UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended October 2, 2005
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 0-23298

QLogic Corporation

(Exact name of registrant as specified in its charter)

Delaware	33-0537669
(State of incorporation)	(I.R.S. Employer Identification No.)

26650 Aliso Viejo Parkway

Aliso Viejo, California 92656

(Address of principal executive office and zip code)

(949) 389-6000

(Registrant’s telephone number, including area code)

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

Yes þ          No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ          No 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 þ

      As of October 21, 2005, 80,467,015 shares of the Registrant’s common stock were outstanding.

QLOGIC CORPORATION

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets at October 2, 2005 and April 3, 2005		1
	Condensed Consolidated Statements of Income for the three and six months ended October 2, 2005 and September 26, 2004		2
	Condensed Consolidated Statements of Cash Flows for the six months ended October 2, 2005 and September 26, 2004		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		30
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 6.	Exhibits		32
	Signatures		33
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

i

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

QLOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

			October 2,			April 3,
			2005			2005
			(Unaudited; In thousands,
			except share and per share
			amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	51,003		$	165,644
	Short-term investments			583,112			646,694
	Accounts receivable, less allowance for doubtful accounts of $1,308 and $1,311 as of October 2, 2005 and April 3, 2005, respectively			64,383			54,245
	Inventories			25,222			22,661
	Current assets of discontinued operations			22,558			21,570
	Other current assets			24,279			28,705
		Total current assets		770,557			939,519
Property and equipment, net				75,556			71,322
Long-term assets of discontinued operations				6,935			6,454
Other assets				8,522			9,120
			$	861,570		$	1,026,415
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	23,674		$	19,975
	Accrued compensation			15,318			19,629
	Income taxes payable			20,855			14,125
	Accrued purchases of treasury stock			33,946			—
	Current liabilities of discontinued operations			8,631			7,648
	Other current liabilities			8,108			7,444
		Total current liabilities		110,532			68,821
Deferred tax liabilities				630			—
Long-term liabilities of discontinued operations				1,648			1,411
		Total liabilities		112,810			70,232
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $0.001 par value; 1,000,000 shares authorized (200,000 shares designated as Series A Junior Participating Preferred, $0.001 par value); no shares issued and outstanding			—			—
	Common stock, $0.001 par value; 500,000,000 shares authorized; 96,763,000 and 96,401,000 shares issued at October 2, 2005 and April 3, 2005, respectively			97			96
	Additional paid-in capital			514,222			504,760
	Retained earnings			684,523			599,722
	Accumulated other comprehensive loss			(2,882	)		(3,394	)
	Treasury stock, at cost; 13,206,000 and 4,192,000 shares at October 2, 2005 and April 3, 2005, respectively			(447,200	)		(145,001	)
		Total stockholders’ equity		748,760			956,183
			$	861,570		$	1,026,415

See accompanying notes to condensed consolidated financial statements.

1

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

			Three Months Ended				Six Months Ended
			October 2,		September 26,		October 2,		September 26,
			2005		2004		2005		2004
			(Unaudited; In thousands, except per share amounts)
Net revenues			$	119,012	$	102,281	$	234,442	$	200,951
Cost of revenues				34,995		29,270		68,988		57,425
	Gross profit			84,017		73,011		165,454		143,526
Operating expenses:
	Engineering and development			21,417		21,013		41,776		40,966
	Sales and marketing			15,617		12,982		30,850		26,090
	General and administrative			4,190		4,219		8,082		8,424
		Total operating expenses		41,224		38,214		80,708		75,480
Operating income				42,793		34,797		84,746		68,046
Interest and other income				6,111		4,233		12,230		7,866
Income before income taxes				48,904		39,030		96,976		75,912
Income taxes				18,414		13,630		38,200		27,657
Income from continuing operations				30,490		25,400		58,776		48,255
Income from discontinued operations, net of income taxes				12,534		10,482		26,025		19,830
Net income			$	43,024	$	35,882	$	84,801	$	68,085
Income from continuing operations per share:
	Basic		$	0.34	$	0.27	$	0.65	$	0.52
	Diluted		$	0.34	$	0.27	$	0.64	$	0.52
Income from discontinued operations per share:
	Basic		$	0.14	$	0.12	$	0.29	$	0.21
	Diluted		$	0.14	$	0.11	$	0.29	$	0.21
Net income per share:
	Basic		$	0.48	$	0.39	$	0.94	$	0.73
	Diluted		$	0.48	$	0.38	$	0.93	$	0.73
Number of shares used in per share calculation:
	Basic			89,447		92,485		90,490		92,915
	Diluted			90,526		93,222		91,599		93,664

See accompanying notes to condensed consolidated financial statements.

2

QLOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six Months Ended
				October 2,			September 26,
				2005			2004
				(Unaudited; In thousands)
Cash flows from operating activities:
	Income from continuing operations			$	58,776		$	48,255
	Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
		Depreciation and amortization			8,547			7,173
		Deferred income taxes			1,975			(3,115	)
		Tax benefit from issuance of stock under stock plans			1,288			487
		Stock-based compensation			175			329
		Provision for losses on accounts receivable			72			424
		Loss on disposal of property and equipment			103			7
		Changes in operating assets and liabilities:
			Accounts receivable		(10,210	)		2,303
			Inventories		(2,561	)		1,615
			Other assets		3,162			(41	)
			Accounts payable		3,699			(1	)
			Accrued compensation		(4,311	)		(4,213	)
			Income taxes payable		6,730			3,283
			Other liabilities		664			616
			Net cash provided by operating activities		68,109			57,122
Cash flows from investing activities:
	Purchases of marketable securities				(370,635	)		(347,240	)
	Sales and maturities of marketable securities				434,713			337,672
	Additions to property and equipment				(12,351	)		(6,941	)
			Net cash provided by (used in) investing activities		51,727			(16,509	)
Cash flows from financing activities:
	Proceeds from issuance of stock under stock plans				8,000			3,596
	Purchase of treasury stock				(268,253	)		(50,008	)
			Net cash used in financing activities		(260,253	)		(46,412	)
Cash provided by discontinued operations					25,776			11,858
Net increase (decrease) in cash and cash equivalents					(114,641	)		6,059
Cash and cash equivalents at beginning of period					165,644			62,911
Cash and cash equivalents at end of period				$	51,003		$	68,970

See accompanying notes to condensed consolidated financial statements.

3

QLOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

      In the opinion of management of QLogic Corporation (the “Company”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring accruals) necessary to present fairly the Company’s financial position, results of operations and cash flows. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 3, 2005. The results of operations for the three and six months ended October 2, 2005 are not necessarily indicative of the results that may be expected for the entire fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

      In August 2005, the Company entered into a definitive agreement to sell its hard disk drive controller and tape drive controller business (the “Business”). As of October 2, 2005, the Business met all of the criteria in Statement of Financial Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to be presented as discontinued operations. Accordingly, all current and prior period financial information related to the hard disk drive controller and tape drive controller business has been presented as discontinued operations in the accompanying condensed consolidated financial statements. The reclassifications for discontinued operations have no impact on total assets, liabilities, stockholders’ equity, net income or net cash flow. See Note 8 — Discontinued Operations.

Note 2. Inventories

      The components of inventories are as follows:

	October 2,		April 3,
	2005		2005
	(In thousands)
Raw materials	$	7,551	$	9,024
Finished goods		17,671		13,637
	$	25,222	$	22,661

Note 3. Other Comprehensive Income

      The components of total comprehensive income are as follows:

		Three Months Ended					Six Months Ended
		October 2,			September 26,		October 2,		September 26,
		2005			2004		2005		2004
		(In thousands)
Net income		$	43,024		$	35,882	$	84,801	$	68,085
Other comprehensive income (loss):
	Change in unrealized gains/losses on available-for-sale investments		(672	)		1,705		512		(3,986	)
		$	42,352		$	37,587	$	85,313	$	64,099

Note 4. Income Per Share

      Basic income per share amounts are based on the weighted-average number of common shares outstanding during the periods presented. Diluted income per share amounts are based on the weighted-average number of common shares and dilutive potential common shares outstanding during the periods

4

QLOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

presented. The Company has granted certain stock options which have been treated as dilutive potential common shares.

      The following table sets forth the computation of basic and diluted income per share:

		Three Months Ended				Six Months Ended
		October 2,		September 26,		October 2,		September 26,
		2005		2004		2005		2004
		(In thousands, except per share amounts)
Income from continuing operations		$	30,490	$	25,400	$	58,776	$	48,255
Income from discontinued operations			12,534		10,482		26,025		19,830
Net Income		$	43,024	$	35,882	$	84,801	$	68,085
Shares:
	Weighted-average shares outstanding — basic		89,447		92,485		90,490		92,915
	Dilutive potential common shares, using treasury stock method		1,079		737		1,109		749
	Weighted-average shares outstanding — diluted		90,526		93,222		91,599		93,664
Income from continuing operations per share:
	Basic	$	0.34	$	0.27	$	0.65	$	0.52
	Diluted	$	0.34	$	0.27	$	0.64	$	0.52
Income from discontinued operations per share:
	Basic	$	0.14	$	0.12	$	0.29	$	0.21
	Diluted	$	0.14	$	0.11	$	0.29	$	0.21
Net income per share:
	Basic	$	0.48	$	0.39	$	0.94	$	0.73
	Diluted	$	0.48	$	0.38	$	0.93	$	0.73

      Options to purchase 8,566,000 and 11,894,000 shares of common stock have been excluded from the diluted income per share calculations for the three months ended October 2, 2005 and September 26, 2004, respectively. Options to purchase 8,615,000 and 11,445,000 shares of common stock have been excluded from the diluted income per share calculations for the six months ended October 2, 2005 and September 26, 2004, respectively. These options have been excluded from the diluted income per share calculations because their effect was antidilutive.

