INTEGRATED TELECOM EXPRESS INC/ CA, S-1, 2000-06-13

INTEGRATED TELECOM EXPRESS INC/ CA
S-1, 2000-06-13

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

--------------------------

INTEGRATED TELECOM EXPRESS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3661 77-0403748
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

RICHARD FORTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2710 WALSH AVENUE
SANTA CLARA, CA 95051
(408) 980-8168

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

--------------------------

COPIES TO:

<TABLE>
<S> <C>
STEVEN E. BOCHNER MATTHEW W. SONSINI
Nora L. Gibson Jolene A. Yee
Carmen Chang Edward C. Lai
John K. Liu Cooley Godward LLP
Steven M. Brandenburg Five Palo Alto Square
Wilson Sonsini Goodrich & Rosati 3000 El Camino Real
Professional Corporation Palo Alto, California 94306
650 Page Mill Road (650) 843-5000
Palo Alto, California 94304
(650) 493-9300
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $0.001 par value............................... $115,000,000 $30,360
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.

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<PAGE>
The information in this prospectus is not complete and may be changed. We cannot
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 13, 2000

PROSPECTUS

[ L O G O ]
COMMON STOCK

------------------------------------------------------------

This is our initial public offering of shares of common stock. We are offering
shares. No public market currently exists for our shares.

We propose to list the shares on the Nasdaq National Market under the symbol
"ITXI." We anticipate the public offering price to be between $ and $
per share.

INVESTING IN OUR SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 5.

<TABLE>
<CAPTION>
Per
Share Total
-------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Integrated Telecom Express, Inc................. $ $
</TABLE>

We have granted the underwriters a 30 day option to purchase up to
additional shares of common stock solely to cover over-allotments of shares, if
any.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about , 2000.

--------------------------------------------------------------------------------

LEHMAN BROTHERS

BEAR, STEARNS & CO. INC.

WIT SOUNDVIEW

FIDELITY CAPITAL MARKETS
a division of National Financial
Services Corporation

, 2000
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]

[GRAPHICS]
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 5
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Selected Financial Data................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 31
</TABLE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management............................. 44
Certain Transactions................... 54
Principal Stockholders................. 58
Description of Capital Stock........... 61
Shares Eligible for Future Sale........ 64
Underwriting........................... 66
Legal Matters.......................... 68
Change of Independent Accountants...... 68
Experts................................ 69
Additional Information................. 69
Index to Financial Statements.......... F-1
</TABLE>

------------------------

ABOUT THIS PROSPECTUS

This prospectus contains forward-looking statements that involve risks and
uncertainties associated with our business and operations. We use words such as
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify such forward-looking statements. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described under "Risk Factors" beginning on page 5 and
elsewhere in this prospectus.

We have applied to register the trademarks "ITeX," "SAM" and "RapidSurf."
This prospectus also makes reference to trademarks and tradenames of other
companies. Such trademarks and tradenames are the property of the respective
companies that use them.

References throughout this prospectus to "ITeX" refer to us, Integrated
Telecom Express, Inc.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES
THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.

We design, develop and market integrated circuit and software solutions that
enable broadband access communications equipment manufacturers to deliver
high-speed asymmetric digital subscriber line, or ADSL, equipment to service
providers and their residential and business customers. Our ADSL products, which
include integrated circuits, software, reference designs and development tools,
are optimized to meet the specific challenges facing manufacturers of both
customer premises and central office ADSL equipment. Our Apollo and SAM product
families deliver a standards-compliant, interoperable, scalable and easy to
deploy solution that enables our customers to develop and offer high-performance
equipment and achieve rapid time-to-market. Our broad knowledge of integrated
circuit design, microprocessor architecture and embedded operating systems
allows us to deliver highly-scalable solutions that provide what we believe to
be among the longest reach in the industry with minimal power consumption.
Applications for our Apollo product family include personal computer network
interface cards, or PC NICs, central office digital subscriber line access
multiplexers, external modems, gateways and routers. Applications for our SAM
product family include personal computer motherboards, PC NICs and Internet
access devices. We have sold over $50,000 of our products to each of Alcatel
Bell N.V., Askey Computer Corporation, Aztech Systems Ltd., Bo Sung Hi-Net Ltd.,
CIS Technology Inc., Interlink System Co., Ltd., Lite-On Communications
Corporation, Nokia Corp., Tomis Information & Telecom Co., TurboComm Tech Inc.
and Xpeed, Inc. and have achieved an additional 23 design wins.

As the demand for high-speed Internet access has increased significantly
over the last several years, competition to provide broadband access to
residences and businesses has grown. This competition has fostered the
development of several alternative technologies to deliver high-speed,
always-connected and cost-effective access to the Internet. Service providers
deploying these technologies seek rapid and widespread adoption and require
communications equipment to be interoperable with other equipment, economical to
deploy, reliable and easy to install and use. Manufacturers of communications
equipment compete aggressively for this business and seek to provide
differentiated equipment that can be deployed rapidly on a global basis. Our
scalable and flexible integrated circuit and software solutions are
standards-compliant and interoperable, enabling equipment providers to achieve
rapid time-to-market with differentiated products. As product life cycles
shorten and standards evolve, we believe communications equipment manufacturers
will prefer to use our system-level solutions that streamline the component and
software selection process, reduce development time and provide for easy
end-user deployment.

Our products are designed to enhance the performance of ADSL equipment. Our
Apollo family products rely upon embedded digital signal processing to process
the ADSL signal, and our SAM family products rely upon an optimized partitioning
of application specific integrated circuits and software-based algorithms to
process the ADSL signal. The key benefits of our products include:

- STANDARDS COMPLIANCE AND INTEROPERABILITY. Our Apollo and SAM products
are compliant with international standards for ADSL equipment.
Additionally, our turn-key reference designs are interoperable with major
providers of ADSL equipment including Alcatel Bell N.V., Cisco Systems,
Inc., Lucent Technologies, Inc. and Nokia Corp.

- SCALABLE AND FLEXIBLE. Our scalable ADSL modem, or SAM, technology
provides an optimized partitioning of integrated circuitry and
software-based digital signal processing, offering efficient, low-cost,
low gate count, low power dissipation integrated circuit and software
solutions.

1
<PAGE>
- ENABLE RAPID TIME-TO-MARKET. Turn-key reference designs, standards
compliance and interoperability facilitate integration of our products
into our customers' systems thereby reducing time-to-market.

- HIGH PERFORMANCE AND RELIABILITY. Our high-performance turn-key reference
designs enable increased transmission rates over long distances and
maintain reliable connections under conditions of copper telephone line
interference.

- EASE OF INSTALLATION, USE AND UPGRADE. Our Apollo and SAM solutions are
designed to facilitate installation, operation and upgrading of ADSL
customer premises equipment with software that can be easily downloaded.

Our objective is to be the leading provider of integrated circuit and
software solutions to the broadband access equipment industry. The key elements
of our strategy are to:

- Leverage our technology strengths in integrated circuit design, digital
signal processing algorithms and driver and protocol software;

- Enable the rapid adoption of ADSL with turn-key reference designs;

- Strengthen and expand our relationships with key customers and suppliers
of broadband access communications equipment;

- Further penetrate worldwide markets for our products; and

- Target other high-growth broadband access market opportunities such as
high density line cards, small office and home office networks and other
variants of DSL.

Integrated Telecom Express, Inc. was incorporated in California on May 26,
1995, and reincorporated in Delaware on May 4, 1999. The address of our
principal executive offices is 2710 Walsh Avenue, Santa Clara, California 95051
where the telephone number is (408) 980-8689. Our Internet address on the
worldwide web is HTTP://WWW.ITEXINC.COM. Information contained on our website
does not constitute part of this prospectus.

2
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered by ITeX................. shares

Common stock offered in the private shares of common stock to NEC Corporation
placement..................................

Common stock to be outstanding after this
offering and the private placement......... shares

Use of proceeds.............................. For working capital and general corporate
purposes, including expenditures for research
and development of new products and sales and
marketing.

Proposed Nasdaq National Market symbol....... "ITXI"
</TABLE>

The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of May 31, 2000, and excludes:

- 10,330,343 shares of common stock issuable as of May 31, 2000 upon the
exercise of outstanding stock options issued under our option plans at a
weighted average exercise price of $3.20 per share;

- 2,500,000 shares of common stock reserved as of May 31, 2000 for issuance
under our stock option plans;

- 600,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and

- 1,214,286 shares of common stock issuable as of May 31, 2000 upon the
exercise of outstanding warrants with a weighted average exercise price of
$3.71 per share.

------------------------

EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES:

- THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR CONVERTIBLE PREFERRED
STOCK INTO 11,428,571 SHARES OF COMMON STOCK, AT A RATE OF ONE SHARE OF
PREFERRED STOCK INTO ONE SHARE OF COMMON STOCK IMMEDIATELY PRIOR TO THE
CLOSING OF THIS OFFERING;

- THE FILING OF AN AMENDED AND RESTATED CERTIFICATE OF INCORPORATION; AND

- THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.

3
<PAGE>
SUMMARY FINANCIAL DATA

The following table summarizes the consolidated financial data for our
business. You should read this information together with the financial
statements and the notes to those statements appearing elsewhere in this
prospectus. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $35,238 $35,238 $
Working capital............................................. 34,995 34,995
Total assets................................................ 50,253 50,253
Long-term obligations, net of current portion............... 1,125 1,125
Mandatorily redeemable convertible preferred stock.......... 43,393 --
Mandatorily redeemable convertible preferred stock
warrants.................................................. 1,607 --
Total stockholders' equity (deficit)........................ (1,534) 43,466
</TABLE>

In December 1997, we sold our Taiwanese subsidiary, Integrated Technology
Express (Taiwan), Inc. for $7.3 million and closed our non-ADSL U.S. operations.
These operations are reflected as discontinued operations in our statement of
operations and statement of cash flows for the year ended December 31, 1997. See
note 2 of Notes to Financial Statements for a further description of the
discontinued operations.

See note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.

The pro forma amounts above reflect the conversion of 11,428,571 shares of
convertible preferred stock into the same number of shares of common stock upon
the completion of this offering and the reclassification of convertible
preferred stock warrants to reflect the change in nature of the underlying
equity instrument to common stock.

The pro forma as adjusted numbers are adjusted to reflect the receipt of the
net proceeds from the sale of the shares of common stock offered hereby
and the sale of shares of common stock to NEC Corporation in the
concurrent private placement, in each case at an assumed initial public offering
price of $ per share, after deducting the underwriting discount and
estimated offering expenses payable by us.

4
<PAGE>
RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. THIS
COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MIGHT LOSE
PART OR ALL OF YOUR INVESTMENT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE
NOT THE ONLY RISKS WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US, OR THAT WE CURRENTLY SEE AS IMMATERIAL MAY ALSO HARM OUR BUSINESS.
IF ANY OF THESE ADDITIONAL RISKS OR UNCERTAINTIES OCCUR, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR
INVESTMENT.

RISKS RELATING TO OUR BUSINESS

WE COMMENCED OPERATIONS AS A SUPPLIER OF INTEGRATED CIRCUIT AND SOFTWARE
SOLUTIONS IN LATE 1997, AND OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND FUTURE PROSPECTS.

From May 1995 until December 1997, we designed integrated circuits for
personal computers. In December 1997, we sold that business and focused
exclusively on the development of integrated circuit and software solutions for
the broadband access communications equipment industry with an initial emphasis
on products for the asymetrical digital subscriber line, or ADSL, market. We
began shipping products for the ADSL market in volume in the third quarter of
1999. Therefore, we have limited historical operating data that can be used in
evaluating our business and in projecting future operating results.

WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.

We incurred net losses of $3.6 million in the three months ended March 31,
2000. As of March 31, 2000, we had an accumulated deficit of $31.9 million. We
anticipate that we will incur net losses for the foreseeable future, and these
losses may be substantial. We may not be able to generate sufficient revenue to
achieve or maintain profitability.

BECAUSE OUR OPERATING RESULTS WILL FLUCTUATE FROM QUARTER TO QUARTER, THE PRICE
OF OUR STOCK MAY DECLINE.

Our operating results have fluctuated in the past and will fluctuate in the
future on a quarterly and an annual basis due to a number of factors, many of
which are outside our control. Our results of operations may fluctuate due to:

- the loss of or decrease in sales to a major customer;

- our failure to attract new customers;

- the timing and size of orders from, and shipments to, our customers;

- changes in the average cost of products;

- changes in the average selling price of products;

- the timing of the introduction of new or enhanced products; and

- the timing and size of expenses, including research and development
expenses.

Accordingly, you should not rely upon period-to-period comparisons as
indications of future performance. Fluctuations in our operating results may
result in a decline in the price of our stock.

5
<PAGE>
THE MARKET FOR ADSL INTEGRATED CIRCUIT AND SOFTWARE PRODUCTS IS HIGHLY
COMPETITIVE, AND MANY OF OUR COMPETITORS ARE MORE ESTABLISHED AND HAVE GREATER
RESOURCES THAN WE DO.

The market for ADSL integrated circuit and software products is highly
competitive. Given our limited operating history in developing products for this
market, we may not have the financial resources, technical expertise or
marketing and support capabilities to compete successfully. Our principal
competitors include Alcatel Microelectronics, Analog Devices, Inc., Centillium
Communications, Inc., Conexant Systems, Inc., GlobeSpan, Inc., Lucent
Technologies Inc., STMicroelectronics N.V. and Texas Instruments Incorporated.
These competitors have longer operating histories, greater name recognition,
larger installed customer bases and significantly greater financial, technical
and marketing resources than we have. They may be able to introduce new
technologies more rapidly, respond more quickly to changing customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can. Further, some of these competitors have captive
manufacturing operations, and in the event of a manufacturing capacity shortage,
these competitors may be able to obtain products when we are unable to do so. In
addition, we anticipate that new competitors will enter this market as ADSL
becomes more widely deployed.

IF WE FAIL TO ENHANCE OUR EXISTING PRODUCTS OR TO DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND KEEP PACE WITH
TECHNOLOGICAL DEVELOPMENTS, OUR ABILITY TO SELL OUR PRODUCTS WOULD BE HARMED.

The market for broadband access products is characterized by
rapidly-changing customer requirements and short product life cycles.
Accordingly, our future success will depend in large part upon our ability to:

- develop and market competitive products that meet our customers' changing
requirements;

- develop innovative features that differentiate our products from those of
our competitors;

- identify and respond to emerging technological trends;

- develop products that interoperate with competitors' products;

- respond effectively to product announcements by others;

- bring products to market on a timely basis; and

- introduce products that have competitive prices.

OUR PRODUCTS MAY BE REQUIRED TO MEET NEW AND EVOLVING INDUSTRY STANDARDS, AND WE
MAY HAVE TO PAY SUBSTANTIAL ROYALTIES TO THE OWNERS OF THE INTELLECTUAL PROPERTY
UNDERLYING THOSE STANDARDS.

To comply with digital subscriber line, or DSL, standards, our current and
future products may rely on proprietary technology of third parties advancing or
promoting those standards. We may not be able to license this proprietary
technology on commercially reasonable terms, or at all, and there may be no
limit on the terms or the amount of the royalty for the proprietary technology.
Therefore, the effects of the terms and royalties could limit our ability to
comply with these industry standards and could increase the cost of our products
so that we are no longer competitive.

IF WE CONTINUE TO RAPIDLY EXPAND OUR OPERATIONS AND IF WE FAIL TO MANAGE GROWTH
EFFECTIVELY, OUR BUSINESS COULD BE HARMED.

We have rapidly expanded our operations, including the number of our
employees and the geographic scope of our activities. We expect that significant
further expansion will be required to address potential growth in our customer
base and market opportunities. If we are unable to manage growth effectively, we
may not be able to take advantage of market opportunities, develop or enhance
our products or our technical capabilities, execute our business plan or
otherwise respond to competitive pressures or unanticipated requirements. To
effectively manage the anticipated growth of

6
<PAGE>
our operations, we believe we must both enhance our operational, financial and
management information controls, reporting systems and procedures and
effectively manage multiple relationships with our customers, suppliers and
other third parties.

We have recently hired many new employees. Failure to properly train and
integrate these new employees into our business may disrupt our operations. We
may also have difficulties successfully identifying and exploiting existing and
potential market opportunities if our staffing is inadequate. In addition, we
have recently hired a number of key members of our executive management team.
Only some of these executives have worked together before, and we cannot assure
you that they will work together effectively to manage our company.

In addition, we will need to find larger facilities to accommodate our
future growth. Office space and other facilities are expensive and difficult to
find in Northern California and Taiwan, where we primarily operate. We may
experience difficulties finding suitable facilities, and these facilities may
only be available at a significant additional expense.

OUR REVENUE HAS BEEN AND WILL CONTINUE TO BE DERIVED FROM A LIMITED NUMBER OF
PRODUCTS. IF ANY OF THESE PRODUCTS FAILS TO GAIN BROADER MARKET ACCEPTANCE, WE
MAY NOT BE ABLE TO GENERATE SUFFICIENT REVENUE.

For the year ended December 31, 1999 and for the three months ended
March 31, 2000, 75.2% and 87.4% of our revenue was derived from sales of our
Apollo Two products. We expect that our Apollo Two products will continue to
represent a significant portion of our revenue in the foreseeable future.
Therefore, we may not be able to generate sufficient revenue if we fail to
achieve broader market acceptance of these products.

BECAUSE OUR PRODUCTS ARE USED AS COMPONENTS OF OUR CUSTOMERS' PRODUCTS, IF
COMMUNICATIONS EQUIPMENT MANUFACTURERS ARE NOT ABLE TO OBTAIN THE OTHER
COMPONENTS USED IN THEIR PRODUCTS, SALES OF OUR PRODUCTS WOULD BE HARMED.

Our customers incorporate our products into their equipment together with
products from other suppliers. For example, our Apollo Two turn-key reference
design requires capacitors, resistors, inductors and integrated circuits
manufactured by other companies. Some of these components may be sole-sourced or
in limited supply. Although alternative suppliers may be available, some of
their components have different attributes and may require a modification to our
customers' equipment. Therefore, if our customers are unable to obtain the other
required components for their equipment, they could cancel or delay purchases of
our products.

WE DEPEND ON UMC TO MANUFACTURE OUR INTEGRATED CIRCUITS.

We do not own or operate a semiconductor fabrication facility and depend on
United Microelectronics Corporation, or UMC, to manufacture all of our
integrated circuits. Although UMC currently manufactures our integrated circuits
at two facilities, most of our products are manufactured at a single facility.
We have executed a term sheet with UMC that states that it guarantees us minimum
production capacity through 2003 provided that we use UMC to manufacture
substantially all of our integrated circuits. Other than this term sheet, we do
not have a long-term wafer supply agreement with UMC that guarantees wafer or
product quantities, prices, delivery or lead times, as UMC manufactures our
products on a purchase order basis. We provide UMC with rolling forecasts of our
production requirements; however, the ability of UMC to provide wafers to us is
limited by UMC's available capacity. Therefore, UMC could choose to prioritize
capacity for other customers or reduce or eliminate deliveries to us on short
notice. Accordingly, we cannot be certain that UMC will allocate sufficient
capacity to satisfy our requirements. In addition, we cannot be certain that we
will continue to do business with UMC on terms as favorable as our current
terms. Other significant risks associated with our reliance on UMC to
manufacture all of our integrated circuits include:

7
<PAGE>
- the lack of control over delivery schedules;

- the unavailability of, or delays in obtaining access to, key process
technologies; and

- limited control over quality assurance, manufacturing yields and
production costs.

We could experience a substantial delay or interruption in the shipment of
our integrated circuits or an increase in our costs due to the following:

- increased demand for integrated circuits;

- a manufacturing disruption experienced by UMC at one or more of its
facilities;

- time required to identify or qualify alternative manufacturing sources or
facilities for existing or new products; or

- failure of UMC to obtain the raw materials and equipment used in the
production of our integrated circuits.

OUR DEPENDENCE UPON THIRD PARTIES TO PACKAGE AND TEST SUBSTANTIALLY ALL OF OUR
PRODUCTS REDUCES OUR CONTROL OF PRODUCT DELIVERY SCHEDULES AND QUALITY
ASSURANCE.

Because third parties package and test substantially all of our products, we
do not directly control our product delivery schedules and quality assurance.
This lack of control could result in product shortages and defects, which in
turn could increase our packaging and testing costs or delay product delivery.
We do not have long-term contracts with the companies that package and test our
products and we typically procure services from them on a per order basis.
Therefore, we may not be able to obtain these services on acceptable terms, if
at all. If we are required to find and qualify alternative packagers and
testers, we could experience delays in product shipments or a decline in product
quality.

A MAJORITY OF OUR OUTSOURCED OPERATIONS ARE LOCATED IN TAIWAN, INCREASING THE
RISK THAT A NATURAL DISASTER, LABOR STRIKE, WAR OR POLITICAL UNREST IN THAT
COUNTRY WOULD DISRUPT OUR OPERATIONS.

A majority of our outsourced operations are located in Taiwan. Events out of
our control such as earthquakes, fires, floods or other natural disasters in
Taiwan or political unrest, war, labor strikes or work stoppages in Taiwan would
disrupt our operations. The risk of earthquakes in Taiwan is significant because
of its proximity to major earthquake fault lines. An earthquake like the one
that occurred in Taiwan in September 1999 could cause significant delays in
shipments of our products until we are able to shift our outsourced operation.
In addition, there is currently significant political tension between Taiwan and
China, which could lead to hostilities. If any of these events occur, we cannot
assure you that we could obtain alternative capacity or, if we could, that we
could do so on favorable terms.

WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUE FROM INTERNATIONAL SOURCES, AND
DIFFICULTIES ASSOCIATED WITH SELLING OUR PRODUCTS OUTSIDE THE UNITED STATES MAY
HARM OUR BUSINESS.

