(33.0	)%

	Nine months ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Computing	$	49,033	38.3	%	$	80,063	48.7	%	$	(31,030	)	(38.8	)%
Connectivity	78,931		61.7		84,316		51.3		(5,385		)	(6.4	)
Total	$	127,964	100.0	%	$	164,379	100.0	%	$	(36,415	)	(22.2	)%

During the three and nine months ended December 31, 2014, our Computing revenues decreased by 50.8% and 38.8%, respectively, and our Connectivity revenues decreased by 13.3% and 6.4%, respectively, compared to the same periods last year. Our Computing revenues reflected the continuing decline in sales of PowerPC-based products, as the networking industry migrates away from the PowerPC architecture and we continue to focus our resources on products based on the ARM architecture, which has not yet generated significant revenue. In addition, the decrease in Computing revenues during the nine months ended December 31, 2014, compared to the same period in the prior year, was due in part to a significant end-of-life order placed during the nine months ended December 31, 2013, as disclosed previously. The decrease in Connectivity revenues during the three and nine months ended December 31, 2014, compared to the same periods in the prior year, was a result of softness in telecommunications service provider demand for systems incorporating our products, resulting in a decline in business for our products targeting that market, partially offset by an increase in revenue from the sale and licensing of IP.

Gross Profit. The following table presents net revenues, cost of revenues and gross profit for the three and nine months ended December 31, 2014 and 2013 (dollars in thousands):

	Three months ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Net revenues	$	36,747	100.0	%	$	54,844	100.0	%	$	(18,097	)	(33.0	)%
Cost of revenues	14,842		40.4		21,644		39.5		(6,802		)	(31.4	)
Gross profit	$	21,905	59.6	%	$	33,200	60.5	%	$	(11,295	)	(34.0	)%

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	Nine months ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Net revenues	$	127,964	100.0	%	$	164,379	100.0	%	$	(36,415	)	(22.2	)%
Cost of revenues	52,815		41.3		65,383		39.8		(12,568		)	(19.2	)
Gross profit	$	75,149	58.7	%	$	98,996	60.2	%	$	(23,847	)	(24.1	)%

The gross profit percentage for the three and nine months ended December 31, 2014 decreased to 59.6% and 58.7%, compared to 60.5% and 60.2% for the three and nine months ended December 31, 2013, respectively. The decrease in our gross profit percentage was primarily due to unfavorable product mix, partially offset by the favorable impact of the increase in higher margin revenue from the sale and licensing of IP.

The gross margins for our solutions have declined from time to time in the past. Factors that have caused downward pressure on gross margins for our products include competitive pricing pressures, unfavorable product mix, the cost sensitivity of our customers particularly in the higher-volume markets, new product introductions by us or our competitors and capacity constraints in our supply chain. From time to time, for strategic reasons, we may accept initial orders at less than optimal gross margins in order to facilitate the introduction and/or market penetration of our new or existing products. We may also accept orders for older products at less than optimal gross margins to encourage customers to order sooner or in larger quantities than previously anticipated. To maintain acceptable operating results, we seek to offset any reduction in gross margins of our products by reducing operating costs, increasing sales volume, developing and introducing new products and developing new generations and versions of existing products on a timely basis. In addition, our margins may fluctuate from period to period based on the timing and amount of any IP licensing or sales arrangements that we may undertake. Although historically these arrangements have provided us with higher-margin revenues, we cannot predict the frequency or extent to which we will engage in them in the future, or the resulting terms. 

Research and Development and Selling, General and Administrative Expenses. The following table presents R&D and SG&A expenses for the three and nine months ended December 31, 2014 and 2013 (dollars in thousands):

	Three Months Ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Research and development	$	24,721	67.3	%	$	29,870	54.5	%	$	(5,149	)	(17.2	)%
Selling, general and administrative	$	8,707	23.7	%	$	10,930	19.9	%	$	(2,223	)	(20.3	)%

	Nine months ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Research and development	$	82,636	64.6	%	$	120,926	73.6	%	$	(38,290	)	(31.7	)%
Selling, general and administrative	$	25,684	20.1	%	$	29,602	18.0	%	$	(3,918	)	(13.2	)%

Research and Development. The decrease in R&D expenses of 17.2% or $5.1 million during the three months ended December 31, 2014 compared to the three months ended December 31, 2013 was mainly due to a $2.9 million decrease in Veloce consideration related expenses, a $1.6 million decrease in direct project costs and a $1.4 million decrease in personnel costs, partially offset by $1.4 million increase in stock-based compensation expense. The decrease in R&D expenses of 31.7% or $38.3 million during the nine months ended December 31, 2014 compared to the nine months ended December 31, 2013 was mainly due to a $35.6 million decrease in Veloce consideration related expenses and a $4.6 million decrease in personnel costs, partially offset by a $4.2 million increase in stock-based compensation expense.

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Research and development expense recognized in connection with the Veloce consideration was zero and $7.1 million and $2.9 million and $42.7 million during the three and nine months ended December 31, 2014 and 2013, respectively. Refer to Note 4, Veloce, to the Condensed Consolidated Financial Statements for further details.

Selling, General and Administrative. The decrease in SG&A expenses of 20.3% or $2.2 million during the three months ended December 31, 2014 compared to the three months ended December 31, 2013 was mainly due to a $2.4 million decrease in stock compensation expense. The decrease in SG&A expenses of 13.2% or $3.9 million for the nine months ended December 31, 2014 compared to the nine months ended December 31, 2013 was mainly due to a $3.2 million decrease in stock-based compensation expense and a $1.5 million decrease in personnel costs, partially offset by a $0.9 million increase in software expense.

Stock-Based Compensation. The following table presents stock-based compensation expense for the three and nine months ended December 31, 2014 and 2013, which was included in the tables above (dollars in thousands):

	Three Months Ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
Costs of revenues	$	72	0.2	%	$	121	0.2	%	$	(49	)	(40.5	)%
Research and development	2,992		8.1		1,545		2.8		1,447			93.7
Selling, general and administrative	1,793		4.9		4,216		7.7		(2,423		)	(57.5	)
	$	4,857	13.2	%	$	5,882	10.7	%	$	(1,025	)	(17.4	)%

	Nine months ended December 31,
	2014				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
Costs of revenues	$	221	0.2	%	$	342	0.2	%	$	(121	)	(35.4	)%
Research and development	9,039		7.1		4,867		3.0		4,172			85.7
Selling, general and administrative	5,043		3.9		8,221		5.0		(3,178		)	(38.7	)
	$	14,303	11.2	%	$	13,430	8.2	%	$	873		6.5	%

The decrease in stock-based compensation of 17.4% during the three months ended December 31, 2014 compared to the three months ended December 31, 2013 was primarily due to the expense relating to Dr. Gopi's 200,000 restricted stock units ("RSUs") that were vested on the grant date during the three months ended December 31, 2013, partially offset by the higher expense associated with RSU grants with two-year vesting, as opposed to our typical four-year vesting periods, during the three months ended December 31, 2014. The increase in stock-based compensation of 6.5% during the nine months ended December 31, 2014 compared to the nine months ended December 31, 2013 was primarily due to the higher expense associated with RSU grants with two-year vesting, as opposed to our typical four-year vesting periods, during the nine months ended December 31, 2014, partially offset by the expense relating to Dr. Gopi's 200,000 RSUs that were vested on the grant date and the expense relating to the annual incentive compensation plan during the nine months ended December 31, 2013. Stock-based compensation expense will continue to have a potentially significant adverse impact on our reported results of operations, although it will have no impact on our overall cash flows.

Interest and Other Income (expense), net. The following table presents interest income and other (expense) income, net for the three and nine months ended December 31, 2014 and 2013 (dollars in thousands):

	Three Months Ended December 31,
	2014					2013
	Amount			% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Interest income, net	$	485		1.3	%	$	525	1.0	%	$	(40	)	(7.6	)%
Other (expense) income, net	$	(10	)	—	%	$	92	0.2	%	$	(102	)	(110.9	)%

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	Nine months ended December 31,
	2014					2013
	Amount			% of Net Revenue		Amount		% of Net Revenue		Decrease			% Change
Interest income, net	$	1,214		0.9	%	$	4,679	2.8	%	$	(3,465	)	(74.1	)%
Other (expense) income, net	$	(2,536	)	(2.0	)%	$	309	0.2	%	$	(2,845	)	(920.7	)%

Interest Income, net. The decrease in interest income, net for the three and nine months ended December 31, 2014 compared to the three and nine months ended December 31, 2013 was primarily due to lower short-term investments available for sale balances during the three and nine months ended December 31, 2014.

Other (Expense) income, net. The decrease in other (expense) income, net for the three months ended December 31, 2014 compared to the three months ended December 31, 2013 was primarily due to the rental income during the three months ended December 31, 2013 prior to the sale of our headquarters building in March 2014. The decrease in other (expense) income, net for the nine months ended December 31, 2014 compared to the nine months ended December 31, 2013 was primarily due to the impairment charge with respect to a strategic investment during the nine months ended December 31, 2014. Refer to Note 2, Certain Financial Statement Information, to the Condensed Consolidated Financial Statements for details.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2014, our principal source of liquidity consisted of $83.0 million in cash, cash equivalents and short-term investments. Working capital, defined as net current assets minus net current liabilities, was $96.8 million as of December 31, 2014. Total cash, cash equivalents and short-term investments decreased by $23.6 million during the nine months ended December 31, 2014 mainly due to cash used for operations of $19.8 million, purchase of property and equipment of $7.6 million and funding of taxes withheld upon vesting of restricted stock units of $1.6 million, partially offset by proceeds from the sale of TPack of $3.4 million, proceeds from the issuance of common stock of $1.9 million and increase in net unrealized gains of available-for-sale investments of $0.3 million. At December 31, 2014, we had contractual obligations not included on our balance sheet totaling $40.2 million, primarily related to facility leases, IP licenses, engineering design software tool licenses and inventory purchase commitments.

Sale of TPack

During the quarter ended June 30, 2013, we completed the sale of TPack and certain intellectual property assets owned by us related to TPack's business for an aggregate consideration of $33.5 million, net of working capital adjustments. Refer to Note 12, Sale of TPack A/S, to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 for details.

Acquisition of Veloce

On June 20, 2012, we completed our acquisition of Veloce. Veloce has been developing specific ARM-based technology for us. The total estimated purchase price consideration to be paid for Veloce is approximately $178.5 million based on the benchmarks achieved during simulations. Veloce completed all three performance milestones relating to the project as of March 31, 2014. During the three and nine months ended December 31, 2014, we paid approximately $1.5 million and $9.0 million, respectively, in cash and issued approximately 39,000 shares and 0.1 million shares, of common stock, respectively, valued at approximately $0.3 million and $0.9 million, respectively, as part of the Veloce acquisition consideration. As of December 31, 2014, $164.0 million had been paid and we expect that approximately an additional $2.4 million will be paid in cash and stock March 31, 2015. The $164.0 million paid to date includes approximately $89.2 million in cash and the issuance of 9.8 million shares of common stock valued at approximately $74.8 million. Payment of the Veloce consideration occurs based upon when a performance milestone is completed and upon satisfaction of vesting requirements, if applicable, and can be settled in cash or our common stock, at the election of management, up to a maximum of approximately 3.2 millionshares as of December 31, 2014.

Operating Activities

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For the nine months ended December 31, 2014, we used $19.8 million of cash in our operations compared to $33.4 million used for the nine months ended December 31, 2013. Our net loss of $36.9 million for the nine months ended December 31, 2014 included $30.7 million of non-cash charges primarily consisting of $6.6 million of depreciation, $14.3 million of stock-based compensation and $7.1 million of additional Veloce compensation cost and a $2.5 million impairment charge with respect to a strategic investment. Our net loss of $28.8 million for the nine months ended December 31, 2013 included $44.8 million of non-cash charges consisting of $7.7 million of depreciation, $0.4 million of amortization of purchased intangibles, $0.3 million of non-cash restructuring costs, $13.4 million of stock-based compensation and $42.7 million of additional Veloce compensation cost, partially offset by $19.7 million of net gain on sale of TPack. The remaining change in operating cash flows for the nine months ended December 31, 2014 primarily reflected the decreases in accounts receivable, net of $5.9 million, accounts payable of $3.6 million, accrued payroll and other liabilities of $0.9 million and Veloce accrued liability of $9.0 million, and the increase in inventories of $5.3 million. Our overall quarterly days sales outstanding was 47 days and 44 days for the three months ended December 31, 2014 and March 31, 2014, respectively. The primary reason for the increase in our days sales outstanding was the increase in accounts receivable, net as a result of the decrease in the accounts receivable reserve. The decrease in account receivable reserve was due to lower distributor inventory for the three months ended December 31, 2014.

Investing Activities

Our investing activities used $1.9 million in cash during the nine months ended December 31, 2014 compared to $35.5 million provided during the nine months ended December 31, 2013. During the nine months ended December 31, 2014, we used $7.6 million for the purchase of property and equipment and received net proceeds of $2.4 million for short-term investment activities and the remaining $3.4 million proceeds from the sale of TPack. During the nine months ended December 31, 2013, we used $5.6 million for the purchase of property and equipment and received proceeds of $29.5 million from the sale of TPack, net proceeds of $10.4 million from short-term investment activities and proceeds of $1.3 million from the sale of an equity investment.

Financing Activities

Our financing activities provided $0.2 million in cash during the nine months ended December 31, 2014 compared to $2.5 million during the nine months ended December 31, 2013. Cash provided by financing activities during the nine months ended December 31, 2014 primarily consisted of proceeds from the issuance of common stock of $1.9 million, partially offset by $1.6 million in tax withholding payments due to the vesting of restricted stock units. Cash provided by financing activities during the nine months ended December 31, 2013 primarily consisted of proceeds from the issuance of common stock of $8.6 million, partially offset by $5.5 million in tax withholding payments due to the vesting of restricted stock units.

Liquidity

We currently believe that our available cash, cash equivalents and short-term investments will be sufficient to meet our

capital requirements and fund our operations for at least the next 12 months. Notwithstanding the foregoing, from time to time we have explored one or more potential options to further enhance our balance sheet and liquidity, including without limitation the possibility of issuing equity to strategic investors or pursuing other financing transactions, and we are currently implementing certain business restructuring activities intended to reduce our ongoing net operating expenses.

We expect to satisfy our remaining Veloce-related payment obligations of $12.4 million using a combination of cash and the issuance of shares of common stock. Our available liquidity could be adversely affected, however, if we decide to satisfy the remaining Veloce obligations using a greater proportion of cash rather than our common stock or if our normal operations or unforeseen events require us to expend more cash than currently anticipated. As a result of any of the above, we could elect or be required to pursue various options to raise additional capital or generate cash. Such options could include, without limitation, issuing equity to one or more strategic or other investors, obtaining debt financing, selling assets or business units or acquiring cash-generating assets or business units from third parties, as well as additional restructuring activities. If our stock price declines or additional equity is issued as a result of any of the foregoing, it could result in greater dilution to our stockholders. Our liquidity could also be adversely affected if we are forced to liquidate our investments on short notice and on unfavorable terms. There can be no assurance that any of the options that we might pursue to raise additional capital or generate cash will be available on commercially reasonable terms or at all.

Contractual Commitments

See Note 7, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2014.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and a decline in the stock market. We are exposed to market risks related to changes in interest rates and foreign currency exchange rates.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are classified as available-for-sale and, consequently, are recorded on our Condensed Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income or loss. We have established guidelines relative to diversification and maturities that attempt to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of interest rate trends. We invest our excess cash in debt instruments of the U.S. Treasury, corporate bonds, commercial paper, mortgage-backed and asset backed securities, with credit ratings as specified in our investment policy. We also have invested in preferred stocks which pay quarterly fixed rate dividends and in closed-end bond funds. We generally do not utilize derivatives to hedge against increases in interest rates which decrease market values.

We are exposed to market risk as it relates to changes in the market value of our investments. At December 31, 2014, our investment portfolio included short-term securities classified as available-for-sale investments with an aggregate fair market value of $32.9 million and a cost basis of $29.7 million. Substantially all of these securities are subject to interest rate risk, as well as credit risk and liquidity risk, and will decline in value if interest rates increase or an issuer’s credit rating or financial condition is weakened.

The following table presents the hypothetical changes in fair value of our short-term investments held at December 31, 2014 (in thousands):

	Valuation of Securities Given an Interest Rate Decrease of X Basis Points (“BPS”)						Fair Value as of December 31, 2014		Valuation of Securities Given an Interest Rate Increase of X Basis Points (“BPS”)
	(150 BPS)		(100 BPS)		(50 BPS)				50 BPS		100 BPS		150 BPS
Available-for-sale investments	$	34,405	$	33,942	$	33,446	$	32,943	$	32,442	$	31,942	$	31,445

The modeling technique used measures the change in fair market value arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points, 100 basis points and 150 basis points. While this modeling technique provides an illustrative measure of our exposure to market risk, economic turbulence or other factors could cause interest rates to shift by more than 150 basis points.

We also invest in equity instruments of private companies for business and strategic purposes. These investments are valued based on our historical cost less any recognized impairments. The estimated fair values are not necessarily representative of the amounts that we could realize in a current transaction.

We generally conduct business, including sales to foreign customers, in U.S. dollars, and as a result, we have limited foreign currency exchange rate risk. We did not enter into any forward currency exchange contract during the nine months ended December 31, 2014. Gains and losses are recognized in income or expenses in the Condensed Consolidated Statements of Operations in the current period.

ITEM 4. CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that 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 rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is

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based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As required by Exchange Act Rule 13a-15(b), we conducted an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our CEO and CFO concluded that as of such date our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Note 7, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this Quarterly Report and in our other filings with the SEC. We update our descriptions of the risks and uncertainties facing us in our periodic reports filed with the SEC. The risks and uncertainties described below and in our other filings are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment. The risks and uncertainties set forth below with an asterisk (“*”) next to the title contain changes to the description of the risks and uncertainties associated with our business as previously disclosed in Item 1A to our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed with the SEC on May 30, 2014.

*Our liquidity may deteriorate based on our future uses of cash.

Our cash, cash equivalents and short-term investments balance as of December 31, 2014 was approximately $83.0 millioncompared to $89.5 million as of September 30, 2014. During the quarter ended December 31, 2014, approximately $1.5 million of cash was used for Veloce acquisition consideration payments. Approximately $14.5 million of the $178.5 million in total Veloce acquisition consideration remains to be paid, and our cash balance will likely decrease further depending upon how much of this remaining balance we decide to pay in cash instead of our common stock. Although we currently believe we have adequate liquidity to meet our capital requirements and fund our operations for at least the next twelve months, our cash balances could decrease significantly if our normal operations or unforeseen events require us to expend more cash than anticipated. If such were to occur, we may be faced with liquidity issues requiring us to pursue various options to raise additional capital or generate cash. In addition, we may elect to raise additional capital, including without limitation by issuing equity or debt securities, or otherwise attempt to generate additional cash in order to augment our cash reserves for purposes of enabling future business expansion and providing additional liquidity assurances to our current and prospective customers, suppliers and partners. There can be no assurance that any of the options that we might pursue to raise additional capital or generate cash will be available on commercially reasonable terms or at all.

During the nine months ended December 31, 2014, our cash used in operating activities was approximately $19.8 million and during the fiscal years ended March 31, 2014 and 2013, our cash used in operating activities was approximately $43.5 million and $33.1 million, respectively. Excluding the acquisition consideration for Veloce, our cash used for operating activities was approximately $10.8 millionfor the nine months ended December 31, 2014. Excluding the acquisition consideration for Veloce, our cash provided by operating activities was approximately $20.2 million for the fiscal year ended March 31, 2014 and our cash used in operating activities was approximately $16.5 million for the fiscal year ended March 31, 2013.

*If we are unable to timely develop, market or sell new products or new versions of products to replace our current products, our operating results and competitive position will be materially harmed.

Our industry is characterized by intense competition, rapidly evolving technology and continually changing customer requirements. These factors will over time render our existing products less competitive or obsolete. Some of our existing products have experienced weakening overall demand, and revenues from these products can be expected to continue to decline further in subsequent quarters. Accordingly, our future operating results and ability to compete will depend in large part on our ability to develop new products and new generations and versions of our existing products that achieve market acceptance on a timely and cost-effective basis, and to respond to changing requirements. If we are unable to do so, our business, operating results and financial condition will be negatively affected. In particular, our inability to productize and generate demand for our X-Gene^TM Server on a Chip® solutions, our X-Weave® connectivity products and our HeliX™ embedded products, and related products, in a timely manner would have a material adverse effect on our operating results and financial condition.