Note 5. Stock-Based Compensation

      The Company accounts for its employee stock-based compensation in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and has adopted the disclosure only alternative of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. APB 25 provides that compensation expense relative to the Company’s stock-based employee compensation plans (including shares to be issued under the Company’s stock option and employee stock purchase plans, collectively the “Options”) is measured based on the intrinsic value of

5

QLOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

stock options granted and the Company recognizes compensation expense in its consolidated statements of income using the straight-line method over the vesting period for fixed awards. Under SFAS 123, the fair value of the Options at the date of grant is recognized in earnings over the vesting period on a straight-line basis.

      The following table shows pro forma net income as if the fair value method of SFAS 123 had been used to account for stock-based compensation expense:

		Three Months Ended						Six Months Ended
		October 2,			September 26,			October 2,			September 26,
		2005			2004			2005			2004
		(In thousands, except per share amounts)
Net income, as reported		$	43,024		$	35,882		$	84,801		$	68,085
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			—			89			105			204
Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(7,106	)		(8,704	)		(14,379	)		(17,132	)
Pro forma net income		$	35,918		$	27,267		$	70,527		$	51,157
Net income per share:
	Basic, as reported	$	0.48		$	0.39		$	0.94		$	0.73
	Diluted, as reported	$	0.48		$	0.38		$	0.93		$	0.73
	Basic, pro forma	$	0.40		$	0.29		$	0.78		$	0.55
	Diluted, pro forma	$	0.40		$	0.29		$	0.77		$	0.55

      The fair value of the Options granted has been estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. The Options have characteristics significantly different than those of traded options and changes in the subjective input assumptions can materially affect the estimate of their fair value.

Note 6. Treasury Stock

      In October 2002, the Company’s Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $100 million of the Company’s outstanding common stock for a two-year period. In June 2004, the Company’s Board of Directors approved a second stock repurchase program that authorized the Company to repurchase up to an additional $100 million of the Company’s outstanding common stock for a two-year period. As of July 3, 2005, the Company had repurchased the entire amount authorized pursuant to these programs, including 1.7 million shares for an aggregate purchase price of $55.0 million, during the first quarter of fiscal 2006.

      In August 2005, the Company’s Board of Directors approved a third stock repurchase program that authorized the Company to repurchase up to an additional $350 million of the Company’s outstanding common stock for a two-year period. During the three months ended October 2, 2005, the Company repurchased 7.3 million shares of common stock under this program for an aggregate purchase price of $247.2 million, of which $33.9 million is included in accrued purchases of treasury stock in the accompanying condensed consolidated balance sheet. Accrued purchases of treasury stock consist of transactions entered into near the end of the quarter and which settled subsequent to quarter end. In October 2005, the Company

6

QLOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

repurchased the remaining amount authorized pursuant to this stock repurchase program, consisting of 3.1 million shares for an aggregate purchase price of $102.8 million.

      The repurchased shares have been recorded as treasury shares and will be held until the Company’s Board of Directors designates that these shares be retired or used for other purposes.

Note 7. Interest and Other Income

      The components of interest and other income are as follows:

	Three Months Ended					Six Months Ended
	October 2,			September 26,		October 2,			September 26,
	2005			2004		2005			2004
	(In thousands)
Interest income	$	6,602		$	4,134	$	12,857		$	8,249
Gain (loss) on sale of marketable securities		(493	)		99		(620	)		(383	)
Other		2			—		(7	)		—
	$	6,111		$	4,233	$	12,230		$	7,866

Note 8. Discontinued Operations

      In August 2005, the Company entered into a definitive agreement to sell its hard disk drive controller and tape drive controller business to Marvell Technology Group Ltd. (“Marvell”) for $225 million, consisting of $180 million in cash and $45 million in Marvell’s common stock. The common stock to be received is subject to certain resale restrictions under federal securities laws. The agreement also provides for $12 million of the consideration to be placed in escrow to secure the Company’s obligations under certain representation and warranty provisions. As specified in the agreement, the assets to be sold to Marvell consist primarily of intellectual property, inventories and property and equipment. All other assets and liabilities will be recovered or settled by the Company. The transaction is expected to close in the third quarter of fiscal 2006 and result in a gain on sale in excess of $200 million.

      Income from discontinued operations consists of direct revenues and direct expenses of the Business, including cost of revenues, as well as other fixed and allocated costs to the extent that such costs will be eliminated as a result of the transaction. General corporate overhead costs have not been allocated to discontinued operations. A summary of the operating results of the Business included in discontinued operations in the accompanying condensed consolidated statements of operations is as follows:

	Three Months Ended				Six Months Ended
	October 2,		September 26,		October 2,		September 26,
	2005		2004		2005		2004
	(In thousands)
Net revenues	$	38,089	$	32,328	$	81,493	$	63,469
Income from discontinued operations before income taxes	$	18,752	$	16,059	$	40,306	$	31,098
Income taxes		6,218		5,577		14,281		11,268
Income from discontinued operations	$	12,534	$	10,482	$	26,025	$	19,830

7

QLOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Assets of discontinued operations consist primarily of accounts receivable, inventory and fixed assets. Liabilities of discontinued operations consist primarily of income taxes payable, deferred tax liabilities and accrued compensation.

Note 9. Subsequent Event

      On October 18, 2005, the Company entered into a definitive agreement to purchase substantially all of the assets of Troika Networks, Inc. (“Troika”) for $36.5 million in cash and the assumption of certain liabilities. The assets to be acquired include intellectual property (including patents and trademarks), inventory and fixed assets. Troika develops and provides virtualization platforms that host leading original equipment manufacturer solutions. The Company expects the transaction to close during the third quarter of fiscal 2006.

8

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 should be read in conjunction with our unaudited condensed consolidated financial statements and related notes. This Management’s Discussion and Analysis of Financial Condition and Results of Operations also contains descriptions of our expectations regarding future trends affecting our business. These forward-looking statements and other forward-looking statements made elsewhere in this report are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, descriptions of our expectations regarding future trends affecting our business and other statements regarding future events or our objectives, goals, strategies, beliefs and underlying assumptions that are other than statements of historical fact. When used in this report, the words “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will” and similar expressions or the negative of such expressions are intended to identify these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of several factors, including, but not limited to those factors set forth and discussed under “Risk Factors” and elsewhere in this report. In light of the significant uncertainties inherent in the forward-looking information included in this report, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

      We design and supply storage network infrastructure components for many of the world’s largest server and storage subsystem manufacturers. We serve customers with solutions based on various storage area network, or SAN, technologies. Our products are currently based on Fibre Channel, Small Computer Systems Interface, or SCSI, and Internet SCSI, or iSCSI standards, and future products may also be based on other technology standards. We produce the controller chips, management enclosure chips, host bus adapters, or HBAs, and fabric switches that provide the connectivity infrastructure for every size of storage network.

      In August 2005, we entered into a definitive agreement to sell our hard disk drive controller and tape drive controller business, or the Business, to Marvell Technology Group Ltd. for $225 million. The sale of the Business is expected to close during the third quarter of fiscal 2006 and result in a gain on sale in excess of $200 million. As a result of this transaction, all current and prior period financial information related to the Business has been presented as discontinued operations. The following discussion and analysis excludes the Business and amounts related to the Business unless otherwise noted.

      Our ability to serve the storage industry stems from our highly leveraged product line that addresses virtually every connection point in a SAN infrastructure solution. On the server side of the SAN, we provide enclosure management products, HBA technology on the motherboard (“Fibre Down” technology), baseboard management solutions, Fibre Channel HBAs and iSCSI HBAs. Connecting servers to storage, we provide the network infrastructure with a full suite of Fibre Channel switches. On the storage side of the network, we provide controller chips for redundant array of inexpensive disks, or RAID, storage systems. These include Fibre Channel host port connections and RAID controller to Fibre Channel, SCSI and iSCSI disk drive port connections and Fibre Channel switches.

      Our products are sold to original equipment manufacturers, or OEMs, and through our authorized distributors. These connectivity solutions are incorporated into a variety of products from OEM customers, including Cisco Systems, Inc., Dell Computer Corporation, EMC Corporation, Hitachi, Hewlett-Packard Company, International Business Machines Corporation, Network Appliance, Inc., Quantum Corporation, Storage Technology Corporation, Sun Microsystems, Inc. and many others.

Second Quarter Financial Highlights and Other Information

      During the second quarter of fiscal 2006, our net revenues from continuing operations were $119.0 million and increased 3% sequentially from the first quarter of fiscal 2006. Revenues from SAN Infrastructure

9

Products, which are comprised of HBAs, switches and silicon, during the second quarter increased 3% sequentially from the first quarter and represented 93% of our total net revenues. Revenues derived from Management Controllers, which are comprised of enclosure management and baseboard management products, increased 2% sequentially during the second quarter.

      Our long-term outlook for our core business remains favorable. Based on a foundation of design wins in existing markets, as well as emerging markets such as the small-to-medium business market, we continue to expect favorable growth momentum for our SAN Infrastructure Products. We expect that revenues from our Management Controllers will decline over time, as these products are not part of our core business and we are not investing in the development of new products.