A substantial portion of our revenue is derived from customers located
outside the United States. For the year ended December 31, 1999, sales to
customers in Asia accounted for 52.9% of our revenue, of which our sales to
customers in South Korea constituted 11.9% of our revenue. For the three months
ended March 31, 2000, sales to customers in Asia accounted for 37.6% of our
revenue, of which sales to customers in South Korea constituted 14.5% of our
revenue. We estimate that, of sales to U.S. communications equipment
manufacturers in the year ended December 31, 1999 and the three months ended
March 31, 1999, 46.9% and 51.7% were ultimately intended for equipment for
service providers in the South Korean market. Combined with direct sales to
South Korea during the same periods, our estimated revenue exposure to the South
Korean market during these periods was 47.6% and 50.9%. We anticipate that the
majority of our revenue will continue to be directly or indirectly derived from
Asia, especially South Korea, for the foreseeable future. We do not have any
long-term commitments from our Asian customers and we cannot be sure that demand
for our products in Asia

8
<PAGE>
will continue to grow. In addition, use of ADSL technology in South Korea, and
thus the demand for our products in South Korea, is related in part to a
government-sponsored initiative encouraging deployment of ADSL. We cannot be
certain that support for the initiative will continue. If support for the
initiative is withdrawn, or if demand from our customers in South Korea
decreases, our business would be harmed.

Because a substantial portion of our revenue is derived from international
sales, especially in South Korea, we are subject to numerous risks, including:

- tariffs and other trade barriers;

- political and economic instability;

- difficulties obtaining governmental approvals or licenses; and

- compliance with numerous complex foreign laws and international treaties.

If we are unable to address these risks, our sales outside of the U.S. would
decline and our business would be harmed.

POOR MANUFACTURING YIELDS WOULD INCREASE OUR COSTS OR DELAY PRODUCTION OF OUR
PRODUCTS AND HARM OUR OPERATING RESULTS.

The manufacturing process for our products is highly complex, requiring
precise production in a highly-controlled environment. Changes in the
manufacturing processes or the inadvertent use of defective or contaminated
materials in the manufacturing of our products could harm the foundry's ability
to achieve acceptable manufacturing yields. If our foundry manufactures our
products within their manufacturing specification limits and we do not achieve
acceptable yields as a result of our design, our cost of revenue may increase.
In addition, if our foundry does not manufacture our products within their
manufacturing specification limits, we may have difficulty obtaining adequate
product supplies and product shipments may be delayed. This could ultimately
lead to a loss of sales of our products and harm our business.

A DESIGN WIN FROM A CUSTOMER IS NOT A GUARANTEE OF FUTURE SALES TO THAT
CUSTOMER.

Achieving a design win with a customer does not create a binding commitment
from that customer to purchase our products. Rather, a design win represents a
level of interest by potential customers whereby potential customers commit
financial resources to developing a prototype product that incorporates our
products. Accordingly, a customer can choose at any time to discontinue using
our products in their designs or product development efforts.

BECAUSE COMMUNICATIONS EQUIPMENT MANUFACTURERS MAY BE RELUCTANT TO CHANGE THEIR
SOURCES OF COMPONENTS, IF WE DO NOT ACHIEVE DESIGN WINS WITH THESE
MANUFACTURERS, WE MAY BE UNABLE TO SECURE SALES FROM THESE CUSTOMERS IN THE
FUTURE.

Once a manufacturer of DSL equipment has designed a supplier's integrated
circuit into its products, the manufacturer may be reluctant to change its
source of integrated circuits due to the significant costs and time delays
associated with designing-in and qualifying a new supplier. Accordingly, our
failure to achieve design wins with manufacturers of DSL equipment could create
barriers to future sales opportunities with these manufacturers.

BECAUSE DEVELOPMENT OF NEW PRODUCTS REQUIRES SUBSTANTIAL TIME AND EXPENSE, WE
MAY NOT BE ABLE TO RECOVER OUR DEVELOPMENT COSTS AND ACHIEVE AN ADEQUATE RETURN
ON INVESTMENT.

The development of new products requires substantial time and expense.
Improvements to existing products or the introduction of new products by us or
our competitors may replace or provide lower cost alternatives to our existing
products or render these products obsolete, unmarketable or

9
<PAGE>
inoperable. Therefore, we cannot be sure that we will be able to recover the
costs of the development of our products and achieve an adequate return on
investment.

For example, we believe that our next-generation scalable ADSL modem, or SAM
Two, products will form the basis of a future family of ADSL integrated circuit
and software solutions. We have not yet completed development of these products.
Even if we complete development on a timely basis, we cannot assure you that
these products will achieve market acceptance and generate significant revenue.
If our SAM Two products do not achieve broad market acceptance, revenue from our
existing products could be inadequate to cover our expenses and our operating
results and reputation could be damaged.

BECAUSE THE LENGTHY SALES CYCLE OF OUR PRODUCTS MAKES IT DIFFICULT TO ACCURATELY
PREDICT ACTUAL PRODUCT DEMAND, THE VOLUME OF PRODUCT SHIPPED MAY NOT CORRESPOND
WITH OUR PRODUCT FORECASTS. THEREFORE, WE MAY NOT BE ABLE TO RECOUP EXPENSES
INCURRED IN ANTICIPATION OF SALES OF OUR PRODUCTS.

The sales cycle of our products is lengthy and typically involves a detailed
initial technical evaluation of our products by our prospective customers,
followed by the design, manufacturing, testing and qualification of prototypes
incorporating our products. This process generally takes from three to six
months, and may last longer. Our customer purchase agreements generally contain
no minimum purchase requirements and customers typically purchase our products
pursuant to short-term purchase orders that may be canceled without charge.
Given this lengthy sales cycle, it is difficult to accurately predict when and
in what volume sales to a particular customer will occur, if at all.

Therefore, we cannot be sure that product revenue will be commensurate with
the level of expenses that we incur preparing for anticipated sales. If our
forecasts prove to be inaccurate, our operating results could be harmed. For
example, if we purchase excess inventory, write-downs or write-offs could
result. Conversely, if we fail to purchase a sufficient supply of some products,
revenue opportunities could be lost and our customer relationships could be
harmed.

BECAUSE PRICE COMPETITION, MATURING TECHNOLOGIES AND VOLUME PURCHASES BY LARGE
CUSTOMERS MAY RESULT IN A DECREASE IN THE AVERAGE SELLING PRICE OF OUR PRODUCTS,
THE GROSS MARGINS FOR OUR PRODUCTS MAY DECLINE.

Price competition may harm the gross margins of our products. Furthermore,
we anticipate that average selling prices of ADSL integrated circuits will
continue to decline as product technologies mature. Many of our competitors are
larger with greater resources. Therefore these competitors may be able to
achieve greater economies of scale and may be less vulnerable to price
competition. In addition, we expect that average selling prices of our products
will decrease in the future due to volume discounts to our large customers.
These declines in average selling prices will generally lead to declines in our
gross margins for these products, if manufacturing costs cannot be reduced at
the same or greater rates.

DELAY IN THE DEVELOPMENT OF PC-OEM AND RETAIL CHANNELS FOR ADSL MODEM
DISTRIBUTION COULD LIMIT OUR SALES.

Our sales growth will depend in part on the development of personal computer
original equipment manufacturer, or PC-OEM, and retail sales channels. Today,
most telecommunication service providers only support ADSL modems which they
provide directly to their subscribers. We believe that telecommunication service
providers will eventually support ADSL modems purchased as a part of a personal
computer, an Internet access device or separately by subscribers. Any
significant delay in development of the PC-OEM and retail channels, as opposed
to alternative distribution channels, could limit sales of our products.

10
<PAGE>
WE DEPEND ON THIRD PARTY LICENSED TECHNOLOGY TO DEVELOP OUR PRODUCTS, AND WE MAY
BE UNABLE TO MARKET OUR PRODUCTS IF THESE LICENSES ARE NOT AVAILABLE TO US OR IF
THEY ARE TERMINATED.

Our current products and some of our future products do or will incorporate
technology licensed from third parties. These third party license agreements
include agreements with Alcatel Bell N.V. and UMC. Any material breach by us of
the terms of our license agreements could result in the termination of our
rights, preventing us from marketing our current and some of our future
products.

In August 1999 we entered into an agreement with UMC under which we were
extended certain licenses granted by third parties to UMC in exchange for
royalties, patent cross licenses and other obligations. This agreement grants us
access to certain technology on favorable terms. If UMC ceases to be our largest
stockholder, we would lose rights under this agreement and consequently we would
lose a competitive advantage. In this event, we cannot assure you that we could
secure licenses on reasonable terms to all patents that might apply to our
products or technology, if at all.

THE MEASURES ON WHICH WE RELY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AFFORD
ONLY LIMITED PROTECTIONS.

The measures on which we rely to protect our intellectual property afford
only limited protection, and we cannot be certain that these measures will
adequately protect our intellectual property. Despite our efforts to protect our
intellectual property, unauthorized parties may copy aspects of our products or
obtain and use trade secrets or other information that we regard as proprietary.
Our competitors may also independently develop the same or similar technologies
without violating our intellectual property rights.

In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States,
and many U.S. companies have encountered substantial infringement problems in
these countries. These countries include those to which we have sold and will
continue to sell our products. Our failure to adequately protect our
intellectual property in foreign countries could harm our business.

BECAUSE OUR INDUSTRY IS CHARACTERIZED BY FREQUENT LITIGATION OVER INTELLECTUAL
PROPERTY RIGHTS, WE MAY BE REQUIRED TO INCUR SUBSTANTIAL EXPENSES AND DIVERT
MANAGEMENT ATTENTION AND RESOURCES IN DEFENDING THE USE OF OUR INTELLECTUAL
PROPERTY.

The industry in which we compete is characterized by numerous allegations of
and lawsuits involving infringement of intellectual property rights. An
infringement claim could be asserted against us in the future. The defense of
any such claim, regardless of its merit, could result in our incurring
substantial expenses and diverting significant management attention and other
resources away from our operations. In the event of an adverse result in any
future litigation or claim, we may be required to:

- pay substantial damages, including treble damages, if we are found to have
willfully infringed the intellectual property of another;

- halt the manufacture, sale and use of infringing products or technology;

- obtain licenses to the infringing technology, which may not be available
on commercially reasonable terms, or at all; or

- expend significant resources to develop non-infringing technology.

We do not receive benefits to or licenses under any technology owned by or
in the names of our directors or entities affiliated with our directors, simply
because of their association with us as a director.

11
<PAGE>
WE MAY INCUR SUBSTANTIAL EXPENSES AND DIVERT MANAGEMENT RESOURCES IN PROSECUTING
OTHERS FOR THEIR UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY RIGHTS.

Our commercial success depends in part on our ability to enforce our
intellectual property rights. Our intellectual property consists of patents,
copyrights, trade secrets, know-how and trademarks. As of May 31, 2000, we have
been granted two U.S. patents relating to our technologies, had received notices
of allowance with respect to 11 other patent applications and have an additional
13 patent applications pending. We have also applied for patents on our
intellectual property in Japan and Europe.

We are not currently a party to any litigation with regard to our
intellectual property. However, the markets in which we compete are
characterized by frequent litigation regarding patents and other intellectual
property rights. We are aware of a significant number of patents and patent
applications relating to aspects of our technologies filed by, and issued to,
third parties. Should any of our competitors file patent applications or obtain
patents that claim inventions also claimed by us, we may choose to participate
in an interference proceeding declared by the relevant patent regulatory agency
to determine priority of invention and, thus, the right to a patent for these
inventions. This proceeding could result in substantial cost to us even if the
outcome is favorable. Even if successful on priority grounds, an interference
based on patentability grounds raised in the proceeding may result in loss of
claims. Even successful claims could result in significant legal fees and other
expenses, diversion of management time and disruption in our business.
Uncertainties resulting from initiation and continuation of any patent or
related litigation could harm our ability to compete. If we fail to enforce and
protect our intellectual property rights, our business will be harmed.

WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS, AND THE LOSS OF, OR A SIGNIFICANT
REDUCTION IN ORDERS FROM, ANY OF THEM COULD HARM OUR OPERATING RESULTS.

We sell our products primarily to communications equipment manufacturers.
For the year ended December 31, 1999, sales to Xpeed, Inc. and Lite-On
Communications Corporation accounted for 35.7% and 11.3% of our revenue. For the
three months ended March 31, 2000, sales to Xpeed, Inc. and Alcatel Bell N.V.
accounted for 36.4% and 11.0% of our revenue.

Other than Alcatel Bell N.V., we do not have long-term agreements with these
customers relating to the sale of our products, but rather sell our products to
them on an order-by-order basis. We expect to continue to be dependent upon a
relatively small number of customers for a majority of our revenue. If we are
not successful in maintaining relationships with our customers and obtaining new
customers, our business and results of operations will suffer.

IF WE BECOME SUBJECT TO PRODUCT RETURNS AND PRODUCT LIABILITY CLAIMS RESULTING
FROM DEFECTS IN OUR PRODUCTS, WE MAY FAIL TO ACHIEVE MARKET ACCEPTANCE OF OUR
PRODUCTS AND OUR BUSINESS COULD BE HARMED.

We develop complex products in an evolving marketplace. Despite testing by
us and our customers, software or hardware defects may be found in existing or
new products. These defects could result in a delay in recognition or loss of
revenue, loss of market share or failure to achieve market acceptance.
Additionally, these defects could result in financial or other damages to our
customers, cause us to incur significant warranty, support and repair costs and
divert the attention of our engineering personnel from our product development
efforts. In such circumstances, our customers could also seek and obtain damages
from us for their losses. A product liability claim brought against us, even if
unsuccessful, would likely be time consuming and costly to defend.

WE MAY FAIL TO ATTRACT OR RETAIN KEY PERSONNEL.

Our success depends to a significant degree upon the continued contributions
of our executive management team and our technical, product development,
marketing, sales and customer support personnel. The loss of key persons in
those areas could harm our business. Competition for these

12
<PAGE>
people is particularly intense in Northern California and Taiwan, where we
primarily operate. Furthermore, we do not have any life insurance or other
insurance covering the loss of any of our key employees.

WE MAY ENGAGE IN ACQUISITIONS OR STRATEGIC INVESTMENTS THAT DILUTE OUR
STOCKHOLDERS, CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.

As part of our business strategy, we may pursue acquisitions and strategic
investments that could complement our current product offerings, augment our
market coverage, enhance our technical capabilities or that may otherwise offer
growth opportunities. In the event of an acquisition, we may issue equity
securities that would dilute our current stockholders' ownership, incur
substantial debt or assume contingent liabilities. These actions could harm our
business or negatively affect the price of our common stock. Acquisitions also
entail numerous other risks which could adversely affect our business,
including:

- failure to successfully integrate acquired businesses, products,
technologies and personnel;

- unanticipated costs or capital expenditures associated with the
acquisition;

- accounting issues regarding acquired technology and other intangible
assets that could negatively affect our reported financial results of
operations;

- diversion of management's attention from our business; and

- harm to our existing business relationships with suppliers and customers.

Currently, we are not negotiating any such transactions or acquisitions.

RISKS RELATING TO OUR INDUSTRY

IF THE ADSL TECHNOLOGY UPON WHICH OUR PRODUCTS ARE BASED DOES NOT ACHIEVE BROAD
MARKET ACCEPTANCE, WE WOULD NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS.

ADSL services compete with many different broadband access technologies
including both variants of DSL and non-DSL alternatives. The introduction of new
products or technologies by competitors or market acceptance of products based
on alternative technologies could render our products less competitive or
obsolete. If either of these events occurs, we would be unable to sustain or
grow our business. Competing technologies include:

- other variants of DSL, including high bit rate DSL, integrated DSL,
symmetrical DSL and very high bit rate DSL;

- other access solutions provided by telecommunications service providers
such as transmission through dial-up analog modems, integrated services
digital networks and T1/E1 services;

- broadband cable technologies;

- broadband wireless technologies; and

- broadband satellite technologies.

If these alternative technologies gain market share at the expense of ADSL,
demand for our products would decrease, and we would be unable to sustain or
grow our business.

THE FAILURE OF TELECOMMUNICATIONS SERVICE PROVIDERS TO DEPLOY ADSL TECHNOLOGIES
AND SERVICES IN A BROAD AND TIMELY MANNER WOULD HARM SALES OF OUR PRODUCTS.

Our ADSL integrated circuit and software solutions are incorporated in
equipment that is sold to telecommunications service providers. Consequently,
the success of our products will depend upon the

13
<PAGE>
desire and ability of telecommunications service providers to broadly deploy
ADSL technologies and the timing of such deployment. Factors that may impact
this deployment include:

- level of demand from end users for ADSL services;

- length of the approval process, including laboratory tests, field trials,
market trials, initial commercial deployment and full commercial
deployment;

- cost constraints, including installation costs and space and power
constraints at the telecommunications service provider's central office;

- varying conditions of the installed copper wire, type of cable, degree of
electrical interference and the existence of crossover interference with
voice and data services;

- the distance of end users from the central office and the existence of
digital loop carriers;

- interoperability among ADSL equipment vendors' products;

- evolving industry standards for ADSL technologies; and

- domestic and foreign government regulation.

CHANGES IN CURRENT OR FUTURE LAWS OR REGULATIONS, BOTH IN THE U.S. AND
INTERNATIONALLY, COULD CAUSE SALES OF DSL AND SPECIFICALLY ADSL PRODUCTS TO
DECLINE OR FAIL TO GROW AS ANTICIPATED.

The jurisdiction of the Federal Communications Commission, or the FCC,
extends to the entire U.S. communications industry, including our customers and
their products and services that incorporate our products. Future FCC
regulations affecting the U.S. communications services industry, our customers
or our products may harm our business. For example, FCC regulatory policies that
affect the availability of data and Internet services may impede our customers'
penetration into some markets or affect the prices that they can charge. This
may cause sales of our products to decline. We face similar risks from foreign
regulatory agencies. Any delays in our ability to comply with domestic and
foreign regulatory requirements may result in order cancellations or
postponements of product purchases by our customers, which would harm our
business.

THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY MAY HARM OUR OPERATING RESULTS.

From time to time, the semiconductor industry has experienced significant
economic downturns, characterized by diminished product demand, accelerated
erosion of prices and excess production capacity. Our industry also periodically
experiences increased demand resulting in production capacity constraints.
Accordingly, our operating results may vary significantly as a result of general
conditions in the semiconductor industry.

RISKS RELATING TO OUR OFFERING

BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY
DECLINE AFTER THIS OFFERING.

Prior to this offering, you could not buy or sell our common stock on a
public market. The initial public offering price of our common stock will be
determined by negotiation among us and representatives of the underwriters and
may not be indicative of the price that will prevail in the open market after
this offering. We cannot be certain that an active trading market for our common
stock will develop or be sustained, and the price of our stock may decline after
this offering.

14
<PAGE>
OUR STOCK MAY BE THINLY TRADED OR ITS PRICE VOLATILE, WHICH MIGHT MAKE IT
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES.

The stock markets, and in particular the Nasdaq National Market, experience
extreme price and volume fluctuations affecting the market prices of equity
securities of many technology companies. These fluctuations are often unrelated
to the operating performance of the respective companies. We expect that the
market price of our common stock will fluctuate due to the following factors:

- variations in our quarterly operating results;

- changes in estimates of our financial performance or changes in
recommendations by securities analysts;

- changes in market valuations of other integrated circuit companies;

- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- loss of or decrease in sales to a major customer or failure to complete
significant transactions;

- loss of or reduction in manufacturing capacity from the foundry;

- additions or departures of key personnel;

- future sales of our common stock;

- commencement of or involvement in litigation;

- general economic, political and market conditions such as recessions,
interest rate changes or international currency fluctuations; and

- announcements by us or our competitors of key design wins and product
introductions.

BECAUSE OF LIKELY FLUCTUATIONS IN THE PRICE OF OUR STOCK, WE MAY BE SUBJECT TO
CLASS ACTION LITIGATION, WHICH COULD DISTRACT MANAGEMENT AND RESULT IN
SUBSTANTIAL COSTS.

In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert management's attention
and resources from our operations and sales of our products, which would have a
negative impact on our business.

OUR CURRENT STOCKHOLDERS WILL BENEFIT FROM THIS OFFERING, AND YOU WILL
EXPERIENCE IMMEDIATE DILUTION.

The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock.
Stockholders of record as of March 31, 2000 have paid an average of $2.05 per
share for their common stock, and the pro forma net tangible book value as of
that date was $1.06 per share. After giving effect to the sale of
shares of our common stock in this offering at an offering price of $ per
share, our pro forma net tangible book value as of March 31, 2000 would have
been $ per share. As a result, investors purchasing our common stock will
incur immediate dilution of approximately $ per share in the book value of
our common stock from the price they pay for our common stock. In addition, we
have issued options to acquire common stock at prices significantly below the
initial public offering price. To the extent such outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering.

15
<PAGE>
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

After this offering, we will have outstanding approximately shares of
common stock after giving effect to the conversion of all outstanding shares of
preferred stock into common stock of which the shares offered hereby, plus
any shares issued upon exercise of the underwriters' over-allotment option, will
be freely tradeable. The remaining approximately shares of common stock
outstanding after this offering will become available for sale in the public
market as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
--------------------------------------------- ---------------------------------------------
<C> <S>
0 At the date of this prospectus.
0 90 days after the date of this prospectus.
35,303,463 180 days after the date of this prospectus.
</TABLE>

The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Lehman Brothers may, in its
sole discretion, and at any time without notice, release all or any portion of
the securities subject to lock-up agreements.

As of May 31, 2000, there were options to purchase 10,330,343 shares of our
common stock outstanding. Should the holders of these options exercise their
options, there will be additional shares eligible for sale 180 days after the
date of this prospectus.

The holders of an aggregate of 14,217,857 shares of our common stock,
assuming the exercise of our outstanding warrants and the conversion of our
preferred stock into common stock, have certain registration rights, including
the right to require us to register their shares and the right to include their
shares in public offerings we undertake in the future.

If our stockholders sell substantial amounts of the common stock, including
shares issued upon the exercise of outstanding options, in the public market,
the market price of our common stock could decline.

SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE ACQUIRING CONTROL OF OUR
COMPANY MORE DIFFICULT FOR A THIRD PARTY, WHICH COULD HARM OUR STOCK'S MARKET
PRICE OR REDUCE ANY PREMIUM OVER MARKET PRICE THAT AN ACQUIROR MIGHT OTHERWISE
PAY.