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The successful development and market acceptance of our products depend on a number of factors, including, but not limited to:

• our customers’ willingness to incorporate products based on the ARM® architecture, on which most of our new products are based, into their own products and systems;

• our successful collaboration with our ecosystem and technology partners;

• availability, quality, price, performance, power consumption, size and total cost of ownership of our products relative to competing products and technologies;

• our accurate prediction of changing customer requirements;

• timely development of new designs;

• timely qualification and certification of our products for use in electronic systems;

• continued availability on commercially reasonable terms of the manufacturing services purchased from and the technology components and tools licensed from third party suppliers;

• commercial acceptance and production of the electronic systems into which our products are incorporated;

• our customer service and support capabilities and responsiveness;

• successful development of relationships with existing and potential new customers;

• maintaining compliance and compatibility with new and changing industry standards and requirements;

• maintaining close working relationships with key customers so that they will design our products into their future products;

• our ability to develop, gain access to and use leading technologies in a cost-effective and timely manner; and

• retention of key technical and design expertise, both internally and within third-party technology development partners.

We have in recent years devoted substantial engineering and financial resources to designing, developing and rolling out new products and technologies and introducing several new products in our Connectivity and Computing business units. However, there can be no assurance that our product development efforts will be successful or that the products and technologies we have recently developed and which we are currently developing will achieve widespread market acceptance. If these products and technologies fail to achieve market acceptance, or if we are unable to continue developing new products and technologies that achieve market acceptance, our business, financial condition and operating results will be materially and adversely affected. In addition, for our X-Gene, X-Weave and HeliXproduct families, we are a licensee of the ARM v8 64-bit architecture and will depend upon our continuing license rights to that instruction set architecture, or ISA, including without limitation the timely delivery by ARM of various updates and other support under the license agreement. The success of our ARM-based products, including X-Gene, X-Weave and HeliX, will depend, among other things, on customers’ willingness to incorporate products based on the ARM architecture into their products and systems. For many customers, this would represent a change from their existing technology, and therefore the time frame and magnitude of adoption of ARM-based products such as ours is inherently uncertain. Furthermore, the development and commercialization of new products incorporating ARM architecture could be delayed if the ecosystem partners that rely on this architecture are unable to successfully establish their own operations on a timely basis, including their continued access to and the use of the ARM architectural licenses or if they are unable to work successfully with ARM in developing their products.

*Our significant investment in Veloce may not result in the successful development and commercialization of new technologies or products.

In June 2012, we completed the acquisition of Veloce under a merger agreement we entered into with Veloce in May 2009, as amended in November 2010 and April 2012. Pursuant to the merger agreement, the final post-closing product development milestone was completed during the fiscal quarter ended March 31, 2014. In June 2014, we announced the completion of production silicon and initial customer revenue for our X-Gene product line.

Our ability to continue to realize the benefits of the Veloce acquisition will depend upon the continued integration of Veloce operations with ours and the retention of key Veloce personnel. Retention of Veloce personnel may be adversely impacted by factors such as the substantial completion of our payment obligations to them under the merger agreement, the effects of past or future restructuring activities in increasing or changing their work loads, the relocation of our headquarters facilities in fiscal year 2016, and the impact of recent declines in our aggregate market capitalization on the value of their equity compensation packages. The departure from us of one or more Veloce management or engineering personnel could materially adversely affect our ongoing next-generation product development efforts for X-Gene and other new products. Although we have spent considerable time and resources in the developmental effort, eventually we may be unsuccessful in marketing and selling the products that were described in the Veloce merger agreement or in developing next-generation

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versions of such products, in which case our investment in Veloce would not provide any significant value to our business and would have a material adverse impact on our financial results and condition.

*If we issue additional shares of stock in the future, it may have a dilutive effect on our stockholders.

We have a significant number of authorized and unissued shares of our common stock available. These shares will provide us with the flexibility to issue our common stock for proper corporate purposes, which may include raising equity capital from strategic, institutional or other investors, making acquisitions (including, without limitation, discharging our remaining purchase price obligations in the Veloce acquisition) through the use of stock, and adopting additional equity incentive plans. Any issuance of our common stock will result in immediate dilution of our stockholders. In addition, the issuance of a significant amount of our common stock may result in additional regulatory requirements, such as stockholder approval. Currently, we have the ability to issue up to approximately 3.2 millionadditional shares of our common stock as Veloce acquisition consideration without obtaining stockholder approval. In the event stockholder approval is required but not obtained, we likely will be forced to use a greater portion of our cash than currently anticipated in order to satisfy our Veloce payment obligations. The actual amount and timing of additional share issuances to be made in connection with Veloce acquisition payments will be based upon numerous factors including, without limitation, the total amount of acquisition consideration to be paid, the market price of our common stock as of each payment date, and our available cash balances and liquidity requirements as of such dates, some of which are not determinable at this time. In addition, it is likely during fiscal year 2016 that we will need to increase the size of the common stock share reserve available under the 2011 Equity Incentive Plan or adopt an additional incentive plan, either of which actions would require stockholder approval, in order to enable sufficient future equity grants to attract and retain key employees and service providers.

*The markets in which we compete are highly competitive, and we expect competition to increase in these markets in the future.

The markets in which we compete are highly competitive, and we expect that domestic and international competition will increase in these markets, due in part to rapid technological advances, price erosion, changing customer preferences, deregulation, and evolving industry standards.

Increased competition could result in significant price competition, reduced revenues, lower profit margins or loss of market share. Our ability to compete successfully in our markets depends on a number of factors, including:

• our ability to partner with OEM, ecosystem and channel partners who are successful in the market;

• success in designing and subcontracting the manufacture of new products that implement new technologies;

• product quality, interoperability, reliability, performance and certification;

• our ability to attract and retain key engineering, operations, sales and marketing employees and management;

• pricing decisions or other actions taken by competitors;

• customer support;

• time-to-market;

• price;

• production efficiency;

• design wins;

• expansion of production of our products for particular systems manufacturers;

• end-user acceptance of the systems manufacturers' products;

• market acceptance of competitors' products; and

• general economic conditions.

We designed X-Gene for existing and emerging cloud and enterprise data centers. Existing data centers currently rely primarily on Xeon server processors and related chipsets developed and marketed by Intel. Intel also offers lower-performance products for lower-intensity data center applications. As a result, Intel is a significant competitor in the cloud and enterprise server infrastructure market. In addition to Intel, in the cloud and enterprise server market, we will compete with a number of ARM-based server silicon vendors, including AMD, Broadcom, Cavium and Qualcomm. In the embedded computing silicon solutions market, we compete with technology companies such as Cavium and Freescale Semiconductor. In addition, some of our customers and potential customers have internal integrated circuit design or manufacturing capabilities with which we compete. In the connectivity silicon solutions market segment, we compete primarily against companies such as Broadcom, Inphi and PMC-Sierra. Many of these companies have substantially greater financial, marketing and distribution resources than we have. We may also face competition from new entrants to our target markets, including larger technology companies that may develop or acquire differentiating technology and then apply their resources to our detriment.

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Many of our competitors have longer operating histories and presences in key markets, greater name recognition, and larger customer bases, workforces and intellectual property portfolios, and in some cases operate their own fabrication facilities. Our competitors may offer enhancements to existing products, or offer new products based on new technologies, industry standards or customer requirements more quickly than comparable products from us or that could replace or provide lower cost alternatives to our products. Competitors’ introduction of enhancements, new products or new pricing structures could render our existing and future products obsolete or unmarketable. In addition, large competitors could use their existing market share and influence to discourage potential ecosystem partners and customers from supporting or purchasing our products. We and our customers also face intense price pressure and competition from companies in lower cost countries such as China. In response to these price pressures, our customers could require us to reduce prices which could adversely affect our financial results. Furthermore, our discrete legacy products are being and could continue to be integrated into ASICs or combined into single chip solutions that could cause our revenues from such products to decline at a faster rate.

As a result of each of these factors, we cannot assure you that we will be able to continue to compete successfully against current or new competitors. If we do not compete successfully, we may lose market share in our existing and target markets and our revenues may fail to increase or may decline, which could have a material adverse effect on our business, financial condition and results of operations.

*Our dependence on third-party manufacturing and supply relationships increases the risk that we will not have an adequate supply of products to meet demand or that our cost of materials will be higher than expected.

We depend upon third parties to manufacture, assemble, package or test certain of our products. As a result, we are subject to risks associated with our dependence on third-party manufacturing and supply relationships, including:

• pricing of foundry services and of other supply chain services such as packaging and testing, from vendors such as Taiwan Semiconductor Manufacturing Company Ltd. ("TSMC"), International Business Machines Corporation ("IBM"), Advanced Semiconductor Engineering, Inc. ("ASE") and Siliconware Precision Industries Co. Ltd. ("SPIL");

• reduced control over the supply chain process, delivery schedules and quality;

• potentially inadequate manufacturing yields and excessive costs;

• the risks associated with transitioning our manufacturing supply from one foundry or other supplier to another, which may be extremely difficult to accomplish, particularly on short notice and when cutting-edge process technologies are involved;

• our ability to retain key personnel with specialized knowledge of our products and processes;

• difficulties selecting and integrating new subcontractors;

• the potential lack of adequate capacity at the foundry during periods of high demand, resulting in significant increases in lead time requirements and production delays, which can be expected to cause difficulties with our customers, including reduced revenues and higher expenses;

• increased risk of excess and obsolete inventory charges due to the higher level of inventories in response to the increased lead times;

• limited warranties on products supplied to us, which may not match the warranties that our customers require from us;

• potential instability and business disruption in countries where third-party manufacturers or distributors are located;

• potential misappropriation of our intellectual property; and

• potential foundry shortages when we commence volume manufacturing of new products, especially those with 28nm or anticipated smaller geometry technologies, which could delay the supply of products to our customers.

Our outside foundries and manufacturing, packaging and test service providers generally operate on a purchase order basis, and we have few long-term supply arrangements with these suppliers. We have less control over delivery schedules, manufacturing yields and costs than our competitors that use their own fabrication facilities or provide larger volumes of business to their outside foundries. A manufacturing disruption or capacity constraint experienced by one or more of our outside foundries or service providers or a disruption of our relationship with an outside foundry or service provider, including discontinuance of our products by that foundry or service provider, would negatively impact the production and cost structure of certain of our products for a substantial period of time.

As our third-party manufacturing suppliers extend their lead time requirements, we will likely need to also extend our lead time requirements to our customers. This could cause our customers to lower their competitive assessment of us as a supplier and, as a result, we may not be considered for future design awards.

Each of our integrated circuit, or IC, products is generally only qualified for production at a single foundry. These suppliers can allocate, and in the past have allocated, capacity to the production of other companies' products while reducing

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deliveries to us on short notice. There is also the potential that they may discontinue manufacturing our products or go out of business. Because establishing relationships, designing or redesigning silicon solutions, and ramping production with new outside foundries may take over a year, there is no readily available alternative source of supply for these products.

Difficulties associated with adapting our technology and product design to the proprietary process technology and design rules of outside foundries can lead to reduced yields of our IC products. This risk is substantially higher with respect to the manufacture of our new X-Gene, X-Weave and HeliX products at 40 and 28 nanometers, and would be even higher when using anticipated smaller geometries such as 16 nanometers and more complicated processes such as FinFET. FinFET generally refers to a multi-gate architecture that includes a silicon “fin” that wraps around the conducting portion of the device. The process technology of an outside foundry is typically proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems may require cooperation between us and our manufacturer. This risk could be compounded by the offshore location of certain of our manufacturers, increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased costs or delayed product delivery, which would harm our profitability and customer relationships.

If the foundries or subcontractors we use to manufacture our products discontinue the manufacturing processes needed to meet our demands, fail to upgrade their technologies needed to manufacture our products, or otherwise fail to perform the necessary manufacturing or operations services on a timely basis, we may be unable to deliver products to our customers, which would materially adversely affect our operating results and harm our reputation. The transition to the next-generation of manufacturing technologies at one or more of our outside foundries could be unsuccessful or delayed.

Our requirements typically represent a very small portion of the total production of the third-party foundries and related service providers. As a result, we are subject to the risk that a producer or service provider will cease production of an older or lower-volume process that it uses to produce our parts, cease performing the supply services currently provided, or raise the prices it charges us. We cannot assure you that our external foundries and related service providers will continue to devote resources to the production of parts for our products or continue to advance the process design technologies on which the manufacturing of our products are based. Each of these events could increase our costs, lower our gross margin, cause us to hold more inventory or reduce our ability to deliver our products on time. As our volumes decrease with any third-party foundry, the likelihood of unfavorable pricing or service levels increases.

Our customers’ products incorporate components from other suppliers. If these other suppliers cannot access sufficient production capacity or have other production or delivery issues, our customers may reduce orders for our products.

*Our restructuring activities could result in management distractions, operational disruptions and other difficulties.

Over the past several years, we have initiated several restructuring activities in an effort to reduce operating costs and similar activities are likely to continue. For example, we implemented Board-approved reductions in force of between 5% and 10% of our workforce on three occasions from December 2012 to April 2014, and our Board recently approved an additional reduction in force of approximately 7% of our workforce, which currently is being implemented. Additional reductions in force and senior level employee replacements are likely to occur as we continue to realign our business organization, operations and product lines. Employees whose positions were or will be eliminated in connection with these restructuring activities may seek employment with our competitors, customers or suppliers. Although each of our employees is required to sign a confidentiality agreement with us at the time of employment, which agreement contains covenants prohibiting among other things the disclosure or use of our confidential information and the solicitation of our employees, we cannot guarantee that the confidential nature of our proprietary information will be maintained in the course of such future employment, or that our key continuing employees will not be solicited to terminate their employment with us. Any restructuring effort could also cause disruptions with customers and other business partners, divert the attention of our management away from our operations, harm our reputation, expose us to increased risk of legal claims by terminated employees, increase our expenses, increase the workload placed upon remaining employees and cause our remaining employees to lose confidence in the future performance of the Company and decide to leave. We cannot guarantee that any restructuring activities undertaken in the future will be successful, or that we will be able to realize the cost savings and other anticipated benefits from our previous, current or future restructuring plans. In addition, if we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to new growth opportunities or remain competitive.

*We may experience difficulties in transitioning to smaller geometry processes or in achieving higher levels of design integration and, as a result, may experience reduced manufacturing yields, delays in product deliveries and increased expenses.

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We may not be able to achieve higher levels of design integration or deliver new integrated circuit products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs and increase performance. We recently began shipping our X-Gene 40 nanometer product, and our 28 nanometer version of the product began sampling in the first quarter of fiscal 2015. As smaller line-width geometry processes, such as 14 or 16 nanometer, and more sophisticated designs, such as FinFET and FDSOI, are introduced to and become more prevalent in the industry, we expect to integrate greater levels of functionality into our IC products and to transition our IC products to smaller geometries.

We have in the past experienced difficulties in shifting to smaller geometry process technologies and new manufacturing processes. These difficulties resulted in reduced manufacturing yields, delays in product deliveries and increased expenses. The transition to even smaller geometries is inherently more expensive and as we manufacture more products using smaller geometries, the incremental costs could have an adverse impact on our earnings. We may face similar difficulties, delays and expenses with respect to the 28 nanometer and smaller versions of X-Gene and X-Weave and as we continue to transition our other IC products to smaller geometry processes and at competitive pricing. Transitions to more sophisticated designs, such as FinFET and FDSOI, could result in similar difficulties. We are dependent on our relationships with our foundries to transition to smaller geometry processes and new designs successfully and at competitive pricing. We cannot assure you that our foundries will be able to effectively manage the transition or that we will be able to maintain our relationships with our foundries. If we or our foundries experience significant delays in this transition or fail to implement this transition and at competitive pricing, our business, financial condition and results of operations could be materially and adversely affected.

*The gross margins for our products could decrease rapidly or not increase as forecasted, which would negatively impact our business, financial conditions and results of operations.

The gross margins for our solutions have declined in the past and may do so again in the future. Factors that we expect to cause downward pressure on the gross margins for our products include competitive pricing pressures, the cost sensitivity of our customers, particularly in the higher-volume markets, new product introductions by us or our competitors, the overall mix of our products sold during a particular quarter, and other factors. From time to time, for strategic reasons, we may accept orders at less than optimal gross margins in order to facilitate the introduction of new products or the market penetration of existing products. We may also accept orders at less than optimal gross margins to encourage customers to order sooner or in larger quantities than previously anticipated. To maintain acceptable operating results, we will need to offset any reduction in gross margins of our products by reducing costs, increasing sales volume, developing and introducing new products and developing new generations and versions of existing products on a timely basis. If the gross margins for our products decline or not increase as anticipated and we are unable to offset those reductions, our business, financial condition and results of operations will be materially and adversely affected.

*Adverse economic and financial market conditions could harm our revenues, operating results and financial condition.

The economies of the United States and other countries have experienced an economic downturn for the last several years, which has negatively affected our business. While the U.S. economy has recently begun to rebound from the economic downturn, we cannot predict whether this recovery will be sustained or will reverse course. Deteriorating economic conditions in certain countries, including several countries in Europe, could hinder the nascent global recovery, which could in turn adversely impact our business, operating results and financial condition.

Our current operating plans are based on assumptions concerning levels of consumer and corporate spending. If weak global and domestic economic and market conditions persist or deteriorate, our business, operating results and financial condition could suffer materially, which in turn could result in a decline in the price of our common stock. If economic conditions worsen, we may have to implement additional cost reduction measures or delay certain R&D spending, which may adversely impact our ability to introduce new products and technologies. Because we expect to depend on new products for a substantial portion of our future revenues, this could have a material and adverse effect on us.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are generally classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive (loss) income. Our portfolio primarily includes fixed income securities, closed end bond funds, mutual funds and preferred stock, the values of which are subject to market price volatility. If our portfolio’s market value declines, we may need to record impairment charges to our earnings. During the fiscal year ended March 31, 2013, we recorded approximately $1.1 million in other-than-temporary impairment charges of our short-term investments and marketable securities. During the fiscal year ended March 31, 2014 and the nine months ended December 31, 2014, we did not record any other-than-temporary impairment charges. If market prices continue to decline or securities continue to be in a loss position over time, we may recognize impairments in the fair value of our investments.

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Our sales are concentrated among a few large customers, and we expect that our largest customers will continue to account for a substantial portion of our net revenue for the foreseeable future. Adverse economic conditions affecting these large customers could have a particularly significant effect on our business and operating results. Among other things, these conditions could impair the ability of our customers to pay for our products, causing our allowances for doubtful accounts and write-offs of accounts receivable to increase. In addition, adverse economic conditions could cause our contract manufacturers and other suppliers to experience financial difficulties that negatively affect their operations and their ability to supply us with necessary products and services.

Generally to enhance our intellectual property, or IP, portfolio and to augment our R&D resources, we have invested, and will continue to invest, in privately-held companies, most of which can still be considered to be in startup or developmental stages. These investments are inherently risky as the markets for the technologies or products they have under development are typically in the early stages and may never materialize. In some cases, we have determined to write off all or substantially all of the value of our investment, and similar risks exist with respect to the other companies in which we have invested.

*Our operating results may fluctuate because of a number of factors, many of which are beyond our control.