      In our continuing effort to increase customer satisfaction and responsiveness, we established operations in Ireland during the first quarter of fiscal 2006. A key element of our expanded global supply chain program, the Ireland operations are expected to deliver customer-specific configure-on-demand services, regionally-based customer support, order fulfillment services and reverse logistics for our international customers. During the second quarter of fiscal 2006, we commenced shipments to customers from our Ireland facility.

      A summary of the key factors and significant events which impacted our financial performance during the second quarter of fiscal 2006 are as follows:

•  Net revenues of $119.0 million for the second quarter of fiscal 2006 increased sequentially by $3.6 million, or 3%, from $115.4 million in the first quarter of fiscal 2006.

•  Gross profit as a percentage of net revenues was 70.6% for both the first and second quarters of fiscal 2006. We continue to expect downward pressure on our gross profit percentage as a result of changes in product and technology mix, as well as declining average selling prices. There can be no assurance that we will be able to maintain our gross profit percentage consistent with historical trends and it may decline in the future.

•  Operating income as a percentage of net revenues was 36.0% for the second quarter of fiscal 2006, compared to 36.3% in the first quarter of fiscal 2006.

•  Income from continuing operations of $30.5 million, or $0.34 per diluted share, in the second quarter of fiscal 2006 increased sequentially 8% from $28.3 million, or $0.31 per diluted share, in the first quarter of fiscal 2006. This increase was primarily the result of a decrease in our estimated annual effective income tax rate due to the favorable resolution of a routine tax examination during the second quarter of fiscal 2006.

•  During the second quarter of fiscal 2006, we repurchased $247.2 million of our common stock on the open market under our $350 million corporate stock repurchase program, which we announced in August 2005. In October 2005, we repurchased the remaining $102.8 million authorized pursuant to this program. Since fiscal year 2003, we have repurchased a total of $550 million of our common stock under programs authorized by our Board of Directors.

•  Cash and cash equivalents and short-term investments of $634.1 million at October 2, 2005, decreased $179.1 million from the balance at the end of the first quarter of fiscal 2006. During the second quarter of fiscal 2006, we generated $31.4 million of cash from operations and used $213.3 million to repurchase our common stock.

•  Working capital of $660.0 million at October 2, 2005 declined by $203.9 million during the second quarter from $863.9 million at July 3, 2005 primarily due to the stock repurchases described above.

•  Accounts receivable was $64.4 million as of October 2, 2005, compared to $59.0 million as of July 3, 2005. Days sales outstanding (DSO) in receivables as of October 2, 2005 increased to 49 days from 47 days as of July 3, 2005. Our accounts receivable and DSO are primarily affected by linearity of shipments within the quarter and collections performance. Based on our customers’ procurement models and our current customer mix, we expect that DSO will range between 45 to 55 days during

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	fiscal 2006. There can be no assurance that we will be able to maintain our DSO consistent with historical trends and it may increase in the future.
•	Inventories were $25.2 million as of October 2, 2005, compared to $24.9 million as of July 3, 2005. Our annualized inventory turns in the second quarter of fiscal 2006 of 5.5 turns were consistent with the inventory turns in the first quarter of fiscal 2006.

Results of Operations

Net Revenues

      A summary of the components of our net revenues is as follows:

			Three Months Ended						Six Months Ended
			October 2,			September 26,			October 2,			September 26,
			2005			2004			2005			2004
			(In millions)
Net revenues:
	SAN Infrastructure Products		$	110.5		$	91.1		$	217.8		$	180.4
	Management Controllers			7.0			10.5			13.9			19.8
	Other			1.5			0.7			2.7			0.8
		Total net revenues	$	119.0		$	102.3		$	234.4		$	201.0
Percentage of net revenues:
	SAN Infrastructure Products			93	%		89	%		93	%		90	%
	Management Controllers			6			10			6			10
	Other			1			1			1			—
		Total net revenues		100	%		100	%		100	%		100	%

      The global marketplace for SANs continues to expand in response to the information storage requirements of enterprise business environments, as well as the emerging market for SAN-based solutions for small and medium-sized businesses. This market expansion has resulted in increased volume shipments of our SAN Infrastructure Products. However, the SAN market has been characterized by rapid advances in technology and related product performance, which has generally resulted in declining average selling prices over time. Our revenues have generally been favorably affected by increases in units sold as a result of market expansion, increases in market share and the release of new products. The favorable effect on our revenues as a result of increases in volume has been partially offset by the impact of declining prices.

      Our net revenues are derived primarily from the sale of SAN Infrastructure Products and Management Controllers. Other revenue includes non-product related revenues, such as royalties, non-recurring engineering fees and service fees. Net revenues for the three months ended October 2, 2005 increased $16.7 million, or 16%, from the three months ended September 26, 2004. This increase was primarily the result of a $19.4 million, or 21%, increase in revenues from SAN Infrastructure Products, partially offset by a $3.5 million, or 33%, decrease in revenue from Management Controllers. The increase in revenues from SAN Infrastructure Products was primarily due to a 33% increase in shipments of HBAs partially offset by an 8% decrease in average selling prices, and a 79% increase in shipments of switches partially offset by a 15% decrease in average selling prices. The decrease in revenue from Management Controllers was due to a 24% decrease in shipments and an 11% decrease in average selling prices. We expect revenue from Management Controllers to decrease over time, as these products are not part of our core business and we are not investing in the development of new products. Net revenues for the three months ended October 2, 2005 included $1.5 million of other revenue. Other revenues are unpredictable and we do not expect them to be significant to our overall revenues.

      Net revenues for the six months ended October 2, 2005 increased $33.4 million, or 17%, from the six months ended September 26, 2004. The increase was principally due to a $37.4 million, or 21%, increase in

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revenues from SAN Infrastructure Products, partially offset by a $5.9 million, or 29%, decrease in revenue from Management Controllers. The increase in revenues from SAN Infrastructure Products was primarily due to a 35% increase in shipments of HBAs partially offset by a 9% decrease in average selling prices, and a 74% increase in shipments of switches partially offset by a 15% decrease in average selling prices. The decrease in revenue from Management Controllers was due to a 24% decrease in shipments and a 7% decrease in average selling prices. Net revenues for the six months ended October 2, 2005 included $2.7 million of other revenue.

      A small number of our customers account for a substantial portion of our net revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our net revenues for the foreseeable future. Our top ten customers accounted for 77% of net revenues during the six months ended October 2, 2005 and 78% of net revenues during the fiscal year ended April 3, 2005. Four of our customers represented 10% or more of net revenues for the six months ended October 2, 2005, consistent with fiscal 2005.

      We believe that our major customers continually evaluate whether or not to purchase products from alternative or additional sources. Additionally, customers’ economic and market conditions frequently change. Accordingly, there can also be no assurance that a major customer will not reduce, delay or eliminate its purchases from us. Any such reduction, delay or loss of purchases could have a material adverse effect on our business, financial condition or results of operations.

      Revenues by geographic area are presented based upon the country of destination. Net revenues by geographic area are as follows:

		Three Months Ended				Six Months Ended
		October 2,		September 26,		October 2,		September 26,
		2005		2004		2005		2004
		(In millions)
United States		$	65.5	$	54.2	$	130.7	$	106.3
Europe, Middle East and Africa			26.6		21.9		52.1		43.5
Asia-Pacific and Japan			26.7		25.5		51.0		49.4
Rest of the world			0.2		0.7		0.6		1.8
	Total net revenues	$	119.0	$	102.3	$	234.4	$	201.0

Gross Profit

      Gross profit represents net revenues less cost of revenues. Cost of revenues consists primarily of the cost of purchased products (including silicon chips from third-party manufacturers), assembly and test services, and costs associated with product procurement, inventory management and product quality. A summary of our gross profit and related percentage of net revenues is as follows:

	Three Months Ended						Six Months Ended
	October 2,			September 26,			October 2,			September 26,
	2005			2004			2005			2004
	(In millions)
Gross profit	$	84.0		$	73.0		$	165.5		$	143.5
Percentage of net revenues		70.6	%		71.4	%		70.6	%		71.4	%

      Gross profit for the three months ended October 2, 2005 increased $11.0 million, or 15%, from gross profit for the three months ended September 26, 2004. The gross profit percentage for the three months ended October 2, 2005 was 70.6% and declined from 71.4% for the corresponding period in the prior year. This decrease in gross profit percentage was due primarily to an unfavorable shift in product and technology mix, as well as a decrease in the average selling prices.

      Gross profit for the six months ended October 2, 2005 increased $22.0 million, or 15%, from gross profit for the six months ended September 26, 2004. The gross profit percentage for the six months ended October 2, 2005 was 70.6% and declined from 71.4% for the corresponding period in the prior year. This gross profit

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percentage decreased principally due to an unfavorable shift in product and technology mix, as well as a decrease in the average selling prices.

      Our ability to maintain our current gross profit percentage can be significantly affected by factors such as the results of our investment in engineering and development activities, supply costs, the worldwide semiconductor foundry capacity, the mix of products shipped, competitive price pressures, the timeliness of volume shipments of new products, the level of royalties received and our ability to achieve manufacturing cost reductions. We anticipate that it will be increasingly difficult to reduce manufacturing costs. Also, royalty revenues have been irregular or unpredictable. As a result of these and other factors, it may be difficult to maintain our gross profit percentage consistent with historical trends and it may decline in the future.