Our charter documents contain provisions providing for a classified board of
directors, eliminating cumulative voting in the election of directors and
restricting our stockholders from acting without a meeting. These provisions may
make certain corporate actions more difficult and might delay or prevent a
change in control and therefore limit the price that new investors will pay for
our stock. Further, the board of directors may issue up to 5,000,000 new shares
of preferred stock with certain rights, preferences, privileges and
restrictions, including voting rights, without any vote by our stockholders. Our
existing stockholders may be adversely affected by the rights of this preferred
stock. New preferred stock might also be used to make acquiring control more
difficult. We have no current plans to issue shares of preferred stock. We will
also indemnify officers and directors against losses incurred in legal
proceedings to the broadest extent permitted by Delaware law.

BECAUSE OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT MAY BE ABLE TO CONTROL
STOCKHOLDER VOTES, THE PREMIUM OVER MARKET PRICE THAT AN ACQUIROR MIGHT
OTHERWISE PAY MAY BE REDUCED AND ANY MERGER OR TAKEOVER MAY BE DELAYED.

Immediately following the offering, our principal stockholders, executive
officers, directors and their affiliates will own or control approximately
% of our common stock (assuming no purchases of shares of common stock in
this offering by our executive officers and directors and their

16
<PAGE>
affiliates). Accordingly, our principal stockholders, executive officers,
directors and their affiliates, as a group, may have the ability to control the
election of a majority of the members of our board of directors and the outcome
of corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of us, or may impede a merger, consolidation, takeover or other business
combination involving us. This concentration of ownership could also adversely
affect our stock's market price or lessen any premium over market price that an
acquiror might otherwise pay.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN.

If the proceeds of this offering, together with our existing cash balances
and cash flows expected from future operations, are not sufficient to meet our
liquidity needs, we will need to raise additional funds. If adequate funds are
not available on acceptable terms or at all, we may not be able to take
advantage of market opportunities, develop or enhance new products, pursue
acquisitions that would complement our existing product offerings or enhance our
technical capabilities, execute our business plan or otherwise respond to
competitive pressures or unanticipated requirements.

WE HAVE BROAD DISCRETION OVER THE USE OF THE OFFERING PROCEEDS, AND WE CANNOT
ASSURE YOU THAT HOW WE INVEST THESE PROCEEDS WILL YIELD A FAVORABLE RETURN.

Substantially all of the net proceeds of this offering and from the sale of
common stock to NEC Corporation in the concurrent private placement are not
allocated for specific uses other than working capital and general corporate
purposes, including expenditures for research and development of new products
and sales and marketing. Thus, our management will have broad discretion over
how these proceeds are used and could spend these proceeds in ways which do not
increase our operating results or increase our market share. We cannot assure
you that the proceeds will be invested to yield a favorable rate of return.

17
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the shares of common stock
offered in this offering and the sale of shares of common stock in the
private placement are estimated to be $ million assuming initial public
offering price of $ per share, after deducting the underwriting discount,
estimated offering expenses and assuming no exercise of the underwriters'
over-allotment option.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

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<PAGE>
CAPITALIZATION

The following table sets forth the following information:

- our actual capitalization as of March 31, 2000;

- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of convertible preferred stock into shares of common
stock and the reclassification of convertible preferred stock warrants to
reflect the change in nature of the underlying equity instrument to common
stock; and

- the pro forma as adjusted capitalization after giving effect to the sale
of shares of common stock in this offering and the sale of
shares of common stock to NEC Corporation in the concurrent private
placement, in each case at an assumed initial public offering price of
$ per share, less the underwriting discount and estimated offering
expenses payable by us.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 35,238 $ 35,238 $
======== ======== ======
Long-term obligations, net of current portion............... $ 1,125 $ 1,125 $1,125
-------- -------- ------
Mandatorily redeemable convertible preferred stock; issuable
in series, $0.001 par value (actual); 13,500 shares
authorized, 11,429 shares issued and outstanding (actual),
no shares authorized, issued or outstanding (pro forma and
as adjusted).............................................. 43,393 -- --
Mandatorily redeemable convertible preferred stock
warrants.................................................. 1,607 -- --
-------- -------- ------
45,000 -- --
-------- -------- ------
Stockholders' equity:
Common stock, $0.001 par value; 46,100 shares authorized,
23,397 shares issued and outstanding (actual); 46,100
shares authorized, 34,826 shares issued and outstanding
(pro forma); shares authorized, shares issued
and outstanding (as adjusted)............................. 23 35
Additional paid-in capital.................................. 34,399 79,387
Deferred stock-based compensation........................... (4,048) (4,048)
Accumulated deficit......................................... (31,908) (31,908)
-------- -------- ------
Total stockholders' equity (deficit)........................ (1,534) 43,466
-------- -------- ------
Total capitalization........................................ $ 44,591 $ 44,591 $
======== ======== ======
</TABLE>

This table excludes the following shares:

- 10,330,343 shares of common stock issuable as of May 31, 2000 upon the
exercise of outstanding share options issues under our option plan at a
weighted average exercise price of $3.20 per share;

- 2,500,000 shares of common stock reserved as of May 31, 2000 for issuance
under our stock plan;

- 600,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan; and

- 1,214,286 shares of common stock issuance as of May 31, 2000 upon the
exercise of outstanding warrants with a weighted average exercise price of
$3.71 per share.

See the sections entitled "Management--Incentive Stock Plans," "Description
of Capital Stock" and notes 7, 8 and 13 of Notes to Financial Statements.

19
<PAGE>
DILUTION

The pro forma net tangible book value of our common stock (assuming
conversion of all outstanding shares of our convertible preferred stock on
March 31, 2000) was $36.9 million, or approximately $1.06 per share. Pro forma
net tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
shares of common stock offered by this prospectus and the shares
offered in the private placement each at an assumed initial public offering
price of $ per share and after deducting the underwriting discount and
estimated offering expenses payable by us, our net tangible book value would
have been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 2000................................................ $1.06
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $
======
</TABLE>

This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See notes 7, 8 and 13 of Notes to Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.

The following table sets forth, as of March 31, 2000, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders by the investors participating in the private placement
and by the new investors in this offering each at an assumed initial public
offering price of $ per share, before deducting the underwriting discount
and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 34,825,631 % $71,457,078 % $2.05
Private placement investors.........
New investors.......................
---------- ------ ----------- ------
Total............................. % $ %
========== ====== =========== ======
</TABLE>

If the underwriters over-allotment option is exercised in full, the
following will occur:

- the percentage of shares of common stock held by existing stockholders and
the private placement investors will be reduced to % and % of
the total number of shares of common stock outstanding, and

- the number of shares held by new public investors will be increased to
or approximately % of the total number of shares of our common
stock outstanding after this offering.

20
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
financial statements and related notes beginning on page F-1 of this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 22 of this prospectus. The selected statement of
operations data for each of the three years ended December 31, 1997, 1998 and
1999 and the selected balance sheet data as of December 31, 1998 and 1999 are
derived from, and qualified by reference to, the audited financial statements
included elsewhere in this prospectus. The selected statement of operations data
for each of the two years ended December 31, 1995 and 1996 and the selected
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
audited financial statements not included in this prospectus. The selected
statement of operations data for the three months ended March 31, 1999 and 2000
and the selected balance sheet data as of March 31, 2000 are derived from
unaudited financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared by us on a basis consistent
with our audited financial statements and, in the opinion of management include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of our results of operations and financial position as of and
for those periods.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $ -- $ -- $ -- $ -- $ 3,053 $ 83 $ 4,115
Cost of revenue...................................... -- -- -- -- (2,739) (314) (2,607)
------ ------- ------- -------- -------- ------- -------
Gross profit (loss).................................. -- -- -- -- 314 (231) 1,508
------ ------- ------- -------- -------- ------- -------
Operating expenses:
Research and development........................... -- -- 1,101 5,473 8,458 1,969 2,641
(exclusive of stock-based compensation expense of
$0, $0, $10, $58, $97, $27 and $157)
Sales and marketing................................ -- -- -- 1,017 3,211 606 1,138
(exclusive of stock-based compensation expense of
$0, $0, $0, $57, $86, $23 and $346)
General and administrative......................... -- -- 943 3,436 3,086 731 983
(exclusive of stock-based compensation expense of
$0, $0 $23, $111, $81, $25 and $259)
Amortization of deferred stock-based
compensation..................................... -- -- 33 226 264 75 762
------ ------- ------- -------- -------- ------- -------
Total operating expenses......................... -- -- 2,077 10,152 15,019 3,381 5,524
------ ------- ------- -------- -------- ------- -------
Operating loss from continuing
operations......................................... -- -- (2,077) (10,152) (14,705) (3,612) (4,016)
Interest income, net................................. -- -- 809 856 887 154 464
Other income......................................... -- -- -- -- 182 -- --
------ ------- ------- -------- -------- ------- -------
Loss from continuing operations...................... -- -- (1,268) (9,296) (13,636) (3,458) (3,552)
Income (loss) from discontinued operations........... 43 (62) (2,638) -- -- -- --
------ ------- ------- -------- -------- ------- -------
Net income (loss).................................... $ 43 $ (62) $(3,906) $ (9,296) $(13,636) $(3,458) $(3,552)
====== ======= ======= ======== ======== ======= =======
Basic and diluted net loss from continuing operations
per share.......................................... $ -- $ -- $ (0.06) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
Basic and diluted net income (loss) from discontinued
operations per share............................... 0.01 -- (0.11) -- -- -- --
------ ------- ------- -------- -------- ------- -------
Basic and diluted net income (loss) per share........ $ 0.01 $ -- $ (0.17) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
====== ======= ======= ======== ======== ======= =======
Shares used in computing basic and diluted net income
(loss) per share................................... 6,000 22,750 22,753 23,058 23,148 23,090 23,371
====== ======= ======= ======== ======== ======= =======
Pro forma for conversion of convertible preferred
stock basic and diluted net loss per share
(unaudited)........................................ $ (0.51) $ (0.10)
======== =======
Pro forma basic and diluted weighted average shares
(unaudited)........................................ 26,634 34,800
======== =======
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,864 $23,748 $ 6,394 $14,423 $38,513 $35,238
Working capital......................................... 2,011 23,302 17,758 11,904 37,838 34,995
Total assets............................................ 3,237 32,902 20,632 26,652 53,023 50,253
Long-term obligations, net of current portion........... -- -- -- 4,125 1,500 1,125
Mandatorily redeemable convertible preferred stock...... -- -- -- 4,207 43,393 43,393
Mandatorily redeemable convertible preferred stock
warrants.............................................. -- -- -- 793 1,607 1,607
Total stockholders' equity (deficit).................... 2,043 25,878 20,249 14,208 1,171 (1,534)
</TABLE>

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" STARTING ON PAGE
5 AND ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

We were incorporated in California in May 1995 as Integrated Technology
Express, Inc. In early 1996, United Microelectronics Corporation, or UMC,
contributed cash and licensed technology to us in return for an equity interest.
Our initial products included personal computer, or PC, peripheral input/ output
and mixed signal integrated circuits. In early 1997, we began to develop
integrated circuits and software solutions for the ADSL market. In late 1997, we
sold our non-ADSL operations, changed our name to Integrated Telecom
Express, Inc. and focused our product development efforts exclusively on the
ADSL market.

Subsequent to the sale of our PC-related business and through 1998, we were
a development stage company and had no product revenue. In April 1998, we
licensed certain ADSL technology from Alcatel Bell N.V. to complement our
intellectual property. In the first quarter of 1999, we began shipping our
turn-key reference designs and development tools for our initial ADSL products.
In the third quarter of 1999, we began volume shipments of our ADSL products and
recorded our first significant product revenue. Beginning in the fourth quarter
of 1999, we significantly increased our investment in operations, including
research and development and sales and marketing.

We sell our products to manufacturers of ADSL customer premises equipment
and telecommunications service providers' central office equipment. Our revenue
is currently derived from sales of our Apollo and SAM product families. Sales of
Apollo Two products represented 75.2% of revenue in the year ended December 31,
1999 and 87.4% of revenue in the three months ended March 31, 2000. To date, we
have derived a substantial portion of our revenue from a limited number of
customers. During the year ended December 31, 1999, Xpeed, Inc. and Lite-On
Communications Corporation accounted for 35.7% and 11.3% of our revenue. In the
three months ended March 31, 2000, Xpeed, Inc. and Alcatel Bell N.V. accounted
for 36.4% and 11.0% of our revenue.

We have focused our initial sales and marketing efforts on worldwide
communications equipment manufacturers. We currently sell through our direct
sales force, independent sales representatives and distributors. Our sales
personnel are based in Santa Clara, California; Round Rock, Texas and Taipei,
Taiwan. For the year ended December 31, 1999, sales to customers in Asia
accounted for 52.9% of our revenue, of which our sales to customers in South
Korea constituted 11.9% of our revenue. For the three months ended March 31,
2000, sales to customers in Asia accounted for 37.6% of our revenue, of which
sales to customers in South Korea constituted 14.5% of our revenue. We estimate
that of our sales to U.S. communications equipment manufacturers in the year
ended December 31, 1999 and the three months ended March 31, 1999, approximately
46.9% and 51.7% were ultimately intended for equipment for service providers in
the South Korean market. Combined with direct sales to South Korea during the
same periods, our estimated revenue exposure to the South Korean market during
these periods was 47.6% and 50.9%. We anticipate that the majority of our
revenue will continue to be

22
<PAGE>
derived directly or indirectly from Asia, especially South Korea, for the
foreseeable future. All revenue is denominated in U.S. dollars.

In general, we require approximately six months to achieve volume shipments
of our products after we first contact a customer, if volume shipments are
achieved at all. This process includes sale of our turn-key reference design,
customer board development, testing, field trials and qualification by service
providers and receipt of volume orders. As a result, a significant period of
time may elapse between our sales efforts and our realization of revenue. Our
customers are not obligated by long-term contracts to purchase our products and
can generally cancel or reschedule orders on short notice.

Revenue from product sales other than to distributors is recognized upon
shipment if a signed purchase order exists, the fee is fixed and determinable,
collection of resulting receivables is probable and product returns are
reasonably estimable. Revenue from shipments to distributors with the right of
return are deferred until the distributor resells the inventory. Upon shipment,
we also provide for the estimated costs that may be incurred for product
warranties. We develop and market PC network interface cards, or NICs, to the
ADSL market in addition to the sale of integrated circuit and software
solutions. We outsource the manufacturing of these cards to a manufacturer in
Taiwan, which incorporates our integrated circuits. We treat these sales of
integrated circuits as an offset to cost of revenue when the cards are shipped
to our customer.

We outsource the fabrication, packaging and testing of our integrated
circuits. Therefore, a significant portion of our cost of revenue consists of
payments to our manufacturers. Our cost of revenue includes expenses relating to
our internal operations as well as the amortization of fees for technology
licensed from an unrelated third party. This license agreement was entered into
in April 1998 and the $8.0 million fee is being amortized on a straight line
basis over seven years starting in the first quarter of 1999, resulting in a
$286,000 charge each quarter through the year ending 2005.

Research and development expenses, exclusive of stock-based compensation
expense, consist primarily of salaries and related personnel expenses, prototype
development costs, fees paid to outside service providers and overhead allocated
to product development of our integrated circuits, software and underlying
technologies. All research and development costs are expensed as incurred. Our
research and development efforts are periodically subject to significant,
non-recurring costs and fees that can cause significant variability in our
quarterly research and development expenses. We expect to increase our research
and development expenses as we continue to develop new products and improve our
core technologies.

Sales and marketing expenses, exclusive of stock-based compensation expense,
consist primarily of salaries, commissions and related expenses for personnel
engaged in sales, marketing, applications engineering support and customer
service functions, costs associated with promotional and other marketing
expenses. We intend to expand our direct and indirect sales operations
substantially, both domestically and internationally. In addition, we expect
sales and marketing expenses to increase as we expand our customer service and
support organization.

General and administrative expenses, exclusive of stock-based compensation
expense, include personnel and related costs associated with executive
management, finance, accounting, human resources, information services and
facilities.

In connection with the grant of stock options and equity compensation to our
employees, technical advisors and directors, we have recorded deferred
stock-based compensation expense of $4.0 million as of March 31, 2000.
Subsequent to March 31, 2000, we have granted an additional 4.2 million options
and restricted stock purchase rights at an average exercise price of
approximately $4.00. Deferred stock-based compensation represents the difference
between the grant price and the deemed fair value of our common stock options
granted during these periods. Deferred stock-based compensation expense for
options granted is being amortized using the graded vesting method, in
accordance with

23
<PAGE>
Financial Accounting Standards Board, or FASB, Interpretation No. 28, over the
vesting period of each respective option, which is generally four years. Under
the graded vesting method, each option grant is separated into portions based on
its vesting terms, which results in acceleration of amortization expense for the
overall award. Deferred stock-based compensation for options granted to
non-employees is accounted for in accordance with the provisions of Statement of
Financial Accounting Standards, or SFAS, No. 123 and Emerging Issues Task Force
96-18. Unamortized deferred stock-based compensation is presented as a reduction
of stockholders' equity.

We have recorded no provision for federal or state income taxes for any
period since our inception because we have incurred losses in each period. As of
December 31, 1999, we had net operating loss carryforwards for federal and
California income tax purposes of approximately $23.0 million and $8.5 million
available to offset income in future years. The net operating loss carryforwards
will expire at various dates from 2004 through 2019, if not utilized.

We have experienced net losses from continuing operations of approximately
$1.3 million, $9.3 million and $13.6 million for the years ended December 31,
1997, 1998 and 1999. Additionally, we experienced a net loss of $3.6 million for
the three months ended March 31, 2000. Our accumulated deficit as of March 31,
2000 was $31.9 million. We expect to continue to incur net losses for the
foreseeable future.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999

REVENUE. Revenue increased from $83,000 for the three months ended
March 31, 1999 to $4.1 million for the three months ended March 31, 2000. This
increase was primarily attributable to the commencement of volume sales of our
products in the second half of 1999. For the three months ended March 31, 2000,
our Apollo Two products accounted for 82.5% of our revenue.

COST OF REVENUE. Cost of revenue increased from $314,000 for the three
months ended March 31, 1999 to $2.6 million for the three months ended
March 31, 2000. This increase was primarily attributable to the commencement of
volume sales of our products in the second half of 1999. As a percentage of
revenue, cost of revenue decreased from 378.3% for the three months ended
March 31, 1999 to 63.4% for the three months ended March 31, 2000, primarily due
to the lower impact of fixed license fee amortization over a larger revenue
base.

RESEARCH AND DEVELOPMENT. Research and development expenses, exclusive of
stock-based compensation expense, increased 34.1% from $2.0 million for the
three months ended March 31, 1999 to $2.6 million for the three months ended
March 31, 2000. This increase was primarily attributable to the cost of
increased research and development personnel and higher compensation levels, as
well as prototype spending for the development of new products and enhancements
to existing products. Amortization of deferred stock-based compensation related
to research and development amounted to $27,000 and $157,000 for the three
months ended March 31, 1999 and 2000.

SALES AND MARKETING. Sales and marketing expenses, exclusive of stock-based
compensation expense, increased 87.8% from $606,000 for the three months ended
March 31, 1999 to $1.1 million for the three months ended March 31, 2000. This
increase was primarily attributable to increases in sales personnel,
compensation levels, accrued sales commissions, advertising, tradeshow and
public relations expenses for our sales and marketing activities. Amortization
of deferred stock-based compensation related to sales and marketing activities
amounted to $23,000 and $346,000 for the three months ended March 31, 1999 and
2000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses, exclusive
of stock-based compensation expense, increased 34.5% from $731,000 for the three
months ended March 31, 1999 to

24
<PAGE>
$983,000 for the three months ended March 31, 2000. This increase was primarily
attributable to increased personnel and higher compensation levels. Amortization
of deferred stock-based compensation related to general and administrative
activities amounted to $25,000 and $259,000 for the three months ended
March 31, 1999 and 2000.

AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION. Amortization of deferred
stock-based compensation increased 916.0% percent from $75,000 for the three
months ended March 31, 1999 to $762,000 for the three months ended March 31,
2000. This increase was primarily attributable to options granted to new and
existing employees.

INTEREST AND OTHER INCOME, NET. Interest and other income, net increased
201.3% from $154,000 for the three months ended March 31, 1999 to $464,000 for
the three months ended March 31, 2000. The increase was primarily attributable
to increased interest income earned on a higher average cash balance and higher
prevailing interest rates.

NET LOSS. Net loss increased 2.7% from $3.5 million for the three months
ended March 31, 1999 to $3.6 million for the three months ended March 31, 2000.
This increase was primarily attributable to higher gross profit, offset by
increased operating expenses.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

REVENUE. Revenue increased from zero in 1998 to $3.1 million in 1999. This
increase was primarily attributable to the commencement of sales in the first
quarter of 1999. For the year ended 1999, our Apollo Two products accounted for
87.4% of our revenue.

COST OF REVENUE. Cost of revenue increased from zero in 1998 to
$2.7 million in 1999. This increase was primarily attributable to the
commencement of sales of our turn-key reference designs and ADSL development
tool and our Apollo and SAM products and the amortization of our technology
licensing fee from Alcatel.

RESEARCH AND DEVELOPMENT. Research and development expenses, exclusive of
stock-based compensation expense, increased 54.5% from $5.5 million in 1998 to
$8.5 million in 1999. This increase was primarily attributable to the cost of
increased personnel and prototype spending for the development of new products
and enhancements to existing products. Amortization of deferred stock-based
compensation related to research and development amounted to $58,000 and $97,000
in 1998 and 1999.

SALES AND MARKETING. Sales and marketing expenses, exclusive of stock-based
compensation expense, increased 215.7% from $1.0 million in 1998 to
$3.2 million in 1999. This increase was primarily attributable to increases in
sales personnel and accrued sales commissions and increased advertising,
tradeshow and public relations expenses for our sales and marketing activities.
Amortization of deferred stock-based compensation related to sales and marketing
activities amounted to $57,000 and $86,000 in 1998 and 1999.

GENERAL AND ADMINISTRATIVE. General and administrative expenses, exclusive
of stock-based compensation expense, decreased 10.2% from $3.4 million in 1998
to $3.1 million in 1999. This decrease was attributable, in part, to a program
of cost containment implemented in 1999. Amortization of deferred stock-based
compensation related to general and administrative activities amounted to
$111,000 and $81,000 in 1998 and 1999.

AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION. Amortization of deferred
stock-based compensation increased 16.8% percent from $226,000 in 1998 to
$264,000 in 1999. This increase was primarily attributable to options granted to
new and existing employees.

25
<PAGE>
INTEREST AND OTHER INCOME, NET. Interest and other income, net increased
24.9% from $856,000 in 1998 to $1.1 million in 1999. This increase was primarily
attributable to a non-operating gain of $182,000.

NET LOSS. Net loss increased 46.7% from $9.3 million in 1998 to
$13.6 million in 1999. This increase was primarily attributable to higher
operating expenses.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUE. Revenue from continuing operations was zero in both 1997 and 1998.
In late 1997, we sold our non-ADSL operations, which related to the design and
sale of peripheral input/output and mixed signal integrated circuits for
personal computers. These operations have been treated as discontinued. During
1998, we focused on the development of our ADSL products, which we began in
early 1997.

COST OF REVENUE. Cost of revenue from continuing operations was zero in
both 1997 and 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses, exclusive of
stock-based compensation expense, for continuing operations increased 397.1%
from $1.1 million in 1997 to $5.5 million in 1998. This increase was primarily
attributable to the cost of increased personnel and prototype spending for the
development of our new products targeted at the ADSL market. Amortization of
deferred stock-based compensation related to research and development amounted
to $10,000 and $58,000 in 1997 and 1998.

SALES AND MARKETING. Sales and marketing expenses, exclusive of stock-based
compensation expense, for continuing operations increased from zero in 1997 to
$1.0 million in 1998. This increase was primarily attributable to the
commencement of our initial marketing activities of ADSL products. Amortization
of deferred stock-based compensation related to sales and marketing activities
amounted to zero and $57,000 in 1997 and 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses, exclusive
of stock-based compensation expense, for continuing operations increased 264.4%
from $943,000 in 1997 to $3.4 million in 1998. This increase was primarily
attributable to an increased investment in our support infrastructure.
Amortization of deferred stock-based compensation related to general and
administrative activities amounted to $23,000 and $111,000 in 1997 and 1998.

AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION. Amortization of deferred
stock-based compensation for continuing operations increased 584.9% percent from
$33,000 in 1997 to $226,000 in 1998. This increase was primarily attributable to
options granted to new and existing employees.

INTEREST AND OTHER INCOME, NET. Interest and other income was essentially
unchanged at $809,000 in 1997 and $856,000 in 1998.

NET LOSS. Loss from continuing operations increased 633.1% from
$1.3 million in 1997 to $9.3 million in 1998. This increase was primarily
attributable to the increase in operating expenses.

QUARTERLY RESULTS OF OPERATIONS

Our quarterly results of operations fluctuate from period to period
depending on factors such as the timing of significant expenditures for research
and development, the timing of large marketing expenditures such as trade shows,
the success of our sales efforts and the timing of significant orders for our
products. We believe that you should not rely upon period-to-period comparisons
of our financial results to predict future results. We may experience
significant fluctuations in period-to-period operating results.

26
<PAGE>
The following table presents certain quarterly financial information derived
from our statements of operations and such data as a percentage of revenue for
the five quarters ended March 31, 2000. This data has been derived from
unaudited financial statements. In our opinion, these statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information when read in conjunction with our annual
audited financial statements and related notes appearing elsewhere in this
prospectus. These operating results are not necessarily indicative of results of
any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
--------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue.................................... $ 83 $ 213 $ 499 $ 2,258 $ 4,115
Cost of revenue............................ (314) (366) (614) (1,445) (2,607)
------- ------- ------- ------- -------
Gross profit (loss)........................ (231) (153) (115) 813 1,508
------- ------- ------- ------- -------

Operating expenses:
Research and development (exclusive of
stock-based compensation expense of
$27, $25, $22, $23 and $157)........... 1,969 1,803 2,092 2,594 2,641
Sales and marketing (exclusive of
stock-based compensation expense of
$23, $22, $19, $22 and $346)........... 606 731 735 1,139 1,138
General and administrative (exclusive of
stock-based compensation expense of
$25, $20, $13, $23 and $259)........... 731 766 661 928 983
Amortization of deferred stock-based
compensation........................... 75 67 54 68 762
------- ------- ------- ------- -------
Total operating expenses............... 3,381 3,367 3,542 4,729 5,524
------- ------- ------- ------- -------

Operating loss............................. (3,612) (3,520) (3,657) (3,916) (4,016)
Interest and other income, net............. 154 122 137 656 464
------- ------- ------- ------- -------
Net loss................................... $(3,458) $(3,398) $(3,520) $(3,260) $(3,552)
======= ======= ======= ======= =======
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue.................................... 100% 100% 100% 100% 100%
Cost of revenue............................ (378) (172) (123) (64) (64)
------- ------- ------- ------- -------
Gross profit (loss)........................ (278) (72) (23) 36 36
------- ------- ------- ------- -------

Operating expenses:
Research and development................. 2,373 846 420 115 62
Sales and marketing...................... 730 343 147 50 28
General and administrative............... 881 360 132 41 24
Amortization of deferred stock-based
compensation........................... 90 31 11 3 19
------- ------- ------- ------- -------
Total operating expenses............... 4,074 1,580 710 209 133
------- ------- ------- ------- -------

Operating loss............................. (4,352) (1,652) (733) (173) (97)
Interest and other income, net............. 186 57 27 29 11
------- ------- ------- ------- -------
Net loss................................... (4,166)% (1,595)% (705)% (144)% (86)%
======= ======= ======= ======= =======
</TABLE>

We commenced ADSL product shipments in the first quarter of 1999. Volume
shipments commenced in the third quarter of 1999 and grew significantly in the
fourth quarter of 1999 and the first quarter of 2000 as we shipped additional
orders to our initial customers and added new accounts.

Cost of revenue in the first, second and third quarters of 1999 reflects the
early stage of our revenue ramp. Because a portion of our cost of revenue is
fixed and allocated over a relatively small amount of revenue, our gross profit
was negative in these quarters. The fixed portion of our costs consists
primarily of amortization of license fees and, less significantly, manufacturing
overhead costs. As our sales revenue increases, we expect the impact of these
fixed costs to decline, resulting in a decline of cost of revenue as a
percentage of revenue.

Operating expenses remained relatively stable in the first three quarters of
1999, then increased in the fourth quarter of 1999 and the first quarter of 2000
as we added new employees, incurred sales commissions as our revenue continued
to ramp, accelerated our research and development expenditures and increased our
compensation levels to attract and retain qualified employees.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations and working capital requirements through the
sale of common and preferred stock. We have also received additional funds from
the exercise of stock options through the three months ended March 31, 2000.

Cash and cash equivalents increased 167.0% from $14.4 million as of
December 31, 1998 to $38.5 million as of December 31, 1999. This was primarily
due to the sale of $40.0 million of Series B Convertible Preferred Stock in
November 1999. Cash and cash equivalents decreased 8.5% from $38.5 million as of
December 31, 1999 to $35.2 million as of March 31, 2000 primarily due to
purchases of fixed assets and use of cash in operations.

Cash used for continuing operations increased 71.7% from $7.7 million in the
year ended 1998 to $13.3 million in the year ended 1999. This was primarily due
to the net impact of increases in accounts receivable, inventory, prepayments
and accounts payable as our business ramped up. Cash used for continuing
operations decreased 34.2% from $3.3 million for the three months ended
March 31, 1999

28
<PAGE>
to $2.2 million for the three months ended March 31, 2000. This was primarily
due to the increase in cash received from sales.

Cash generated from financing activities increased from $5.2 million in 1998
to $40.3 million in 1999. This was primarily due to the sale of $40.0 million of
Series B Convertible Preferred Stock in 1999 compared to the sale of
$5.0 million of Series A Convertible Preferred Stock in 1998. Cash generated
from financing activities increased from $21,000 for the three months ended
March 31, 1999 to $85,000 for the three months ended March 31, 2000,
representing the exercise of stock options.

We intend to use the net proceeds of this offering primarily for working
capital and general corporate purposes, including expenditures for research and
development of new products and sales and marketing efforts. In addition, we may
use a portion of the net proceeds of this offering to acquire complementary
products, technologies or businesses. We believe that the net proceeds from this
offering, together with our current cash, cash equivalents and short term
investments will be sufficient to finance our working capital and capital
expenditures for the next 12 months. Our management intends to invest any cash
in excess of current operating requirements in short-term, interest-bearing
investment-grade securities. Our future capital requirements will depend upon
many factors, including management of working capital, the timing of research
and product development efforts and the expansion of our marketing and
distribution efforts.

If the proceeds of this offering and the concurrent private placement,
together with our existing cash balances and cash flows expected from future
operations, are not sufficient to meet our liquidity needs, we will need to
raise additional funds. If adequate funds are not available on acceptable terms
or at all, we may not be able to take advantage of market opportunities, develop
or enhance new products, pursue acquisitions that would complement our existing
product offerings or enhance our technical capabilities, execute our business
plan or otherwise respond to competitive pressures. The issuance of additional
equity securities may dilute our existing stockholders.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while concurrently maximizing the income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. For example, if
we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the current
value of the principal amount of our investment will decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. In general, money market funds are not subject to
market risk because the interest paid on such funds fluctuates with the
prevailing interest rate. As of December 31, 1999, all of our investments were
in money market funds, bank checking or savings accounts, or bank certificates
of deposit. A hypothetical 100 basis point increase in interest rates would
result in no decrease in the fair value of our available-for-sale securities as
of December 31, 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement is effective for fiscal years

29
<PAGE>
beginning after June 15, 2000. We will adopt the standard no later than the
first quarter of fiscal year 2001 and management does not expect a material
impact on our financial statements.

In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on accounting for certain costs in connection with obtaining or
developing computer software for internal use and requires that entities
capitalize such costs once certain criteria are met. We adopted SOP 98-1 as of
January 1, 1999. The adoption of this SOP did not have a material effect on our
financial position or results of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP requires that entities expense start-up costs and
organization costs as they are incurred. We adopted SOP 98-5 as of January 1,
1999. The adoption of this SOP did not have a material effect on our financial
position or results of operations.

In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides interpretive guidance on the recognition,
presentation and disclosure of revenue in financial statements under certain
circumstances. We adopted the provisions of SAB 101 in these financial
statements for all periods presented.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB Opinion No. 25." FIN 44 clarifies,
among other issues (a) the definition of employee for purposes of applying APB
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000. We do not expect the adoption of FIN 44 to have a
material effect on our financial position or results of operations.

30
<PAGE>
BUSINESS

INTRODUCTION

We provide integrated circuit and software solutions to the broadband access
communications equipment industry. Our products include integrated circuits,
software, turn-key reference designs and test systems that enable communications
equipment manufacturers to provide high-speed, cost-effective asymmetrical
digital subscriber line, or ADSL, equipment to communications service providers
and their customers. We sell our products to manufacturers of both customer
premises equipment and service providers' central office equipment. Our
solutions are standards compliant, interoperable, highly reliable, scalable and
flexible. They also provide for rapid time-to-market and ease of installation
and use. These products are designed to enhance the delivery of applications
such as high-speed Internet access, electronic commerce, video-on-demand,
on-line gaming, telecommuting and remote access.

INDUSTRY OVERVIEW

LARGE AND GROWING MARKET FOR BROADBAND COMMUNICATION CREATES ACCESS
BOTTLENECK

The Internet has emerged as a widespread commerce, communications and
entertainment medium for consumers and businesses worldwide. Dataquest estimates
the percentage of Internet households in North America will grow from 20 percent
of total households in 1998 to more than 40 percent by 2003. On a worldwide
basis, the percentage of Internet households is expected to grow from 2 percent
of total households to almost 10 percent during the same period. The volume of
data transmitted across the Internet is growing with the increase in both the
amount and complexity of bandwidth-intensive applications and content such as
website graphics and multimedia video and audio. In addition, the rise in the
frequency and duration of Internet connections has compounded the growth of
Internet traffic. As a result, consumers and businesses increasingly seek
high-speed, always-connected and cost-effective access to the Internet.

Communication technologies continue to evolve rapidly to meet this growing
demand for broadband Internet access. Today, users primarily access the Internet
with an analog modem to establish a connection through a single copper telephone
line with the telecommunication service provider's central office. This
56 kilobits per second, or Kbps, transmission speed is inadequate for accessing
content-rich websites and has created what is referred to as the last mile
bottleneck.

Several technologies have been developed to alleviate the last mile
bottleneck. Many of these, however, suffer from limitations. An integrated
services digital network, or ISDN, connection has a maximum transmission speed
of 128 Kbps, is subject to a per use charge and cannot support simultaneous data
and analog voice traffic over a single copper telephone line. A cable modem
offers speeds up to 8 megabits per second, or Mbps, but suffers from limited
geographic availability. In addition, cable networks are shared and are subject
to reduced bandwidth per user as the number of users increases. Broadband
wireless systems have been deployed on a limited basis and are currently
expensive, subject to several regulatory requirements and limited by geography
and distance. Satellite communications systems are expensive to deploy and
maintain and require an additional telephone line to support two-way
communication. Finally, T1/E1 lines can be installed to provide a high-speed
last mile connection, but their high cost and limited availability have
restricted their deployment primarily to large businesses and organizations.

EMERGENCE OF DIGITAL SUBSCRIBER LINE TECHNOLOGY

Digital subscriber line, or DSL, technology has rapidly emerged as a
reliable, easily deployed and inexpensive broadband access solution for
residential and business customers. DSL bandwidth can be scaled and priced to
meet the needs of individual customers. DSL is transmitted over existing copper

31
<PAGE>
telephone lines making broadband networking across existing last mile
infrastructure for a large number of subscribers practical. In a DSL
installation, equipment is deployed at each end of the existing telephone wire
enabling broadband transmission. DSL technology provides a dedicated digital
circuit between the service provider's central office and the customer's
premises equipment. As a result, service does not degrade as the number of users
increases. The rapid growth in the deployment of DSL services may be attributed
to an overall increase in demand for broadband Internet services as well as an
increase in competition among service providers.

DSL technologies currently include high bit rate DSL, or HDSL; integrated
DSL, or IDSL; symmetrical DSL, or SDSL; very high bit rate DSL, or VDSL; and
asymmetrical DSL, or ADSL. HDSL is expensive to deploy, does not support analog
voice traffic and provides symmetrical service best used within a business
campus environment. IDSL provides simultaneous two-way throughput at speeds of
only 144 Kbps and does not support analog voice traffic. SDSL supports a maximum
data transmission rate of 768 Kbps downstream, or from the central office to the
customer's premises, and upstream, or from the customer's premises to the
central office. However, SDSL cannot simultaneously carry data and analog voice
traffic over a single copper telephone line. As a result, SDSL has been deployed
primarily to businesses because they are more likely to have multiple telephone
lines. VDSL can deliver data at a maximum transmission rate of up to 52 Mbps.
Deployment of VDSL has been limited because VDSL has a maximum effective
distance of approximately 4,500 feet. Due to the limited reach of VDSL
technology, we do not expect significant deployment to occur until fiber optic
cable deployment is significantly expanded.

ADSL technology permits the simultaneous transmission of data and analog
voice traffic over a single copper telephone line and supports a data
transmission speed that is dependent upon the direction of data traffic and
distance from the service provider's central office. ADSL was originally
designed for the transmission of video and, as such, provides greater
transmission rates downstream than upstream. ADSL supports data transmission
rates of up to 8 Mbps downstream and up to 1 Mbps upstream and supports
connection at distances of up to 18,000 feet. This downstream transmission speed
of 8 Mbps is over one hundred times faster than the maximum transmission speed
available through a dialup analog modem. We believe that the majority of
Internet users today have greater downstream capacity requirements than upstream
capacity requirements, and therefore ADSL technology would be highly effective
in matching communication system capabilities with Internet usage patterns.

ADSL technology is experiencing high rates of growth. Dataquest estimates
that worldwide central office ADSL port shipments will increase from
2.9 million in 1999 to 8.5 million in 2003. In addition, worldwide customer
premises equipment shipments will increase from 1.6 million in 1999 to
11.1 million in 2003. For instance, in Singapore, service providers have
deployed ADSL technologies primarily because they seek to utilize ADSL's high
downstream capacity to provide bandwidth-intensive streaming video and
full-length movies to their customers. In South Korea, ADSL deployment has grown
in part as a result of a government initiative to rapidly expand affordable
broadband access to the home and business. In the United States and other
countries, the overall increase in demand for bandwidth-intensive Internet
services as well as the intense competition among service providers to offer
differentiated broadband services in an affordable manner has lead to growth in
ADSL deployment.

REQUIREMENTS OF ADSL EQUIPMENT

ADSL equipment is located at both ends of the copper telephone line and
consists of digital subscriber line access multiplexers, or DSLAMs, at the
telecommunications central office and modems, gateways and routers at the
customer premises. ADSL equipment manufacturers require components such as
integrated circuits and software that comply with industry standards and
interoperate with other

32
<PAGE>
vendors' equipment. Beyond these fundamental requirements, these manufacturers
seek to differentiate themselves from competitors by incorporating integrated
circuit and software solutions that are:

- scalable and flexible;

- cost-effective;

- reliable and high-performance; and

- easy to install and use.

While communications equipment manufacturers can combine integrated circuit
and software products from multiple sources enabling them to offer
differentiated products, they prefer system-level solutions that are easy to
integrate and require minimal testing and qualification. A system-level solution
should streamline the component and software selection process, reduce
development time, assist in production testing and provide for easy end-user
installation. System-level solutions that deliver differentiated products are
becoming increasingly important to ADSL equipment manufacturers as product life
cycles shorten, standards evolve, competition increases and the demand for
broadband access grows at an increasing rate.

THE ITEX SOLUTION

We provide integrated circuit and software solutions that enable
communications equipment manufacturers to deliver differentiated products and
achieve rapid time-to-market. Our turn-key reference design and ADSL development
and test tool facilitate rapid product development. We believe our intellectual
property portfolio and system-level expertise have enabled us to develop a
compelling product roadmap of ADSL broadband access solutions for residential
and business markets. Key benefits of our solution include:

STANDARDS COMPLIANCE AND INTEROPERABILITY. Our integrated circuit and
software solutions are compliant with international standards for ADSL
equipment. In addition, our turn-key reference designs are interoperable with
the equipment of all the major ADSL manufacturers including Alcatel Bell N.V.,
Cisco Systems, Inc., Lucent Technologies Inc. and Nokia Corp.

SCALABLE AND FLEXIBLE. Our scalable ADSL modem, or SAM, integrated circuit
and software solution provides a high degree of scalability to the ADSL
equipment market. Our SAM products contain a programmable software core,
allowing rapid development of new products and functionality by equipment
manufacturers based upon software upgrades. We believe our SAM technology offers
equipment manufacturers the flexibility necessary to migrate to other broadband
DSL access equipment markets, such as VDSL, as demands or industry standards
evolve.

ENABLE RAPID TIME-TO-MARKET. Our customers sell their equipment to service
providers doing business in a highly competitive industry, with rapid product
innovation and short product life cycles. Because our turn-key reference designs
are standards-compliant and interoperable with a broad variety of ADSL
equipment, equipment providers can integrate our products into their systems
rapidly. In addition, our system-level solution reduces the equipment
manufacturers' need to select and integrate products from multiple vendors.

HIGH PERFORMANCE AND RELIABILITY. Service providers require that ADSL
equipment enable them to provide high-performance, reliable and uninterrupted
service. Our high-performance turn-key reference designs have been demonstrated
to allow increased data rates over long distances and maintain reliable
connections even under conditions of relatively high copper telephone line
interference.

EASE OF INSTALLATION, USE AND UPGRADE. Service providers prefer to install
equipment that is easy to install and use, and that supports easy upgrades of
service that will encourage rapid adoption of new

33
<PAGE>
services as they become available. Our Apollo and SAM solutions are designed to
facilitate easy installation, operation and upgrading of ADSL customer premises
equipment.

THE ITEX STRATEGY

Our objective is to be a leading provider of integrated circuit and software
solutions for equipment manufacturers addressing the broadband access market.
Key elements of our strategy for achieving this objective include:

LEVERAGE OUR TECHNOLOGY STRENGTHS. We have invested significant resources
to develop our technology strengths in integrated circuit design, system design,
digital signal processing algorithms and driver and protocol software. We
license additional technology from Alcatel and continue to develop functionality
and software support for use by ADSL equipment manufacturers. We are also
devoting substantial resources toward the enhancement of our proprietary SAM
technology. This technology, which was originally aimed at the PC market, is now
being adapted for advanced multi-port central office applications.

ENABLE THE RAPID ADOPTION OF ADSL TECHNOLOGY. We believe that ease of use,
interoperability and reduced cost of ownership to service providers will be
critical to the continued adoption of ADSL. We intend to continue developing
turn-key reference designs that enable a greater number of communications
equipment manufacturers to enter the market and reduce the time-to-market of
their products. We believe that providing turn-key reference designs to these
manufacturers will enable a greater number of service providers to deploy ADSL
services rapidly.

STRENGTHEN AND EXPAND OUR RELATIONSHIPS WITH KEY CUSTOMERS AND
SUPPLIERS. We have established customer and supplier relationships with a
number of market and technology leaders within the broadband access market. We
believe that close relationships with our customers enable us to align our
product development with the requirements of equipment manufacturers. For
example, we have entered into a technology and supply agreement with Alcatel
Bell N.V. and are jointly developing and marketing customer premises equipment
with NEC Corporation. In addition, we believe that maintaining close
relationships with service providers is critical to the future acceptance of our
technology. We also believe that supplier relationships are critical to the
long-term success of companies in our industry. Accordingly, we have executed a
term sheet regarding cooperation on technology enhancements with UMC. We have
also executed a term sheet with UMC that states it guarantees us minimum
production capacity through 2003 provided that we use UMC to manufacture
substantially all of our integrated circuits. We intend to strengthen our
existing relationships over time and establish new relationships with equipment
manufacturers, service providers and manufacturing partners.