If our operating results are below the expectations of research analysts or investors, then the market price of our common stock could decline. Some of the factors that affect our quarterly and annual results, but which are often difficult to control or predict, include those discussed elsewhere in this “Risk Factors” section, as well as the following:

• market acceptance of our products and our customers' products, including without limitation any failure of our X-Gene, X-Weave or HeliX product families to be commercially accepted within the time frames and at the levels we anticipate;

• fluctuations in the timing and amount of customer requests for product shipments;

• the reduction, rescheduling or cancellation of orders by customers, including without limitation as a result of slowing demand for our products or our customers' products, over-ordering or double booking of our products or our customers' products, or agreements with customers to accelerate, delay, increase or decrease previously anticipated orders;

• changes in the timing and amounts of shipments due to our decision to phase out a particular product, which often results in near-term “last-time-buy” orders for the “end-of-life” product that would otherwise have been placed and shipped in later periods;

• changes in the mix of product orders;

• the gain or loss of one or more key customers or their key customers, or significant changes in the financial condition of one or more of our key customers or their key customers;

• our ability to introduce, certify and deliver new products and technologies, including without limitation our X-Gene, X-Weave and HeliX products, on a timely basis;

• the announcement or introduction of new products and technologies by our competitors;

• competitive pressures on selling prices;

• the ability of our customers to obtain components from their other suppliers;

• risks associated with our or our customers' dependence on third-party manufacturing and supply relationships;

• increases in the costs of mask sets and products, including without limitation with respect to smaller or more sophisticated process technologies such as FinFET, or the discontinuance of products, services or components by our suppliers;

• the amounts and timing of meeting the specifications and expense recovery on non-recurring engineering projects;

• following the expiration or earlier termination of our headquarters facilities lease, a potentially significant increase in our rent obligations;

• the amounts and timing of costs associated with warranties, product returns and customer indemnification claims;

• the impact of potential claims asserting infringement of third party patent or misappropriation of third party IP rights;

• the amounts and timing of investments in R&D;

• the product lifecycle and recoverability of architectural licenses, technology access fees and mask set costs;

• revenue and margin fluctuations depending on the timing and amount of any IP licensing or sale transactions that we may undertake;

• the amounts and timing of the costs associated with payroll taxes related to stock option exercises or settlement of restricted stock units;

• the impact of potential one-time charges related to purchased intangibles;

• the impact on interest income of a significant use of our cash for an acquisition, stock repurchase or other purpose;

• the effects of changes in interest rates or credit worthiness on the value and yield of our short-term investment portfolio;

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• the effects of changes in accounting standards; and

• the availability of ecosystem partners.

*Our business, financial condition and operating results would be harmed if we do not achieve anticipated revenues.

We can have revenue shortfalls for a variety of reasons, including:

• shortages of raw materials or production capacity constraints that lead our suppliers to allocate available supplies or capacity to their other customers, which may disrupt our ability to meet our production obligations;

• our customers may experience shortages from their suppliers that may cause them to delay orders or deliveries of our products;

• delays in the availability of our products or our customers' products;

• delays in the availability of the software elements from third party vendors and ecosystem partners that may cause delays in customers using our hardware products resulting in further delays of bringing our product to market;

• the reduction, rescheduling or cancellation of customer orders, including without limitation agreements with customers to delay the timing or decrease the size of orders, resulting in decreased near-term revenues from the affected products, or to accelerate the timing or increase the size of orders, resulting in reduced revenues from those products in later periods;

• declines in the average selling prices of our products;

• delays in the introduction of new products, or lower than expected demand for new products;

• delays when our customers are transitioning from old architectures, technologies and products to new architectures, technologies and products;

• a decrease in demand for our products or our customers' products due to technological changes, competitive developments, trends in our customers’ businesses or other factors;

• a decline in the financial condition or liquidity of our customers or their customers;

• the failure of our products to be qualified in our customers' systems or certified by our customers;

• excess inventory of our products held by our customers, resulting in a reduction in their order patterns as they work through the excess inventory of our products;

• decisions to phase out or “end-of-life” particular products, which may result in higher near-term revenues due to customers’ final, “last-time-buy” orders, but a cessation of revenues from those products in later periods;

• fabrication, test, product yield, or assembly constraints for our products that adversely affect our ability to meet our production obligations;

• the failure of one or more of our subcontract manufacturers to perform its obligations to us;

• our failure to successfully integrate acquired companies, products and technologies; and

• global economic and industry conditions.

Our business is characterized by short-term orders and shipment schedules. Customer orders typically can be cancelled or rescheduled without significant penalty to the customer. Because we do not have substantial non-cancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.

Our expense levels are relatively fixed in the short-term and are based on our expectations of future revenues. We have limited ability to reduce expenses quickly in response to any revenue shortfalls. Changes to production volumes and impact of overhead absorption may result in a decline in our financial condition or liquidity.

We are dependent on orders that are received and shipped in the same quarter and are therefore limited in our visibility of future product shipments.

Our net sales in any given quarter depend upon a combination of shipments from backlog and orders received in that quarter for shipment in that quarter, which we refer to as turns business. We estimate turns business at the beginning of a quarter based on the orders needed to meet the shipment forecasts that we set entering the quarter. Historically, we have relied on our ability to respond quickly to customer orders as part of our competitive strategy, resulting in customers placing orders with relatively short delivery schedules. Shorter lead times generally mean that turns orders as a percentage of our business are relatively high in any particular quarter and reduce our backlog visibility on future product shipments. Turns business correlates to overall semiconductor industry conditions and product lead times. Because turns business is difficult to predict, varying levels of turns business make our net sales more difficult to forecast. If we do not achieve a sufficient level of turns business in a particular quarter relative to our revenue forecasts, our revenue and operating results may suffer.

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*Our business faces challenges due to declining sales of our older products and the evolving dynamics of the networking and communications industries.

Each of our Connectivity and Computing businesses faces industry-specific challenges, in addition to the risks applicable to our business as a whole. For our Connectivity products, order patterns historically have been uneven from period to period. The unpredictable nature of demand in this sector makes it more difficult to forecast our revenues, and may cause us to incur additional expenses for inventory that may need to be written off. Our Connectivity business is also subject to technology transitions within the communications industry. For example, now that the communications industry has completed its shift away from the SONET/SDH standard to the higher speed, lower power optical transport network (OTN) standard, substantially all of our new Connectivity product designs utilize the OTN standard. However, as a result of this transition, many of our older, SONET-based Connectivity products are experiencing declining sales, while our newer Connectivity products, such as the X-Weave product family, have not yet generated significant revenue. Moreover, the transition to OTN, resulting in higher sales volumes and increased competition from integrated solutions providers, is in turn leading to price and margin erosion challenges. The introduction of other technological standards may also affect demand for our products. For our Computing business, as well, the migration of the networking industry away from products utilizing the PowerPC architecture and towards products utilizing other architectures such as ARM, has presented challenges. In line with such migration, we are no longer introducing new PowerPC product designs and are reducing our resources equipped to support our older PowerPC product lines. Moreover, as many of our older, PowerPC-based Computing products are experiencing declining sales, we will increasingly depend on revenues from our new ARM-based products, such as the X-Gene product family and our HeliX embedded products. If we are unable to develop and deliver new Connectivity and Computing products that meet changing customer needs and generate sufficient revenue to offset the decline in sales of our older product lines, our business, results of operations and financial condition would be materially and adversely affected. Our sales of Connectivity and Computing products are also concentrated among a few large customers. Changes in a large customer’s financial condition, budgeting or technology strategy may materially affect our sales and could result in our holding higher than expected unsold inventory, which could result in higher expenses.

Our business may suffer due to downturns in the technology industry, which is cyclical.

The technology equipment industry is cyclical and has in the past experienced significant and extended downturns. The most recent downturn caused a reduction in capital spending on information technology generally, which affected demand for our products. Future downturns may materially and adversely affect our business, operating results and financial condition. We sell our communications IC products primarily to communications equipment manufacturers that in turn sell their equipment to customers that depend on the growth of the Internet and other communications services. We are also developing and introducing new products for the cloud server and data center market. If those end markets fail to grow as expected, or experience downturns, demand for our products would be reduced.

Interruptions, delays, security breaches or other unauthorized activities at third-party data centers or other cloud computing infrastructure providers, or other failures within our information technology systems, could materially harm our business.

Our business depends upon the reliable operation of internal and third-party information technology (“IT”) systems, but we have limited control over the integrity and reliability of those systems. We conduct significant business functions and computer operations, including without limitation data storage and email, using the infrastructure systems of third-party vendors, such as remote data centers, virtual servers and other “cloud computing” resources. “Cloud computing” is an information technology hosting and delivery system in which data is stored outside of the user's physical infrastructure and is delivered to and used by the user as an internet-based application service. These third-party systems may experience cyber-attacks and other security breaches, along with the possible risk of loss, theft or unauthorized publication of our confidential information or that of our employees, customers, suppliers and other business partners. Any interruptions or problems at such data centers or other cloud computing facilities could result in significant disruptions to our business operations and potential liabilities to our employees and business partners. We do not control the operation of these third-party providers, and each is vulnerable to damage or interruption from earthquakes, floods, fires, vandalism, power loss, telecommunications failures and similar events. These third-party vendor relationships present further risk and management challenges for us, including, among others: confirming and monitoring the third party's security measures; the potential for improper handling of or access to our data; and data location uncertainty, including the possibility of data storage in inappropriate jurisdictions, where laws or security measures may be inadequate, or the unauthorized movement of technical data between locations in violation of applicable export laws. In addition, third-party data center and other providers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may experience costs or down-time in connection with the transfer to new third-party providers.

There can be no assurance that we will be successful in preventing cyber attacks, security breaches or other unauthorized activities involving our information technology systems, or detecting and stopping them once they have begun. Any failure of

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our outsourced service providers or our internal information technology systems to properly protect our data or the confidential information of our employees and business partners may adversely affect our business, financial condition and results of operations, as well as significant expenses including governmental penalties.

In addition to the risk of cyber attacks or other unauthorized activities, our internally maintained IT infrastructure may experience interruptions of service or errors in connection with systemic failures (which may be caused by third-party actions including viruses or other externally introduced problems, hardware or software failures, telecommunications or Internet connectivity issues, natural disasters or other causes), systems integration or migration work. In such an event, we may be unable to implement new systems or transition data and processes promptly, which could be expensive, time consuming and disruptive. These disruptions could impair our ability to fulfill orders and interrupt other business functions, resulting in delayed or lost sales, lower margins or lost customers, which could adversely affect our reputation and financial results.

*Our business is dependent on selling to distributors and any disruption in their operations could materially harm our business.

Sales to distributors accounted for approximately 48%of our revenues for the quarter ended December 31, 2014 and 54%, 66% and 58% of our revenues for the fiscal years ended March 31, 2014, 2013 and 2012, respectively. Our largest distributor accounted for approximately 26%of our revenues for the quarter ended December 31, 2014 and 27%, 27% and 20% of our revenues for the fiscal years ended March 31, 2014, 2013 and 2012, respectively. We do not have long-term agreements with our distributors, and either party can terminate the relationship with little advance notice.

Any future adverse conditions in the U.S. and global economies or in the U.S. and global credit markets could materially impact the operations of our distributors. Any deterioration in the financial condition of our distributors or any disruption in their operations could adversely impact the flow of our products to our end customers and adversely impact our results of operations. In addition, during an industry or economic downturn, it is possible there will be an oversupply of products and a decrease in sell-through of our products by our distributors, which could cause them to hold excess inventories and reduce our net sales in a given period and result in an increase in stock rotations.

*The loss of one or more key customers, diminished demand for our products from a key customer, or the failure to obtain certifications from a key customer or its distribution channel could significantly reduce our revenues and profits.

A relatively small number of customers have accounted for a significant portion of our net revenues in any particular period. Based on direct shipments, net revenues to customers or IP licensees that accounted for at least 10% of total net revenues were as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2014		2013		2014		2013
Avnet (distributor)	26	%	27	%	26	%	28	%
Wintec (global logistics provider)**	16	%	26	%	18	%	22	%
IP Licensee	11	%	*		*		*

*     Less than 10% of total net revenues for period indicated.

**     Wintec provides vendor managed inventory support primarily for Cisco Systems, Inc.

We have no long-term volume purchase commitments from our key customers. One or more of our key customers may discontinue operations as a result of consolidation, bankruptcy or otherwise. Reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers could significantly reduce our revenues and profits. Our agreements with customers typically are non-exclusive and do not require them to purchase a minimum quantity of our products. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

Our ability to maintain or increase sales to key customers and attract significant new customers is subject to a variety of factors, including:

• customers may stop incorporating our products into their own products with limited notice to us;

• customers or prospective customers may not incorporate our products into their future product designs;

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• the timing and success of new product introductions by customers;

• some of our customers may reduce or eliminate future purchase orders or design wins placed with us as an adverse reaction to our having sold patents to third parties that thereafter asserted the acquired patents in infringement actions brought against such customers, or due to other adverse intellectual property developments;

• sales of customer product lines incorporating our products may rapidly decline or such product lines may be phased out;

• our agreements with customers typically are non-exclusive and do not require them to purchase a minimum quantity of our products;

• many of our customers have pre-existing relationships or may establish relationships with our current or potential competitors that may cause our customers to switch from using our products to using competing products;

• some of our OEM customers may develop products internally that would replace our products;

• we may not be able to successfully develop relationships with additional network equipment vendors;

• our relationships with some of our larger customers may deter other potential customers (who compete with these customers) from buying our products; and

• the impact of terminating certain sales or support personnel as a result of our workforce reduction or otherwise.

The occurrence of any one of the factors above could have a material adverse effect on our business, financial condition and results of operations.

Any significant order cancellations or order deferrals could cause unplanned inventory growth resulting in excess inventory, which may adversely affect our operating results.

Our customers may increase orders during periods of product shortages or cancel orders if their inventories are too high. Major inventory corrections by our customers are not uncommon and can last for significant periods of time and affect demand for our products. Customers may also cancel or delay orders in anticipation of new products or for other reasons. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins by reducing sales prices, incurring inventory write-downs or writing off additional obsolete products.

Increasing lead times from our suppliers cause us to make commitments for inventory purchases earlier in our production cycle which in turn increases our risk of having excess inventory. In addition, from time to time some of our suppliers deliver to us based on allocations which in turn causes us to increase our inventory levels. We must balance our inventory levels between the risk of losing a significant customer to a competitor because we cannot meet our customer's requirements and the risk of having excess inventory if a significant order is cancelled.

In addition, from time to time, in response to anticipated long lead times to obtain inventory and materials from our outside contract manufacturers, suppliers and foundries, we may order materials in advance of anticipated customer demand. This advance ordering has in the past resulted and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors render our products less marketable. If we are forced to hold excess inventory or we incur unanticipated inventory write-downs, our financial condition and operating results could be materially and adversely affected.

Inventory fluctuations could affect our results of operations and restrict our ability to fund our operations. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times and meet customer expectations against the risk of inventory obsolescence because of changing technology and customer requirements. Customer orders for our products typically have non-standard lead times, which make it difficult for us to predict revenues and plan inventory levels and production schedules. If we are unable to plan inventory levels and production schedules effectively, our business, financial condition and operating results could be materially and adversely affected.

From time to time, we may discuss our “book-to-bill” ratio with analysts and investors, or include it in other public disclosures. The book-to-bill ratio, which is commonly used by investors to compare and evaluate technology and semiconductor companies, is a demand-to-supply ratio that compares the total amount of orders received to the total amount of orders filled. This ratio tells whether we have more orders than we delivered (if greater than 1), have the same amount of orders than we delivered (equals 1), or have less orders than we delivered (under 1). Though the ratio provides a general indicator of whether orders (bookings) are rising or falling at a particular point in time, it does not consider the timing of, or if the order will result in, future revenues or the effect of changing lead times and product phase-out decisions on bookings. As lead times increase, customers will place orders sooner, and when we declare a product to be “end-of-life,” customers may place final, non-recurring orders for such product, thereby increasing our bookings and book-to-bill ratio in the near term. Due to the limitations of this ratio, we recommend that investors do not place undue emphasis on it, when evaluating a potential investment in our common stock.

There is no guarantee that design wins will become actual orders and sales.

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A “design win” occurs when a customer or prospective customer notifies us that our product has been selected to be integrated with the customer's product. There can be delays of several months or more between the design win and when a customer initiates actual orders of our product. Following a design win, we will commit significant resources to the integration of our product into the customer's product before receiving the initial order. Receipt of an initial order from a customer following a design win, however, is dependent on a number of factors, including the success of the customer's product, which cannot be guaranteed. The design win may never result in an actual order or sale of our products. If we fail to generate revenues after incurring substantial expenses to develop a product or to achieve a design win, our business and operating results would suffer.

Our customers' products typically have lengthy design cycles. A customer may decide to cancel or change its product plans, which could cause us to lose anticipated sales.

After we have developed and delivered a product to a customer, the customer will usually test and evaluate our product prior to designing its own equipment to incorporate our product. Our customers may need more than six months to test, evaluate and adopt our product and an additional nine months or more to begin volume production of the equipment or devices that incorporate our product. Due to this generally lengthy design cycle, we may experience significant delays from the time we increase our operating expenses and make investments in inventory until the time that we generate revenue from these products. It is possible that we may never generate any revenue from these products after incurring such expenditures. Even if a customer selects our product to incorporate into its equipment, we cannot guarantee that the customer will ultimately market and sell its equipment or devices, and that such efforts by our customer will be successful. The delays inherent in this lengthy design cycle increases the risk that a customer will decide to cancel or change its product plans. Such a cancellation or change in plans by a customer could cause us to lose sales that we had anticipated. While our customers' design cycles are typically long, some of our product life cycles tend to be short as a result of the rapidly changing technology environment in which we operate. As a result, the resources devoted to R&D, product sales and marketing may not generate material revenue for us, and from time to time, we may need to write off excess and obsolete inventory. If we incur significant R&D and marketing expenses and investments in inventory in the future that we are not able to recover, and we are not able to mitigate those expenses, our operating results could be adversely affected. In addition, if we sell our products at reduced prices in anticipation of cost reductions but still hold higher cost products in inventory, our operating results would be harmed.

An important part of our strategy is to focus on data center markets. If we are unable to further expand our share of these markets or accurately anticipate or react timely or properly to emerging trends, our revenues may not grow and could decline.

Our target markets, including the data center market, frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. If our products are unable to support the new features or performance levels required by OEMs or end customers in these markets, or if our products fail to be certified by OEMs, we will lose business from an existing or potential customer and may not have the opportunity to compete for new design wins or certification until the next product transition occurs. If we fail to develop products with required features or performance standards, or if we experience a delay as short as a few months in certifying or bringing a new product to market, or if our customers fail to achieve market acceptance of their products, our revenues could be significantly reduced for a substantial period.

We expect a significant portion of our revenues to continue to be derived from sales of products based on current, widely accepted transmission standards. If the communications market evolves to new standards, we may not be able to successfully design and manufacture new products that address the needs of our customers or gain substantial market acceptance.

If we do not identify and pursue the correct emerging trends and align ourselves with the correct market leaders, we may not be successful and our business, financial condition and results of operations could be materially and adversely affected.

We face competition from customers developing products internally.

Data center customers for our products, and other customers, generally have substantial technological capabilities and financial resources. Some customers have traditionally used these resources to develop their own products internally. The future prospects for our products in these markets are dependent upon our customers' acceptance of our products as an alternative to their internally developed products. Future sales prospects also are dependent upon acceptance of third-party sourcing for products as an alternative to in-house development. Customers may in the future continue to use internally developed components. They also may decide to develop or acquire components, technologies or products that are similar to, or that may be substituted for, our products. If our customers fail to accept our products as an alternative, if they develop or acquire the technology to develop such components internally rather than purchase our products, or if we are otherwise unable to develop

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or maintain strong relationships with them, our business, financial condition and results of operations would be materially and adversely affected.

*Our business strategy contemplates the potential acquisition of other companies, products and technologies, as well as the divestitures of subsidiaries or operations that no longer are material to our core business. Merger and acquisition activities involve numerous risks and we may not be able to conduct these activities successfully without substantial expense, delay or other operational or financial problems that could disrupt our business and harm our results of operations and financial condition.

Acquiring products, technologies or businesses from third parties, making and increasing equity investments in companies developing such products, technologies or businesses, and divesting business units or subsidiaries and selling product lines and technologies that are no longer material to our core business, are all part of our long-term business strategy. The risks involved with merger and acquisition, equity investment and divestiture activities include:

• diversion of management's attention from our core businesses;

• failure to integrate or potential loss of key employees, particularly those of the acquired companies;

• potential difficulties resulting from the divestiture of business operations, with respect to protecting the confidentiality of proprietary information and trade secrets not subject to the divestiture;

• difficulties and risks associated with the methods, estimates and judgments we use in applying critical accounting policies, such as the methods and judgments we used in valuing the Veloce merger consideration, which affected our R&D expense in certain periods in fiscal 2013 and 2014;

• difficulty in completing an acquired company's in-process research or development projects;

• customer dissatisfaction or performance problems with an acquired company's products or services;

• both expected and unanticipated adverse effects from the loss of technologies, patents and other intellectual property, and personnel relating to divested subsidiaries, product lines and businesses;

• adverse effects on existing business relationships with suppliers and customers;

• costs associated with acquisitions, investments and divestitures;

• difficulties associated with combining, integrating or separating acquired or divested operations, products or technologies;

• difficulties and risks associated with entering and competing in markets that are unfamiliar to us; and

• ability of the acquired companies to meet their financial projections and the effect of divesting subsidiaries and businesses on our revenues and margins.