Operating Expenses

      Our operating expenses are summarized in the following table:

			Three Months Ended						Six Months Ended
			October 2,			September 26,			October 2,			September 26,
			2005			2004			2005			2004
			(In millions)
Operating expenses:
	Engineering and development		$	21.4		$	21.0		$	41.8		$	41.0
	Sales and marketing			15.6			13.0			30.8			26.1
	General and administrative			4.2			4.2			8.1			8.4
		Total operating expenses	$	41.2		$	38.2		$	80.7		$	75.5
Percentage of net revenues:
	Engineering and development			18.0	%		20.6	%		17.8	%		20.4	%
	Sales and marketing			13.1			12.7			13.2			13.0
	General and administrative			3.5			4.1			3.4			4.2
		Total operating expenses		34.6	%		37.4	%		34.4	%		37.6	%

      Engineering and Development. Engineering and development expenses consist primarily of compensation and related benefit costs, development-related engineering and material costs, occupancy costs and related computer support costs. During the three months ended October 2, 2005, engineering and development expenses of $21.4 million increased $0.4 million, or 2%, from $21.0 million for the three months ended September 26, 2004. The increase in engineering and development expenses during the three months ended October 2, 2005 was primarily due to a $1.9 million increase in compensation and related benefit costs associated with increases in headcount for our expanded development efforts in support of new products and a $0.2 million increase in equipment costs, partially offset by a reduction of $1.8 million of non-cash stock-based compensation costs incurred during the three months ended September 26, 2004. These non-cash charges related to the acquisition of the Little Mountain Group, Inc. in January 2001 and ended in the fourth quarter of fiscal 2005.

      During the six months ended October 2, 2005, engineering and development expenses of $41.8 million increased $0.8 million, or 2%, from $41.0 million for the six months ended September 26, 2004. Engineering and development expenses increased primarily due to headcount related costs, partially offset by a $3.6 million reduction in the non-cash stock-based compensation costs discussed above.

      We believe continued investments in engineering and development activities are critical to achieving future design wins, expansion of our customer base and revenue growth opportunities. As a result of continued and increasing costs associated with new product development, we expect engineering and development expenses will continue to increase in the future.

      Sales and Marketing. Sales and marketing expenses consist primarily of compensation and related benefit costs, sales commissions, promotional activities and travel for sales and marketing personnel. Sales and

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marketing expenses for the three months ended October 2, 2005 of $15.6 million increased $2.6 million, or 20%, from the three months ended September 26, 2004. The increase in sales and marketing expenses during the three months ended October 2, 2005 was due primarily to an increase in various promotional activities directed at increasing market awareness and acceptance of our products, an increase in the headcount and related compensation and benefit costs associated with the expansion of our sales and marketing groups, an increase in commissions expense as a result of higher revenues and an increase in travel-related expenses. During the three months ended October 2, 2005, promotional costs increased $1.3 million, compensation and benefits costs increased $0.7 million, commissions expense increased $0.3 million and travel-related expenses increased $0.4 million compared to the corresponding period of fiscal 2005.

      Sales and marketing expenses for the six months ended October 2, 2005 of $30.8 million increased $4.7 million, or 18%, from the six months ended September 26, 2004. The increase in sales and marketing expenses during the six months ended October 2, 2005 was due primarily to an increase in various promotional activities including amounts related to our worldwide partner conference, an increase in the headcount and related compensation and benefit costs associated with the expansion of our sales and marketing groups, an increase in commissions expense as a result of higher revenues and an increase in travel-related expenses. During the six months ended October 2, 2005, promotional costs, which included our annual worldwide partner conference, increased $2.1 million, compensation and benefits costs increased $0.9 million, commissions expense increased $0.6 million and travel-related expenses increased $0.8 million compared to the corresponding period of fiscal 2005.

      We believe continued investments in our sales and marketing organizational infrastructure and related marketing programs are critical to the success of our strategy of expanding our customer base and enhancing relationships with our existing customers. As a result, we expect sales and marketing expenses will continue to increase in the future.

      General and Administrative. General and administrative expenses consist primarily of compensation and related benefit costs for executive, finance, accounting, human resources, legal and information technology personnel. Non-compensation components of general and administrative expenses include legal and other professional fees, facilities expenses and other corporate expenses. General and administrative expenses for the three months ended October 2, 2005 of $4.2 million were consistent with the $4.2 million for the three months ended September 26, 2004. General and administrative expenses for the six months ended October 2, 2005 of $8.1 million decreased slightly from the $8.4 million for the six months ended September 26, 2004.

      In connection with the growth of our business, we expect general and administrative expenses will increase in the future.

Non-Operating Income

      A summary of the components of our interest and other income are as follows:

	Three Months Ended					Six Months Ended
	October 2,			September 26,		October 2,			September 26,
	2005			2004		2005			2004
	(In millions)
Interest income	$	6.6		$	4.1	$	12.9		$	8.2
Loss on sale of marketable securities		(0.5	)		0.1		(0.7	)		(0.3	)
	$	6.1		$	4.2	$	12.2		$	7.9

      Interest income for the three months ended October 2, 2005 of $6.6 million increased by $2.5 million compared to the same period in the prior year, due to increased yields on our portfolio of marketable securities. Interest income for the six months ended October 2, 2005 of $12.9 million increased by $4.7 million compared to the same period in the prior year, also due to increased yields on our portfolio of marketable securities.

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Income Taxes

      Our effective income tax rate related to continuing operations increased from 35% in fiscal 2005 to 37.7% and 39.4% during the three and six months ended October 2, 2005, respectively. The increase in the estimated annual effective tax rate for fiscal 2006 is the result of investments in foreign operations and a continued reduction of benefits derived from both the extraterritorial income exclusion and research credits. The income tax rate declined to 37.7% during the second quarter of fiscal 2006 compared to 41.2% in the first quarter of fiscal 2006 primarily due to the resolution of a routine tax examination during the second quarter, which had a favorable impact on our estimated annual effective income tax rate for fiscal 2006.

Discontinued Operations

      Income from discontinued operations, net of income taxes, consists of direct revenues and direct expenses of the Business, including cost of revenues, as well as other fixed and allocated costs to the extent that such costs will be eliminated as a result of the transaction. General corporate overhead costs have not been allocated to discontinued operations. A summary of the operating results of the Business included in discontinued operations in the accompanying condensed consolidated statements of operations is as follows:

	Three Months Ended				Six Months Ended
	October 2,		September 26,		October 2,		September 26,
	2005		2004		2005		2004
	(In millions)
Net revenues	$	38.1	$	32.3	$	81.5	$	63.5
Income from discontinued operations, net of income taxes	$	12.5	$	10.5	$	26.0	$	19.8

      Net revenues for the three months ended October 2, 2005 increased $5.8 million, or 18%, from the three months ended September 26, 2004 due to a 53% increase in shipments, partially offset by a 22% decrease in average selling prices. Income from discontinued operations, net of income taxes, for the three months ended October 2, 2005 increased by $2.0 million, or 20%, from the prior year primarily due to the increase in revenue.

      Net revenues for the six months ended October 2, 2005 increased $18.0 million, or 28%, from the six months ended September 26, 2004 due to a 71% increase in shipments, partially offset by a 25% decrease in average selling prices. Income from discontinued operations, net of income taxes, for the six months ended October 2, 2005 increased by $6.2 million, or 31%, from the prior year primarily due to the increase in revenue.

Liquidity and Capital Resources

      Our combined balances of cash and cash equivalents and short-term investments have decreased to $634.1 million at October 2, 2005, compared to $812.3 million at April 3, 2005. Our working capital, during the six months ended October 2, 2005, decreased $210.7 million to $660.0 million. The decrease in cash and short-term investments and the decrease in working capital is due primarily to the repurchase of our common stock during the six months ended October 2, 2005 pursuant to our stock repurchase programs, partially offset by our cash generated by operations. We believe that our existing cash and cash equivalent balances, short-term investments and cash flows from operating activities will provide sufficient funds to finance our operations for at least the next 12 months. However, it is possible that we may need to supplement our existing sources of liquidity to finance our activities beyond the next 12 months or for the future acquisition of businesses, products or technologies. In addition, our future capital requirements will depend on a number of factors, including changes in the markets we address, our revenues and the related manufacturing and operating costs, product development efforts and requirements for production capacity. In order to fund any additional capital requirements, we may seek to obtain debt financing or issue additional shares of our common stock. There can be no assurance that any additional financing, if necessary, will be available on terms acceptable to us or at all.

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      Cash provided by operating activities was $68.1 million for the six months ended October 2, 2005 and $57.1 million for the six months ended September 26, 2004. The increase in the cash provided by operating activities was due to the increase in income from continuing operations and changes in certain non-cash tax items, offset by the timing of certain working capital items, during the six months ended October 2, 2005 compared to the corresponding period of the prior year. Operating cash flow for the six months ended October 2, 2005 reflects our income from continuing operations of $58.8 million, net non-cash charges (depreciation and amortization, deferred income taxes and other) of $12.1 million, and a net increase in the non-cash components of our working capital of $2.8 million. The increase in the non-cash components of working capital was primarily due to a $10.2 million increase in accounts receivable associated with the expansion of our business, a $2.6 million increase in inventories and a decrease of $4.3 million in accrued compensation resulting from certain payments made in fiscal 2006, partially offset by a decrease of $3.2 million in other assets and a $6.7 million increase in income taxes payable and a $4.4 million increase in operating liabilities due to the timing of payment obligations.