FURTHER PENETRATE WORLDWIDE MARKETS FOR OUR PRODUCTS. We currently offer
our products to communications equipment manufacturers that serve a number of
key geographic markets, including countries that are early ADSL market adopters
such as South Korea, Singapore and Taiwan. We believe these markets will
continue to experience growth in demand for ADSL service over the next several
years. We have also begun to develop relationships with leading communications
equipment manufacturers in other regions including North America and Europe. We
intend to continue devoting substantial resources toward penetrating each of
these markets and developing relationships with the leading ADSL equipment
manufacturers in each market.

TARGET OTHER HIGH-GROWTH BROADBAND ACCESS MARKET OPPORTUNITIES. We intend
to focus on high-growth broadband access markets that will enable us to leverage
our current technological strengths. For example, we are developing technologies
to address the future needs of central office equipment including high density
line cards, small office and home office networks and other variants of DSL. We
will continue to monitor trends in the broadband access markets, will devote
resources toward product development in segments that we believe will experience
rapid growth and will leverage our technological capabilities.

34
<PAGE>
BUILD UPON OUR CORE STRENGTHS THROUGH ACQUISITIONS AND STRATEGIC
INVESTMENTS. We intend to enhance our technological capabilities and capacity
for growth by pursuing selective acquisition and investment opportunities. This
strategy would augment our existing products with complementary technologies and
enhance the breadth and depth of our engineering talent. These acquisitions and
investments would also help us to access key customers and market segments that
we do not currently address with our existing solutions.

PRODUCTS

We deliver integrated circuit and software solutions that enable rapid
deployment of ADSL equipment. Our turn-key reference designs interoperate with
ADSL equipment offered by our customers and other vendors. Our ADSL integrated
circuit and software solutions enable transmission speeds up to 8 Mbps
downstream and up to 1 Mbps upstream. Our solutions are comprised of highly
integrated circuits; software drivers for most Microsoft Windows operating
systems and wide area network, or WAN, protocol support; turn-key reference
designs; and ADSL test equipment and software.

We offer two families of ADSL customer premises and central office equipment
products: Apollo integrated circuits with software, and scalable ADSL modem, or
SAM, integrated circuits with software. Each of our ADSL products consists of a
combination of highly-integrated mixed-signal and digital integrated circuits,
which include an analog front end, digital controller and interface components.
The analog front end, used in both of our ADSL families, translates signals from
analog to digital formats and converts the digital data into a format for
efficient processing by our digital controllers and interface devices. Our
Apollo family relies upon embedded digital signal processing to process the
digitized ADSL signal from the analog front end. In contrast, our SAM family
uses an optimized partitioning of application specific integrated circuit, or
ASIC, and software-based algorithms to process the digitized ADSL signal.

APOLLO FAMILY

Our Apollo family includes two integrated circuit and software solutions,
Apollo One and Apollo Two, and we are developing three additional products. The
Apollo One and Apollo Two products are compliant with all current ADSL
standards, and interoperate with all major ADSL equipment vendor products. We
promote market acceptance of our Apollo products in customer premises equipment
with our turn-key reference designs.

35
<PAGE>
APOLLO FAMILY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
<C> <S> <C>
PRODUCTS APPLICATIONS INTRODUCTION DATE
--------------------------------------------------------------------------------------------
CURRENT
--------------------------------------------------------------------------------------------
APOLLO ONE - Central office ADSL access 3rd quarter 1999
multiplexers
- External modems
- Gateways
- Routers
--------------------------------------------------------------------------------------------
APOLLO TWO - Network interface cards for 3rd quarter 1999
personal computers
--------------------------------------------------------------------------------------------
FUTURE
--------------------------------------------------------------------------------------------
APOLLO THREE - Network interface cards for 3rd quarter 2000*
personal computers
--------------------------------------------------------------------------------------------
APOLLO FOUR - Network interface cards for 4th quarter 2000*
personal computers
--------------------------------------------------------------------------------------------
APOLLO FIVE - USB/Ethernet external modems 1st half 2001*
- Gateways
- Routers
--------------------------------------------------------------------------------------------
</TABLE>

* Anticipated introduction date.

APOLLO ONE. The Apollo One is our integrated circuit and software solution
for the central office DSLAM and stand-alone customer premises equipment
markets. Stand-alone customer premises equipment includes external modems,
gateways and routers. The Apollo One incorporates two integrated circuits. The
first integrated circuit is a programmable analog front end that receives and
transmits ADSL signals with a demonstrated copper telephone line reach of up to
20,000 feet. The analog front end also provides the ability to extract the ADSL
signal under poor line conditions and consolidates several functional blocks
commonly found in discrete components in other ADSL designs. The second
integrated circuit, our digital controller, incorporates digital signal
processing and other functions. Because this digital processing occurs in a
single integrated circuit, our Apollo One solution requires minimal processing
from the host equipment's microprocessor. The digital controller also
incorporates industry standard Utopia communication and microprocessor
interfaces, which are necessary for the central office DSLAM and stand-alone
customer premises equipment markets. We supply a software application
programming interface, or API, to more easily allow the customer to write
additional differentiated software to run on top of that provided with the
Apollo solution. In addition, we are jointly developing a turn-key reference
design with NEC Corporation to promote the deployment of the Apollo One into
external modem, gateway and router markets.

APOLLO TWO. Apollo Two is our integrated circuit and software solutions for
the personal computer interface, or PCI, network interface card, or NIC, market.
This product incorporates the two Apollo One integrated circuits and an
interface integrated circuit which enables a low cost PCI-compliant NIC to be
produced. In addition, we offer a turn-key reference design and complete
software drivers running under most Microsoft Windows operating systems. We also
supply software interfaces that manage Microsoft Windows support for the various
WAN and asynchronous transmission mode, or ATM, protocol stacks.

FUTURE APOLLO PRODUCTS. In the future, we intend to offer Apollo products
with lower costs, higher integration and expanded capabilities. We intend to
introduce the Apollo Three in the third quarter of 2000. The Apollo Three will
provide a greater level of component integration resulting in a smaller
integrated circuit size at a significantly reduced cost compared to the Apollo
Two. The Apollo Three

36
<PAGE>
combines the digital controller and interface of the Apollo Two into one
integrated circuit, and includes a new analog front end that integrates
additional external components. The Apollo Four is based on the Apollo Three and
will be introduced in the second half of 2000. The Apollo Four will feature an
enhanced analog front end capable of supporting ADSL service over existing ISDN
infrastructure. In the first half of 2001, we expect to introduce the Apollo
Five which will feature a digital controller with embedded processor and an
integrated universal serial bus, or USB, and Ethernet interfaces. Our Apollo
Five will be targeted at the stand-alone customer premises equipment market,
including ADSL external modems, gateways and routers.

SCALABLE ASDL MODEM (SAM) FAMILY

Our SAM product family includes two integrated circuit and software
solutions, SAM One and SAM One Full Rate, which were specifically developed for
the sub $1,000 PC and Internet access device markets. We are currently
developing two additional products. SAM is our proprietary ADSL technology that
consists of an optimized partitioning of integrated circuitry and software-based
digital signal processing, offering efficient, low-cost, low gate count and low
power dissipation integrated circuit and software solutions. Our SAM One
products are compliant with all current ADSL standards and interoperate with
major ADSL equipment vendor products.

SAM FAMILY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
<C> <S> <C>
PRODUCTS APPLICATIONS INTRODUCTION DATE
--------------------------------------------------------------------------------------------
CURRENT
--------------------------------------------------------------------------------------------
SAM ONE - Motherboards for personal computers 4th quarter 1999
- Network interface cards for
personal computers
- Internet access devices
--------------------------------------------------------------------------------------------
SAM ONE FULL RATE - Motherboards for personal computers 2nd quarter 2000
- Network interface cards for
personal computers
- Internet access devices
--------------------------------------------------------------------------------------------
FUTURE
--------------------------------------------------------------------------------------------
UNIVERSAL SAM ONE - Motherboards for personal computers 4th quarter 2000*
- Network interface cards for
personal computers
- Internet access devices
--------------------------------------------------------------------------------------------
SAM TWO - Central office ADSL access 1st half 2001*
multiplexers
- Multi-dwelling unit ADSL access
multiplexers
- High-end routers and bridge
external modems

--------------------------------------------------------------------------------------------
</TABLE>

* Anticipated introduction date.

SAM ONE. SAM One uses the PC host microprocessor and memory to manage the
digital signal processing of the incoming and outgoing ADSL signals rather than
embedding a digital signal processor within our ADSL integrated circuit. SAM One
is a fully-programmable solution targeted at both the sub $1,000 PC and Internet
access device markets.

SAM One consists of two integrated circuits. The first integrated circuit is
an analog front end that incorporates programmable features allowing this
integrated circuit to receive and transmit ADSL

37
<PAGE>
signals with a demonstrated copper telephone line reach from the central office
to the customer's premises up to 20,000 feet. In addition, SAM One provides the
ability to extract the ADSL signal under poor line conditions and consolidates
several discrete components in other ADSL designs. The second integrated circuit
incorporates both a digital controller and a PCI interface. The digital
controller is a very low gate count, low-cost design capable of handling most of
the computationally intensive ADSL functions while reducing integrated circuit
size and power dissipation. SAM software running on the PC host microprocessor
includes digital signal processing algorithms necessary to process the ADSL
data. We offer a turn-key reference design incorporating this product that is a
robust, field-proven and cost-effective solution to the end user.

Our SAM One solution includes a broad set of software drivers for Microsoft
Windows 98, 98se, NT4.0 and 2000. These drivers handle the interface from
Microsoft Windows to PC NICs or motherboards equipped with our SAM One.
Additional software manages the Windows support for the various WAN protocols
and the ATM protocol stack. Our SAM One host-based software solution allows
flexible programming.

SAM ONE FULL RATE. In May 2000, we introduced SAM One Full Rate, which
consists of our SAM One product with a software upgrade that allows full rate
ADSL transmission speeds of up to 8 Mbps downstream and 768 Kbps upstream. Our
SAM One Full Rate, like our SAM One, includes a complete set of software drivers
for the Windows 98, 98se, NT4.0 and 2000 operating systems. The SAM One Full
Rate host-based software solution supports automatic configuration allowing
connection to central office DSLAMs set to any of the ADSL standards.

FUTURE SAM PRODUCTS. In the future, we intend to offer software upgrades to
our SAM products as well as a new generation of SAM products that incorporate
our proprietary technology for new market segments. In the fourth quarter of
2000, we intend to introduce our Universal SAM One. It consists of a software
upgrade for the SAM One and will be compatible with all international ISDN
transmission standards. In the first half of 2001, we plan to introduce SAM Two,
the next generation of our proprietary SAM-based products. SAM Two will feature
multi-port capability targeting central office and digital loop carrier
DSLAMs. In addition, SAM Two will support stand-alone high-end routers, gateways
and inverse access multiplexers. Our SAM Two digital integrated circuit is based
on our field-proven SAM One architecture, which minimizes integrated circuit
size and power dissipation and incorporates our proprietary signal processing
algorithms. The SAM Two will offer high port density and low cost and power
utilization. Our SAM Two interface capabilities are intended to include Utopia
and Ethernet. It will also support Voice over DSL, or VoDSL.

TURN-KEY REFERENCE DESIGNS, TEST EQUIPMENT AND SOFTWARE. We provide
turn-key reference designs to our customers to facilitate the development of
their customer premises equipment using our products. These turn-key reference
designs provide complete solutions that include detailed printed circuit board
layout, component selection and testing procedures, production software drivers
and WAN protocol drivers, easy installation of software and user guides. These
turn-key reference designs enable our customers to quickly market a complete
ADSL modem with proven interoperability, low cost design, high performance and
compatibility with the major Windows operating systems. We also provide APIs,
enabling the customer to customize their product by adding system-level
functionality.

Our ADSL development tool enables our customers to achieve faster
time-to-market through laboratory evaluation and initial production testing of
our turn-key reference designs as well as the ability to conduct system
diagnostics and performance reporting capabilities. The ADSL development tool
simulates a real-world ADSL environment including the central office DSLAM. Our
ADSL development tool includes a complete central office ADSL transmission unit,
test set-up and all of the necessary software and diagnostic tools for our
customers to diagnose and test products developed with our integrated circuits.

38
<PAGE>
TECHNOLOGY

We believe that we have a competitive advantage in several key technology
areas: scalable modem solutions; software; communication and digital signal
processing algorithms; mixed-signal and digital integrated circuit design;
analog and hardware system design capability; and WAN and LAN knowledge.
Together, these capabilities have helped enable us to provide system-level
solutions to our customers that are fully compliant with international
communications standards and interoperable with a broad range of ADSL equipment,
and which allow our customers to introduce their products to the market quickly.

SCALABLE MODEM SOLUTIONS. Our broad knowledge of ASIC design,
microprocessor architecture and embedded operating systems enables us to build
highly-scalable ADSL solutions. For example, our proprietary SAM technology
consists of an optimized partitioning of integrated circuitry and software-
based digital signal processing, offering efficient, low-cost, low gate count,
low power dissipation integrated circuit and software solutions. Our SAM One was
specifically developed for the price-sensitive sub $1,000 PC and Internet access
device markets, and uses the host microprocessor and shared system memory for
low-cost, high-performance solutions. In addition, our SAM One provides the
ability to scale to available host processing power, allowing efficient balance
between ADSL transmission data rates and host processor utilization. SAM Two
builds on the scalability of our SAM technology by sharing an embedded processor
core among several ports to conduct the ADSL digital signal processing. The
resulting design will offer price competitive, efficient gate count integrated
circuit and software solutions.

SOFTWARE. Our software engineers have expertise in developing code that
addresses the needs of communications equipment manufacturers and service
providers. Our knowledge of network operation and architectures allows us to
develop software that makes our products interoperable with other communications
equipment. In addition, our understanding of various operating systems and PC
environments allows us to create software that provides for simple installation
and robust operation. Many of our software engineers have extensive PC software
driver and embedded operating system expertise. This expertise allows us to
provide software that is compatible with various PC platforms and enables the
development of seamless APIs for our customers.

COMMUNICATION AND DIGITAL SIGNAL PROCESSING ALGORITHMS. Our signal
processing engineers have substantial experience in the process of transmitting
and receiving signals across different physical transport media. Our engineers
also have significant experience developing algorithms that enable voice
compression, echo cancellation and telephony signal processing. This expertise
has allowed our engineers to design highly-efficient algorithms that enable us
to produce high performance, reprogrammable products operating with low power
consumption.

MIXED-SIGNAL AND DIGITAL INTEGRATED CIRCUIT DESIGN. Our mixed-signal and
digital designers have substantial experience in the telecommunications and data
communications industry and analog-to-digital and digital-to-analog signal
conversion techniques. This experience has enabled us to develop highly
integrated mixed-signal and digital integrated circuits. Our mixed-signal
integrated circuits replace multiple discrete components used in many competing
DSL solutions. Our digital integrated circuit designers have many years of
experience in the areas of high complexity and high-speed digital integrated
circuit development and integration. All of our integrated circuits are designed
and manufactured using the latest development tools and silicon process
technologies.

ANALOG AND HARDWARE SYSTEM DESIGN CAPABILITY. Our analog and digital
system-level engineers have extensive experience in the development of
telecommunication systems, especially in the development of telephone 4-wire to
2-wire hybrid interfaces. In addition, our engineers have experience in the
Underwriters Laboratories, Inc. and Federal Communications Commission system
qualification certification processes. We are familiar with the implications of
the digital noise coupling present in PC environments that can impact the
performance of ADSL. Our PC NICs receive and transmit ADSL signals with a
demonstrated copper telephone line reach from the central office to the customer
of up to 20,000 feet.

39
<PAGE>
We combine our analog and hardware system expertise with our experience in
integrated circuit, fixed point and floating point implementations of digital
signal processing algorithms and software to develop products that allow us to
offer robust and manufacturable solutions for our customers. This facilitates
rapid time-to-market, superior performance and low system cost.

WIDE AREA NETWORK AND LOCAL AREA NETWORK KNOWLEDGE. Our engineers have
broad knowledge of both WAN and LAN environments. Our engineers are familiar
with the varying requirements for the deployment of DSL solutions and also have
extensive experience in layer one to layer seven network protocols, including
transport communication protocol/Internet protocol, or TCP/IP, and ATM
protocols. This experience allows us to efficiently integrate the software and
hardware components to create our products.

CUSTOMERS

The following customers have each purchased over $50,000 of product for the
twelve months ended March 31, 2000:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CUSTOMERS
--------------------------------------------------------------------------------------------
<S> <C>
Alcatel Bell N.V. Lite-On Communications Corporation
Askey Computer Corporation Nokia Corp.
Aztech Systems Ltd. Tomis Information & Telecom Co.
Bo Sung Hi-Net Ltd. TurboComm Tech Inc.
CIS Technology Inc. Xpeed, Inc.
Interlink Systems Co., Ltd.
--------------------------------------------------------------------------------------------
</TABLE>

For the year ended December 31, 1999, sales to Xpeed, Inc. and Lite-On
Communications Corporation accounted for 35.7% and 11.3% of our revenue. In
addition, for the three months ended March 31, 2000, sales to Xpeed, Inc. and
Alcatel Bell N.V. accounted for 36.4% and 11.0% of our revenue. We have an
agreement with Alcatel Bell N.V. to supply Alcatel Bell N.V. with
fully-assembled NICs. We do not have long-term agreements with any other
customers relating to the sale of our products and generally sell our products
on an order-by-order basis.

As of March 31, 2000, in addition to the customers listed above, we had
achieved 23 design wins. We recognize a design win after a company has purchased
one of our turn-key reference designs or purchased at least $10,000 of our
Apollo or SAM products.

SALES AND MARKETING

Our sales and marketing plan is to expand our customer base in both the
customer premises and central office equipment markets on a worldwide basis. We
also intend to diversify our customer base both geographically and by product.
We intend to expand our product offering and continue to develop close
relationships with ADSL market leaders to maintain and grow our market presence.
We sell our products through our direct sales and sales representatives in Asia,
North America and Europe. We offer customer support through internal and field
application engineering personnel and multiple direct and independent sales
representatives worldwide.

We promote our business through extensive participation in industry forums
such as the DSL and Home Phoneline Network Alliance forums, industry seminars
and conferences. In addition, we test our products for interoperability at the
University of New Hampshire's independent interoperability laboratory. Our web
site provides product information and services including software downloads,
white papers, design guides and installation guides. In addition, we conduct
global press tours with market analysts, magazine editors and key communication
industry leaders.

40
<PAGE>
RESEARCH AND DEVELOPMENT

We believe that the development of products with high levels of integration,
functionality and performance is essential to our growth. Our engineers and
scientists have collectively co-authored 26 ITeX patent applications and hold
72 advanced degrees, including 20 Ph.D. degrees. We plan to increase research
and development headcount in 2000 and 2001. Research and development expenses
exclusive of stock-based compensation expense for 1997, 1998 and 1999 were
approximately $1.1 million, $5.5 million and $8.5 million. Research and
development expenses exclusive of stock-based compensation expense for the three
months ended March 31, 1999 and 2000 were approximately $2.0 million and
$2.6 million.

OPERATIONS AND MANUFACTURING

We outsource all of our wafer fabrication, packaging and testing, which
allows us to concentrate on product design, marketing and sales. By outsourcing
manufacturing operations, we avoid the significant capital expenditures
associated with integrated circuit process development, wafer fabrication
facilities and packaging and test equipment.

UMC fabricates all of our integrated circuits. UMC has multiple
manufacturing facilities all but one of which are located in Taiwan. Currently,
we utilize two of UMC's 10 fabrication facilities, each of which is capable of
manufacturing integrated circuits with line widths to 0.13 microns and are
currently qualified to 0.18 microns. We have developed a contingency plan with
UMC to provide for the manufacture of our products in the event of a disruption
in the operations of one or more of its fabrication facilities. If needed, we
could shift our production to these other facilities following qualification of
these new facilities. We have executed a term sheet with UMC that states that it
guarantees us minimum production capacity through 2003 provided that we use UMC
to manufacture a substantial portion of our integrated circuits. Finished wafers
are transferred directly to packaging and testing facilities.

We outsource our integrated circuit packaging to Advanced Semiconductor
Engineering, Inc., and Siliconware Precision Industries Co., Ltd., both of which
are located in Taiwan. Testing is outsourced to three companies in Taiwan: ASE
Test, Siliconware Corporation and World-Wide Test Technology, Inc. The majority
of our testing requirements can be handled by all three of those facilities. All
three facilities are being qualified to test our Apollo Three product.

We have employees responsible for test and product engineering located in
both the U.S. and Taiwan. In addition, we have a production control group that
handles the interface between our outside vendors as well as monitoring yields,
placing production orders and controlling inventory.

INTELLECTUAL PROPERTY

We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other measures to
protect our proprietary rights. As of May 31, 2000, we owned 2 issued patents
relating to our technologies, had received notices of allowance with respect to
11 patent applications and have 13 additional patents pending. We have also
applied for patents in Japan and Europe. We also utilize unpatented proprietary
know-how and trade secrets and employ various methods to protect them. We have
applied to register the trademarks "ITeX," "SAM" and "RapidSurf." All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of the respective companies that use them.

In April 1998, we entered into an agreement with Alcatel Bell N.V. to
license some of Alcatel's ADSL technology. Our Apollo and SAM families of
products incorporate this technology. This agreement expires in April 2008. In
addition, we have entered into an agreement with MIPS Technology, Inc. to
license the use of a microprocessor core. This agreement expires in 2004.
Although

41
<PAGE>
none of our products currently shipping incorporates the MIPS microprocessor
core, we intend to use this technology in several of our future products.

In August 1999, we entered into an agreement with UMC through which we were
extended certain licenses granted by third parties to UMC in exchange for
royalties, patent cross licenses and other obligations. This agreement grants us
access to certain technology on favorable terms. If UMC ceases to be our largest
stockholder, we would lose rights under this agreement and consequently we would
lose a competitive advantage in the manufacture of our products. If we lose
these rights, we cannot assure you that we could secure such licenses on
reasonable terms, if at all.

Our intellectual property protection measures may not be sufficient to
prevent misappropriation of our technology. In addition, the laws of many
foreign countries do not protect our intellectual property to the same extent as
the laws of the United States. From time to time, we may desire or be required
to renew or to obtain licenses from others in order to further develop and
market commercially viable products. These licenses may not be available on
reasonable terms, or at all.