In addition, as a result of our acquisition and investment activities, we could:

• issue stock that would dilute, in some cases significantly, our current stockholders' percentage ownership;

• use a significant portion of our cash reserves or incur debt;

• assume liabilities, including unanticipated third-party litigation and other unknown liabilities and unanticipated costs, events or circumstances;

• incur adverse tax consequences;

• incur amortization or impairment expenses related to goodwill and other intangible assets, depreciation and deferred compensation; and

• incur large one-time charges and immediate write-offs.

Any of these risks could materially harm our business, financial condition and results of operations.

Our past acquisitions required us to capitalize significant amounts of goodwill and purchased intangible assets, and we recorded significant impairment charges against these assets in our previous financial statements. At December 31, 2014, we had $11.4 millionof goodwill. Although we had no purchased intangible assets at December 31, 2014, we may be required to take significant charges as a result of impairment to the carrying value of any goodwill or purchased intangible assets that we may record in the future.

We have expended significant effort and expense on divestitures, and may do so in the future. For example, in April 2013, we completed the sale of 100% of the issued and outstanding shares of TPack A/S, a wholly-owned subsidiary of us, and certain intellectual property assets owned by us related to TPack's business for an aggregate consideration of $33.5 million, payable in cash. In January 2013, we sold certain assets relating to our active optical technology platform to Volex Plc for a purchase price of approximately $2.0 million. We may be unable to accomplish future strategic divestitures on favorable terms or at all.

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*Our industry and markets are subject to consolidation, which may result in stronger competitors, fewer customers and reduced demand.

There has been and continues to be industry consolidation among communications IC companies, network equipment companies and telecommunications companies, such as the acquisition of Seamicro Inc. by Advanced Micro Devices in February 2012, Netlogic Microsystems, Inc. by Broadcom Corporation in February 2012, Gennum Corporation by Semtech Corporation in March 2012, Standard Microsystems by Microchip Technology in August 2012, Acme Packet by Oracle in April 2013, Passif Semiconductor by Apple in July 2013, Volterra Semiconductor by Maxim Integrated in October 2013, Tellabs by Marlin Equity Partners in November 2013, LSI Corporation by Avago Technologies in May 2014, and Cortina’s networking and optical transport product lines by Inphi in October 2014. In addition, Calxeda, a privately-held developer of ARM-based processors, shut down in late 2013. We expect this consolidation to continue as companies attempt to benefit from economies of scale, gain improved or more comprehensive product portfolios, increase the size of their serviceable markets, and otherwise strengthen or hold their positions in an evolving technology landscape. In addition, we may become a target for a company looking to improve its competitive position. Consolidation may result in stronger competitors, fewer customers and reduced demand for our products, which in turn could have a material adverse effect on our business, operating results, and financial condition.

Our operating results are subject to fluctuations because we rely heavily on international sales.

International sales account for a significant part of our revenues and may account for an increasing portion of our future revenues. The revenues we derive from international sales are subject to certain risks, including:

• foreign currency exchange fluctuations to the extent that this impacts our customers purchasing power;

• changes in regulatory requirements;

• tariffs, rising protectionism and other trade barriers;

• timing and availability of export licenses;

• political and economic instability;

• natural disasters;

• increased exposure to liability under U.S and foreign anti-corruption laws and regulations;

• difficulties in staffing and managing foreign operations;

• difficulties in managing distributors;

• reduced or uncertain protection for intellectual property rights in some countries;

• longer payment cycles and difficulties in collecting accounts receivable in some countries;

• burdens of complying with a wide variety of complex foreign laws and treaties;

• potentially adverse tax consequences; and

• uncertain economic conditions that may worsen or sustain improvements which trail those in the United States.

Because sales of our products have been denominated to date primarily in United States dollars, increases in the value of the United States dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales in that country. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to United States dollars of accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our results of operations.

Some of our customer purchase orders and agreements are governed by foreign laws, which may differ significantly from laws in the United States, or may require that dispute resolution occur in a foreign country. As a result, our ability to enforce our rights under such agreements may be limited compared with our ability to enforce our rights under agreements governed by laws in the United States and adjudicated in the United States.

Our foreign operations may subject us to risks relating to the U.S. Foreign Corrupt Practices Act, other U.S. and foreign anti-bribery statutes and similar foreign regulations that may have a material adverse impact on our business, financial condition or results of operations.

Our international operations are subject to laws regarding the conduct of business overseas, such as the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery regulations in foreign jurisdictions where we do business, such as China, India, Vietnam, and Europe. The FCPA prohibits the provision of illegal or improper inducements to foreign government officials in connection with obtaining or retaining business overseas or to secure an improper commercial advantage. The FCPA also requires us to keep accurate books and records of business transactions and maintain an adequate system of internal accounting controls. Violations of the FCPA, anti-bribery statutes or other similar laws by us, any of our foreign subsidiaries, or any of our or their employees, executive officers, distributors or other agents or intermediaries could subject us and the

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individuals involved to significant criminal or civil liability. In recent years, the Department of Justice and SEC have significantly stepped up their investigation and prosecution of alleged FCPA violations. Any such allegations of non-compliance with the FCPA, anti-bribery statutes or other similar laws could harm our reputation, divert management attention and result in significant expenses, and could therefore materially harm our business, financial condition or results of operations

*Our portfolio of short-term investments is exposed to certain market risks.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive (loss) income, net of tax. Our investment portfolio is exposed to market risks related to changes in interest rates and credit ratings of the issuers, as well as to the risks of default by the issuers and lack of overall market liquidity. Substantially all of these securities are subject to interest rate and credit rating risk and will decline in value if interest rates increase or one of the issuers' credit ratings is reduced. Increases in interest rates or decreases in the credit worthiness of one or more of the issuers in our investment portfolio could have a material adverse impact on our financial condition or results of operations. As of December 31, 2014 the unrealized losses on these securities that were not previously written down as an other-than-temporary impairment charge were approximately $0.2 million, of which a substantial amount has been at an unrealized loss for more than 12 months. If the fair value of any of these securities does not recover to at least the amortized cost of such security or we are unable to hold these securities until they recover, we may be required to record a decline in the carrying value of these securities.

Our operating results depend on manufacturing output and yields of our ICs and printed circuit board assemblies, which may not meet expectations.

The yields on wafers we have manufactured decline whenever a substantial percentage of wafers must be rejected or a significant number of die on each wafer are nonfunctional. Such declines can be caused by many factors, including minute levels of contaminants in the manufacturing environment, design issues, defects in masks used to print circuits on a wafer and difficulties in the fabrication process. Design iterations and process changes by our suppliers can cause a risk of defects. Many of these problems are difficult to diagnose, are time consuming and expensive to remedy and can result in shipment delays.

We estimate yields per wafer and final packaged parts in order to estimate the value of inventory. If yields are materially different than projected, work-in-process inventory may need to be re-valued. We may have to take inventory write-downs as a result of decreases in manufacturing yields. We may suffer periodic yield problems in connection with new or existing products or in connection with the commencement of production using a new design geometry or at a new manufacturing facility.

The complexity of our products may lead to errors, defects and bugs, which could negatively impact our reputation with customers and result in liability.

Products as complex as ours may contain errors, defects and bugs when first introduced or as new versions are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products or result in a costly recall and could damage our reputation and adversely affect our ability to retain existing customers and attract new customers. Errors, defects or bugs could cause problems with device functionality, resulting in interruptions, delays or cessation of sales to our customers. We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure you that problems will not be found in new products, both before and after commencement of commercial production, despite testing by us, our suppliers or our customers. Any such problems could result in:

• delays in development, manufacture and roll-out of new products;

• additional development costs;

• loss of, or delays in, market acceptance;

• diversion of technical and other resources from our other development efforts;

• claims by our customers or others against us; and

• loss of credibility with our current and prospective customers.

Any such event could have a material adverse effect on our business, financial condition and results of operations.

Regulatory authorities in jurisdictions into or from which we ship our products could levy fines or restrict our ability to import and export products.

A significant majority of our sales are made outside of the U.S. through the exporting and re-exporting of products. In addition to local jurisdictions' export regulations, our U.S.-manufactured products and products based on U.S. technology are

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subject to U.S. laws and regulations governing international trade and exports. These laws and regulations include, but are not limited to, the Export Administration Regulations (“EAR”), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”). Licenses or proper license exceptions are required for the shipment of our products to certain countries as well as for the transfer of certain information and technology to certain foreign countries, foreign nationals or other prohibited persons within the United States or abroad. A determination by the U.S. or local government that we have failed to comply with these or other import or export regulations can result in penalties which may include denial of import or export privileges, fines, civil and criminal penalties and seizure of products. Such penalties could have a material adverse effect on our business, including our ability to meet our sales and earnings forecasts. Further, a change in these laws and regulations could restrict our ability to export to previously permitted countries, customers, distributors or other third parties. Any one or more of these sanctions or a change in laws or regulations could have a material adverse effect on our business, financial condition and results of operations. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.

If our internal control over financial reporting is not considered effective, our business and stock price could be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to and report on the effectiveness of our internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of control must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal control can provide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our internal control over financial reporting may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. In addition, as a result of the reduction in the number of employees assigned to financial reporting and regulatory compliance functions in connection with recently completed and anticipated future restructuring activities, we may be at increased risk of failures in our internal control systems. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our management has concluded, and our independent registered public accounting firm has attested, that our internal control over financial reporting was effective as of March 31, 2014. We cannot be certain in future periods that any control deficiencies that may constitute one or more “significant deficiencies” (as defined by the relevant auditing standards) or material weaknesses in our internal control over financial reporting will not be identified by us or our independent registered public accounting firm. If we fail to maintain the adequacy of our internal controls, including any failure to implement or difficulty in implementing required new or improved controls, our business and results of operations could be harmed, the results of operations we report could be subject to adjustments, and we could fail to be able to provide reasonable assurance as to our financial results or the effectiveness of our internal controls or meet our reporting obligations. A material weakness in our internal control over financial reporting would require management and our independent registered public accounting firm to report our internal control over financial reporting as ineffective. If our internal control over financial reporting is not considered effective, we may experience a restatement like we have in the past of our financial statements. Any restatement or actual or perceived weakness or adverse conditions in our internal control over financial reporting, or in management's assessment thereof, could result in a loss of public confidence in our reported financial information, and have a material adverse effect on our business, the market price of our common stock, and our ability to access capital markets, and may result in litigation claims, regulatory actions and diversion of management attention and resources.

Our future success depends in part on the continued service of our key senior management, design engineering, sales, marketing, and manufacturing personnel, our ability to identify, hire and retain additional, qualified personnel and successful succession planning.

Our future success depends to a significant extent upon the continued service of our senior management and engineering personnel and successful succession planning. In addition, as our core business and technologies continue to evolve, including without limitation with respect to our growth and expansion into next-generation cloud infrastructure and data center markets,

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our success will depend on effectively transitioning to certain new management and engineering personnel who are most capable of supporting that evolution. There is intense competition for qualified personnel in the semiconductor industry, in particular design, product and test engineers. We may not be able to continue to identify, attract and retain engineers or other qualified personnel necessary for the development of our business, or to replace engineers or other qualified personnel who may leave our employment in the future. Also, the departure from the Company of one or more Veloce management or engineering personnel could materially adversely affect our product development efforts for X-Gene and next-generation products.

We also face the risks associated with our former employees assisting their new employers to recruit our key talent, in violation of their contractual non-solicitation and confidentiality covenants and other legal obligations to us. Our efforts to enforce these contractual covenants and legal obligations has required, and may in the future require, us to incur significant litigation expenses and devote significant management attention. Furthermore, while we encourage our employees to abide by all contractual and legal obligations owed to their former employers, there can be no assurance that we will not be the target of allegations made by other companies that we have, directly or indirectly, unlawfully solicited their employees to join us. There are significant costs associated with recruiting, hiring and retaining personnel, as well as significant actual and potential losses to our business arising from the delays in or cancellation of technology development, product completion and roll-out, customer design wins and product orders, and sales revenues caused by the departure of key engineering resources.

Periods of contraction in our business may also inhibit our ability to attract and retain our personnel. As we respond to declining revenues and/or implement additional cost improvement measures such as reductions in force, our remaining key employees may lose confidence in the future performance of the Company and decide to leave. Loss of the services of, or failure to recruit, key design engineers or other technical and management personnel could be significantly detrimental to our product development or other aspects of our business. To manage our operations effectively, we will be required to continue to improve our operational, financial and management systems and to successfully hire, train, motivate, manage and retain our employees.

Our ability to supply a sufficient number of products to meet customer demand, and customer demand itself, could be severely hampered by natural disasters or other catastrophes, the effects of war, acts of terrorism, global threats or shortages of water, electricity or other supplies.

A significant portion of our R&D and supply chain operations are located in Asia. These areas are subject to natural disasters such as earthquakes, floods and tsunamis, like those that struck Japan and Thailand. In addition, our headquarters and satellite offices in California are located in areas containing known earthquake fault lines. We do not have earthquake insurance for these facilities, because adequate coverage is not offered at economically justifiable rates. A significant natural disaster, shortage of water or other catastrophic event affecting us, our suppliers or our customers could have a material adverse impact on our business, financial condition and operating results.

The effects of war, acts of terrorism or global threats, including, but not limited to, the outbreak of epidemic disease, could have a material adverse effect on our business, operating results and financial condition. The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to local and global economies and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially and adversely affected.

*We could incur substantial fines, litigation costs and remediation expenses associated with our storage, use and disposal of hazardous materials.

We are subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Any failure to comply with present or future regulations could result in the imposition of fines, the suspension of production or a cessation of operations. These regulations could require us to acquire costly equipment or incur other significant expenses to comply with environmental regulations or clean up prior discharges.

Since 1993, we have been named as a potentially responsible party (“PRP”) along with more than 100 other companies that used Omega Chemical Corporation waste treatment facility in Whittier, California (the “Omega Site”). The U.S. Environmental Protection Agency (“EPA”) has alleged that the Omega Site failed to properly treat and dispose of certain hazardous waste material. We are a member of a large group of PRPs, known as OPOG, that has agreed to fund certain ongoing remediation efforts at the Omega Site and with respect to the regional groundwater allegedly contaminated thereby.

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In 2007, the PRPs were sued by a chemical company located downstream from the Omega Site, seeking a judicial determination that the Omega PRPs are responsible for some or all of the plaintiff's potential liability to clean up groundwater contamination beneath the plaintiff's site; that action has been stayed since March 2008 to allow for further delineation of the regional groundwater contamination. In September 2011, EPA issued an interim remedial action proposal, designed to arrest the further spread of groundwater contamination and, in September 2012, it issued a special notice letter that triggered the commencement of good faith settlement negotiations with OPOG. In late 2014, OPOG and EPA agreed upon a term sheet describing the settlement terms and remediation actions for the site that will be set forth in a final consent decree to be filed with the Court. It is anticipated that the consent decree will be finalized and filed during fiscal year 2016. In December 2013, OPOG retained legal counsel to pursue legal claims against numerous other PRPs for the regional groundwater contamination and, in December 2014, OPOG retained legal counsel to protect its interests in connection with bankruptcy proceedings filed by an OPOG member; we have elected to participate in the costs and recoveries associated with these litigation matters. In September 2012, a toxic tort litigation that was commenced in 2010 against Omega and the PRP group by individuals alleging injuries caused by the Omega Site was settled and dismissed with prejudice.

Based on currently available information, we have a loss accrual for the Omega site that is not material and we believe that the actual amount of our costs and liabilities will not be materially different from the amount accrued. However, proceedings are ongoing and the eventual outcome of the clean-up efforts and the pending litigation matters is uncertain at this time. Based on currently available information, we do not believe that any eventual outcome will have a material adverse effect on our operations but we cannot guarantee this result. In 2009, the U.S. Supreme Court decided U.S. v. Burlington Northern & Santa Fe Railway Co., 129 S.Ct. 1870, which determined that hazardous substance cleanup liability need not be joint and several in all cases. As a result of this decision, the liability is potentially divisible among the PRPs at an earlier stage in superfund cases such as Omega. At this time we do not know and cannot predict the full impact of this decision on our liability. In addition, in January 2012, as a result of the PRP group's modification of its liability allocation formulae and the withdrawal of PRP group members, our proportional allocation of responsibility among the PRPs for the current remediation obligations increased. Subsequently, certain other PRPs withdrew from OPOG or initiated bankruptcy proceedings, and settlement negotiations with these parties are continuing. Any future increases to our proportional allocation of responsibility among the PRPs or the future reduction of parties participating in the PRP group due to additional member withdrawals or bankruptcies could materially increase our potential liability relating to the Omega Site.

Although we believe that we have been and currently are in material compliance with applicable environmental laws and regulations, we cannot guarantee that we are or will be in material compliance with these laws or regulations or that our future obligations to fund any remediation efforts, including those at the Omega Site, or expenses and potential liabilities relating to the pending litigation matter, will not have a material adverse effect on our business and financial condition.

*Customer requirements and new regulations related to conflict-free minerals may force us to incur additional expenses or cause us to lose business.

Pursuant to 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”) in their products, including products that are manufactured by third parties. These new regulations require companies to investigate, disclose and report whether or not such minerals or metals originated from the Democratic Republic of Congo or adjoining countries, and mandate independent audits under certain circumstances, to confirm that trade in such minerals or metals does not fund armed conflict in those countries. We filed our first report on May 30, 2014 for the 2013 calendar year, and will be required to file similar reports on an annual basis thereafter.

The implementation of these requirements, and any similar requirements that other jurisdictions may impose in the future, will require us to incur additional compliance-related expenses. They could also adversely affect the availability and cost of metals used in the manufacture of many semiconductor devices, including ours. As there may be only a limited number of suppliers offering from sources outside of the relevant countries or that have been independently verified as not funding armed conflict in those countries, we cannot be sure that our contract manufacturers and other suppliers will be able to obtain those metals in sufficient quantities or at competitive prices. Also, since our supply chain is complex and some suppliers will not share their confidential supplier information, we may face challenges with our customers and suppliers if we are unable to sufficiently verify the origin of the metals used in our products. Some customers may choose to disqualify us as a supplier, and we may have to write off inventory in the event that it becomes unsalable as a result of these regulations. We may face similar risks in connection with any other regulations focusing on social responsibility or ethical sourcing that may be adopted in the future.

Environmental laws and regulations could cause a disruption in our business and operations.

We are subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products and making manufacturers of those products financially

49

responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, including various European Union (“EU”) member countries. For example, the EU has enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) and the Waste Electrical and Electronic Equipment (“WEEE”) directives. RoHS prohibits the use of lead and other substances in semiconductors and other products put on the market after July 1, 2006. The WEEE directive obligates parties that place electrical and electronic equipment on the market in the EU to put a clearly identifiable mark on the equipment, register with and report to EU member countries regarding distribution of the equipment, and provide a mechanism to take back and properly dispose of the equipment. There can be no assurance that similar programs will not be implemented in other jurisdictions resulting in additional costs, possible delays in delivering products, and even the discontinuance of existing and planned future product replacements if the cost were to become prohibitive.

We may not be able to protect our intellectual property adequately.

We rely in part on patents to protect our IP. We cannot assure you that any of our issued patents will adequately protect the IP in our products and processes, will provide us with competitive advantages, will not be challenged by third parties or that, if challenged, any such patents will be found to be valid or enforceable. In our industry, the assertion of IP rights often results in the other party seeking to assert claims based on its own IP, which can be costly and disruptive. In addition, there can be no assurance our pending patent applications or any future applications will be approved or that we will successfully prepare and file patent applications with respect to new inventions potentially subject to patent protection. Others may independently develop similar products or processes, duplicate our products or processes or design around any patents we currently hold or that may be issued to us.

To protect our IP, we also rely on the combination of mask work protection under the Federal Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade secret laws, employee and third-party nondisclosure agreements, and licensing arrangements. Despite these efforts, we cannot assure you that others will not independently develop substantially equivalent IP or otherwise gain access to our trade secrets or IP, or disclose such IP or trade secrets, or that we can meaningfully protect our IP. A failure by us to meaningfully protect our IP could have a material adverse effect on our business, financial condition and operating results.