      Cash provided by investing activities of $51.7 million for the six months ended October 2, 2005 consists of net sales and maturities of marketable securities of $64.1 million, partially offset by additions to property and equipment of $12.4 million. During the six months ended September 26, 2004, cash used in investing activities of $16.5 million included net purchases of marketable securities of $9.6 million and additions to property and equipment of $6.9 million.

      As our business grows, we expect capital expenditures to increase in the future as we continue to invest in machinery and equipment, more costly engineering and production tools for new technologies, and enhancements to our corporate information technology infrastructure.

      Cash used in financing activities of $260.3 million for the six months ended October 2, 2005 resulted from our purchase of $268.3 million of treasury stock, partially offset by $8.0 million of proceeds from the issuance of common stock under our stock plans. During the six months ended September 26, 2004, the $46.4 million of cash used in financing activities resulted from the use of $50.0 million for the purchase of treasury stock, partially offset by $3.6 million of proceeds from the issuance of common stock under our stock plans.

      In October 2002, the Board of Directors approved a stock repurchase program that authorized us to repurchase up to $100 million of our outstanding common stock for a two-year period. In June 2004, the Board of Directors approved an additional stock repurchase program that authorized us to repurchase up to an additional $100 million of our outstanding common stock for a two-year period. A new stock repurchase program was approved by the Board of Directors in August 2005 that authorized us to repurchase up to an additional $350 million of our outstanding common stock for a two-year period. During the six months ended October 2, 2005, we repurchased the remaining $55 million available under the June 2004 plan, consisting of 1.7 million shares, and repurchased an additional 7.3 million shares for an aggregate purchase price of $247.2 million under the August 2005 plan. In October 2005, we repurchased 3.1 million shares of our common stock for $102.8 million, thereby completing the August 2005 stock repurchase plan. Since fiscal 2003, we have repurchased a total of $550 million of our common stock under programs authorized by our Board of Directors.

      In August 2005, we entered into a definitive agreement to sell our hard disk drive controller and tape drive controller business to Marvell for $225 million, consisting of $180 million in cash and $45 million in Marvell’s common stock. The common stock to be received is subject to certain resale restrictions under federal securities laws. The agreement also provides for $12 million of the consideration to be placed in escrow to secure our obligations under certain representation and warranty provisions. We expect this transaction to close during the third quarter of fiscal 2006.

      We have certain contractual obligations and commitments to make future payments in the form of non-cancelable purchase orders to our suppliers and commitments under operating lease arrangements. A

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summary of our contractual obligations, from continuing and discontinued operations, and their impact on our cash flows in future fiscal years is as follows:

		2006
		(Remaining
		six months)		2007		2008		2009		Thereafter		Total
		(In millions)
Operating leases		$	2.6	$	4.1	$	1.4	$	1.0	$	0.5	$	9.6
Non-cancelable purchase obligations			34.2		0.1		—		—		—		34.3
	Total	$	36.8	$	4.2	$	1.4	$	1.0	$	0.5	$	43.9

      Contractual obligations related to discontinued operations represented $15.3 million of the $43.9 million presented above.

Critical Accounting Policies and Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe the accounting policies described below to be our most critical accounting policies. These accounting policies are affected significantly by judgments, assumptions and estimates used in the preparation of the financial statements and actual results could differ materially from the amounts reported based on these policies.

Revenue and Accounts Receivable

      We sell our products domestically and internationally to OEMs and distributors. Our significant customers include leading storage solution providers, server OEMs and storage OEMs.

      We recognize revenue from product sales when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) our price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured.

      For all sales, we use a binding purchase order or a signed agreement as evidence of an arrangement. Delivery occurs when goods are shipped and title and risk of loss transfers to the customer, in accordance with the terms specified in the arrangement with the customer. The customer’s obligation to pay and the payment terms are set at the time of shipment and are not dependent on the subsequent resale of our products. However, certain of our sales are made to distributors under agreements which contain a limited right to return unsold product and price protection provisions. We recognize revenue from these distributors when the product is sold by the distributor to a third party. At times, we provide standard incentive programs to our distributor customers and account for such programs in accordance with Emerging Issues Task Force Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” Accordingly, we account for our competitive pricing incentives, which generally reflect front-end price adjustments, as a reduction of revenue at the time of sale, and rebates as a reduction of revenue in the period the related revenue is recorded based on the specific program criteria. Royalty and service revenue is recognized when earned and receipt is assured.

      An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our customers to make required payments. This reserve is determined by analyzing specific customer accounts and applying historical loss rates to the aging of remaining accounts receivable balances. If the financial condition of our customers were to deteriorate, resulting in their inability to pay their accounts when due, additional reserves might be required.

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      We record provisions against revenue and cost of revenue for estimated product returns and allowances such as competitive pricing programs and rebates in the same period that revenue is recognized. These provisions are based on historical experience as well as specifically identified product returns and allowance programs. Additional reductions to revenue would result if actual product returns or pricing adjustments exceed our estimates.

Inventories

      Inventories are valued at the lower of cost or market on a first-in, first-out basis. We write down the carrying value of our inventory to market value for estimated obsolete or excess inventory based upon assumptions about future demand and market conditions. We compare current inventory levels on a product basis to our current sales forecasts in order to assess our inventory balance. Our sales forecasts are based on economic conditions and trends (both current and projected), anticipated customer demand and acceptance of our current products, expected future products and other assumptions. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.

New Accounting Pronouncement

      In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment” which supersedes SFAS 123, Accounting Principles Board Opinion No. 25 and related interpretations, and amends SFAS No. 95, “Statement of Cash Flows.” The provisions of SFAS 123R are similar to those of SFAS 123, however SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of share-based awards will be determined using option-pricing models (e.g. Black-Scholes or binomial models) and assumptions that appropriately reflect the specific circumstances of the awards. Compensation cost will be recognized over the vesting period based on the fair value of awards that actually vest.

      We will be required to choose between the modified-prospective and modified-retrospective transition alternatives in adopting SFAS 123R. Under the modified-prospective transition method, compensation cost would be recognized in financial statements issued subsequent to the date of adoption for all share-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. As we previously adopted only the pro forma disclosure provisions of SFAS 123, we would, under this method, recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS 123. Under the modified-retrospective transition method, compensation cost would be recognized in a manner consistent with the modified-prospective transition method, however, prior period financial statements would also be restated by recognizing compensation cost as previously reported in the pro forma disclosures under SFAS 123. The restatement provisions can be applied to either (i) all periods presented or (ii) to the beginning of the fiscal year in which SFAS 123R is adopted.

      SFAS 123R is effective at the beginning of the first annual period beginning after June 15, 2005 (for us, fiscal 2007) and early adoption is encouraged. We will evaluate the use of certain option-pricing models as well as the assumptions to be used in such models. When such evaluation is complete, we will determine the transition method to use and the timing of adoption. We do not currently anticipate that the impact on net income on a full year basis of the adoption of SFAS 123R will be significantly different from the historical pro forma impact as disclosed in accordance with SFAS 123.

RISK FACTORS

      Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause our actual results of operations to differ materially from the results contemplated by the forward-looking statements contained in this report.

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Our operating results may fluctuate, in future periods, which could cause our stock price to decline.

      We have experienced, and expect to experience in future periods, fluctuations in sales and operating results from quarter to quarter. In addition, there can be no assurance that we will maintain our current gross margins or profitability in the future. A significant portion of our net revenues in each fiscal quarter result from orders booked in that quarter. Orders placed by major customers are typically based on their forecasted sales and inventory levels for our products. Fluctuations in our quarterly operating results may be the result of:

•  the timing, size and mix of orders from customers;

•  gain or loss of significant customers;

•  customer policies pertaining to desired inventory levels of our products;

•  negotiated rebates and extended payment terms;

•  changes in our ability to anticipate in advance the mix of customer orders;

•  levels of inventory our customers require us to maintain in our inventory hub locations;

•  the time, availability and sale of new products;

•  changes in the mix or average selling prices of our products;

•  variations in manufacturing capacities, efficiencies and costs;

•  the availability and cost of components, including silicon chips;

•  warranty expenses;

•  variations in product development costs, especially related to advanced technologies;

•  variations in operating expenses;

•  adjustments related to product returns;

•  changes in effective income tax rates, including those resulting from changes in tax laws;

•  actual events, circumstances, outcomes and amounts differing from judgments, assumptions and estimates used in determining the value of certain assets (including the amounts of related valuation allowances), liabilities and other items reflected in our consolidated financial statements;

•  changes in accounting rules;

•  changes in our accounting policies;

•  general economic and other conditions affecting the timing of customer orders and capital spending; or

•  changes in the global economy that impact information technology spending.

      Our quarterly results of operations are also influenced by competitive factors, including the pricing and availability of our products and our competitors’ products. Although we do not maintain our own silicon chip manufacturing facility, portions of our expenses are fixed and difficult to reduce in a short period of time. If net revenues do not meet our expectations, our fixed expenses could adversely affect our gross profit and net income until net revenues increase or until such fixed expenses are reduced to an appropriate level. Furthermore, announcements regarding new products and technologies could cause our customers to defer or cancel purchases of our products. Order deferrals by our customers, delays in our introduction of new products, and longer than anticipated design-in cycles for our products have in the past adversely affected our quarterly results of operations. Due to these factors, as well as other unanticipated factors, it is likely that in some future quarter or quarters our operating results will be below the expectations of public market analysts or investors, and as a result, the price of our common stock could significantly decrease.