COMPETITION

We compete with suppliers of integrated circuits to the ADSL market. We
believe that the key competitive factors in this market include: product
capabilities, level of integration, performance and reliability, power
consumption, price, time-to-market, system cost, interoperability, customer
support and reputation. We believe we compete favorably with respect to each of
these factors.

We compete with a number of major domestic and international suppliers of
semiconductors for both DSL central office and customer premises equipment. Our
principal competitors include Alcatel Microelectronics, Analog Devices, Inc.,
Centillium Communications, Inc., Conexant Systems, Inc., GlobeSpan, Inc., Lucent
Technologies Incorporated, STMicroelectronics N.V. and Texas Instruments Inc.

Many of our competitors operate their own fabrication facilities and have
longer operating histories and presence in key markets, greater name
recognition, access to larger customer bases and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other
resources. As a result, our competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or devote greater
resources to the promotion and sale of their products. Current and potential
competitors have established or may establish financial or strategic
relationships among themselves or with existing or potential customers,
resellers or other third parties. Accordingly, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. In
addition, our competitors may in the future develop technologies that more
effectively address the transmission of digital information through existing
analog infrastructures at a lower cost. We may not be able to compete
successfully against current or potential competitors.

Other technologies compete with ADSL to provide broadband last mile access.
These technologies include ISDN, cable modem, broadband wireless, satellite
communication and T1/E1 lines. We believe that each of these technologies has
limitations and that ADSL competes favorably with each of them. For example,
ISDN offers a maximum transmission speed of 128 Kbps, is subject to a per use
charge and cannot support simultaneous analog voice and data traffic over a
copper telephone line. While cable modems offer speeds up to 8 Mbps, they suffer
from limited geographic availability. In addition, cable networks are shared and
are subject to reduced bandwidth per user as the number of users increases.
Broadband wireless is expensive to deploy and limited by geography and distance.
Satellite communication is also expensive to deploy and maintain and requires an
additional telephone line to support two-way communication. Finally, the expense
of T1/E1 lines has restricted their deployment primarily to large businesses and
organizations.

42
<PAGE>
In addition, ADSL competes with several other DSL technologies, including
HDSL, IDSL, SDSL and VDSL. While some of these technologies offer greater data
transmission rates than ADSL, each suffers from limitations. For example, HDSL
is expensive to deploy and does not support analog voice traffic. IDSL provides
transmission speeds of only 144 Kbps and does not support voice traffic. While
SDSL supports a maximum data transmission rate of 768 Kbps upstream and
downstream, it cannot simultaneously carry analog voice and data traffic over a
single copper telephone line. VDSL can deliver data at a maximum transmission
rate of 52 Mbps but is limited to a maximum effective distance of 4,500 feet.

EMPLOYEES

As of March 31, 2000, we had a total of 120 employees, of whom 94 are
engineers, 20 of whom have Ph.D degrees. None of our employees is represented by
a labor union. There have been no work stoppages and we believe that our
relationships with our employees are good.

Our future performance depends on continued good relations with a
substantial percentage of our employees.

Our future growth and success will depend in part on our ability to attract
highly qualified new employees and to maintain low turnover rates. Competition
for qualified personnel is intense.

FACILITIES

We operate our primary executive, sales and marketing, and research and
development activities from our 21,636 square foot headquarters in Santa Clara,
California, under a lease that expires in December 2000. We intend to either
extend this lease or find alternative facilities. We will require additional
space to accommodate our expanding business. In addition, we lease space in
Round Rock, Texas; Taipei, Taiwan; and Hsin-Chu, Taiwan.

LEGAL PROCEEDINGS

From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We are not currently a party to
any material legal proceedings.

43
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to our
executive officers and directors as of May 31, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Daniel (Wen Chi) Chen................ 47 Chairman of the Board of Directors
Richard H. Forte..................... 56 President, Chief Executive Officer and Director
Young Way Liu........................ 45 Vice Chairman of the Board of Directors and Chief
Technology Officer
Robert M. Gardner.................... 57 Executive Vice President and Chief Operating Officer
Ralph Cognac......................... 56 Executive Vice President and Chief Marketing Officer
Timothy A. Rogers.................... 45 Chief Financial and Administrative Officer
Brian Gillings....................... 53 Senior Vice President, Corporate Strategy and
Development
Jow H. Peng.......................... 48 Vice President, Business Development
Max (Ming Kang) Liu.................. 41 Vice President, Technology and Advanced Architecture
Terry Gou............................ 49 Director
Peter J. Courture.................... 45 Secretary and Director
David Lam............................ 57 Director
John Cioffi.......................... 43 Director
</TABLE>

DANIEL (WEN CHI) CHEN is a co-founder and has served as Chairman of the Board of
Directors since February 1998, and as President and Chief Executive Officer from
May 1995 to April 1998. From February 1995 to April 1996, Mr. Chen was Vice
President of the Computer and Communication division of United Microelectronics
Corporation, or UMC, a semiconductor manufacturing company and a party related
to us. Mr. Chen received a B.S. in Electrical Engineering from Tamkang
University.

RICHARD H. FORTE has served as President and Chief Executive Officer since
June 1999 and as a director since April 1999. From March 1996 to February 1999,
Mr. Forte was President and Chief Executive Officer of Vantis Corporation, a
semiconductor manufacturing company. From August 1991 to March 1996, Mr. Forte
was a Group Vice President of the Components and Communications Division,
managing five operating divisions for Advanced Micro Devices, Inc., a
semiconductor manufacturing company. Mr. Forte received a B.S. in Physics from
San Jose State University.

YOUNG WAY LIU is a co-founder and has served as Vice Chairman of the Board of
Directors and Chief Technology Officer since June 1999. From April 1998 to
June 1999, Mr. Liu was President and Chief Executive Officer. From April 1996 to
April 1998, Mr. Liu was Senior Vice President. From May 1995 to April 1996,
Mr. Liu was Vice President and Chief Financial Officer. Mr. Liu received a B.S.
in Electrophysics from National Chiao-Tung University in Hsin-Chu, Taiwan and an
M.S. in Computer Engineering from the University of Southern California.

ROBERT M. GARDNER has served as Executive Vice President and Chief Operating
Officer since October 1999. From February 1998 to September 1998, Mr. Gardner
was Interim President and Chief Executive Officer for FastParts, Inc., an
Internet business to business auction software company. From July 1997 to
January 1998, Mr. Gardner was Interim President and Chief Executive Officer for
Rebis Industrial Workgroup Software, a mechanical software company. From
October 1995 to July 1997, Mr. Gardner was President and Chief Executive Officer
of Design Acceleration, Inc., an electronic design automation software company.
Mr. Gardner received a B.S. in Electrical Engineering from California
Polytechnic University at Pomona.

RALPH COGNAC has served as Executive Vice President and Chief Marketing Officer
since March 2000. From October 1999 to March 2000, Mr. Cognac served as Vice
President of Worldwide Sales. From

44
<PAGE>
September 1998 to May 1999, Mr. Cognac was Vice President of Worldwide Sales for
NeoParadigm Labs, Inc., a semiconductor manufacturing company. From
September 1995 to September 1998, Mr. Cognac was Vice President of Worldwide
Sales for Monolithic Systems Semiconductor, Inc., a semiconductor manufacturing
company. Starting in February 1987, Mr. Cognac was a co-founder and Vice
President of Worldwide Sales and Marketing of Synergy Semiconductor Corporation,
a semiconductor company. Mr. Cognac joined Integrated Device Technology, Inc., a
semiconductor manufacturing company, in May 1982 as the company's first Vice
President of Marketing, and assumed responsibility for sales in 1984.
Mr. Cognac received a B.S. in Electrical Engineering and an M.B.A. from Arizona
State University.

TIMOTHY A. ROGERS has served as Chief Financial and Administrative Officer since
July 1998. From February 1992 to February 1998, Mr. Rogers was Vice President of
J.P. Morgan & Co. Incorporated, an investment bank. From September 1986 to
January 1992, Mr. Rogers was Vice President of Salomon Brothers Inc., an
investment bank. Mr. Rogers also worked from September 1982 to August 1985 for
Bain & Co., a management consulting firm. Mr. Rogers received an A.B. in Asian
Studies from Dartmouth College and an M.B.A. from Stanford University.

BRIAN GILLINGS has served as Senior Vice President, Corporate Strategy and
Development since March 2000. From July 1999 to March 2000, Mr. Gillings served
as Vice President of Marketing. From April 1998 to April 1999, Mr. Gillings was
the Vice President of Sales and Marketing for Advanced Communication
Devices, Inc., a semiconductor manufacturing company. From November 1995 to
June 1997, Mr. Gillings was the Vice President of Marketing for Orbit
Semiconductors, Inc., a semiconductor manufacturing company. From September 1983
to October 1989 Mr. Gillings served as director of business development at Maxim
Integrated Products, Inc., a semiconductor manufacturing company. Mr. Gillings
received a B.S. equivalent in Electrical Engineering from Harrow Technical
College and an M.S. equivalent in Electrical Engineering from the Polytechnic
University of South Bank.

JOW H. PENG has served as Vice President, Business Development since July 1999.
From August 1998 to July 1999, Mr. Peng served as Senior Director of Marketing.
From October 1997 to August 1998, Mr. Peng served as Director of Strategic
Planning. From April 1985 to October 1997, Mr. Peng was the lead member of the
technical staff for Pacific Telesis, Inc., a telecommunications service
provider. Mr. Peng received a B.S. in Electrical Engineering from National
Chiao-Tung University and an M.S. in Electrical Engineering from West Virginia
University.

MAX (MING KANG) LIU has served as Vice President, Technology and Advanced
Architecture since June 1999. Dr. Liu served as Vice President of System
Technology from April 1998 to June 1999. Dr. Liu served as Senior Director from
November 1997 to April 1998. Dr. Liu served as Chief Architect from May 1997 to
November 1997. From May 1995 to May 1997, Dr. Liu was a Manager of Project
Development for Quickturn Design Systems, Inc., an application specific
integrated circuit verification company. From 1989 to 1995, Dr. Liu was an
Assistant Professor in the Electrical and Computer Engineering Department at the
University of Arizona, Tucson, Arizona. Dr. Liu received a B.S. in Electrical
Engineering from National Taiwan University and an M.S. and Ph.D. in Electrical
Engineering from the University of California, Berkeley.

TERRY GOU is a co-founder and has served as a director since October 1995.
Mr. Gou is the Chairman of Hon Hai Precision Industries Co., Ltd., a
manufacturer of personal computer connectors and components, a company which he
founded in 1974. Mr. Gou received a B.S. in Shipping Management from the China
College of Marine Technology and Commerce.

PETER J. COURTURE is a co-founder and has served as the Secretary and a director
since May 1995. Since 1993, Mr. Courture has held the position of General
Counsel for UMC, a party related to us. Mr. Courture is also the sole
shareholder of Law +, a provider of legal services to us. Mr. Courture received
a B.A. in Economics from Yale University and a J.D. from Stanford Law School.

45
<PAGE>
DAVID LAM has served as a director since June 1999. From April 1997 to
March 1998, Dr. Lam was the Chief Executive Officer for Caliper
Technology, Inc., a microfluidics company. From November 1992 to October 1996,
Dr. Lam was the Chief Executive Officer of Expert Edge Corporation, a
privately-held company. Dr. Lam is also a director of Ingenuus Corporation, a
provider of business to business collaboration applications. In 1980, Dr. Lam
founded Lam Research Corporation, a manufacturer of semiconductor capital
equipment. Dr. Lam received a B.A.Sc. in Engineering Physics from the University
of Toronto and an M.S. and Sc.D. in Chemical Engineering from the Massachusetts
Institute of Technology.

JOHN CIOFFI has served as a director since December 1999. Dr. Cioffi has been a
professor of electrical engineering at Stanford University from January 1986 to
present. From March 1998 to November 1999, Dr. Cioffi was an electrical engineer
for Texas Instruments Incorporated. From July 1991 to March 1998, Dr. Cioffi was
a founder, Chief Technical Officer and director of Amati Communications, Inc., a
manufacturer of DSL components and equipment, which has since been acquired by
Texas Instruments. Dr. Cioffi received a B.S. in Electrical Engineering from
Illinois University and an M.S. and Ph.D. in Electrical Engineering from
Stanford University.

EXECUTIVE OFFICERS

Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.

CLASSIFIED BOARD

Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms.

BOARD COMMITTEES

Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Mr. Gou and Drs. Cioffi and Lam. The audit
committee reviews our internal accounting procedures, consults with and reviews
the services provided by our independent accountants and makes recommendations
to the board of directors regarding the selection of independent accountants.
The compensation committee consists of Messrs. Gou and Courture and Dr. Lam. The
compensation committee reviews and recommends to the board of directors the
salaries, incentive compensation and benefits of our officers and employees, and
administers our stock plans and employee benefit plans.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to establishing the compensation committee, the board of directors
performed the functions that are now delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.

DIRECTOR COMPENSATION

Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. However, Daniel (Wen Chi) Chen,
the Chairman of our Board of Directors receives compensation from us for
services he provides to us. Directors are eligible to receive an option to
purchase shares of our common stock upon appointment to our board of directors
under our 2000 Stock Plan and directors are eligible to receive stock purchase
rights under the 2000 Restricted Stock Purchase Plan.

46
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION

The following table summarizes the compensation earned for services rendered
to us for the fiscal year ended December 31, 1999 by each person that served as
chief executive officer and our four most highly compensated executive officers
whose compensation as defined by the Securities and Exchange Commission exceeded
$100,000 during the fiscal year ended December 31, 1999. These executives are
referred to as the named executive officers elsewhere in this prospectus.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
1999 ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
Richard H. Forte ........................................... $112,761 $44,677 600,000
President, Chief Executive Officer and Director
Young Way Liu .............................................. 121,359 -- 995,000
Former Chief Executive Officer, Vice Chairman of the Board
of Directors and Chief Technology Officer
Timothy A. Rogers .......................................... 143,262 23,608 230,000
Chief Financial and Administrative Officer
Jow H. Peng ................................................ 140,248 22,656 210,000
Vice President, Business Development
Max (Ming Kang) Liu ........................................ 147,073 23,988 190,000
Vice President, Technology and Advanced Architecture
</TABLE>

------------------------

(1) Information regarding the number of options granted consists of all options
granted from our inception through the fiscal year ended December 31, 1999.

STOCK OPTION INFORMATION

The following table sets forth certain information with respect to stock
options granted to each of the named executive officers in the fiscal year ended
December 31, 1999, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock. The assumed 5% and 10%
rates of stock appreciation are based on the assumed initial public offering
price of $ per share.

In the fiscal year ended December 31, 1999, we granted options to purchase
up to an aggregate of 2,080,400 shares to employees, directors and consultants.
All options were granted under our 1996 Stock Plan at exercise prices at or
above the fair market value of our common stock on the date of grant, as
determined in good faith by the board of directors. All options have a term of
ten years.

47
<PAGE>
Optionees may pay the exercise price by cash, check, cancellation of any
outstanding indebtedness of the option holder to us or delivery of already-owned
shares of our common stock.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
-------------------------------------------------- AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED IN 1999 (PER SHARE) DATE 5% 10%
---- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Forte................ 100,000 4.81% $3.00 4/15/05
500,000 24.03 3.00 6/28/05
Young Way Liu................... -- -- -- -- -- --
Timothy A. Rogers............... -- -- -- -- -- --
Jow H. Peng..................... -- -- -- -- -- --
Max (Ming Kang) Liu............. -- -- -- -- -- --
</TABLE>

AGGREGATE OPTION EXERCISES AND OPTION VALUES

The following table describes for the named executive officers their option
exercises for the fiscal year ended December 31, 1999, and exercisable and
unexercisable options held by them as of December 31, 1999.

The value of unexercised in-the-money options at December 31, 1999 is based
on a value of $3.00 per share, the fair market value of our common stock as of
December 31, 1999, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. All options were granted under our 1996 Stock Plan. Of the options
listed below, 100,000 are immediately exercisable; however, as a condition of
exercise, the optionee must enter into a stock restriction agreement granting us
the right to repurchase the shares issuable by such exercise at their cost in
the event of the optionee's termination of employment.

AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Forte........... -- $-- -- 600,000 $ -- $ --
Young Way Liu.............. -- -- 395,250 599,750 625,000 --
Timothy A. Rogers.......... -- -- 69,958 160,042 -- --
Jow H. Peng................ -- -- 50,750 159,250 13,500 13,500
Max (Ming Kang) Liu........ -- -- 65,458 124,542 18,563 12,938
</TABLE>

STOCK PLANS

1996 STOCK PLAN

Our 1996 Stock Plan was adopted by our board of directors in January 1996,
and our stockholders initially approved the plan in March 1996. Our 1996 Stock
Plan provides for the grant of incentive stock options, which may provide for
preferential tax treatment, to our employees, and for the grant of nonstatutory
stock options and stock purchase rights to our employees, directors and
consultants. We

48
<PAGE>
have reserved an aggregate of 13,000,000 shares of our common stock for issuance
under this plan. As of May 31, 2000, 1,124,892 shares had been issued pursuant
to the exercise of options and stock purchase rights and options to purchase
10,330,343 shares of common stock were outstanding. 1,544,765 shares were
available for future grant. We will not grant any additional stock options under
our 1996 Stock Plan. Instead we will grant options under our 2000 Stock Plan.
The 1996 Stock Plan provides that in the event of a change in control, each
outstanding option will be assumed or an equivalent option will be granted in
its place by the successor corporation. If the successor corporation refuses to
assume or substitute for the options, the options will terminate as of the
closing of the merger or sale of assets.

On May 10, 2000, our board of directors amended certain option agreements
under our 1996 Stock Plan to provide early exercise for the non-statutory
options granted to Richard H. Forte, Peter Courture, Terry Gou, David Lam and
John Cioffi. These non-statutory stock options and the restricted stock issuable
upon their early exercise shall become fully vested at any time during the
vesting period for the individuals so affected upon the occurrence of the
following conditions:

- the individual has offered and is willing to continue to serve for the
duration of the vesting period;

- the individual involved is not then in default of material obligations to
us; and

- our stockholders or directors do not offer that person a reasonable
opportunity to continue in the capacity held so as to fully vest all
remaining shares granted.

In addition, the board resolved to allow Richard H. Forte, Robert Gardner,
Ralph Cognac, Brian Gillings, Max (Ming Kang) Liu, Jow Peng, Timothy Rogers,
Daniel (Wen Chi) Chen and Young Way Liu to fully accelerate the vesting of all
of their respective options granted under the 1996 Stock Plan upon a change of
control of the company and subject to the following conditions:

- the individual has offered and is willing to continue to serve for the
duration of the vesting period;

- the individual involved is not then in default of material obligations to
us; and

- our stockholders or directors do not offer that person a reasonable
opportunity to continue in the capacity held so as to fully vest all
remaining shares granted.

2000 STOCK PLAN

Our 2000 Stock Plan was adopted by our board of directors in May, 2000, and
our stockholders approved the plan in May, 2000. This plan provides for the
grant of incentive stock options to our employees and nonstatutory stock options
and stock purchase rights to our employees, directors and consultants. As of
May 31, 2000, a total of 2,500,000 shares of our common stock were reserved for
issuance pursuant to our 2000 Stock Plan. No options have yet been issued
pursuant to the 2000 Stock Plan. The number of shares reserved for issuance
under our 2000 Stock Plan will increase annually on January 1st of each calendar
year, effective beginning in 2001, equal to the lesser of: 4% of the outstanding
shares of our common stock on the first day of the year, 2,500,000 shares or
such lesser amount as our board of directors may determine. Our board of
directors or a committee of our board administers the 2000 Stock Plan. The
committee may consist of two or more "outside directors" to satisfy certain tax
and securities requirements. The administrator has the power to determine the
terms of the options or stock purchase rights granted, including the exercise
price, the number of shares subject to each option or stock purchase right, the
exercisability of the options and the form of consideration payable upon
exercise. The administrator determines the exercise price of options granted
under our stock option plan, but with respect to incentive stock options, the
exercise price must at least be equal to the fair market value of our common
stock on the date of grant. Additionally, the term of an incentive stock option
may not exceed ten years. The administrator determines the term of all other

49
<PAGE>
options. No optionee may be granted an option to purchase more than 500,000
shares in any fiscal year. In connection with his or her initial service, an
optionee may be granted an additional option to purchase up to 500,000 shares of
our common stock. After termination of one of our employees, directors or
consultants, he or she may exercise his or her option for the period of time
stated in the option agreement. If termination is due to death or disability,
the option will generally remain exercisable for 12 months following such
termination. In all other cases, the option will generally remain exercisable
for 3 months. However, an option may never be exercised later than the
expiration of its term. The administrator determines the exercise price of stock
purchase rights granted under our 2000 Stock Plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason (including death
or disability). The purchase price for shares we repurchase will generally be
the original price paid by the purchaser. The administrator determines the rate
at which our repurchase option will lapse. Our stock option plan generally does
not allow for the transfer of options or stock purchase rights and only the
optionee may exercise an option and stock purchase right during his or her
lifetime. Our stock option plan provides that in the event of our merger with or
into another corporation or a sale of substantially all of our assets, the
successor corporation will assume or substitute for each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted for, all outstanding options and stock purchase rights
will become immediately vested and exercisable for 15 days and then will
terminate. Our stock option plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the stock option plan provided it does not adversely
affect any option previously granted under our stock option plan.

2000 RESTRICTED STOCK PURCHASE PLAN

Our 2000 Restricted Stock Purchase Plan was adopted by our board of
directors in May 2000, and our stockholders approved the plan in May 2000. This
plan provides for the grant of a right to purchase common stock, subject to
certain restrictions, to our employees, directors and consultants. As of
May 31, 2000, a total of 1,000,000 shares were reserved for issuance pursuant to
the 2000 Restricted Stock Purchase Plan. As of May 31, 2000, 560,000 stock
purchase rights were issued under the plan. Pursuant to the plan, each stock
purchase right issued under the plan is restricted for a period of four years
from the date of grant. 100% of the restricted shares are released from
restriction on the fourth anniversary of grant; provided, that the shares may be
released early from the restriction subject to satisfaction of a variety of
milestones relating to completion of a qualified public offering, revenue, gross
margin, market capitalization and total equity raised in public offerings.