We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with other third parties including consultants, suppliers, customers, licensees and strategic partners. We also try to control access to and distribution of our technologies, pre-release products, documentation and other proprietary information, through the use of license agreements and other contracts and the implementation and enforcement of physical security measures. Despite these efforts, employees, contractors and third parties may attempt to copy, disclose, obtain or use our confidential information, products, services or technology without our authorization. In such event, any contracts we have in place with such parties might not provide us with adequate remedies to protect our intellectual property rights or to recover adequate damages for this loss. Also, former employees may seek employment with our business partners, customers or competitors and we cannot assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. Additionally, former employees or third parties could attempt to penetrate our network to misappropriate our proprietary information or interrupt our business. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. As a result, our technologies and processes may be misappropriated, particularly in foreign countries where laws may not protect our proprietary rights as fully as in the United States.

We could be harmed by litigation involving patents, proprietary rights or other claims.

In the past we have sold to third parties, including non-practicing entities (also known as "NPEs" or "patent trolls"), groups of patents previously issued to or acquired by us that we deemed to be no longer essential to our core product lines and technologies. Certain NPE acquirers have brought and may in the future bring legal actions asserting infringement of the acquired patents against various defendants, including customers or potential customers of ours. Although we are expressly licensed and our customers are similarly protected under such acquired patents with respect to all products sold by us, nevertheless certain customers, against whom the NPEs have asserted infringement of the acquired patents by products other than ours (e.g., products internally developed by the customer or purchased from third-party suppliers other than us), have reacted adversely to us based on our initial sale of the acquired patents to the NPEs. Such adverse reactions have included, among other things, demands that we reimburse the customer for expenses incurred in defending against or settling the legal action, as well as threats to reduce or discontinue the customer's current or future business with us. There can be no assurance that any such expense reimbursement payments or other financial consideration extended to such affected customers or any actual reduction or discontinuance of product sales to such affected customers would not adversely affect our business, financial condition or operating results.

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In addition, litigation may be necessary to enforce our IP rights, to determine the validity and scope of the proprietary rights of others or to defend against claims that our products are infringing or misappropriating the IP rights of third parties. The semiconductor industry is characterized by substantial litigation regarding patent and other IP rights. Currently we are not a named defendant in any IP infringement lawsuits. Nevertheless, as our products and IP become instantiated in more and more customer products and applications, and as patent infringement litigation brought by our competitors, NPEs and patent-licensing companies is on the rise, we are at an increased risk of being named as a defendant in such litigation. Due in part to the factors described above, we have been or currently are subject to the following:

• having information about our products and technologies subpoenaed, and our employees deposed, in patent litigation between other third parties;

• demands that we enter into expensive licenses of third party patent portfolios in order to avoid being named as a defendant in future IP infringement suits;

• claims, contractual or otherwise, demanding that we indemnify or reimburse customers or end users of our products

with respect to their actual or potential liability, including without limitation defense costs, arising from third party IP infringement claims brought against them; and

• demands from customers that we enter into “springing licenses” that prospectively grant such customers and related parties automatic license rights to any patents we sell or otherwise divest control over in specified transactions.

Such claims and demands have caused and could in the future result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.

Any current or future litigation relating to the IP rights of third parties would at a minimum be costly and could divert the efforts and attention of our management and technical personnel. In the event of any adverse ruling in any such litigation, we could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes, expend substantial resources attempting to develop non-infringing products or technologies, or obtain a license under the IP rights of the third party claiming infringement. A license might not be available on reasonable, economic and other terms or at all. From time to time, we may be involved in litigation relating to other claims arising out of our operations in the normal course of business. The ultimate outcome of any such litigation matters could have a material, adverse effect on our business, financial condition and operating results.

Our stock price is volatile.

The market price of our common stock has fluctuated significantly. In the future, the market price of our common stock could be subject to significant fluctuations due to general economic and market conditions and in response to:

• fluctuations in our anticipated or actual operating results;

• our announcement of actual results or financial outlook that are higher or lower than market or analyst expectations;

• changes in the economic performance or market valuations of other semiconductor companies or companies perceived by investors to be comparable to us;

• announcements or introductions of new products by us or our competitors;

• fluctuations in the anticipated or actual operating results or growth rates of our customers, peers or competitors;

• technological innovations or setbacks by us or our competitors;

• conditions in the semiconductor, communications or information technology markets;

• the commencement or outcome of litigation or governmental investigations;

• changes in ratings and estimates of our performance, or loss of coverage, by securities analysts;

• positive or negative commentary about our business or prospects by industry bloggers and journalists;

• volume fluctuations due to inconsistent trading volume levels of our shares;

• announcements of merger, acquisition or financing transactions;

• management changes;

• our inclusion in certain stock indices; and

• general economic and market conditions.

The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, particularly semiconductor companies. In some instances, these fluctuations appear to have been unrelated or disproportionate to the operating performance of the affected companies. Whether or not our stock is part of one or more Index funds could have a significant impact on our stock. We cannot assure you that our stock will be part of any Index fund. In addition, the past decline and inconsistent recovery of the financial markets and related factors beyond our control, including the credit and mortgage crisis in both the U.S. and worldwide, may cause our stock price to decline rapidly and unexpectedly.

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Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our certificate of incorporation, as amended, and our bylaws, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our directors and management. These provisions include the following:

• the ability of the board of directors to issue up to 2.0 million shares of “blank check” preferred stock with terms designed to prevent or delay a takeover attempt, as described further below;

• the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

• the requirement for advance notice for nominations of directors for election to the board or for proposing matters that can be acted upon at a stockholders' meeting;

• the ability of the board of directors to alter our bylaws without obtaining stockholder approval;

• the requirement that any stockholder derivative actions and certain other intra-corporate disputes be litigated solely and exclusively in Delaware state court;

• the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors; and

• the prohibition of the right of stockholders to call a special meeting of stockholders.

Our board of directors has the authority to issue up to 2.0 million shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. The issuance of preferred stock could have a dilutive effect on our stockholders.

Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit, restrict or significantly delay large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us.

Although we believe these provisions in our charter and bylaws and under Delaware law collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In any event, these provisions may delay or prevent a third party from acquiring us. Any such delay or prevention could cause the market price of our common stock to decline.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended December 31, 2014, we issued 39,167 shares of common stock to former holders of Veloce common stock, common stock options and stock equivalents pursuant to the Veloce merger agreement, as described above. These shares were issued without registration under the Securities Act of 1933, as amended, pursuant to the exemption afforded by Section 3(a)(10) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.

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SIGNATURES

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

Date: January 30, 2015

APPLIED MICRO CIRCUITS CORPORATION
By:	/S/    Douglas T. Ahrens
	Douglas T. Ahrens
	Vice President and Chief Financial Officer
	(Duly Authorized Signatory and Principal Financial and Accounting Officer)

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Exhibit Index

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Number	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of the Company.	S-1	10/10/1997	3.2
3.2	Certificate of Amendment of Certificate of Incorporation of the Company.	S-4	9/12/2000	3.3
3.3	Certificate of Amendment of Certificate of Incorporation of the Company.	8-K	12/11/2007	3.1
3.4	Amended and Restated Bylaws of the Company.	10-Q	11/3/2010	3.2
4.1	Specimen Stock Certificate.	S-1/A	11/12/1997	4.1
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.				x
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.				x
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				x
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				x
101.INS	XBRL Instance Document				x
101.SCH	XBRL Taxonomy Extension Schema Document				x
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				x
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				x
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				x
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				x

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Paramesh Gopi, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Applied Micro Circuits Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under out supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Paramesh Gopi

Dr. Paramesh Gopi

President and Chief Executive Officer

Date: January 30, 2015

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas T. Ahrens, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Applied Micro Circuits Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Douglas T. Ahrens

Douglas T. Ahrens

Vice President and Chief Financial Officer

Dated: January 30, 2015

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Dr. Paramesh Gopi, Chief Executive Officer of Applied Micro Circuits Corporation (the “Company”), hereby certifies that, to the best of his knowledge:

1. This Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (“SEC”) or its staff upon request.

This certification accompanies the Report to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

/s/ Paramesh Gopi

Dr. Paramesh Gopi

President and Chief Executive Officer

Dated: January 30, 2015

EX-32.2

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Douglas T. Ahrens, Chief Financial Officer of Applied Micro Circuits Corporation (the “Company”), hereby certifies that, to the best of his knowledge:

1.  This Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (“SEC”) or its staff upon request.

This certification accompanies the Report to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

/s/ Douglas T. Ahrens

Douglas T. Ahrens

Vice President and Chief Financial Officer

Dated: January 30, 2015

XML

Restructuring Charges (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Restructuring Reserve [Roll Forward]
Liability, beginning balance			$ 0
Restructuring charges	221	38	1,322	1,130
Cash payments			(1,102)
Non-cash items			(14)
Liability, ending balance	206		206
Workforce Reduction [Member]
Restructuring Reserve [Roll Forward]
Liability, beginning balance			0
Restructuring charges			1,101
Cash payments			(1,101)
Liability, ending balance	0		0
Operating Lease Commitments [Member]
Restructuring Reserve [Roll Forward]
Liability, beginning balance			0
Restructuring charges			126
Cash payments			0
Non-cash items			20
Liability, ending balance	146		146
Other [Member]
Restructuring Reserve [Roll Forward]
Liability, beginning balance			0
Restructuring charges			95
Cash payments			(1)
Non-cash items			(34)
Liability, ending balance	$ 60		$ 60

XML

Contingencies (Details)	1 Months Ended		9 Months Ended
	Jan. 31, 2012	Jan. 31, 2009 Amendments	Dec. 31, 2014 Company
Contingencies (Textual) [Abstract]
Companies named as Potentially Responsible Parties (more than)			100
Amendments approved to consent decree		2
Percent of contribution to the total waste	0.50%

XML

Stock-Based Compensation (Details Textual) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended			9 Months Ended
	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Weighted average grant-date fair value per share of the restricted stock units awarded	$ 5.82		$ 9.84	$ 8.20	$ 8.57
Forfeiture rate		5.80%	6.70%
Unearned stock-based compensation	$ 29.8			$ 29.8
Weighted-average period over which the unearned stock-based compensation is expected to be recognized, years				2 years 3 months 0 days

XML

Certain Financial Statement Information Gross Unrealized Losses (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Dec. 31, 2014	Mar. 31, 2014
Schedule of Gross Unrealized Losses
Less Than 12 Months of Unrealized Losses, Estimated Fair Value	$ 4,086	$ 6,242
Less than 12 Months of Unrealized Losses, Gross Unrealized Losses	(13)	(351)
12 Months or More of Unrealized Losses, Estimated Fair Value	4,376	405
12 Months or More of Unrealized Losses, Gross Unrealized Losses	(204)	(69)
Total, Estimated Fair Value	8,462	6,647
Total Gross Unrealized Losses	(217)	(420)
Corporate bonds [Member]
Schedule of Gross Unrealized Losses
Less Than 12 Months of Unrealized Losses, Estimated Fair Value	3,750	992
Less than 12 Months of Unrealized Losses, Gross Unrealized Losses	(9)	(2)
12 Months or More of Unrealized Losses, Estimated Fair Value	0	0
12 Months or More of Unrealized Losses, Gross Unrealized Losses	0	0
Total, Estimated Fair Value	3,750	992
Total Gross Unrealized Losses	(9)	(2)
Mortgage-backed and asset-backed securities [Member]
Schedule of Gross Unrealized Losses
Less Than 12 Months of Unrealized Losses, Estimated Fair Value	275	431
Less than 12 Months of Unrealized Losses, Gross Unrealized Losses	(2)	(16)
12 Months or More of Unrealized Losses, Estimated Fair Value	121	0
12 Months or More of Unrealized Losses, Gross Unrealized Losses		0
Total, Estimated Fair Value	396	431
Total Gross Unrealized Losses	(2)	(16)
Closed-end bond funds [Member]
Schedule of Gross Unrealized Losses
Less Than 12 Months of Unrealized Losses, Estimated Fair Value	61	4,819
Less than 12 Months of Unrealized Losses, Gross Unrealized Losses	(2)	(333)
12 Months or More of Unrealized Losses, Estimated Fair Value	4,255	405
12 Months or More of Unrealized Losses, Gross Unrealized Losses	(204)	(69)
Total, Estimated Fair Value	4,316	5,224
Total Gross Unrealized Losses	$ (206)	$ (402)

XML

Certain Financial Statement Information Property and Equipment (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014		Dec. 31, 2014		Mar. 31, 2014
Schedule of Property and equipment
Machinery and equipment	$ 39,520,000		39,520,000		$ 44,503,000
Leasehold improvements	10,473,000		10,473,000		11,574,000
Computers, office furniture and equipment	44,581,000	[1]	44,581,000	[1]	43,365,000	[1]
Property and equipment, gross	94,574,000		94,574,000		99,442,000
Less: accumulated depreciation and amortization	(73,628,000)	[1]	(73,628,000)	[1]	(78,696,000)	[1]
Property and equipment, net	20,946,000		20,946,000		20,746,000
Fully depreciated assets written off	$ 11,800,000
Machinery and Equipment [Member] | Minimum
Schedule of Property and equipment
Useful life			3 years
Machinery and Equipment [Member] | Maximum
Schedule of Property and equipment
Useful life			5 years
Leasehold Improvements [Member] | Minimum
Schedule of Property and equipment
Useful life			1 year
Leasehold Improvements [Member] | Maximum
Schedule of Property and equipment
Useful life			5 years
Computers, Office Furniture and Equipment [Member] | Minimum
Schedule of Property and equipment
Useful life			3 years
Computers, Office Furniture and Equipment [Member] | Maximum
Schedule of Property and equipment
Useful life			5 years

[1] During the three months ended December 31, 2014, the Company wrote off fully depreciated assets with an acquired cost of $11.8 million.

XML

Subsequent Events (Details) (Subsequent Event [Member], Restructuring Plan [Member], USD $) In Millions, unless otherwise specified	0 Months Ended
	Jan. 23, 2015 employee
Subsequent Event [Line Items]
Number of positions expected to be eliminated	40
Number of positions expected to be eliminated (percent)	7.00%
Minimum [Member]
Subsequent Event [Line Items]
Expected cost of restructuring plan	1.5
Reduction in operating expenses	14.0
Maximum [Member]
Subsequent Event [Line Items]
Expected cost of restructuring plan	1.7
Reduction in operating expenses	18.0

XML

Stockholders' Equity - Restricted Stock Units (Details) (USD $) In Millions, except Share data, unless otherwise specified	9 Months Ended	1 Months Ended
	Dec. 31, 2014	Nov. 30, 2013	May 31, 2013	May 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Weighted average remaining contractual term for the restricted stock units outstanding, in years	1 year 3 months 10 days
Aggregate pre-tax intrinsic value of restricted stock units outstanding which includes performance based awards which are subject to milestone attainments	$ 30.3
Common stock, closing price per share	$ 6.52
Aggregate pretax intrinsic value	9.8
Restricted Stock Units (RSUs)
Class of Stock [Line Items]
Nonvested restricted units outstanding	4,642,000
Restricted stock units awarded	3,352,000
Restricted stock units vested	1,279,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of Shares, Beginning balance	6,105,000
Number of Shares, Awarded	3,352,000
Number of Shares, Vested	(1,279,000)
Number of Shares, Cancelled	(3,536,000)
Number of Shares, Ending balance	4,642,000
Restricted Stock Units (RSUs) | Officer
Class of Stock [Line Items]
Restricted stock units awarded		500,000
Restricted stock units vested		200,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of Shares, Awarded		500,000
Number of Shares, Vested		(200,000)
Performance Based RSU | Officer
Class of Stock [Line Items]
Nonvested restricted units outstanding	300,000
Grants in period, fair value		3.3
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of Shares, Ending balance	300,000
Performance-Based MSU
Class of Stock [Line Items]
Grants in period, fair value		4.5
Performance-Based MSU | Minimum
Class of Stock [Line Items]
Award vesting percentage		0.00%
Performance-Based MSU | Maximum
Class of Stock [Line Items]
Award vesting percentage		150.00%
Performance-Based MSU | First Vesting Period
Class of Stock [Line Items]
Award performance period			2 years
Performance-Based MSU | Second Vesting Period
Class of Stock [Line Items]
Award performance period			3 years
1992 Plan | Restricted Stock Units (RSUs)
Class of Stock [Line Items]
Vesting period, in years	4 years
Vested in first period of employment	0
Award vesting period, quarters	12
2011 Equity Incentive Plan | Restricted Stock Units (RSUs)
Class of Stock [Line Items]
Vesting period, in years	4 years
Vested in first period of employment	0
Award vesting period, quarters	12
FY2015 Short Term Plan | Minimum
Class of Stock [Line Items]
Award pay out percentage				50.00%
FY2015 Short Term Plan | Maximum
Class of Stock [Line Items]
Award pay out percentage				150.00%

XML

Certain Financial Statement Information (Details Textual) (USD $) In Thousands, except Share data in Millions, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2014
Certain Financial Statement Information [Line Items]
Impairment of a strategic investment	$ 0	$ 0	$ 2,500	$ 0
Gross unrealized gain			$ 3,505		$ 3,455
Options and Restricted Stock Units [Member]
Certain Financial Statement Information [Line Items]
Antidilutive securities excluded from net loss per share computation	0.6	1.8	0.9	1.4

XML

Commitments and Contingencies Commitments (Details) (USD $)	Dec. 31, 2014
Operating Leases
2015 (remainder of year)	$ 616,000	[1]
2016	1,528,000	[1]
2017	1,093,000	[1]
2018	632,000	[1]
Total minimum payments	3,869,000	[1]
Purchase Commitments
2015 (remainder of year)	16,909,000	[2]
2016	13,368,000	[2]
2017	3,241,000	[2]
2018	2,833,000	[2]
Total minimum payments	36,351,000	[2]
Total
2015 (remainder of year)	17,525,000
2016	14,896,000
2017	4,334,000
2018	3,465,000
Total minimum payments	40,220,000
Licensing Costs Due	$ 21,100,000

[1] Includes the Company's headquarters building lease which expires in August 2015, subject to our right to terminate early upon at least 120 days’ notice.

[2] Includes open purchase orders with terms that generally allow us the option to cancel or reschedule the order, subject to various restrictions and limitations. Also includes the licensing fees relating to the Company's R&D efforts, including licensed intellectual property, or IP, technology, product design, test and verification tools, of $21.1 million.

XML

Restructuring Charges

9 Months Ended

Dec. 31, 2014

Restructuring and Related Activities [Abstract]

RESTRUCTURING CHARGES

RESTRUCTURING CHARGES

In April 2014, the Company implemented a plan to reorganize its operations, reduce its workforce and consolidate its facilities. The Company anticipates that this plan will reduce ongoing headcount expenses by approximately $4.6 millionannually and other additional operational expenses by $0.6 million annually. In connection with this plan, the Company incurred cumulative charges of approximately $1.3 million, of which $0.2 million was incurred during the three months ended December 31, 2014. As of December 31, 2014, the Company completed this plan.