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We expect gross margin to vary over time, and our recent level of gross margin may not be sustainable.

      Our recent level of gross margins may not be sustainable and may be adversely affected by numerous factors, including:

•  changes in customer, geographic or product mix;

•  introduction of new products, including products with price-performance advantages;

•  our ability to reduce production costs;

•  entry into new markets;

•  sales discounts;

•  increases in material or labor costs;

•  excess inventory and inventory holding charges;

•  increased price competition;

•  changes in distribution channels;

•  increased warranty costs; and

•  how well we execute our business strategy and operating plans.

Our revenues may be affected by changes in IT spending levels.

      In the past, unfavorable or uncertain economic conditions and reduced global IT spending rates have adversely affected the markets in which we operate. We are unable to predict changes in general economic conditions and when global IT spending rates will be affected. Furthermore, even if IT spending rates increase, we cannot be certain that the market for SAN solutions will be positively impacted. If there are future reductions in either domestic or international IT spending rates, or if IT spending rates do not increase, our revenues, operating results and financial condition may be adversely affected.

Our stock price may be volatile which could affect the value of your investment.

      The market price of our common stock has fluctuated substantially, and there can be no assurance that such volatility will not continue. Several factors could impact our stock price including, but not limited to:

•  announcements concerning our competitors, our customers, or us;

•  quarterly fluctuations in our operating results;

•  differences between our actual operating results and the published expectations of analysts;

•  introduction of new products or changes in product pricing policies by our competitors or us;

•  conditions in the semiconductor industry;

•  changes in market projections by industry forecasters;

•  changes in estimates of our earnings by industry analysts;

•  overall market conditions for high technology equities;

•  rumors or dissemination of false information; and

•  general economic and geopolitical conditions.

      In addition, stock markets have experienced extreme price and volume volatility in recent years and stock prices of technology companies have been especially volatile. This volatility has had a substantial effect on the market prices of securities of many public companies for reasons frequently unrelated to the operating

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performance of the specific companies. These broad market fluctuations could adversely affect the market price of our common stock.

Our business is dependent on the continued growth of the SAN market and if this market does not continue to develop and expand as we anticipate, our business will suffer.

      A significant number of our products are used in SANs and, therefore, our business is dependent on the SAN market. Accordingly, the widespread adoption of SANs for use in organizations’ computing systems is critical to our future success. SANs are often implemented in connection with the deployment of new storage systems and servers. Therefore, our future success is also substantially dependent on the market for new storage systems and servers. Our success in generating revenue in the SAN market will depend on, among other things, our ability to:

•  educate potential OEM customers, distributors, resellers, system integrators, storage service providers and end-user organizations about the benefits of SANs;

•  maintain and enhance our relationships with OEM customers, distributors, resellers, system integrators and storage system providers;

•  predict and base our products on standards which ultimately become industry standards; and

•  achieve interoperability between our products and other SAN components from diverse vendors.

Our financial condition will be materially harmed if we do not maintain and gain market or industry acceptance of our products.

      The markets in which we compete involve rapidly changing technology, evolving industry standards and continuing improvements in products and services. Our future success depends, in part, on our ability to:

•  enhance our current products and develop and introduce in a timely manner new products that keep pace with technological developments and industry standards;

•  compete effectively on the basis of price and performance; and

•  adequately address OEM customer and end-user customer requirements and achieve market acceptance.

      We believe that to remain competitive in the future, we will need to continue to develop new products, which will require a significant investment in new product development. Our competitors are developing alternative technologies, such as iSCSI software initiator, SAS, SATA and InfiniBand^tm that may compete with the market acceptance of our Fibre Channel products. Although we continue to explore and develop products based on new technologies, a substantial portion of our revenues is generated from Fibre Channel technology. If alternative technologies are adopted by the industry, we may not be able to develop products for new technologies in a timely manner. Further, even if alternative technologies do augment Fibre Channel revenues, our products may not be fully developed in time to be accepted by our customers. Even if our new products are developed on time, we may not be able to manufacture them at competitive prices in sufficient volumes.

We depend on a limited number of customers, and any decrease in revenue or cash flows from any one of our customers could adversely affect our results of operations and cause our stock price to decline.

      A small number of customers account for a substantial portion of our net revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our net revenues in the foreseeable future. Our top ten customers accounted for 77% and 78% of net revenues for the six months ended October 2, 2005 and fiscal year ended April 3, 2005, respectively. We are also subject to credit risk associated with the concentration of our accounts receivable. The loss of any of our major customers could have a material adverse effect on our business, financial condition or results of operations.

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      Additionally, some of these customers are based in the Pacific Rim region, which is subject to economic and political uncertainties. Our customers generally order products through written purchase orders as opposed to long-term supply contracts and, therefore, such customers are generally not obligated to purchase products from us for any extended period. Major customers also have significant leverage over us and may attempt to change the terms, including pricing and payment terms, which could have a material adverse effect on our business, financial condition or results of operations. This risk is increased due to the potential for some of these customers to merge with or acquire one or more of our other customers. As our OEM customers are pressured to reduce prices as a result of competitive factors, we may be required to contractually commit to price reductions for our products before we know how, or if, cost reductions can be obtained. If we are unable to achieve such cost reductions, our gross margins could decline and such decline could have a material adverse effect on our business, financial condition or results of operations.

Our business may be subject to seasonal fluctuations and uneven sales patterns in the future.

      Many of our OEM customers experience seasonality and uneven sales patterns in their businesses. For example, some of our customers close a disproportionate percentage of their sales transactions in the last month, weeks and days of each quarter; and some customers experience spikes in sales during the fourth calendar quarter of each year. Since a large percentage of our products are sold to OEM customers who experience seasonal fluctuations and uneven sales patterns in their businesses, we could continue to experience similar seasonality and uneven sales patterns. In addition, as our customers increasingly require us to maintain products at hub locations near their facilities, it becomes easier for our customers to order products with very short lead times, which makes it increasingly difficult for us to predict sales trends. In addition, our quarterly fiscal periods often do not correspond with the fiscal quarters of our customers, and this may result in uneven sales patterns between quarters. It is difficult for us to evaluate the degree to which the seasonality and uneven sales patterns of our OEM customers may affect our business in the future because the historical growth of our business may have lessened the effect of this seasonality and uneven sales patterns on our business in the past.

Competition within our product markets is intense and includes numerous established competitors.

      The markets for our products are highly competitive and are characterized by short product life cycles, price erosion, rapidly changing technology, frequent product performance improvements and evolving industry standards. In the Fibre Channel HBA market, we compete primarily with Emulex Corporation. In the iSCSI HBA market, we compete primarily with Adaptec, Inc. In the switch products sector, we compete primarily with Brocade Communications Systems, Inc., Cisco Systems, Inc. and McDATA Corporation. We may compete with some of our computer and storage systems customers, some of which have the capability to develop integrated circuits for use in their own products.

      We need to continue to develop products appropriate to our markets to remain competitive as our competitors continue to introduce products with improved performance characteristics. While we continue to devote significant resources to research and development, these efforts may not be successful or competitive products may not be developed and introduced in a timely manner. Further, several of our competitors have greater resources devoted to securing semiconductor foundry capacity because of long-term agreements regarding supply flow, equity or financing agreements or direct ownership of a foundry. In addition, while relatively few competitors offer a full range of SAN products, additional domestic and foreign manufacturers may increase their presence in these markets. We may not be able to compete successfully against these or other competitors. If we are unable to design, develop or introduce competitive new products on a timely basis, our future operating results will be materially and adversely affected.

We expect the pricing of our products to continue to decline, which could reduce our revenues, gross margins and profitability.

      We expect the average unit prices of our products (on a product to product comparison basis) to decline in the future as a result of competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors, or other factors. If we are unable to offset these factors by increasing sales volumes, or reducing product manufacturing cost, our total revenues and gross margins may decline. In addition, to

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maintain our gross margins we must maintain or increase current shipment volumes, develop and introduce new products and product enhancements, and we must continue to reduce the manufacturing cost of our products. Moreover, most of our expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, we may not be able to decrease our spending to offset any unexpected shortfall in revenues. If this occurs, our operating results and gross margins may be below our expectations and the expectations of investors and stock market analysts, and our stock price could be negatively affected.

Our distributors may not adequately distribute our products and their reseller customers may purchase products from our competitors, which could negatively affect our operations.

      Our distributors generally offer a diverse array of products from several different manufacturers and suppliers. Accordingly, we are at risk that these distributors may give higher priority to selling products from other suppliers, thus reducing their efforts to sell our products. A reduction in sales efforts by our current distributors could materially and adversely impact our business or operating results. In addition, if we decrease our distributor-incentive programs (i.e., competitive pricing and rebates), our distributors may temporarily decrease the amounts of product purchased from us. This could result in a change of business habits, and distributors may decide to decrease the amount of product held and reduce their inventory levels, which could impact availability of our products to their customers.

      As a result of the aforementioned factors regarding our distributors or other unrelated factors, the reseller customers of our distributors could decide to purchase products developed and manufactured by our competitors. Any loss of demand for our products by value-added resellers and system integrators could have a material adverse effect on our business or operating results.

We rely on the availability of third-party licenses.