If all of the conditions for early release are met, our right to repurchase
the shares will lapse in accordance with the following schedule:

<TABLE>
<CAPTION>
NUMBER OF DAYS FOLLOWING THE END PERCENTAGE OF
OF QUALIFIED PUBLIC OFFERING SHARES VESTED
----------------------------------- --------------
<S> <C>
195 50%
545 80
915 100
</TABLE>

If the holder of the restricted stock ceases to be an employee, director or
consultant, other than on the holder's death or disability, the holder may
exercise the stock purchase right within 30 days from the date of termination to
the extent that the stock purchase right is vested on the date of termination.
If, on the date of termination, the holder is not vested as to the entire stock
purchase right, the shares covered by the unvested portion of the stock purchase
right revert to the plan. If the holder does not exercise the stock purchase
right within 30 days of the date of termination, the stock purchase right
terminates and the shares covered by the stock purchase right reverts to the
plan.

50
<PAGE>
Our board of directors or a committee of our board administers the 2000
Restricted Stock Plan. The administrator has the power to determine the terms of
the stock purchase rights granted, including the fair market value and the
number of shares subject to each stock purchase right. Our stock repurchase plan
will automatically terminate in 2010, unless we terminate it sooner. In
addition, our board of directors has the authority to amend, suspend or
terminate the stock repurchase plan.

2000 EMPLOYEE STOCK PURCHASE PLAN

Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 600,000 shares of our common stock will be made
available for sale. In addition, our plan provides for annual increases in the
number of shares available for issuance under the Purchase Plan on January 1st
of each year, beginning in 2001, equal to the lesser of: 2% of the outstanding
shares of our common stock on the first day of the calendar year, 1,000,000
shares or such other lesser amount as may be determined by our board of
directors. Our board of directors or a committee of our board administers the
plan. Our board of directors or its committee has full and exclusive authority
to interpret the terms of the plan and determine eligibility. All of our
employees are eligible to participate if they are customarily employed by us or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted an option
to purchase stock under the plan if such employee:

- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or

- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.

Our plan is intended to qualify for preferential tax treatment and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four 6-month purchase periods. The offering periods generally start on
the first trading day on or after August 1 and September 1 of each year, except
for the first such offering period which will commence on the first trading day
on or after the effective date of this offering and will end on the last trading
day on or before August 1, 2002.

The plan permits participants to purchase common stock through payroll
deductions of up to 10% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions but excluding
all other compensation paid to our employees. A participant may purchase no more
than 10,000 shares during any 6-month purchase period.

Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each 6-month purchase period. The price
is 85% of the lower of the fair market value of our common stock at the
beginning of an offering period or after a purchase period ends. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. Participants may
end their participation at any time during an offering period, and will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.

A participant may not transfer rights granted under our employee stock
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.

In the event of our merger with or into another corporation or a sale of all
or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.

51
<PAGE>
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase stock under our plan.

401(K) PLAN

In February 1997, we adopted a 401(k) plan to provide eligible employees
with a tax preferential savings and investment program. Employees become
eligible to participate in the 401(k) plan on the first day they perform an hour
of service for us ("participants"). Our employee savings and retirement plan is
qualified under Section 401 of the Internal Revenue Code. Employees may elect to
reduce their current compensation by up to the statutorily prescribed annual
limit and have the amount of such reduction contributed to the 401(k) Plan. We
currently do not make matching or additional contributions to the 401(k) Plan on
our employees' behalf. At the direction of each participant, the trustee of the
401(k) plan invests the assets of the 401(k) plan in selected investment
options. Contributions by participants or by us to the 401(k) Plan, and income
earned on plan contributions, are generally not taxable to the participants
until withdrawn, and contributions by us, if any, are generally deductible by us
when made.

EMPLOYMENT ARRANGEMENTS

From time to time, we have entered into employment agreements with our
executive officers, including the executive officers listed in the "Summary
Compensation Table."

RICHARD FORTE. In June 1999, Richard Forte accepted our offer of
employment. The terms of Mr. Forte's employment are at will. Mr. Forte's
starting base salary was $200,000 per year. In addition, Mr. Forte was granted
options to purchase 500,000 shares of our common stock at a fair market price of
$3.00 per share. In addition, upon the closing of our initial public offering,
Mr. Forte will be paid a bonus in the amount of $150,000. There are no severance
or change of control arrangements in Mr. Forte's employment agreement.

MAX (MING KANG) LIU. In April 1997, Max (Ming Kang) Liu accepted our offer
of employment. The terms of Mr. Liu's employment are at will. Mr. Liu's starting
base salary was $120,000 per year. In addition, Mr. Liu was granted options to
purchase 100,000 shares of our common stock at a fair market price of $2.55 per
share.

TIMOTHY ROGERS. In April 1998, Timothy Rogers accepted our offer of
employment. The terms of Mr. Rogers' employment are at will. Mr. Rogers'
starting base salary was $135,000 per year. In addition, Mr. Rogers was granted
options to purchase 230,000 shares of our common stock at a fair market price of
$3.00 per share, of which the grant of options to purchase 50,000 shares was
contingent upon the successful closing of the Series A Convertible Preferred
Stock offering.

JOW PENG. In August 1997, Jow Peng accepted our offer of employment. The
terms of Mr. Peng's employment are at will. Mr. Peng's starting base salary was
$134,000 per year. In addition, Mr. Peng was granted options to purchase 80,000
shares of our common stock at a fair market price of $2.55 per share. In
addition, after one year of employment, Mr. Peng was granted options to purchase
40,000 shares of our common stock at a fair market price of $2.55 per share.

RALPH COGNAC. In October 1999, Ralph Cognac accepted our offer of
employment. The terms of Mr. Cognac's employment are at will. Mr. Cognac's
starting base salary was $175,000 per year. In addition, Mr. Cognac was granted
options to purchase 250,000 shares of our common stock at a fair market price of
$3.00 per share. In addition, Mr. Cognac was granted the right to bonuses of
cash and/or stock upon the achievement of certain financial and product design
win milestones.

52
<PAGE>
BRIAN GILLINGS. In July 1999, Brian Gillings accepted our offer of
employment. The terms of Mr. Gillings' employment are at will. Mr. Gillings'
starting base salary was $135,000 per year. In addition, Mr. Gillings was
granted options to purchase 225,000 shares of our common stock at a fair market
price of $3.00 per share.

ROBERT GARDNER. In September 1999, Robert Gardner accepted our offer of
employment. The terms of Mr. Gardner's employment are at will. Mr. Gardner's
starting base salary was $175,000 per year. In addition, Mr. Gardner was granted
options to purchase 400,000 shares of our common stock at a fair market price of
$3.00 per share. If Mr. Gardner's employment were to be terminated by us without
good cause after July 1, 2000, we would accelerate the vesting of Mr. Gardner's
options that would have otherwise vested upon the first anniversary of
Mr. Gardner's employment and pay him an amount equal to 12 months compensation
at his then-current rate.

YOUNG WAY LIU. In May 1997, Young Way Liu signed an Employment,
Confidentiality and Invention Assignment Agreement in connection with accepting
employment with us. The terms of his employment are at will. There are no
severance or change of control arrangements in this employment agreement.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether our bylaws would permit indemnification.

We will enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
such person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.

53
<PAGE>
CERTAIN TRANSACTIONS

The following is a description of transactions since inception, to which we
have been a party in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements that are otherwise required to be
described under "Management."

PURCHASE OF COMMON SHARES

From October 1995 through February 1998, we sold 23,079,138 shares of common
stock at purchase prices of $0.05 to $3.00 per share. The following executive
officers, directors and holders of more than 5% of our securities purchased
shares of common stock:

<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF COMMON SHARES PRICE PER SHARE AGGREGATE PURCHASE PRICE
----------------- ----------------------- --------------- ------------------------
<S> <C> <C> <C>
Daniel (Wen Chi) Chen............... 250,000 $0.05 $ 12,500
Peter Courture...................... 50,000 0.05 2,500
Terry Gou........................... 250,000 0.05 12,500
Young Way Liu....................... 250,000 0.05 12,500
UMC................................. 4,000,000 0.50 2,000,000
3,000,000 0.50 1,500,000(1)
Creative Group Limited.............. 3,000,000 0.50 1,500,000
500,000 3.00 1,500,000
Fortune Venture Capital............. 4,000,000 0.50 2,000,000
</TABLE>

------------------------

See the notes to the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.

(1) Consideration for these common shares consisted of licensed technology from
UMC.

PURCHASE OF PREFERRED SHARES

We have issued preferred stock as follows:

- in October 1998, we issued 1,428,571 shares of Series A Convertible
Preferred Stock in a private placement at a purchase price of $3.50 per
share and aggregate proceeds of $4,999,998.50; and

- in October 1999 and November 1999, we issued 10,000,000 shares of
Series B Convertible Preferred Stock in a private placement at a purchase
price of $4.00 per share and aggregate proceeds of $40,000,000.

Our officers, directors and holders of more than 5% of our capital stock
participated in the foregoing transactions as follows:

<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF SERIES A SHARES NUMBER OF SERIES B SHARES AGGREGATE PURCHASE PRICE
----------------- -------------------------- -------------------------- ------------------------
<S> <C> <C> <C>
Intel Corporation........... 1,428,571 -- $5,000,000
714,286(1) -- --
Cioffi Family Trust......... -- 37,500 150,000
</TABLE>

------------------------

See the notes to the table on beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.

(1) Shares issuable pursuant to the exercise of a warrant for Series A Preferred
Stock.

54
<PAGE>
GRANTS OF OPTIONS

Since inception, we have granted options to purchase our common stock to our
directors and executive officers as follows:

<TABLE>
<CAPTION>
AGGREGATE NUMBER WEIGHTED AVERAGE
NAME DATE(S) OF GRANT OF OPTIONS EXERCISE PRICE PER SHARE
---- ---------------- ---------------- ------------------------
<S> <C> <C> <C>
Daniel (Wen Chi) Chen..... 8/96 - 5/00 1,220,000 $2.69

John Cioffi............... 1/00 100,000 3.00

Ralph Cognac.............. 1/00 - 5/00 400,000 3.38

Peter J. Courture......... 4/98 - 5/00 100,000 3.28

Richard H. Forte.......... 5/99 - 5/00 1,200,000 3.50

Robert M. Gardner......... 9/99 - 5/00 525,000 3.24

Brian Gillings............ 7/99 - 5/00 300,000 3.25

Terry Gou................. 4/98 50,000 2.55

David Lam................. 6/99 100,000 3.00

Max (Ming Kang) Liu....... 6/97 - 5/00 350,000 3.37

Young W. Liu.............. 8/96 - 5/00 1,195,000 2.64

Jow H. Peng............... 10/97 - 5/00 350,000 3.32

Timothy A. Rogers......... 7/98 - 5/00 300,000 3.23
</TABLE>

GRANTS OF RESTRICTED STOCK RIGHTS

In May 2000, we granted restricted stock purchase rights to purchase our
common stock at an exercise price of $4.00, subject to a right of repurchase, to
our directors and executive officers as follows:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Daniel (Wen Chi) Chen....................................... 100,000

Ralph Cognac................................................ 75,000

Richard H. Forte............................................ 150,000

Robert M. Gardner........................................... 40,000

Brian Gillings.............................................. 25,000

Max (Ming Kang) Liu......................................... 30,000

Young W. Liu................................................ 75,000

Jow H. Peng................................................. 40,000

Timothy A. Rogers........................................... 25,000
</TABLE>

RELATIONSHIP WITH LAW+

During the past three fiscal years and the three months ended March 31,
2000, Law+, a law firm of which one of our directors, Peter J. Courture, is the
sole shareholder, has provided legal services to us. Law+ is the general
corporate counsel to UMC. All payments to Law+ were made through UMC.

LOANS TO EXECUTIVE OFFICERS AND DIRECTORS

On August 2, 1999, we loaned $461,910 at an interest rate of 7.75% per annum
to Richard H. Forte for a term of ninety (90) days, secured by a pledge of
collateral. On January 7, 2000, at the

55
<PAGE>
request of Mr. Forte, the board of directors approved both to extend the loan
from October 31, 1999 to June 1, 2000, with an adjustment of the interest rate
from 7.75% to 8.25% for the period from January 27, 2000 to June 1, 2000. On
June 1, 2000, Mr. Forte repaid the loan.

On May 10, 2000, we loaned $262,000 at an interest rate set at the Bank of
America prime rate plus 2% per annum to Peter Courture for a term of four years.
This loan is with full recourse and is also secured by 80,000 shares of our
common stock.

RELATIONSHIP WITH UMC

In December 1997, in connection with the sale of our Taiwan subsidiary,
Integrated Technology Express (Taiwan), Inc., or ITE, we sold 19,980,000 shares
of ITE, to UMC for a total purchase price of $7,330,000.

We have executed a term sheet regarding cooperation on technology
enhancements with UMC.

We have also executed a term sheet with UMC that states it guarantees us
minimum production capacity through 2003 provided that we use UMC to manufacture
substantially all of our integrated circuits.

PURCHASE OF RAW MATERIALS

We purchase the wafers for our products from UMC. For the year ended
December 31, 1999, total purchases from UMC amounted to $2,509,000. At
December 31, 1999, the net balance due UMC was $634,000. For the three months
ended March 31, 2000, the purchases from UMC amounted to $719,000 and the net
balance due UMC amounted to $685,000 (unaudited).

RELATED PARTY TRANSACTIONS AND DISCONTINUED OPERATIONS

In June 1998, we sold certain assets, mainly trademarks, licensing
agreements and service contracts to ITE and its U.S. subsidiary, or ITE-US, for
$1,911,000 in cash and $1,931,000 in a note receivable. The note is due in five
equal, annual installments beginning July 1, 1998 and bearing interest at 6% per
annum. As we and ITE have certain common shareholders, the excess of the sales
price over the net book value of the assets sold of $2,853,000 was credited to
additional paid-in capital. At December 31, 1999, the current and long-term
portions of the note receivable amounted to $363,000 and $793,000, respectively.
Interest income for 1998 and 1999 was $45,000 and $80,000 of which $45,000 and
$35,000 was accrued at December 31, 1998 and 1999. For the three months ended
March 31, 1999 and 2000 interest income was $22,000 and $17,000 (unaudited), and
at March 31, 2000 was $52,000 (unaudited).

In the year ended December 31, 1999, we sold to and purchased fixed assets
from ITE-US in the amount of $28,000 and $152,000.

SHARED FACILITIES, PURCHASE OF PRODUCTS AND SERVICES

In March 1998, we entered into a reimbursement agreement with ITE-US to
share facilities and services of administrative staff and resources. Under the
agreement, the parties allocate the costs of the shared portion of their
respective operations. The agreement has no expiration date. The total amounts
that we billed to and reimbursed by ITE-US were $2,539,000 and $1,936,000 in
1998 and $843,000 and $812,000 in 1999 and $233,000 and $323,000 for the three
months ended March 31, 1999 (unaudited), and $107,000 and $210,000 for the three
months ended March 31, 2000 (unaudited), respectively. We also purchase certain
of our finished products from ITE-US, which amounted to $746,000 and $718,000
for the year ended December 31, 1999, and the three months ended March 31, 2000
(unaudited). Additionally, in 1998 ITE-US performed certain nonrecurring
engineering services for us in the amount of $290,000. At December 31, 1998 and
1999, the net balance due to us from ITE-US was $313,000 and $192,000. At
March 31, 2000, the net balance due to ITE-US was $196,000 (unaudited).

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<PAGE>
PROVIDING CONSULTING SERVICES

In 1997, we entered into an agreement in which we would provide consulting
services to a related company. Total consulting service revenue was
approximately $175,000 for the year ended December 31, 1997, and is included in
the result for discontinued operations, and none for the years ended
December 31, 1998 and 1999.

INDEMNIFICATION AGREEMENTS

Our restated certificate of incorporation, which shall be filed concurrently
with the initial public offering, limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors to
the fullest extent permitted by the Delaware General Corporation Law.

Our bylaws provide that we shall indemnify our directors and officers to the
maximum extent and in the manner permitted by the Delaware General Corporation
Law against expenses (including attorneys' fees), judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. Our bylaws also provide that we may purchase and maintain
insurance on behalf of any person who is or was a director or officer against
any liability asserted against him and incurred by him in any such capacity
whether or not we would have the power to indemnify him against such liability
under the provisions of the Delaware General Corporation Law.

We will enter into indemnification agreements with each of our directors and
executive officers. Such indemnification agreements will require us to indemnify
our directors and executive officers to the fullest extent permitted by Delaware
General Corporation Law.

EMPLOYMENT AGREEMENTS

We have entered into employment arrangements and compensation arrangements
with certain of our executive officers, see "Management--Employment
Arrangements" and "--Executive Officers--Summary Compensation Table." For
information regarding stock options, see "Management--Stock Plans."

FUTURE AGREEMENTS

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent, disinterested outside directors on the board of directors, and will
be on terms no less favorable to us than could be obtained from unaffiliated
parties.

57
<PAGE>
PRINCIPAL STOCKHOLDERS

The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of May 31, 2000, by the following
individuals or groups:

- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;

- each of the named executive officers;

- each of our directors; and

- all directors and executive officers as a group.

Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Share ownership in
each case also includes shares issuable upon exercise of outstanding options and
warrants that are exercisable within 60 days. Unless otherwise indicated, the
address for each stockholder listed in the following table is c/o Integrated
Telecom Express, Inc., 2710 Walsh Avenue, Santa Clara, CA 95051. Except as
otherwise indicated, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock held by them.

Applicable percentage ownership in the following table is based on
35,303,463 shares of common stock outstanding as of May 31, 2000, as adjusted to
reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering, and shares of common stock outstanding after
completion of this offering.

To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire our capital stock that are presently outstanding or
granted in the future or reserved for future issuance under our stock plans,
there will be further dilution to new public investors.

The numbers shown in the following table assume no exercise by the
underwriters of their over-allotment option.

58
<PAGE>
PRINCIPAL STOCKHOLDERS TABLE

<TABLE>
<CAPTION>
PERCENTAGE OF
BENEFICIAL OWNERSHIP
------------------------
NUMBER OF SHARES PRIOR TO AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------- --------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
United Microelectronics Corporation (1)................ 7,000,000 19.83%
Fortune Venture Capital Corporation (2)................ 4,000,000 11.33
Creative Group Limited (3)............................. 3,500,000 9.91
Intel Corporation (4).................................. 2,142,857 5.95

DIRECTORS AND EXECUTIVE OFFICERS:
Daniel (Wen Chi) Chen (5).............................. 900,000 2.50
Richard H. Forte (6)................................... 360,417 1.01
Young Way Liu (7)...................................... 882,500 2.46
Timothy A. Rogers (8).................................. 128,500 *
Jow H. Peng (9)........................................ 137,500 *
Max (Ming Kang) Liu (10)............................... 173,083 *
Terry Gou (11)......................................... 300,000 *
Peter J. Courture (12)................................. 150,000 *
David Lam (13)......................................... 100,000 *
John Cioffi (14)....................................... 137,500 *
All directors and officers as a group
(13 persons) (15).................................... 3,454,500 9.17
</TABLE>

------------------------

* Represents beneficial ownership of less than 1.0%.

(1) The address of United Microelectronics Corporation is 3F, No. 76 Tunhwa
South Road, Section 2, Taipei, Taiwan R.O.C.

(2) The address of Fortune Venture Capital Corporation is 3F, No. 76 Tunhwa
South Road, Section 2, Taipei, Taiwan R.O.C.

(3) The address of Creative Group Limited is P.O. Box 71 Craigmuir Chambers,
Road Town, Tortola, British Virgin Islands.

(4) Includes 714,286 shares issuable pursuant to a warrant which is exercisable
within 60 days of May 31, 2000. The address of Intel Corporation is 2200
Mission College Boulevard, Santa Clara, CA 95052.

(5) Includes 550,000 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000. This also includes 100,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.

(6) Includes 210,417 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000, of which 73,750 are currently subject to a
right of repurchase. This also includes 150,000 shares issuable pursuant to
restricted stock purchase rights exercisable within 60 days of May 31, 2000,
all of which are currently subject to a right of repurchase.

(7) Includes 557,500 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000. This also includes 75,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.

(8) Includes 103,500 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000. This also includes 25,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.

59
<PAGE>
(9) Includes 97,500 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000. This also includes 40,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.

(10) Includes 103,083 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000. This also includes 30,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.

(11) Includes 50,000 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000, of which 25,000 are currently subject to a
right of repurchase.

(12) Includes 75,000 shares currently subject to a right of repurchase.

(13) Includes 100,000 shares issuable pursuant to options which are exercisable
within 60 days of May 31, 2000, of which 77,917 are currently subject to a
right of repurchase.

(14) Includes 100,000 shares currently subject to a right of repurchase and
37,500 shares held in the Cioffi Family Trust.

(15) Includes 1,817,000 shares issuable pursuant to options which are
exercisable within 60 days of May 31, 2000, of which 351,667 are currently
subject to a right of repurchase. This also includes 560,000 shares issuable
pursuant to restricted stock purchase rights exercisable within 60 days of
May 31, 2000, all of which are currently subject to a right of repurchase.
This also includes 175,000 shares currently subject to a right of
repurchase.

60
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the completion of this offering, we will be authorized to issue
shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.

COMMON STOCK

As of May 31, 2000, there were 23,874,892 shares of common stock outstanding
which were held of record by 191 stockholders. The holders of common stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for that purpose. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel to us, shall opine that the
shares of common stock to be issued upon the closing of this offering, when
issued and sold in the manner described in this prospectus and in accordance
with the resolutions adopted by the board of directors, will be fully paid and
nonassessable.

PREFERRED STOCK

The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include:

- restricting dividends on the common stock;

- diluting the voting power of the common stock;

- impairing the liquidation rights of the common stock; or

- delaying or preventing a change in control of us without further action by
the stockholders.

Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.

WARRANTS

As of May 31, 2000, there were warrants outstanding to purchase 714,286
shares of Series A preferred stock and 500,000 shares of Series B preferred
stock which are convertible in the aggregate into 1,214,286 shares of common
stock.