The related activity during the nine months ended December 31, 2014 is as follows (in thousands):

	Workforce Reduction			Operating Lease Commitments		Other			Total
Liability, March 31, 2014	$	—		$	—	$	—		$	—
Restructuring charges	1,101			126		95			1,322
Cash payments	(1,101		)	—		(1		)	(1,102		)
Non-cash items				$	20	$	(34	)	$	(14	)
Liability, December 31, 2014	$	—		$	146	$	60		$	206

XML

Stockholders' Equity - Employee Stock Purchase Plan (Details) (Employee Stock Purchase Plan [Member], 2012 Employee Stock Purchase Plan) In Millions, unless otherwise specified	9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Aug. 31, 2014	Aug. 30, 2012
Employee Stock Purchase Plan [Member] | 2012 Employee Stock Purchase Plan
Class of Stock [Line Items]
Common stock reserved for issuance				1.8
Additional shares reserved for issuance			2.0
Percentage of purchase price of common stock equal to fair market value	85.00%
Common stock, shares issued, employee stock purchase plan	0.2	0.3
Shares available for future issuance	2.3

XML

Certain Financial Statement Information Other Accrued Liabiliteis (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Schedule of other accrued liabilities
Employee related liabilities	$ 1,622	$ 1,733
Executive deferred compensation	1,385	1,314
Income taxes	1,870	962
Professional fees	755	1,259
Other	3,027	5,609
Total other accrued liabilities	$ 8,659	$ 10,877

XML

Certain Financial Statement Information Other Assets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Mar. 31, 2014
Schedule of other assets
Non-current portion of prepaid expenses	$ 2,957		$ 4,235
Strategic investments	500	[1]	3,000	[1]
Other	519		519
Total other assets	$ 3,976		$ 7,754

[1] Strategic investments The Company has entered into certain equity investments in privately held businesses to achieve certain strategic business objectives. The Company’s investments in equity securities of privately held businesses are accounted for under the cost method. Under the cost method, strategic investments in which the Company holds less than a 20% voting interest and in which the Company does not have the ability to exercise significant influence are carried at cost reduced by other-than-temporary impairments, as appropriate. The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred. During the three months ended December 31, 2014 and during the three and nine months ended December 31, 2013, the Company did not record any other-than-temporary impairment charges with respect to its strategic investments. During the nine months ended December 31, 2014, the Company recorded an other-than-temporary impairment charge with respect to one of its strategic investments in the amount of $2.5 million.

XML

Stock-Based Compensation Stock-Based Compensation (Details) (USD $)	9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (years)	6 months	6 months
Risk-free interest rate	0.10%	0.10%
Volatility	57.00%	57.00%
Dividend yield	0.00%	0.00%
Weighted average fair value	$ 2.57	$ 3.67
Equity Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (years)		4 years 5 months
Risk-free interest rate		0.60%
Volatility		49.00%
Dividend yield		0.00%
Weighted average fair value		$ 2.95

XML

Certain Financial Statement Information Short-Term Investments (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Dec. 31, 2014		Mar. 31, 2014		Dec. 31, 2013	Mar. 31, 2013
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	$ 79,735		$ 103,548
Available-for-sale Securities, Gross Unrealized Gain	3,505		3,455
Available-for-sale Securities, Gross Unrealized Loss	(217)		(420)
Available-for-sale Securities, Estimated Fair Value	83,023		106,583
Cash and cash equivalents	50,080		71,539		23,630	19,065
Short-term investments available-for-sale	32,943		35,044
Cash, Cash equivalents and Short-term investments, Estimated Fair Value	83,023		106,583
Cash [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Cash and Cash equivalents, Estimated Fair Value	40,828		65,867
Cash equivalents [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Cash and Cash equivalents, Estimated Fair Value	9,252		5,672
U.S Treasury securities and agency bonds [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	1,475		2,838
Available-for-sale Securities, Gross Unrealized Gain	0		0
Available-for-sale Securities, Gross Unrealized Loss	0		0
Available-for-sale Securities, Estimated Fair Value	1,475		2,838
Corporate bonds [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	10,911		10,599
Available-for-sale Securities, Gross Unrealized Gain	14		30
Available-for-sale Securities, Gross Unrealized Loss	(9)		(2)
Available-for-sale Securities, Estimated Fair Value	10,916		10,627
Mortgage-backed and asset-backed securities [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	1,614		1,793
Available-for-sale Securities, Gross Unrealized Gain	291		297
Available-for-sale Securities, Gross Unrealized Loss	(2)		(16)
Available-for-sale Securities, Estimated Fair Value	1,903	[1]	2,074	[1]
Closed-end bond funds [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	13,249		14,373
Available-for-sale Securities, Gross Unrealized Gain	2,248		2,392
Available-for-sale Securities, Gross Unrealized Loss	(206)		(402)
Available-for-sale Securities, Estimated Fair Value	15,291		16,363
Preferred stock [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Available-for-sale Securities, Amortized Cost	2,406		2,406
Available-for-sale Securities, Gross Unrealized Gain	952		736
Available-for-sale Securities, Gross Unrealized Loss	0		0
Available-for-sale Securities, Estimated Fair Value	3,358		3,142
Mortgage-backed securities [Member]
Schedule of cash, cash equivalents and available-for-sale investments by type of instruments
Cash, Cash equivalents and Short-term investments, Estimated Fair Value	$ 1,000	[1]	$ 1,100	[1]

[1] At December 31, 2014 and March 31, 2014, approximately $1.0 million and $1.1 million of the estimated fair value presented were mortgage-backed securities, respectively.

XML

Certain Financial Statement Information Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Mar. 31, 2014
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	$ 83,023		$ 106,583
Cash, cash equivalents and available-for-sale investments measured at fair value on recurring basis	83,023		106,583
Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash, cash equivalents and available-for-sale investments measured at fair value on recurring basis	66,846		90,740
Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash, cash equivalents and available-for-sale investments measured at fair value on recurring basis	16,177		15,843
Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash, cash equivalents and available-for-sale investments measured at fair value on recurring basis	0		0
Cash [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	40,828		65,867
Cash [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	40,828		65,867
Cash [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	0		0
Cash [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	0		0
Cash equivalents [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	9,252		5,672
Cash equivalents [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	9,252		5,672
Cash equivalents [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	0		0
Cash equivalents [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Cash and cash equivalents measured at fair value on a recurring basis	0		0
U.S Treasury securities and agency bonds [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	1,475		2,838
U.S Treasury securities and agency bonds [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	1,475		2,838
U.S Treasury securities and agency bonds [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
U.S Treasury securities and agency bonds [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Corporate bonds [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	10,916		10,627
Corporate bonds [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Corporate bonds [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	10,916		10,627
Corporate bonds [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Mortgage-backed and asset-backed securities [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	1,903	[1]	2,074	[1]
Mortgage-backed and asset-backed securities [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Mortgage-backed and asset-backed securities [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	1,903		2,074
Mortgage-backed and asset-backed securities [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Closed-end bond funds [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	15,291		16,363
Closed-end bond funds [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	15,291		16,363
Closed-end bond funds [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Closed-end bond funds [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Preferred stock [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	3,358		3,142
Preferred stock [Member] | Level 1 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	0		0
Preferred stock [Member] | Level 2 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	3,358		3,142
Preferred stock [Member] | Level 3 [Member]
Schedule of Cash, Cash Equivalents and Available-For-Sale Investments by Type of Instruments Measured at Fair Value on Recurring Basis
Available-for-sale securities measured at fair value on a recurring basis	$ 0		$ 0

[1] At December 31, 2014 and March 31, 2014, approximately $1.0 million and $1.1 million of the estimated fair value presented were mortgage-backed securities, respectively.

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Certain Financial Statement Information

9 Months Ended

Dec. 31, 2014

Certain Financial Statement Information [Abstract]

CERTAIN FINANCIAL STATEMENT INFORMATION

CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable, net:

	December 31, 2014			March 31, 2014
	(In thousands)
Accounts receivable	$	19,612		$	25,629
Less: allowance for bad debts	(365		)	(451		)
	$	19,247		$	25,178

Inventories:

	December 31, 2014		March 31, 2014
	(In thousands)
Finished goods	$	16,618	$	9,375
Work in process	6,494		6,510
Raw materials	1,110		3,061
	$	24,222	$	18,946

Other current assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Prepaid expenses	$	12,843	$	10,978
Executive deferred compensation assets	1,108		1,035
Proceeds receivable from sale of strategic investment	—		3,353
Other	1,252		1,433
	$	15,203	$	16,799

Property and equipment:

	Useful Life	December 31, 2014			March 31, 2014
	(In years)	(In thousands)
Machinery and equipment*	3-5	$	39,520		$	44,503
Leasehold improvements	1-5	10,473			11,574
Computers, office furniture and equipment*	3-5	44,581			43,365
		94,574			99,442
Less: accumulated depreciation and amortization*		(73,628		)	(78,696		)
		$	20,946		$	20,746

*During the three months ended December 31, 2014, the Company wrote off fully depreciated assets with an acquired cost of $11.8 million.

Goodwill and purchased intangibles:

Goodwill is as follows:

	December 31, 2014		March 31, 2014
	(In thousands)
Goodwill	$	11,425	$	11,425

Purchase-related intangibles are as follows:

	December 31, 2014								March 31, 2014
	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life
	(In thousands)							(In years)	(In thousands)							(In years)
Developed technology/in-process research and development	$	425,000	$	(425,000	)	$	—	0.0	$	425,000	$	(425,000	)	$	—	0.0
Customer relationships	6,330		(6,330		)	—		0.0	6,330		(6,225		)	105		0.4
Patents/core technology rights/trade name	62,306		(62,306		)	—		0.0	62,306		(62,306		)	—		0.0
	$	493,636	$	(493,636	)	$	—		$	493,636	$	(493,531	)	$	105

Other assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Non-current portion of prepaid expenses	$	2,957	$	4,235
Strategic investments*	500		3,000
Other	519		519
	$	3,976	$	7,754

*Strategic investments

The Company has entered into certain equity investments in privately held businesses to achieve certain strategic business objectives. The Company’s investments in equity securities of privately held businesses are accounted for under the cost method. Under the cost method, strategic investments in which the Company holds less than a 20% voting interest and in which the Company does not have the ability to exercise significant influence are carried at cost reduced by other-than-temporary impairments, as appropriate. The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred. During the three months ended December 31, 2014 and during the three and nine months ended December 31, 2013, the Company did not record any other-than-temporary impairment charges with respect to its strategic investments. During the nine months ended December 31, 2014, the Company recorded an other-than-temporary impairment charge with respect to one of its strategic investments in the amount of $2.5 million.

Other accrued liabilities:

	December 31, 2014		March 31, 2014
	(In thousands)
Employee related liabilities	$	1,622	$	1,733
Executive deferred compensation	1,385		1,314
Income taxes	1,870		962
Professional fees	755		1,259
Other	3,027		5,609
	$	8,659	$	10,877

Short-term investments:

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument (in thousands):

	December 31, 2014									March 31, 2014
	Amortized Cost		Gross Unrealized					Estimated Fair Value		Amortized Cost		Gross Unrealized					Estimated Fair Value
			Gains		Losses							Gains		Losses
Cash	$	40,828	$	—	$	—		$	40,828	$	65,867	$	—	$	—		$	65,867
Cash equivalents	9,252		—		—			9,252		5,672		—		—			5,672
U.S. Treasury securities and agency bonds	1,475		—		—			1,475		2,838		—		—			2,838
Corporate bonds	10,911		14		(9		)	10,916		10,599		30		(2		)	10,627
Mortgage-backed and asset-backed securities*	1,614		291		(2		)	1,903		1,793		297		(16		)	2,074
Closed-end bond funds	13,249		2,248		(206		)	15,291		14,373		2,392		(402		)	16,363
Preferred stock	2,406		952		—			3,358		2,406		736		—			3,142
	$	79,735	$	3,505	$	(217	)	$	83,023	$	103,548	$	3,455	$	(420	)	$	106,583
Reported as:
Cash and cash equivalents								$	50,080								$	71,539
Short-term investments available-for-sale								32,943									35,044
								$	83,023								$	106,583

* At December 31, 2014 and March 31, 2014, approximately $1.0 million and $1.1 million of the estimated fair value presented were mortgage-backed securities, respectively.

The established guidelines for measuring fair value and expanded disclosures regarding fair value measurements are defined as a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument measured at fair value on a recurring basis (in thousands):

	December 31, 2014								March 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	40,828	$	—	$	—	$	40,828	$	65,867	$	—	$	—	$	65,867
Cash equivalents	9,252		—		—		9,252		5,672		—		—		5,672
U.S. Treasury securities and agency bonds	1,475		—		—		1,475		2,838		—		—		2,838
Corporate bonds	—		10,916		—		10,916		—		10,627		—		10,627
Mortgage-backed and asset-backed securities	—		1,903		—		1,903		—		2,074		—		2,074
Closed-end bond funds	15,291		—		—		15,291		16,363		—		—		16,363
Preferred stock	—		3,358		—		3,358		—		3,142		—		3,142
	$	66,846	$	16,177	$	—	$	83,023	$	90,740	$	15,843	$	—	$	106,583

There were no significant transfers in and out of Level 1 and Level 2 fair value measurement categories during the three and nine months ended December 31, 2014 and 2013.

The following is a summary of the cost and estimated fair values of available-for-sale securities with stated maturities, which include U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities, by contractual maturity (in thousands):

	December 31, 2014
	Cost		Estimated Fair Value
Less than 1 year	$	5,745	$	5,837
Mature in 1 – 2 years	7,147		7,170
Mature in 3 – 5 years	291		305
Mature after 5 years	817		982
	$	14,000	$	14,294

The following is a summary of gross unrealized losses (in thousands):

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of December 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	3,750	$	(9	)	$	—	$	—		$	3,750	$	(9	)
Mortgage-backed and asset-backed securities	275		(2		)	121					396		(2		)
Closed-end bond funds	61		(2		)	4,255		(204		)	4,316		(206		)
	$	4,086	$	(13	)	$	4,376	$	(204	)	$	8,462	$	(217	)

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	992	$	(2	)	$	—	$	—		$	992	$	(2	)
Mortgage-backed and asset-backed securities	431		(16		)	—		—			431		(16		)
Closed-end bond funds	4,819		(333		)	405		(69		)	5,224		(402		)
	$	6,242	$	(351	)	$	405	$	(69	)	$	6,647	$	(420	)

Other-Than-Temporary Impairment

Based on an evaluation of securities that have been in a loss position, the Company did not recognize any other-than-temporary impairment charges for the three and nine months ended December 31, 2014 and 2013. The Company considered various factors which included a credit and liquidity assessment of the underlying securities and the Company’s intent and ability to hold the underlying securities until the estimated date of recovery of its amortized cost. As of December 31, 2014 and March 31, 2014, the Company also had $3.5 million in gross unrealized gains. The basis for computing realized gains or losses is by specific identification.

Warranty reserves:

The Company's products typically carry a one-year warranty. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates, use of materials, and service delivery costs incurred in correcting any product failure. Should actual product failure rates, use of materials or service delivery costs differ from the Company’s estimates, additional warranty reserves could be required, which could reduce its gross margin.

The following table summarizes warranty reserve activity (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Beginning balance	$	175		$	187		$	199		$	220
Additions during the period	41			54			40			28
Settlements and expirations	(75		)	(39		)	(98		)	(46		)
Change in estimates	67			—			67			—
Ending balance	$	208		$	202		$	208		$	202

Interest income, net (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2014		2013		2014		2013
Interest income	$	362	$	519	$	1,091	$	1,389
Net realized gain on short-term investments	123		6		123		3,290
	$	485	$	525	$	1,214	$	4,679

Net loss per share:

Shares used in basic net loss per share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted net loss per share include the dilutive effect of common shares potentially issuable upon the exercise of stock options and vesting of restricted stock units ("RSUs"). The reconciliation of shares used to calculate basic and diluted net loss per share consists of the following (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net loss	$	(12,131	)	$	(7,284	)	$	(36,913	)	$	(28,810	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	78,920			73,989			78,442			71,986
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	78,920			73,989			78,442			71,986
Basic and diluted net loss per share	$	(0.15	)	$	(0.10	)	$	(0.47	)	$	(0.40	)

The effect of dilutive securities (comprised of options and restricted stock units) totaling 0.6 million and 0.9 million shares for the three and nine months ended December 31, 2014, respectively, and 1.8 million and 1.4 million shares for the three and nine months ended December 31, 2013, respectively, has been excluded from the diluted net loss per share computation since the Company incurred net losses in the periods presented and their effect would be antidilutive.

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Certain Financial Statement Information Cost and Fair Value of Available-for-Sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Schedule of cost and estimated fair values of available-for-sale securities with stated maturities by contractual maturity
Less than 1 year, Cost	$ 5,745
Mature in 1 - 2 years, Cost	7,147
Mature in 3 - 5 years, Cost	291
Mature after 5 years, Cost	817
Cost, Total	14,000
Less than 1 year, Fair Value	5,837
Mature in 1 - 2 years, Fair Value	7,170
Mature in 3 - 5 years, Fair Value	305
Mature after 5 years, Fair Value	982
Fair Value, Total	$ 14,294

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Veloce (Details Textual) (Veloce Technologies Inc [Member], USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended		18 Months Ended	30 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2013	Dec. 31, 2014
Veloce Technologies Inc [Member]
Veloce (Textual) [Abstract]
Total consideration to be transferred		$ 178.5		$ 178.5	$ 178.5
Research and development expenses incurred	0	2.9	7.1	42.7	169.3	176.4
Payment of aggregate consideration as cash	1.5	1.2	9.0	45.4
Aggregate shares issued	39,000	0	100,000	3,800,000
Stock issued for acquisition, value	0.3	0.2	0.9	29.2
Issuance of additional units	0		500,000
Issuance of additional units, amount			7.1
Unallocated units	100,000		100,000			100,000
Unallocated units, maximum potential value	$ 2.1		$ 2.1			$ 2.1

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Current assets:
Cash and cash equivalents	$ 50,080	$ 71,539
Short-term investments-available-for-sale	32,943	35,044
Accounts receivable, net	19,247	25,178
Inventories	24,222	18,946
Other current assets	15,203	16,799
Total current assets	141,695	167,506
Property and equipment, net	20,946	20,746
Goodwill	11,425	11,425
Purchased intangibles, net	0	105
Other assets	3,976	7,754
Total assets	178,042	207,536
Current liabilities:
Accounts payable	22,155	26,194
Accrued payroll and related expenses	5,344	5,532
Veloce accrued liability	8,323	11,985
Other accrued liabilities	8,659	10,877
Deferred revenue	380	567
Total current liabilities	44,861	55,155
Non-current liabilities	4,134	3,145
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares - 2,000, none issued and outstanding	0	0
Common stock, $0.01 par value: Authorized shares - 375,000 at December 31, 2014 and March 31, 2014; Issued and outstanding shares - 79,136 at December 31, 2014 and 77,677 at March 31, 2014	791	777
Additional paid-in capital	6,022,231	6,005,365
Accumulated other comprehensive loss	(6,299)	(6,143)
Accumulated deficit	(5,887,676)	(5,850,763)
Total stockholders’ equity	129,047	149,236
Total liabilities and stockholders’ equity	$ 178,042	$ 207,536

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Stock-Based Compensation (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	$ 4,882	$ 5,879	$ 14,308	$ 13,441
Stock-based compensation expensed from (capitalized to) inventory	25	(3)	5	11
Total stock-based compensation expense	4,857	5,882	14,303	13,430
Cost of Revenues [Member]
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	97	118	226	353
Research and Development Expense [Member]
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	2,992	1,545	9,039	4,867
Selling General and Administrative [Member]
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	1,793	4,216	5,043	8,221
Stock Options [Member]
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	454	648	1,160	1,987
Restricted Stock Units [Member]
Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units
Stock-based compensation expense by type of grant	$ 4,428	$ 5,231	$ 13,148	$ 11,454

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Adjustments to reconcile net loss to net cash used for operating activities:
Net loss	$ (36,913)	$ (28,810)
Depreciation	6,624	7,728
Amortization of purchased intangible assets	105	420
Stock-based compensation expense	14,303	13,430
Veloce acquisition consideration	7,140	42,684
Gain on sale of TPack	0	(19,699)
Loss on disposals of property and equipment	22	27
Impairment of a strategic investment	2,500	0
Non-cash restructuring charges	14	298
Tax effect on other comprehensive loss	(34)	0
Changes in operating assets and liabilities:
Accounts receivable, net	5,931	(4,459)
Inventories	(5,271)	2,415
Assets held for sale	0	(14,260)
Other assets	484	(16,475)
Accounts payable	(3,629)	(4,423)
Accrued payroll and other accrued liabilities	(927)	610
Veloce accrued liability	(8,981)	(45,432)
Deferred revenue	(188)	(449)
Net cash used for operating activities	(19,788)	(33,445)
Investing activities:
Proceeds from sales and maturities of short-term investments	5,075	26,594
Purchases of short-term investments	(2,722)	(16,241)
Proceeds from sale of property and equipment	1	20
Purchase of property and equipment	(7,571)	(5,616)
Proceeds from sale of strategic equity investment	0	1,286
Proceeds from sale of TPack, net	(3,353)	(29,498)
Net cash (used for) provided by investing activities	(1,864)	35,541
Financing activities:
Proceeds from issuance of common stock	1,890	8,582
Funding of restricted stock units withheld for taxes	(1,609)	(5,518)
Other	(88)	(595)
Net cash provided by financing activities	193	2,469
Net (decrease) increase in cash and cash equivalents	(21,459)	4,565
Cash and cash equivalents at beginning of year	71,539	19,065
Cash and cash equivalents at end of period	50,080	23,630
Supplementary cash flow disclosures:
Cash paid for income taxes	643	609
Common stock issued for Veloce merger consideration	$ 872	$ 29,209