      Many of our products are designed to include software or other intellectual property licensed from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that necessary licenses will be available on acceptable terms, if at all. The inability to obtain certain licenses or to obtain such licenses on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse impact on our business, operating results and financial condition.

We are dependent on sole source and limited source suppliers for certain key components.

      We purchase certain key components used in the manufacture of our products from single or limited sources. We purchase application specific integrated circuits, or ASICs, from a single source, and we purchase microprocessors, certain connectors, logic chips, power supplies and programmable logic devices from limited sources.

      We use forecasts based on anticipated product orders to determine our component requirements. If we overestimate component requirements, we may have excess inventory, which would increase our costs. If we underestimate component requirements, we may have inadequate inventory, which could interrupt the manufacturing process and result in lost or deferred revenue. In addition, lead times for components vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. We also may experience shortages of certain components from time to time, which could also delay the manufacturing processes.

We depend on our relationships with silicon chip suppliers and other subcontractors, and a loss of any of these relationships may lead to unpredictable consequences that may harm our results of operations if alternative supply sources are not available.

      We currently rely on multiple foundries to manufacture our semiconductor products either in finished form or wafer form. We generally conduct business with these foundries through written purchase orders as opposed to long-term supply contracts. Therefore, these foundries are generally not obligated to supply products to us for any specific period, in any specific quantity or at any specific price, except as may be

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provided in a particular purchase order. If a foundry terminates its relationship with us or if our supply from a foundry is otherwise interrupted, we may not have a sufficient amount of time to replace the supply of products manufactured by that foundry. As a result, we may not be able to meet customer demands, which would harm our business.

      Historically, there have been periods when there has been a worldwide shortage of advanced process technology foundry capacity. The manufacture of semiconductor devices is subject to a wide variety of factors, including the availability of raw materials, the level of contaminants in the manufacturing environment, impurities in the materials used and the performance of personnel and equipment. We are continuously evaluating potential new sources of supply. However, the qualification process and the production ramp-up for additional foundries have in the past taken, and could in the future take, longer than anticipated. New supply sources may not be able or willing to satisfy our silicon chip requirements on a timely basis or at acceptable quality or unit prices.

      We have not developed alternate sources of supply for some of our products. For example, our integrated single chip Fibre Channel controller is manufactured by LSI Logic and integrates LSI Logic’s transceiver technology. In the event that LSI Logic is unable or unwilling to satisfy our requirements for this technology, our marketing efforts related to Fibre Channel products would be delayed and, as such, our results of operations could be materially and adversely affected. The requirement that a customer perform additional product qualifications, or a customer’s inability to obtain a sufficient supply of products from us, may cause that customer to satisfy its product requirements from our competitors. Constraints or delays in the supply of our products, due to capacity constraints, unexpected disruptions at foundries or with our subcontractors, delays in obtaining additional production at the existing foundries or in obtaining production from new foundries, shortages of raw materials or other reasons, could result in the loss of customers.

Our products are complex and may contain undetected software or hardware errors that could lead to an increase in our costs, reduce our net revenues or damage our reputation.

      Our products are complex and may contain undetected software or hardware errors when first introduced or as newer versions are released. We are also exposed to risks associated with latent defects in existing products. From time to time, we have found errors in existing, new or enhanced products. The occurrence of hardware or software errors could adversely affect the sales of our products, cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems.

The migration of our customers toward new products may result in fluctuations of our operating results.

      As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize the effects of product inventories that may become excess and obsolete, as well as ensure that sufficient supplies of new products can be delivered to meet customer demands. Our failure to manage the transition to newer products in the future or to develop and successfully introduce new products and product enhancements could adversely affect our business or financial results. When we introduce new products and product enhancements, we face risks relating to product transitions, including risks relating to forecasting demand, as well as possible product and software defects. If any of these factors were to occur, it could have a material adverse effect on our business, financial condition or results of operations.

      Historically, the electronics industry has developed higher performance ASICs, which create chip level solutions that replace selected board level or box level solutions at a significantly lower average selling price. We have previously offered ASICs to customers for certain applications that have effectively resulted in a lower-priced solution when compared to an HBA solution. This transition to ASICs may also occur with respect to other current and future products. The result of this transition may have an adverse effect on our business, financial condition or results of operations. In the future, a similar adverse effect to our business could occur if there were rapid shifts in customer purchases from our midrange server and storage solutions to products for the small and medium-sized business market.

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If our internal control over financial reporting do not comply with the requirements of the Sarbanes-Oxley Act, our business and stock price could be adversely affected.

      Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate periodically the effectiveness of our internal control over financial reporting, and to include a management report assessing the effectiveness of our internal controls as of the end of each fiscal year. Section 404 also requires our independent public accountant to attest to, and report on, management’s assessment of our internal controls over financial reporting.

      Our management does not expect that our internal control over financial reporting will prevent all errors or frauds. 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 controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, involving us have been, or will be, detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of a person, or by collusion among two or more people, or by management override of the controls. 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, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or frauds may occur and not be detected.

      Our management has determined that our disclosure controls and procedures were effective as of October 2, 2005 and that there was no change in our internal control over financial reporting during our quarter ended October 2, 2005 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we cannot assure you that we or our independent public accountant will not identify a material weakness in our internal controls in the future. A material weakness in our internal control over financial reporting would require management and our independent public accountant to evaluate our internal controls as ineffective. If our internal control over financial reporting is not considered adequate, we may experience a loss of public confidence, which could have an adverse effect on our business and our stock price.

Environmental compliance costs could adversely affect our net income.

      Many of our products are subject to various laws governing chemical substances in products, including those regulating the manufacture and distribution of chemical substances and those restricting the presence of certain substances in electronic products. We could incur substantial costs, or our products could be enjoined from entering certain countries, if our products become non-compliant with environmental laws. We also face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the materials composition of our products, including the restrictions on lead and certain other substances that will apply to specified electronic products put on the market in the European Union as of July 1, 2006 (Restriction of Hazardous Substances Directive) and similar legislation currently proposed for China. The European Union has finalized the Waste Electrical and Electronic Equipment, or WEEE, Directive which makes producers of electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. These and similar laws adopted in other countries could impose a significant cost of doing business in those countries.

Terrorist activities and resulting military actions could adversely affect our business.

      Terrorist attacks have disrupted commerce throughout the United States and Europe. The continued threat of terrorism within the United States, Europe and the Pacific Rim, and the military action and heightened security measures in response to such threat, may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders,

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interruptions or delays in our receipt of products from our suppliers, delays in collecting cash, a general decrease in corporate spending on information technology, or our inability to effectively market, manufacture or ship our products, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have any long-term material adverse effect on our business, financial condition or results of operations.

Because we depend on foreign customers and suppliers, we are subject to international economic, regulatory, political and other risks that could harm our financial condition and results of operations.

      International revenues accounted for 44% and 47% of our net revenues for the six months ended October 2, 2005 and fiscal year ended April 3, 2005, respectively. We expect that international revenues will continue to account for a significant percentage of our net revenues for the foreseeable future. In addition, a significant portion or our inventory purchases are from suppliers that are located in Pacific Rim countries. As a result, we are subject to several risks, which include:

•  a greater difficulty of administering and managing our business globally;

•  compliance with multiple and potentially conflicting regulatory requirements, such as export requirements, tariffs and other barriers;

•  differences in intellectual property protections;

•  potentially longer accounts receivable cycles;

•  currency fluctuations;

•  export control restrictions;

•  overlapping or differing tax structures;

•  political and economic instability; and

•  general trade restrictions.

      Our international sales are invoiced in U.S. dollars and, accordingly, if the relative value of the U.S. dollar in comparison to the currency of our foreign customers should increase, the resulting effective price increase of our products to such foreign customers could result in decreased sales. There can be no assurance that any of the foregoing factors will not have a material adverse effect on our business, financial condition or results of operations.

We may engage in mergers, acquisitions and strategic investments and these activities may adversely affect our results of operations and stock price.

      Our future growth may depend in part on our ability to identify and acquire complementary businesses, technologies or product lines that are compatible with ours. Mergers and acquisitions involve numerous risks, including:

•  uncertainties in identifying and pursuing target companies;

•  difficulties in the assimilation of the operations, technologies and products of the acquired companies;

•  the diversion of management’s attention from other business concerns;

•  risks associated with entering markets or conducting operations with which we have no or limited direct prior experience;

•  the potential loss of current customers or failure to retain the acquired company’s customers; and

•  the potential loss of key employees of the acquired company.

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      Further, we may never realize the perceived benefits of a business combination. Future acquisitions by us could dilute stockholders’ investment and cause us to incur debt, contingent liabilities and amortization/impairment charges related to intangible assets, all of which could materially and adversely affect our financial position or results of operations.

      We have made, and could make in the future, investments in technology companies, including privately held companies in a development stage. Many of these private equity investments are inherently risky because the companies’ businesses may never develop, and we may incur losses related to these investments. In addition, we may be required to write down the carrying value of these investments to reflect other than temporary declines in their value, which could have a materially adverse effect on our financial position and results of operations.

Our business could be materially and adversely affected as a result of the risks associated with strategic alliances.

      We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into emerging markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to continue or expand such relationships could have a material adverse effect on our business, financial condition or results of operations.

      There can be no assurance that companies with which we have strategic alliances, some of which have substantially greater financial, marketing and technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors.

Growth may strain our operations and require that we incur costs to upgrade our infrastructure.