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Certain Financial Statement Information Interest Income/Expense (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Schedule of Interest Income, Net
Interest income	$ 362	$ 519	$ 1,091	$ 1,389
Net realized gain on short-term investments	123	6	123	3,290
Interest income, net	$ 485	$ 525	$ 1,214	$ 4,679

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Certain Financial Statement Information Accounts Receivable (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Schedule of Accounts receivable
Accounts receivable	$ 19,612	$ 25,629
Less: allowance for bad debts	(365)	(451)
Accounts receivable, net	$ 19,247	$ 25,178

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Certain Financial Statement Information Net Income/Loss Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Schedule of Reconciliation of Shares Used to Calculate Basic and Diluted Net (Loss) Income Per Share
Net loss	$ (12,131)	$ (7,284)	$ (36,913)	$ (28,810)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic (shares)	78,920	73,989	78,442	71,986
Net effect of dilutive common share equivalents (shares)	0	0	0	0
Weighted average common shares outstanding, diluted (shares)	78,920	73,989	78,442	71,986
Basic and diluted net loss per share (in Dollars per share)	$ (0.15)	$ (0.10)	$ (0.47)	$ (0.40)

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Certain Financial Statement Information Other Current Assets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Schedule of Other current assets
Prepaid expenses	$ 12,843	$ 10,978
Executive deferred compensation assets	1,108	1,035
Proceeds receivable from sale of strategic investment	0	3,353
Other	1,252	1,433
Other current assets, total	$ 15,203	$ 16,799

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Summary of Significant Accounting Policies

9 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Condensed Consolidated Financial Statements include all the accounts of Applied Micro Circuits Corporation (the "Company") and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In management’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the Company's financial position, results of operations and cash flows. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2014 has been derived from the audited Consolidated Financial Statements as of that date but does not include all disclosures required by U.S. generally accepted accounting principles, or GAAP. These financial statements and accompanying notes should be read in conjunction with the Consolidated Financial Statements and notes thereto in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to its:

• capitalized mask sets including their useful lives, which affect cost of goods sold and property and equipment or Research and Development ("R&D") expenses, if not capitalized;

• inventory valuation, warranty liabilities and revenue reserves, which affect cost of sales, gross margin, and revenues;

• allowance for doubtful accounts, which affects operating expenses;

• unrealized losses or other-than-temporary impairments of short-term investments available for sale, which affect interest income (expense), net;

• valuation of other long-lived assets and goodwill, which affects depreciation and impairment of long-lived assets, impairment of goodwill and apportionment of goodwill related to divestitures;

• valuation of cost method investments, which affects impairment of strategic investments;

• potential costs of litigation, which affect operating expenses;

• valuation of deferred income taxes, which affects income tax expense (benefit); and

• stock-based compensation, which affects gross margin and operating expenses.

The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and actual results, future results of operations will be affected.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which will supersede most of the existing revenue recognition guidance under U.S. GAAP. This ASU requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (shares)	2,000,000	2,000,000
Preferred stock, shares issued (shares)	0	0
Preferred stock, shares outstanding (shares)	0	0
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (shares)	375,000,000	375,000,000
Common stock, shares issued (shares)	79,136,000	77,677,000
Common stock, shares outstanding (shares)	79,136,000	77,677,000

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Certain Financial Statement Information (Tables)

9 Months Ended

Dec. 31, 2014

Certain Financial Statement Information [Abstract]

Schedule of Accounts receivable

Accounts receivable, net:

	December 31, 2014			March 31, 2014
	(In thousands)
Accounts receivable	$	19,612		$	25,629
Less: allowance for bad debts	(365		)	(451		)
	$	19,247		$	25,178

Schedule of Inventories

Inventories:

	December 31, 2014		March 31, 2014
	(In thousands)
Finished goods	$	16,618	$	9,375
Work in process	6,494		6,510
Raw materials	1,110		3,061
	$	24,222	$	18,946

Schedule of Other current assets

Other current assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Prepaid expenses	$	12,843	$	10,978
Executive deferred compensation assets	1,108		1,035
Proceeds receivable from sale of strategic investment	—		3,353
Other	1,252		1,433
	$	15,203	$	16,799

Schedule of Property and equipment

Property and equipment:

	Useful Life	December 31, 2014			March 31, 2014
	(In years)	(In thousands)
Machinery and equipment*	3-5	$	39,520		$	44,503
Leasehold improvements	1-5	10,473			11,574
Computers, office furniture and equipment*	3-5	44,581			43,365
		94,574			99,442
Less: accumulated depreciation and amortization*		(73,628		)	(78,696		)
		$	20,946		$	20,746

Schedule of Goodwill

Goodwill is as follows:

	December 31, 2014		March 31, 2014
	(In thousands)
Goodwill	$	11,425	$	11,425

Schedule of Purchased intangible assets

Purchase-related intangibles are as follows:

	December 31, 2014								March 31, 2014
	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life
	(In thousands)							(In years)	(In thousands)							(In years)
Developed technology/in-process research and development	$	425,000	$	(425,000	)	$	—	0.0	$	425,000	$	(425,000	)	$	—	0.0
Customer relationships	6,330		(6,330		)	—		0.0	6,330		(6,225		)	105		0.4
Patents/core technology rights/trade name	62,306		(62,306		)	—		0.0	62,306		(62,306		)	—		0.0
	$	493,636	$	(493,636	)	$	—		$	493,636	$	(493,531	)	$	105

Schedule of Other assets

Other assets:

	December 31, 2014		March 31, 2014
	(In thousands)
Non-current portion of prepaid expenses	$	2,957	$	4,235
Strategic investments*	500		3,000
Other	519		519
	$	3,976	$	7,754

Schedule of Other accrued liabilities

Other accrued liabilities:

	December 31, 2014		March 31, 2014
	(In thousands)
Employee related liabilities	$	1,622	$	1,733
Executive deferred compensation	1,385		1,314
Income taxes	1,870		962
Professional fees	755		1,259
Other	3,027		5,609
	$	8,659	$	10,877

Schedule of Cash, cash equivalents and available-for-sale investments by type of instruments

Short-term investments:

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument (in thousands):

	December 31, 2014									March 31, 2014
	Amortized Cost		Gross Unrealized					Estimated Fair Value		Amortized Cost		Gross Unrealized					Estimated Fair Value
			Gains		Losses							Gains		Losses
Cash	$	40,828	$	—	$	—		$	40,828	$	65,867	$	—	$	—		$	65,867
Cash equivalents	9,252		—		—			9,252		5,672		—		—			5,672
U.S. Treasury securities and agency bonds	1,475		—		—			1,475		2,838		—		—			2,838
Corporate bonds	10,911		14		(9		)	10,916		10,599		30		(2		)	10,627
Mortgage-backed and asset-backed securities*	1,614		291		(2		)	1,903		1,793		297		(16		)	2,074
Closed-end bond funds	13,249		2,248		(206		)	15,291		14,373		2,392		(402		)	16,363
Preferred stock	2,406		952		—			3,358		2,406		736		—			3,142
	$	79,735	$	3,505	$	(217	)	$	83,023	$	103,548	$	3,455	$	(420	)	$	106,583
Reported as:
Cash and cash equivalents								$	50,080								$	71,539
Short-term investments available-for-sale								32,943									35,044
								$	83,023								$	106,583

* At December 31, 2014 and March 31, 2014, approximately $1.0 million and $1.1 million of the estimated fair value presented were mortgage-backed securities, respectively.

Schedule of Cash, cash equivalents and available-for-sale investments by type of instruments measured at fair value on recurring basis

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instrument measured at fair value on a recurring basis (in thousands):

	December 31, 2014								March 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	40,828	$	—	$	—	$	40,828	$	65,867	$	—	$	—	$	65,867
Cash equivalents	9,252		—		—		9,252		5,672		—		—		5,672
U.S. Treasury securities and agency bonds	1,475		—		—		1,475		2,838		—		—		2,838
Corporate bonds	—		10,916		—		10,916		—		10,627		—		10,627
Mortgage-backed and asset-backed securities	—		1,903		—		1,903		—		2,074		—		2,074
Closed-end bond funds	15,291		—		—		15,291		16,363		—		—		16,363
Preferred stock	—		3,358		—		3,358		—		3,142		—		3,142
	$	66,846	$	16,177	$	—	$	83,023	$	90,740	$	15,843	$	—	$	106,583

Schedule of Cost and estimated fair values of available-for-sale securities with stated maturities by contractual maturity

The following is a summary of the cost and estimated fair values of available-for-sale securities with stated maturities, which include U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities, by contractual maturity (in thousands):

	December 31, 2014
	Cost		Estimated Fair Value
Less than 1 year	$	5,745	$	5,837
Mature in 1 – 2 years	7,147		7,170
Mature in 3 – 5 years	291		305
Mature after 5 years	817		982
	$	14,000	$	14,294

Schedule of Gross unrealized losses

The following is a summary of gross unrealized losses (in thousands):

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of December 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	3,750	$	(9	)	$	—	$	—		$	3,750	$	(9	)
Mortgage-backed and asset-backed securities	275		(2		)	121					396		(2		)
Closed-end bond funds	61		(2		)	4,255		(204		)	4,316		(206		)
	$	4,086	$	(13	)	$	4,376	$	(204	)	$	8,462	$	(217	)

	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2014	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
Corporate bonds	$	992	$	(2	)	$	—	$	—		$	992	$	(2	)
Mortgage-backed and asset-backed securities	431		(16		)	—		—			431		(16		)
Closed-end bond funds	4,819		(333		)	405		(69		)	5,224		(402		)
	$	6,242	$	(351	)	$	405	$	(69	)	$	6,647	$	(420	)

Schedule of Warranty reserve activity

The following table summarizes warranty reserve activity (in thousands):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Beginning balance	$	175		$	187		$	199		$	220
Additions during the period	41			54			40			28
Settlements and expirations	(75		)	(39		)	(98		)	(46		)
Change in estimates	67			—			67			—
Ending balance	$	208		$	202		$	208		$	202

Schedule of Interest income, net

Interest income, net (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2014		2013		2014		2013
Interest income	$	362	$	519	$	1,091	$	1,389
Net realized gain on short-term investments	123		6		123		3,290
	$	485	$	525	$	1,214	$	4,679

Schedule of Reconciliation of shares used to calculate basic and diluted net loss per share

The reconciliation of shares used to calculate basic and diluted net loss per share consists of the following (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net loss	$	(12,131	)	$	(7,284	)	$	(36,913	)	$	(28,810	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	78,920			73,989			78,442			71,986
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	78,920			73,989			78,442			71,986
Basic and diluted net loss per share	$	(0.15	)	$	(0.10	)	$	(0.47	)	$	(0.40	)

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Document and Entity Information	9 Months Ended
	Dec. 31, 2014	Jan. 27, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	APPLIED MICRO CIRCUITS CORP
Entity Central Index Key	0000711065
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--03-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		79,140,131

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Restructuring Charges (Tables)

9 Months Ended

Dec. 31, 2014

Restructuring and Related Activities [Abstract]

Schedule of restructuring activity

The related activity during the nine months ended December 31, 2014 is as follows (in thousands):

	Workforce Reduction			Operating Lease Commitments		Other			Total
Liability, March 31, 2014	$	—		$	—	$	—		$	—
Restructuring charges	1,101			126		95			1,322
Cash payments	(1,101		)	—		(1		)	(1,102		)
Non-cash items				$	20	$	(34	)	$	(14	)
Liability, December 31, 2014	$	—		$	146	$	60		$	206

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Income Statement [Abstract]
Net revenues	$ 36,747	$ 54,844	$ 127,964	$ 164,379
Cost of revenues	14,842	21,644	52,815	65,383
Gross profit	21,905	33,200	75,149	98,996
Operating expenses:
Research and development	24,721	29,870	82,636	120,926
Selling, general and administrative	8,707	10,930	25,684	29,602
Gain on sale of TPack	0	0	0	(19,699)
Amortization of purchased intangible assets	0	62	105	254
Restructuring	221	38	1,322	1,130
Total operating expenses	33,649	40,900	109,747	132,213
Operating loss	(11,744)	(7,700)	(34,598)	(33,217)
Interest income, net	485	525	1,214	4,679
Other (expense) income, net	(10)	92	(2,536)	309
Loss before income taxes	(11,269)	(7,083)	(35,920)	(28,229)
Income tax expense	862	201	993	581
Net loss	$ (12,131)	$ (7,284)	$ (36,913)	$ (28,810)
Basic and diluted net loss per share (in Dollars per share)	$ (0.15)	$ (0.10)	$ (0.47)	$ (0.40)
Shares used in calculating basic and diluted net loss per share (in Shares)	78,920	73,989	78,442	71,986

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Stock-Based Compensation

9 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The Company uses the Black-Scholes model to value stock-based compensation for options and employee stock purchase rights under the ESPP, and the fair market value of the Company's common stock for RSUs. The MSUs were valued using the Monte Carlo pricing model, which uses the Company's stock price, the Index value, expected volatilities of the Company's stock price and the Index, correlation coefficients and risk free interest rates to determine the fair value. The Black-Scholes model determines the fair value of share-based payment awards based on assumptions including the Company’s stock price on the date of grant, volatility over the term of the awards, actual and projected employee stock option exercise behaviors and risk free interest rate.

The Company did not grant options or employee stock purchase rights during the three months ended December 31, 2014 and 2013. The fair values of the options and employee stock purchase rights granted during the nine months ended December 31, 2014 and 2013 are estimated as of the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Options				Employee Stock Purchase Rights
	Nine months ended December 31,				Nine months ended December 31,
	2014	2013			2014			2013
Expected life (years)	*	4.4			0.5			0.5
Risk-free interest rate	*	0.6		%	0.1		%	0.1		%
Volatility	*	49		%	57		%	57		%
Dividend yield	*	—		%	—		%	—		%
Weighted average fair value	*	$	2.95		$	2.57		$	3.67

* The Company did not grant options during the nine months ended December 31, 2014.

The weighted average grant-date fair value per share of the RSUs awarded was $5.82 and $8.20 during the three and nine months ended December 31, 2014, respectively, compared to $9.84 and $8.57 during the three and nine months ended December 31, 2013, respectively. The weighted average grant-date fair value per share was calculated based on the fair market value of the Company’s common stock on the respective grant dates.

During the fourth quarter of fiscal 2014, the Company revised its estimated forfeiture rate used in determining the amount of stock-based compensation from 6.7% to 5.8% as a result of a decreasing rate of forfeitures in recent periods, which the Company believes is indicative of the rate it will experience during the remaining vesting period of currently outstanding unvested grants.

The following table summarizes stock-based compensation expense related to stock options and RSUs (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by type of grant:
Stock options	$	454		$	648	$	1,160		$	1,987
RSUs	4,428			5,231		13,148			11,454
	4,882			5,879		14,308			13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430

The following table summarizes stock-based compensation expense as it relates to the Company’s Condensed Consolidated Statement of Operations (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by cost centers:
Cost of revenues	$	97		$	118	$	226		$	353
Research and development	2,992			1,545		9,039			4,867
Selling, general and administrative	1,793			4,216		5,043			8,221
	$	4,882		$	5,879	$	14,308		$	13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430

As of December 31, 2014, the amount of unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested stock options and unvested RSUs was $29.8 million which will be recognized over a weighted average period of 2.3 years.

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Stockholders' Equity

9 Months Ended

Dec. 31, 2014

Equity [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Stock Options

The Company has granted stock options to employees and non-employee directors under several plans. These option plans include two stockholder-approved plans (1992 Stock Option Plan and 2011 Equity Incentive Plan) and one plan not approved by stockholders (2000 Equity Incentive Plan). Certain other outstanding options were assumed through the Company’s various acquisitions.

A summary of the Company's stock option activity and related information during the nine months ended December 31, 2014 is as follows:

	Number of Shares (thousands)		Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at the beginning of the year	2,409		$	10.06
Granted	—		—
Exercised	(54	)	6.32			$	0.2	(1	)
Cancelled	(473	)	13.22
Outstanding at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and expected to vest at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and exercisable at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)

(1) The aggregate pre-tax intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

(2) The aggregate pre-tax intrinsic value is calculated as the difference between the market value as of the end of the third quarter 2014 and the exercise price of the shares. The closing price of the Company’s common stock was $6.52 per share on December 31, 2014.

Restricted Stock Units ("RSUs")

The Company has granted RSUs to employees and non-employee directors pursuant to its 1992 Plan and 2011 Equity Incentive Plan. RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. Generally, RSUs vest ratably on a quarterly basis over four years from the date of grant. For new employees hired, RSUs will generally vest on a quarterly basis over four years provided that no shares will vest during the first year of employment, at the end of which the shares that would have vested during that year will vest and the remaining shares will vest over the remaining 12 quarters.

In November 2013, Dr. Gopi was awarded 500,000 RSUs of which 200,000 RSUs were vested on the grant date and the remaining 300,000 RSUs will vest upon the attainment of certain specified X-Gene^TM and X-Weave®product commercialization goals. The grant-date fair value of these 300,000 performance-based RSUs was $3.3 million.

In May and November 2013 and May and October 2014, the Compensation Committee (the "Committee") authorized market-performance based RSUs ("MSUs"). The MSUs will be earned, if at all, based on the Company's Total Shareholder Return (“TSR”) compared to that of the SPDR S&P Semiconductor Index ("Index”) over a two-year performance period for half of the MSU award and a three-year performance period for the remaining half of the MSU award. The MSUs will vest between ranges of 0% and 150% based on the Company's relative TSR compared to the Index. Total grant-date fair value of these MSUs was $4.5 million.

In May 2014, the Committee authorized an annual incentive compensation plan with respect to fiscal 2015 (the “FY2015 Short-Term Incentive Plan”). The FY2015 Short-Term Incentive Plan will pay-out based on our actual performance as measured against two equally weighted financial measures: revenue and non-GAAPearnings per share. Non-GAAP net income (loss) is derived by excluding from net income (loss) the following items required by GAAP: stock-based compensation charges, amortization of purchased intangible assets, Veloce acquisition consideration, restructuring charges, impairment of marketable securities and cost method investments, income taxes effect due to reconciling items, and other one-time and/or non-cash items.Non-GAAP earnings per share is derived by dividing non-GAAP net income (loss) by the weighted average number of common shares outstanding during the applicable periods. The award payouts for each corporate financial measure range from 50% to 150% of the pre-established target level based on the Company's actual performance for fiscal 2015. Awards under the FY2015 Short-Term Incentive Plan will be payable, if at all, in fully vested shares of common stock on or about May 15, 2015.

RSU activity during the nine months ended December 31, 2014 is set forth below (in thousands):

	Number of Shares
Outstanding at the beginning of the year	6,105
Awarded	3,352
Vested	(1,279	)
Cancelled	(3,536	)
Outstanding at the end of the period	4,642

The weighted average remaining contractual term for the RSUs outstanding as of December 31, 2014 was 1.3 years.

As of December 31, 2014, the aggregate pre-tax intrinsic value of RSUs outstanding was $30.3 million which includes performance-based awards which are subject to milestone attainment. The aggregate pretax intrinsic values were calculated based on the closing price of the Company’s common stock of $6.52 on December 31, 2014.

The aggregate pre-tax intrinsic value of RSUs released during the nine months ended December 31, 2014 was $9.8 million. This intrinsic value represents the fair market value of the Company’s common stock on the date of release.

Employee Stock Purchase Plan

Under the Company's 2012 Employee Stock Purchase Plan, or ESPP, the Company reserved 1.8 million shares for issuance. In August 2014, the Company’s stockholders approved the proposal to reserve an additional 2.0 million shares under the ESPP. Under the terms of the ESPP, eligible employees are entitled to purchase common stock, on a semi-annual basis, at a purchase price equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. During the nine months ended December 31, 2014 and 2013, 0.2 million and 0.3 million shares were issued under the ESPP, respectively. At December 31, 2014, 2.3 million shares were available for future issuance under the ESPP.

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Certain Financial Statement Information Inventories (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Schedule of Inventories
Finished goods	$ 16,618	$ 9,375
Work in process	6,494	6,510
Raw materials	1,110	3,061
Inventories, total	$ 24,222	$ 18,946

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Stockholders' Equity (Tables)

9 Months Ended

Dec. 31, 2014

Equity [Abstract]

Schedule of Option Activity Under Stock Incentive Plans

A summary of the Company's stock option activity and related information during the nine months ended December 31, 2014 is as follows:

	Number of Shares (thousands)		Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at the beginning of the year	2,409		$	10.06
Granted	—		—
Exercised	(54	)	6.32			$	0.2	(1	)
Cancelled	(473	)	13.22
Outstanding at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and expected to vest at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)
Vested and exercisable at the end of the period	1,882		$	9.37	2.0	$	0.1	(2	)

Schedule of Restricted Stock Unit Activity

RSU activity during the nine months ended December 31, 2014 is set forth below (in thousands):

	Number of Shares
Outstanding at the beginning of the year	6,105
Awarded	3,352
Vested	(1,279	)
Cancelled	(3,536	)
Outstanding at the end of the period	4,642

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Subsequent Events Subsequent Events

9 Months Ended

Dec. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENT

On January 23, 2015, the board of directors of the Company approved a restructuring plan to reorganize the Company’s operations and reduce its workforce and related operating expenses. The restructuring plan is intended to increase the Company’s operating efficiencies, improve its business unit alignment and help consolidate its global operating sites. The plan includes eliminating job redundancies, including some currently unfilled positions, and reducing the Company’s current workforce by approximately 40 employees, or approximately 7%. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company has initiated the reduction in its workforce. The Company expects to incur cash expenditures for employee severances of approximately $1.5 million to $1.7 million, payable primarily during the current fiscal year ending March 31, 2015, and expects to incur additional non-cash charges related to the restructuring plan. The Company anticipates that the restructuring plan will reduce its ongoing net operating expenses by approximately $14.0 million to $18.0 million annually.

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Commitments and Contingencies

9 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Commitments

The following table summarizes the Company's contractual operating leases and other purchase commitments as of December 31, 2014 (in thousands):

Fiscal Years Ending March 31,	Operating Leases		(1)	Purchase Commitments		(2)	Total
2015 (remainder of year)	$	616		$	16,909		$	17,525
2016	1,528			13,368			14,896
2017	1,093			3,241			4,334
2018	632			2,833			3,465
Total minimum payments	$	3,869		$	36,351		$	40,220

(1) Includes the Company's headquarters building lease which expires in August 2015, subject to our right to terminate early upon at least 120 days’ notice.

(2) Includes open purchase orders with terms that generally allow us the option to cancel or reschedule the order, subject to various restrictions and limitations. Also includes the licensing fees relating to the Company's R&D efforts, including licensed intellectual property, or IP, technology, product design, test and verification tools, of $21.1 million.

Legal Proceedings

The Company is currently a party to certain legal proceedings, including those noted in this section. While the Company presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm the Company's financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, unfavorable rulings or other events that could occur. In addition, legal proceedings are expensive to prosecute and defend against and can divert management attention and Company resources away from the Company's business objectives. Unfavorable resolutions could include monetary damages against the Company or injunctions or other restrictions on the conduct of the Company’s business, or preclude the Company from recovering the damages it seeks in legal proceedings it has commenced. It is also possible that the Company could conclude it is in the best interests of its stockholders, employees, and customers to settle one or more such matters, and any such settlement could include substantial payments or the surrender of rights to collect payments from third parties. However, the Company has not reached this conclusion with respect to any material matter at this time.

In 1993, the Company was named as a Potentially Responsible Party (“PRP”) along with more than 100 other companies that used an Omega Chemical Corporation waste treatment facility in Whittier, California (the “Omega Site”). The U.S. Environmental Protection Agency (“EPA”) has alleged that Omega failed to properly treat and dispose of certain hazardous waste materials at the Omega Site. The Company is a member of a large group of PRPs, known as the Omega Chemical Site PRP Organized Group (“OPOG”), that has agreed to fund certain on-going remediation efforts at the Omega Site. In February 2001, the U.S. District Court for the Central District of California (the “Court”) approved a consent decree between EPA and OPOG to study the contamination and evaluate cleanup options at the Omega Site (the Operable Unit 1 or “OU1”). In January 2009, the Court approved two amendments to the consent decree, the first expanding the scope of work to mitigate volatile organic compounds affecting indoor air quality near the Omega Site (the Operable Unit 3 or “OU3”) and the second adding settling parties to the consent decree. Removal of waste materials from the Omega Site has been completed. As part of OU1 and OU3, efforts to remediate the soil and groundwater at the Omega Site, as well as the extraction of chemical vapors from the soil and improving indoor air quality in and around the site, are underway and are expected to be ongoing for several years. In addition, OPOG and EPA are investigating a regional groundwater contamination plume allegedly originating at the Omega Site (the Operable Unit 2 or “OU2”). In September 2011, EPA issued an interim Record of Decision specifying the interim clean-up actions EPA has chosen for OU2, and in September 2012, it issued a special notice letter that triggered the commencement of good faith settlement negotiations with OPOG. In November 2014, EPA submitted a term sheet, accepted by OPOG in December 2014, describing the settlement terms and remediation actions for OU2 that will be set forth in a final consent decree to be filed with the Court. It is anticipated that EPA and OPOG will finalize the remediation consent decree in fiscal year 2016. In December 2013, OPOG retained legal counsel to pursue claims against other PRPs for the regional groundwater contamination and, in December 2014, OPOG retained legal counsel to protect its interests in connection with the bankruptcy proceedings filed by an OPOG member. In November 2007, Angeles Chemical Company, located downstream from the Omega Site, filed a lawsuit (the “Angeles Litigation”) in the Court against OPOG and the PRPs for cost recovery and indemnification for future response costs allegedly resulting from the regional groundwater contamination plume described above. In March 2008, the Court granted OPOG’s motion to stay the Angeles Litigation pending EPA’s determination of how to investigate and remediate the regional groundwater. In January 2012, as a result of challenges made by certain PRPs to the criteria previously used to allocate liability among OPOG members, and of the departure of certain PRPs from OPOG, OPOG approved changes to the cost allocation structure that resulted in an increase to the Company’s proportional allocation of liability. In addition, the subsequent departure or bankruptcy of one or more other PRPs from OPOG could have the effect of increasing the proportional liability of the remaining PRPs, including the Company. Although the Company considers a loss relating to the Omega Site probable, its share of any financial obligations for the remediation of the Omega Site, including taking into account the allocation increases described above, is not currently believed to be material to the Company’s financial statements, based on the Company’s approximately 0.5% contribution to the total waste tonnage sent to the site and current estimates of the potential remediation costs. Based on currently available information, the Company has a loss accrual that is not material and believes that the actual amount of its costs will not be materially different from the amount accrued. However, proceedings are ongoing and the eventual outcome of the clean-up efforts and the pending litigation matters is uncertain at this time. Based on currently available information, the Company does not believe that any eventual outcome will have a material adverse effect on its operations.

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Sale of TPack A/S

9 Months Ended

Dec. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

SALE OF TPACK A/S

SALE OF TPACK A/S

On April 22, 2013, the Company completed the sale of its subsidiary, TPack, and certain intellectual property assets owned by the Company related to TPack's business for an aggregate consideration of $33.5 million, net of working capital adjustments, payable in cash. For additional information regarding this sale, see Note 12, Sale of TPack A/S, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The Condensed Consolidated Financial Statements include all the accounts of Applied Micro Circuits Corporation (the "Company") and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In management’s opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the Company's financial position, results of operations and cash flows. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Condensed Consolidated Balance Sheet as of March 31, 2014 has been derived from the audited Consolidated Financial Statements as of that date but does not include all disclosures required by U.S. generally accepted accounting principles, or GAAP. These financial statements and accompanying notes should be read in conjunction with the Consolidated Financial Statements and notes thereto in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to its:

• capitalized mask sets including their useful lives, which affect cost of goods sold and property and equipment or Research and Development ("R&D") expenses, if not capitalized;

• inventory valuation, warranty liabilities and revenue reserves, which affect cost of sales, gross margin, and revenues;

• allowance for doubtful accounts, which affects operating expenses;

• unrealized losses or other-than-temporary impairments of short-term investments available for sale, which affect interest income (expense), net;

• valuation of other long-lived assets and goodwill, which affects depreciation and impairment of long-lived assets, impairment of goodwill and apportionment of goodwill related to divestitures;

• valuation of cost method investments, which affects impairment of strategic investments;

• potential costs of litigation, which affect operating expenses;

• valuation of deferred income taxes, which affects income tax expense (benefit); and

• stock-based compensation, which affects gross margin and operating expenses.

The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and actual results, future results of operations will be affected.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which will supersede most of the existing revenue recognition guidance under U.S. GAAP. This ASU requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the potential effect of this ASU on its financial statements and related disclosures.

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Certain Financial Statement Information Warranty (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Schedule of Warranty Reserve Activity
Beginning balance	$ 175	$ 187	$ 199	$ 220
Additions during the period	41	54	40	28
Settlements and expirations	(75)	(39)	(98)	(46)
Additions during the period	67	0	67	0
Ending balance	$ 208	$ 202	$ 208	$ 202

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Commitments and Contingencies Commitments and Contingencies (Tables)

9 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of Contractual Obligation by Fiscal Year Maturity

The following table summarizes the Company's contractual operating leases and other purchase commitments as of December 31, 2014 (in thousands):

Fiscal Years Ending March 31,	Operating Leases		(1)	Purchase Commitments		(2)	Total
2015 (remainder of year)	$	616		$	16,909		$	17,525
2016	1,528			13,368			14,896
2017	1,093			3,241			4,334
2018	632			2,833			3,465
Total minimum payments	$	3,869		$	36,351		$	40,220

(1) Includes the Company's headquarters building lease which expires in August 2015, subject to our right to terminate early upon at least 120 days’ notice.

(2) Includes open purchase orders with terms that generally allow us the option to cancel or reschedule the order, subject to various restrictions and limitations. Also includes the licensing fees relating to the Company's R&D efforts, including licensed intellectual property, or IP, technology, product design, test and verification tools, of $21.1 million.

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Certain Financial Statement Information Goodwill (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Mar. 31, 2014
Certain Financial Statement Information [Abstract]
Goodwill	$ 11,425	$ 11,425

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Sale of TPack A/S (Details) (TPack [Member], USD $) In Millions, unless otherwise specified	0 Months Ended
	Apr. 22, 2013
TPack [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sales price of subsidiary	$ 33.5

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Stockholders' Equity - Stock Options (Details) (USD $) In Millions, except Share data in Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2014 Approved_Plan
Equity [Abstract]
Number of stockholder-approved plans	2
Number of plans unapproved by stockholders	1
Schedule of Option Activity Under Stock Incentive Plans
Number of Shares, Outstanding at the beginning of the year	2,409
Number of Shares, Granted	0
Number of Shares, Exercised	(54)
Number of Shares, Forfeited	(473)
Number of Shares, Outstanding at the end of the period	1,882
Number of Shares, Vested at the end of the period	1,882
Number of Shares, Vested and exercisable at end of period	1,882
Schedule of Weighted Average Exercise Price Per Share Under Stock Incentive Plans
Weighted Average Exercise Price Per Share, Outstanding at the beginning of the year (USD per share)	$ 10.06
Weighted Average Exercise Price Per Share, Granted (USD per share)	$ 0.00
Weighted Average Exercise Price Per Share, Exercised (USD per share)	$ 6.32
Weighted Average Exercise Price Per Share, Forfeited (USD per share)	$ 13.22
Weighted Average Exercise Price Per Share, Outstanding at the end of the period (USD per share)	$ 9.37
Weighted Average Exercise Price Per Share, Vested at the end of the period (USD per share)	$ 9.37
Weighted Average Exercise Price Per Share, Vested and exercisable at the end of the period (USD per share)	$ 9.37
Aggregate pretax intrinsic value of options exercised	$ 0.2	[1]
Weighted average remaining contractual term for options outstanding at end of period (in years)	2 years 0 months 5 days
Aggregate intrinsic value of options outstanding at end of period	0.1	[2]
Weighted Average Remaining Contractual Life, Vested and Exercisable at Period End (in years)	2 years 0 months 5 days
Aggregate intrinsic value of options, Vested and exercisable at end of period	0.1	[2]
Weighted Average Remaining Contractual Life, Vested and expected to vest at end of period (in years)	2 years 0 months 1 day
Aggregate intrinsic value of options, Vested and expected to vest at end of period	$ 0.1	[2]
Common stock, closing price per share	$ 6.52

[1] The aggregate pre-tax intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

[2] The aggregate pre-tax intrinsic value is calculated as the difference between the market value as of the end of the third quarter 2014 and the exercise price of the shares. The closing price of the Company’s common stock was $6.52 per share on December 31, 2014.

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Condensed Consolidated Statements of Comprehensive Loss (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2014		Dec. 31, 2013
Statement of Comprehensive Income [Abstract]
Net loss	$ (12,131)		$ (7,284)		$ (36,913)		$ (28,810)
Other comprehensive loss, net of tax:
Unrealized (loss) gain on investments	(78)	[1]	(179)	[1]	218	[1]	(5,404)	[1]
Loss on foreign currency translation	(159)		(37)		(374)		(377)
Other comprehensive loss, net of tax	(237)		(216)		(156)		(5,781)
Total comprehensive loss	(12,368)		(7,500)		(37,069)		(34,591)
Reclassification adjustment from AOCI to earnings, short term investments	$ (123)		$ (6)		$ (123)		$ (3,290)

[1] The amounts reclassified from accumulated other comprehensive loss and recorded in interest income, net in the Condensed Consolidated Statement of Operations relating to short-term investments were $0.1 million for the three and nine months ended December 31, 2014 and zero and $3.3 million for the three and nine months ended December 31, 2013, respectively. Refer to Note 2, Certain Financial Statement Information, to the Condensed Consolidated Financial Statements for additional details.

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Veloce

9 Months Ended

Dec. 31, 2014

Variable Interest Entity, Measure of Activity [Abstract]

VELOCE

VELOCE

On June 20, 2012, the Company completed its acquisition of Veloce. Veloce has been developing specific ARM-based technology for the Company.

The total estimated purchase price consideration to be paid for Veloce is approximately $178.5 million based on the benchmarks achieved during product simulations. Veloce completed all three performance milestones relating to the project as of March 31, 2014. The consideration relating to the three performance milestones, excluding the value allocated to Veloce stock equivalents that have not yet been allocated to individuals ("Unallocated Veloce Units"), in the amount of $176.4 million, has been recognized as research and development expense through December 31, 2014 compared to $169.3 million as of December 31, 2013. During the three and nine months ended December 31, 2014, the Company paid approximately $1.5 million and $9.0 million, respectively, in cash and issued approximately 39,000 shares and 0.1 million shares, of common stock, respectively, valued at approximately $0.3 million and $0.9 million, respectively, as part of the Veloce acquisition consideration. During the three and nine months ended December 31, 2013, the Company paid approximately $1.2 million and $45.4 million, respectively, in cash and issued approximately 25,000 shares and 3.8 million shares, of common stock, respectively, valued at approximately $0.2 million and $29.2 million, respectively, as part of the Veloce acquisition consideration. The Company is contractually required to distribute all Unallocated Veloce Units within a certain time period. No Unallocated Veloce Units were distributed in the three months ended December 31, 2014. During the nine months ended December 31, 2014, the Company distributed 0.5 million Unallocated Veloce Units which had a related expense of $7.1 million. Former Veloce equity holders subject to vesting requirements will receive their distribution upon satisfaction of such vesting requirements.

For accounting purposes, the costs incurred in connection with the development milestones relating to Veloce are considered compensatory and are recognized as R&D expense. These costs are recognized in the Condensed Consolidated Statement of Operations under R&D expense in the periods when certain development and performance milestones became probable of achievement and were deemed earned. However, the value allocated to the Unallocated Veloce Units will not be recognized as R&D expense until distribution of the underlying units occurs. As of December 31, 2014, 0.1 million Unallocated Veloce Units had not been allocated, and the maximum potential additional expense to be recognized associated with these Unallocated Veloce Units is approximately $2.1 million.

Total R&D expenses recognized related to Veloce were zero and approximately $7.1 million during the three and nine months ended December 31, 2014, respectively, and approximately $2.9 million and $42.7 million during the three and nine months ended December 31, 2013, respectively. Veloce consideration that has been accrued as of December 31, 2014 is classified as long-term if payments of the consideration are expected to occur beyond a 12 month period. For additional information regarding Veloce, see Note 4, Veloce, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

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Certain Financial Statement Information Purchased Intangibles (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Dec. 31, 2014	Mar. 31, 2014
Schedule of Purchased Intangible assets
Gross Assets	$ 493,636	$ 493,636
Accumulated Amortization and Impairments	(493,636)	(493,531)
Intangible Assets, Net (Excluding Goodwill)	0	105
Developed technology/in-process research and development [Member]
Schedule of Purchased Intangible assets
Gross Assets	425,000	425,000
Accumulated Amortization and Impairments	(425,000)	(425,000)
Intangible Assets, Net (Excluding Goodwill)	0	0
Weighted average remaining useful life	0 years	0 years
Customer relationships [Member]
Schedule of Purchased Intangible assets
Gross Assets	6,330	6,330
Accumulated Amortization and Impairments	(6,330)	(6,225)
Intangible Assets, Net (Excluding Goodwill)	0	105
Weighted average remaining useful life	0 years	4 months 24 days
Patents/core technology rights/tradename [Member]
Schedule of Purchased Intangible assets
Gross Assets	62,306	62,306
Accumulated Amortization and Impairments	(62,306)	(62,306)
Intangible Assets, Net (Excluding Goodwill)	$ 0	$ 0
Weighted average remaining useful life	0 years	0 years

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Restructuring Charges (Details Textual) (USD $)	3 Months Ended		9 Months Ended		1 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Apr. 30, 2014
Restructuring Charges (Textual) [Abstract]
Restructuring charges	$ 221,000	$ 38,000	$ 1,322,000	$ 1,130,000
Workforce Reduction [Member]
Restructuring Charges (Textual) [Abstract]
Restructuring charges			1,101,000
Other Operational Expense [Member]
Restructuring Charges (Textual) [Abstract]
Restructuring charges			95,000
April 2014 Restructuring Program [Member] | Workforce Reduction [Member]
Restructuring Charges (Textual) [Abstract]
Anticipated reduction in expenses					4,600,000
April 2014 Restructuring Program [Member] | Other Operational Expense [Member]
Restructuring Charges (Textual) [Abstract]
Anticipated reduction in expenses					$ 600,000

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Stock-Based Compensation (Tables)

9 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Assumptions Used

The Company did not grant options or employee stock purchase rights during the three months ended December 31, 2014 and 2013. The fair values of the options and employee stock purchase rights granted during the nine months ended December 31, 2014 and 2013 are estimated as of the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Options				Employee Stock Purchase Rights
	Nine months ended December 31,				Nine months ended December 31,
	2014	2013			2014			2013
Expected life (years)	*	4.4			0.5			0.5
Risk-free interest rate	*	0.6		%	0.1		%	0.1		%
Volatility	*	49		%	57		%	57		%
Dividend yield	*	—		%	—		%	—		%
Weighted average fair value	*	$	2.95		$	2.57		$	3.67

* The Company did not grant options during the nine months ended December 31, 2014.

Summary of Stock-Based Compensation Expense of Stock Options and Restricted Stock Units

The following table summarizes stock-based compensation expense related to stock options and RSUs (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by type of grant:
Stock options	$	454		$	648	$	1,160		$	1,987
RSUs	4,428			5,231		13,148			11,454
	4,882			5,879		14,308			13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430

Summary of Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense as it relates to the Company’s Condensed Consolidated Statement of Operations (in thousands):

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
Stock-based compensation expense by cost centers:
Cost of revenues	$	97		$	118	$	226		$	353
Research and development	2,992			1,545		9,039			4,867
Selling, general and administrative	1,793			4,216		5,043			8,221
	$	4,882		$	5,879	$	14,308		$	13,441
Stock-based compensation expensed from (capitalized to) inventory	(25		)	3		(5		)	(11		)
Total stock-based compensation expense	$	4,857		$	5,882	$	14,303		$	13,430