      We have experienced a period of growth and expansion. Our growth and expansion has placed, and continues to place, a strain on our resources. Unless we manage this growth and future growth effectively, we may encounter challenges in executing our business, such as sales forecasting, material planning and inventory management, which may result in unanticipated fluctuations in our operating results. In addition, we test most of our products prior to shipment. If our capacity to conduct this testing does not expand concurrently with the anticipated growth of our business, product shipments could be delayed, which could result in delayed or lost revenues and customer dissatisfaction.

If we are unable to attract and retain key personnel, we may not be able to sustain or grow our business.

      Our future success largely depends on our key engineering, sales, marketing and executive personnel, including highly skilled semiconductor design personnel and software developers. If we lose the services of key personnel or fail to hire personnel for key positions, our business would be adversely affected. We believe that the market for key personnel in the industries in which we compete is highly competitive. In particular, periodically we have experienced difficulty in attracting and retaining qualified engineers and other technical personnel and anticipate that competition for such personnel will increase in the future. We may not be able to attract and retain key personnel with the skills and expertise necessary to develop new products in the future or to manage our business, both in the United States and abroad.

Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees, and changes in accounting for equity compensation could adversely affect earnings.

      We have historically used stock options and other forms of equity-related compensation as key components of our total rewards employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. In recent periods, many of our employee stock options have had exercise prices in excess of our stock price, which reduces their value to employees and could affect our ability to retain or attract present and prospective employees. In addition, the FASB has adopted changes to United States generally accepted

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accounting principles that require us and other companies to record a charge to earnings for employee stock option grants and other equity incentives as of the beginning of the first annual period beginning after June 15, 2005 (for us, fiscal 2007). Moreover, applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future, which may result in changes in our equity compensation strategy. These and other developments relating to the provision of equity compensation to employees could make it more difficult to attract, retain and motivate employees and result in additional expense to us.

We may experience difficulties in transitioning to smaller geometry process technologies.

      We expect to continue to transition our semiconductor products to increasingly smaller line width geometries. This transition requires us to modify the manufacturing processes for our products and to redesign some products as well as standard cells and other integrated circuit designs that we may use in multiple products. We periodically evaluate the benefits, on a product by product basis, of migrating to smaller geometry process technologies. Currently, most of our products are manufactured in 0.25, 0.18 and 0.13 micron geometry processes. In addition, we have begun to migrate some of our products to 90 nanometer process technology. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes, which resulted in reduced manufacturing yields, delays in product deliveries and increased expenses. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller geometry processes.

Our proprietary rights may be inadequately protected and difficult to enforce.

      Although we have patent protection on certain aspects of our technology in some jurisdictions, we rely primarily on trade secrets, copyrights and contractual provisions to protect our proprietary rights. There can be no assurance that these protections will be adequate to protect our proprietary rights, that others will not independently develop or otherwise acquire equivalent or superior technology or that we can maintain such technology as trade secrets. There also can be no assurance that any patents we possess will not be invalidated, circumvented or challenged. In addition, the laws of certain countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products and intellectual property rights to the same extent as the laws of the United States or at all. If we fail to protect our intellectual property rights, our business would be negatively impacted.

Disputes relating to claimed infringement of intellectual property rights may adversely affect our business.

      We have received notices of claimed infringement of intellectual property rights in the past, and have been involved in intellectual property litigation in the past. There can be no assurance that third parties will not assert future claims of infringement of intellectual property rights against us with respect to existing and future products. Although patent and intellectual property disputes may be settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and the necessary licenses or similar arrangements may not be available to us on satisfactory terms or at all. As a result, we could be prevented from manufacturing and selling some of our products. In addition, if we litigate these kinds of claims, the litigation could be expensive and time consuming and could divert management’s attention from other matters. Our business could suffer regardless of the outcome of the litigation. Our supply of silicon chips and other components can also be interrupted by intellectual property infringement claims against our suppliers.

Changes in income tax laws or adverse outcomes resulting from examination of our income tax returns could adversely affect our net income.

      We are subject to income taxes in the United States and various foreign jurisdictions. Our effective tax rates have recently been and could in the future be adversely affected by changes in tax laws or interpretations thereof, by changes in the mix of earnings in countries with differing statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. Additionally, we are subject to the continuous examination

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of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. However, there can be no assurance that the outcomes from these continuous examinations will not have a material adverse effect on our financial condition or results of operations.

Computer viruses and other forms of tampering with our computer systems or servers may disrupt our operations and adversely affect net income.

      Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse effect on our business, operating results or financial condition.

Our certificate of incorporation, bylaws and stockholder rights plan may discourage companies from acquiring us and offering our stockholders a premium for their stock.

      Pursuant to our certificate of incorporation, our board of directors is authorized to approve the issuance of shares of currently undesignated preferred stock without any vote or future action by the stockholders. Pursuant to this authority, in June 1996, our board of directors adopted a stockholder rights plan and declared a dividend of a right to purchase preferred stock for each outstanding share of our common stock. After adjustment for stock splits, our common stock now carries one-eighth of a preferred stock purchase right per share. The stockholder rights plan may have the effect of delaying, deferring or preventing a change in control of our stock. This may discourage bids for our common stock at a premium over the market price of the common stock and may adversely affect the market price of the common stock.

Our facilities and the facilities of our suppliers and customers are located in regions that are subject to natural disasters.

      Our California facilities, including our principal executive offices, our principal design facilities and our critical business operations are located near major earthquake faults. We are not specifically insured for earthquakes, or other natural disasters. Any personal injury or damage to the facilities as a result of such occurrences could have a material adverse effect on our business, results of operations or financial condition. Additionally, some of our products are manufactured or sold in regions which have historically experienced natural disasters. Any earthquake or other natural disaster, including a hurricane or tsunami, affecting a country in which our products are manufactured or sold could adversely affect our results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      We maintain a marketable securities investment portfolio of various holdings, types and maturities. In accordance with our investment guidelines, we only invest in instruments with high credit quality standards and we limit our credit exposure to any one issuer or type of investment. We do not use derivative financial instruments.

      Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of October 2, 2005, the carrying value of our cash and cash equivalents approximates fair value.

      Our short-term investment portfolio consists primarily of marketable debt securities, including government securities, corporate bonds, municipal bonds and other debt securities, which principally have remaining terms of two years or less. Consequently, such securities are not subject to significant interest rate risk. All of our marketable securities are classified as available for sale and, as of October 2, 2005, unrealized losses of $2.9 million (net of related income taxes) on these securities are included in accumulated other comprehensive income.

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Item 4. Controls and Procedures

      As of the end of the quarter ended October 2, 2005, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of October 2, 2005 to ensure that information required to be disclosed by us in reports that are filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting during our quarter ended October 2, 2005 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

OTHER INFORMATION

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

      On August 29, 2005, we announced a stock repurchase program covering repurchases of up to $350 million of our common stock. Set forth below is information regarding our stock repurchases made during the second quarter of fiscal year 2006 under our stock purchase program.

						Total Number of		Approximate Dollar
						Shares Purchased		Value of Shares that
		Total Number of		Average Price		as part of Publicly		May Yet be Purchased
Period		Shares Purchased		Paid per Share		Announced Plan		Under the Plan
July 4, 2005 — July 31, 2005			—	$	—		—	$	—
August 1, 2005 — August 28, 2005			—	$	—		—	$	—
August 29, 2005 — October 2, 2005			7,282,698	$	33.94		7,282,698	$	102,800,000
	Total		7,282,698	$	33.94		7,282,698	$	102,800,000

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

      a) The QLogic Corporation Annual Meeting of Stockholders was held on August 23, 2005.

      b) The following persons were elected to serve as directors of QLogic Corporation: H.K. Desai, Joel S. Birnbaum, Larry R. Carter, James R. Fiebiger, Balakrishnan S. Iyer, Carol L. Miltner and George D. Wells.

      c) The following is a tabulation of the votes of the stockholders of QLogic Corporation with respect to the proposals presented at the 2005 Annual Meeting of Stockholders:

										Broker
		For		Against		Withheld		Abstain		Non-Votes
(i)	Election of Directors:
	H.K. Desai		81,982,761		—		2,165,376		—		—
	Joel S. Birnbaum		83,147,777		—		1,000,360		—		—
	Larry R. Carter		83,192,041		—		956,096		—		—
	James R. Fiebiger		79,628,466		—		4,519,671		—		—
	Balakrishnan S. Iyer		79,545,238		—		4,602,899		—		—
	Carol L. Miltner		78,896,229		—		5,251,908		—		—
	George D. Wells		82,473,003		—		1,675,134		—		—
(ii)	Approval of QLogic Corporation 2005 Performance Incentive Plan		47,949,445		14,895,074		—		668,479		—
(iii)	Ratification of the appointment of KPMG LLP as independent auditors for fiscal year 2006		82,068,675		1,462,174		—		617,288		—

31

Item 6. Exhibits

      Exhibits

Exhibit No.
	10	.1	QLogic Corporation 2005 Performance Incentive Plan.*
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.

32

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.

QLogic Corporation

By:  /s/ H.K. Desai

H.K. Desai

Chairman of the Board,

Chief Executive Officer and President

By:  /s/ Anthony J. Massetti

Anthony J. Massetti

Senior Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: October 27, 2005

33

EXHIBIT INDEX

Exhibit No.
	10	.1	QLogic Corporation 2005 Performance Incentive Plan.*
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.