61
<PAGE>
REGISTRATION RIGHTS

The holders of 13,003,571 shares of common stock, assuming conversion of all
outstanding shares of preferred stock, and the holders of warrants to purchase
preferred stock convertible into 1,214,286 shares of common stock, or the
registrable securities, are entitled to certain rights with respect to
registration of such shares under the Securities Act. These rights are provided
under the terms of an agreement between the holders of registrable securities
and us. Beginning 180 days following the date of this prospectus, holders of at
least 30% of the then outstanding registrable securities may require on up to
two occasions that we register their shares for public resale. Also, holders of
registrable securities may require on two separate occasions within any
12 month period that we register their shares for public resale on Form S-3 or
similar short-form registration if the value of the securities to be registered
is at least $1.0 million, however we may defer such registration for 90 days in
view of market conditions. Furthermore, in the event we elect to register any of
our shares of common stock for purposes of effecting any public offering, the
holders of registrable securities are entitled to include their shares of common
stock in the registration, but we may reduce the number of shares proposed to be
registered in view of market conditions. These registration rights have been
waived with respect to this offering. All expenses in connection with any
registration, other than underwriting discounts and commissions, will be borne
by us. All registration rights will terminate five years following the
consummation of this offering, or, with respect to each holder of registrable
securities, at such time as the holder is entitled to sell all of its shares in
any 90 day period under Rule 144 of the Securities Act.

ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE AND BYLAWS AND DELAWARE LAW

Certain provisions of Delaware law and our restated certificate of
incorporation and bylaws could make the following more difficult:

- the acquisition of us by means of a tender offer;

- acquisition of us by means of a proxy contest or otherwise; or

- the removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.

ELECTION AND REMOVAL OF DIRECTORS. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us because it generally makes
it more difficult for stockholders to replace a majority of the directors.

STOCKHOLDER MEETINGS. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.

REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.

DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from

62
<PAGE>
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a business combination includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an interested stockholder is a person who, together with
affiliates and associates, owns or within three years prior to the determination
of interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.

ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Our restated
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.

ELIMINATION OF CUMULATIVE VOTING. Our restated certificate of incorporation
and bylaws do not provide for cumulative voting in the election of directors.

UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.

CLASSIFIED BOARD. Our board of directors is divided into three classes. A
portion of our board of directors will be elected each year. To implement the
classified structure, prior to the consummation of the offering, two of the
nominees to the board will be elected to one-year terms, two will be elected to
two-year terms and three will be elected to three-year terms. Thereafter,
directors will be elected for three-year terms.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is .

NASDAQ NATIONAL MARKET LISTING

We have applied for quotation of our stock on the Nasdaq National Market
under the symbol "ITXI."

63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.

After the offering shares of our common stock will be outstanding,
assuming that the underwriters do not exercise the over-allotment option. Of
these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. The remaining shares of common stock held by
existing shareholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.

The following table shows approximately when the 35,303,463 shares of our
common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET

<TABLE>
<S> <C>
At the effective date....................................... 0
90 days after the effective date............................ 0
180 days after the effective date........................... 35,303,463
</TABLE>

Resale of 16,968,571 of the restricted shares that will become available for
sale in the public market starting 180 days after the effective date will be
limited by volume and other resale restrictions under Rule 144 because the
holders are our affiliates.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:

- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or

- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the sale
on Form 144 is filed.

Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and to the availability of current public information about
us.

Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

RULE 701

In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultant or advisors who purchase shares from us under a
stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144. As of May 31, 2000, 1,124,892 shares outstanding had been issued as
a result of exercise of

64
<PAGE>
stock options. Of these shares, 1,004,892 shares will be vested and exercisable
and will be able to be resold after the 90 day period, subject to the lock-up
agreements described below.

LOCK-UP AGREEMENTS

Executive officers, directors, stockholders and optionees who will hold an
aggregate of 35,303,463 shares of our common stock after this offering will sign
lock-up agreements under which they will agree not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
180 days after the date of this prospectus. Transfers or dispositions can be
made sooner with the prior written consent of Lehman Brothers.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of 13,003,571 shares of our
common stock and holders of 1,214,286 shares of our common stock issuable upon
conversion of warrants, assuming such warrants are converted, will be entitled
to rights to registration of their shares under the Securities Act. After
registration, these shares will become freely tradable without restrictions
under the Securities Act. Any sales of securities by these shareholders could
have a material adverse effect on the trading price of our common stock.

STOCK OPTIONS

Immediately after this offering we intend to file a registration statement
under the Securities Act covering shares of common stock subject to outstanding
options or reserved for issuance under our stock option plans. Each year as the
number of shares reserved for issuance under our 2000 Stock Plan and 2000
Employee Stock Purchase Plan automatically increases, we will file an amendment
to the registration statement covering the additional shares. As of May 31,
2000, under our 1996 Stock Plan, options to purchase 10,330,343 shares of common
stock were issued and outstanding and 2,500,000 shares were reserved for future
issuance under our stock plans. This registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this offering. Accordingly, shares registered under that registration statement
will, upon the optionee's exercise and subject to vesting provisions and
Rule 144 volume limitations applicable to our affiliates, be available for sale
in the open market immediately after the 180 day lock-up agreements expire.

WARRANTS

Upon consummation of the initial public offering, warrants to purchase
1,214,286 shares of common stock will remain outstanding. The warrants which
remain outstanding after this offering will have the registration rights
described above.

65
<PAGE>
UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc., Wit
SoundView Corporation and Fidelity Capital Markets, a division of National
Financial Services Corporation, are acting as representatives, has agreed to
purchase from us the number of shares of common stock shown opposite its name
below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc.......................................
Bear, Stearns & Co. Inc...................................
Wit SoundView Corporation.................................
Fidelity Capital Markets, a division of National Financial
Services Corporation....................................
------
Total.....................................................
======
</TABLE>

The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that, if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, all of
the shares of common stock that the underwriters have agreed to purchase under
the underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.

We have granted the underwriters an option to purchase up to an aggregate of
additional shares of common stock to cover over-allotments, if any, at the
public offering price less the underwriting discounts shown on the cover page of
this prospectus. The underwriters may exercise this option at any time until 30
days after the date of the underwriting agreement. If this option is exercised,
each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
of common stock proportionate to the underwriter's initial commitment as
indicated in the table below and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.

The underwriters propose to offer the shares to the public initially at the
public offering price set forth on the cover page of this prospectus and to
selling group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
will pay. The underwriting discounts and commissions are equal to the public
offering price per share less the amount paid to us per share.

<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us........ $ $ $
Expenses payable by us...................................
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

66
<PAGE>
We, our officers and directors and certain other stockholders have agreed
that without the prior consent of Lehman Brothers we will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Commission a registration statement
under the Securities Act relating to, any additional shares of common stock or
securities convertible into or exchangeable or exercisable for any of our shares
for a period of 180 days after the date of this prospectus, except in the case
of issuances by us upon the exercise of employee stock options outstanding on
the date hereof. Lehman Brothers may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements.

The underwriters have reserved for sale, at the initial public offering
price to public, up to shares of the common stock for employees, directors
and other persons associated with us that have expressed an interest in
purchasing common stock in the offering. These persons must commit to purchase
no later than the close of business on the day following the date of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent such persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the underwriters
to the general public on the same terms as the other shares.

We have agreed to indemnify the underwriters against liabilities relating to
the offering, including liabilities under the Securities Act, liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement, and liabilities incurred in connection with the directed
share program referred to above, and to contribute to payments that the
underwriters may be required to make for these liabilities.

We have applied to list our shares on the Nasdaq Stock Market's National
Market under the symbol "ITXI."

Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price was negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives considered:

- prevailing market conditions;

- our historical performance;

- our capital structure;

- estimates of our business potential and earning prospects;

- an overall assessment of our management; and

- the consideration of the above factors in relation to market valuation of
companies in related businesses.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.

67
<PAGE>
Any offers in Canada will be made only under exemption from the requirements
to file a prospectus in the relevant province of Canada in which the sale is
made.

Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

In November 1999, an affiliate of Wit SoundView Corporation purchased 37,500
shares of our Series B preferred stock for a total purchase price of $150,000.

A prospectus in electronic format is being made available on Internet web
sites maintained by Wit SoundView Corporation's affiliate, Wit Capital
Corporation, and may be made available on web sites maintained by other
underwriters. Other than the prospectus in electronic format, the information on
any underwriter's web site and any information contained in any other web site
maintained by an underwriter is not part of the prospectus or the registration
statement of which this prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in its capacity as underwriter and should not
be relied upon by investors.

Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution through the Internet.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this prospectus, WS Investment Company 2000
A composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, as well as certain individual attorneys of
this firm, own an option to purchase 100,000 shares of our common stock, subject
to vesting. Certain legal matters will be passed upon for the underwriters by
Cooley Godward LLP, Palo Alto, California.

CHANGE OF INDEPENDENT ACCOUNTANTS

On June 2, 1998 Ernst & Young LLP was dismissed and
PricewaterhouseCoopers LLP replaced Ernst & Young LLP as our independent
accountants. The decision to change accountants was approved by our board of
directors. The audit report of Ernst & Young LLP on the financial statements of
Integrated Telecom Express, Inc. for the year ended December 31, 1997 contained
no adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principle. In connection with its
audit through December 31, 1997 and through June 2, 1998, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles and
practices, financial statements and disclosures or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement.

Ernst & Young LLP has not audited or reported on any financial statements
included in this prospectus. For purposes of this filing, the financial
statements for the year ended December 31, 1997 as well as the financial
statements for the years ended December 31, 1998 and 1999 have been audited by
PricewaterhouseCoopers LLP. Prior to June 2, 1998, we had not consulted with
PricewaterhouseCoopers LLP on items that involved our accounting principles or
the form of audit opinion to be issued on our financial statements for the years
ended December 31, 1997 or 1998.

68
<PAGE>
EXPERTS

The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to us and our common stock, see
the registration statement and the exhibits and schedules thereto. Any document
we file may be read and copied at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information about the public reference
rooms. Our filings with the Commission are also available to the public from the
Commission's website at http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the website of the Commission referred to above.

69
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Integrated Telecom Express, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Integrated Telecom
Express, Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
San Jose, CA
January 26, 2000, except for Note 13, as to
which the date is May 15, 2000

F-2
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,423 $ 38,513 $ 35,238
Trade receivables, net.................................... -- 1,373 2,467
Receivable from ITE....................................... 313 192 90
Current portion of note receivable from ITE............... 343 363 363
Inventories............................................... -- 1,893 1,313
Prepaid expenses and other assets......................... 144 856 1,186
-------- -------- --------
Total current assets.................................. 15,223 43,190 40,657
Deposits.................................................... 50 -- --
Long-term portion of note receivable from ITE............... 1,156 793 793
Property and equipment, net................................. 2,172 2,140 2,221
Licenses, net............................................... 8,051 6,900 6,582
-------- -------- --------
Total assets.......................................... $ 26,652 $ 53,023 $ 50,253
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 202 $ 1,852 $ 2,264
Accrued expenses and other liabilities.................... 742 875 1,273
Current portion of payable for licenses................... 2,375 2,625 2,125
-------- -------- --------
Total current liabilities............................. 3,319 5,352 5,662
Long-term portion of payable for licenses................... 4,125 1,500 1,125
-------- -------- --------
Total liabilities..................................... 7,444 6,852 6,787
-------- -------- --------
Commitments (Note 12)
Mandatorily redeemable convertible preferred stock:
$0.001 par value, authorized: 10,000 shares in 1998 and
13,500 shares in 1999 and 13,500 (unaudited) shares at
March 31, 2000; issued and outstanding: 1,429 shares in
1998 and 11,429 shares in 1999, and 11,429 (unaudited)
shares at March 31, 2000 and none (unaudited) at
March 31, 2000 (pro forma); (aggregate liquidation
preference of $5,000 at December 31, 1998 and $45,000 at
December 31, 1999 and $45,000 (unaudited) at March 31,
2000 and $0 (unaudited) at March 31, 2000 (pro
forma))................................................. 4,207 43,393 43,393 $ --
Mandatorily redeemable convertible preferred
stock warrants........................................ 793 1,607 1,607 --
-------- -------- -------- --------
5,000 45,000 45,000 --
-------- -------- -------- --------
Stockholders' equity (deficit):
Common stock--$0.001 par value, authorized: 34,750 shares
in 1998 and 46,100 shares in 1999 and 46,100 (unaudited)
shares at March 31, 2000; issued and outstanding: 23,080
shares in 1998 and 23,369 shares in 1999 and 23,397
(unaudited) shares at March 31, 2000 and 34,826
(unaudited) shares at March 31, 2000 (pro forma)........ 23 23 23 35
Additional paid-in capital................................ 29,378 30,745 34,399 79,387
Deferred stock-based compensation......................... (473) (1,241) (4,048) (4,048)
Accumulated deficit....................................... (14,720) (28,356) (31,908) (31,908)
-------- -------- -------- --------
Total stockholders' equity (deficit).................. 14,208 1,171 (1,534) $ 43,466
-------- -------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit).................................. $ 26,652 $ 53,023 $ 50,253
======== ======== ========
</TABLE>

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

F-3
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $ -- $ -- $ 3,053 $ 83 $ 4,115
Cost of revenue................................ -- -- (2,739) (314) (2,607)
------- ------- -------- ------- -------
Gross profit (loss)............................ -- -- 314 (231) 1,508
------- ------- -------- ------- -------

Operating expenses:
Research and development (exclusive of stock-
based compensation expense of $10, $58,
$97, $27 and $157)......................... 1,101 5,473 8,458 1,969 2,641
Sales and marketing (exclusive of stock-based
compensation expense of $0, $57, $86, $23
and $346).................................. -- 1,017 3,211 606 1,138
General and administrative (exclusive of
stock-based compensation expense of $23,
$111, $81, $25 and $259)................... 943 3,436 3,086 731 983
Amortization of deferred stock-based
compensation............................... 33 226 264 75 762
------- ------- -------- ------- -------
Total operating expenses................... 2,077 10,152 15,019 3,381 5,524
------- ------- -------- ------- -------

Operating loss from continuing operations...... (2,077) (10,152) (14,705) (3,612) (4,016)

Interest income, net........................... 809 856 887 154 464
Other income................................... -- -- 182 -- --
------- ------- -------- ------- -------

Loss from continuing operations................ (1,268) (9,296) (13,636) (3,458) (3,552)
Loss from discontinued operations.............. (2,638) -- -- -- --
------- ------- -------- ------- -------
Net loss....................................... $(3,906) $(9,296) $(13,636) $(3,458) $(3,552)
======= ======= ======== ======= =======
Basic and diluted net loss from continuing
operations per share......................... $ (0.06) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
Basic and diluted net loss from discontinued
operations per share......................... (0.11) -- -- -- --
------- ------- -------- ------- -------

Basic and diluted net loss per share........... $ (0.17) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
======= ======= ======== ======= =======
Shares used in computing basic and diluted net
loss per share............................... 22,753 23,058 23,148 23,090 23,371
======= ======= ======== ======= =======
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.51) $ (0.10)
======== =======
Pro forma shares used in computing basic and
diluted net loss per share (unaudited)....... 26,634 34,800
======== =======
</TABLE>

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

F-4
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON TOTAL
STOCK ADDITIONAL DEFERRED STOCKHOLDERS'
------------------- PAID-IN STOCK-BASED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
-------- -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 22,750 $23 $25,827 $ -- $ 28 $ 25,878
------ --- ------- ------- -------- --------

Sale of subsidiary to related
party.............................. -- -- (323) -- (1,546) (1,869)
Exercise of common stock options..... 14 -- 10 -- -- 10
Deferred compensation related to
stock option grants................ -- -- 599 (599) -- --
Amortization of deferred stock-based
compensation....................... -- -- -- 136 -- 136
Net loss............................. -- -- -- -- (3,906) (3,906)
------ --- ------- ------- -------- --------

Balance at December 31, 1997......... 22,764 23 26,113 (463) (5,424) 20,249

Deemed contribution of capital
related to sale of licenses to
related parties.................... -- -- 2,853 -- -- 2,853
Exercise of common stock options..... 316 -- 176 -- -- 176
Deferred compensation related to
stock option grants................ -- -- 236 (236) -- --
Amortization of deferred stock-based
compensation....................... -- -- -- 226 -- 226
Net loss............................. -- -- -- -- (9,296) (9,296)
------ --- ------- ------- -------- --------

Balance at December 31, 1998......... 23,080 23 29,378 (473) (14,720) 14,208

Exercise of common stock options..... 289 -- 335 -- -- 335
Deferred compensation related to
stock option grants................ -- -- 1,032 (1,032) -- --
Amortization of deferred stock-based
compensation....................... -- -- -- 264 -- 264
Net loss............................. -- -- -- -- (13,636) (13,636)
------ --- ------- ------- -------- --------

Balance at December 31, 1999......... 23,369 23 30,745 (1,241) (28,356) 1,171

Deferred compensation related to
stock option grants (unaudited).... -- -- 3,569 (3,569) -- --
Exercise of common stock options
(unaudited)........................ 28 -- 85 -- -- 85
Amortization of deferred stock-based
compensation (unaudited)........... -- -- -- 762 -- 762
Net loss (unaudited)................. -- -- -- -- (3,552) (3,552)
------ --- ------- ------- -------- --------

Balance at March 31, 2000
(unaudited)........................ 23,397 $23 $34,399 $(4,048) $(31,908) $ (1,534)
====== === ======= ======= ======== ========
</TABLE>

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

F-5
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (3,906) $ (9,296) $(13,636) $(3,458) $(3,552)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss from discontinued operations............... 2,638 -- -- -- --
Depreciation and amortization................... 292 822 2,121 541 563
Amortization of deferred stock-based
compensation.................................... 33 226 264 75 762
Changes in current assets and liabilities, net
of effects of business sold:
Trade receivables........................... -- -- (1,373) (82) (1,094)
Receivable from ITE......................... (17) (339) 121 90 102
Prepaid expenses and other current assets... (368) 295 (712) (109) (330)
Other assets................................ (50) -- 50 50 --
Inventory................................... -- -- (1,893) -- 580
Accounts payable............................ 25 193 1,650 (165) 412
Accrued expenses and other liabilities...... 333 368 133 (220) 398
-------- -------- -------- ------- -------
Net cash used in continuing operations.... (1,020) (7,731) (13,275) (3,278) (2,159)
Net cash used in discontinued
operations................................ (1,434) -- -- -- --
-------- -------- -------- ------- -------
Net cash used in operating activities..... (2,454) (7,731) (13,275) (3,278) (2,159)
-------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and licenses........ (902) (3,143) (3,341) (625) (875)
Purchase of short-term investments, net............. (11,384)
Proceeds from short-term investments, net........... -- 11,384 -- (586) --
Net proceeds from sale of discontinued operations... 1,305 -- -- -- --
Purchase of property, equipment and licenses by
discontinued business............................. (3,801)
Proceeds from sale of assets to ITE................. -- 1,911 28 28 (326)
Proceeds from note receivables due from ITE......... -- 432 343 -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities................................ (14,782) 10,584 (2,970) (1,183) (1,201)
-------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred
stock and warrants................................ -- 5,000 40,000 -- --
Proceeds from exercise of common stock options...... 10 176 335 21 85
-------- -------- -------- ------- -------
Net cash provided by financing activities... 10 5,176 40,335 21 85
-------- -------- -------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents......................................... (72) -- -- -- --
Net increase in cash and cash equivalents............. (17,298) 8,029 24,090 (4,440) (3,275)
Cash and cash equivalents at beginning of year........ 23,692 6,394 14,423 14,423 38,513
-------- -------- -------- ------- -------
Cash and cash equivalents at end of year.............. $ 6,394 $ 14,423 $ 38,513 $ 9,983 $35,238
======== ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Sale of assets to ITE for note receivable........... $ -- $ 1,931 $ -- $ -- $ --
Payable issued for licensing agreements............. -- 6,500 -- -- --
</TABLE>

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

F-6
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Integrated Telecom Express, Inc. ("ITeX" or the "Company", formerly
Integrated Technology Express, Inc.) was incorporated in California in May 1995
and re-incorporated in Delaware in May 1999. The Company designs and sells
integrated circuit and software solutions to the broadband access communications
equipment industry. The Company's products include integrated circuits,
software, turn-key reference designs and test systems that enable communications
equipment manufacturers to provide high-speed, cost-effective asymmetrical
digital subscriber line, or ADSL, equipment to communications service providers
and their customers. The industry in which the Company operates is characterized
by rapid technological change and significant volatility of product prices.

United Microelectronics Corporation ("UMC"), a public company in Taiwan,
owned 48% of the Company's outstanding common stock at December 31, 1999.

BASIS OF PREPARATION

The financial statements included the accounts of the Company's wholly-owned
subsidiary, Integrated Technology Express (Taiwan), Inc. or ("ITE"), until that
subsidiary was sold to a major stockholder of the Company on December 23, 1997
as described in Note 2.

FOREIGN CURRENCY TRANSLATION

The functional currency of ITE is the New Taiwan Dollar. Accordingly, prior
to the sale of the subsidiary on December 23, 1997, the assets and liabilities
of the Company's foreign subsidiary were translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
were translated at average exchange rates for the period. Foreign currency
translation adjustments were included in accumulated other comprehensive income
as a separate component of stockholders' equity and eliminated in connection
with the sale of the subsidiary. Foreign currency transaction gains or losses
were recorded in operating expenses and were not significant for the year ended
December 31, 1997.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist principally of time deposits and a money market deposit account that are
stated at cost, which approximates fair value, held at two financial
institutions.

F-7
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INVENTORIES

Inventories are stated at the lower of cost or market, cost being determined
using the average cost method.

PROPERTY AND EQUIPMENT

The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost of disposal. No losses
from impairment have been recognized in the financial statements.

Property and equipment are stated at cost. Depreciation is generally
computed using the straight-line method over the estimated useful lives of the
assets as follows:

<S> <C>
Machinery and equipment.................................. 3-5 years
Software................................................. 3 years
Furniture and equipment.................................. 5-7 years
Leasehold improvements................................... Shorter of the lease term or
the estimated useful life
</TABLE>

REVENUE RECOGNITION

Revenue from product sales other than to distributors with rights of return
is recognized upon shipment if a signed purchase order exists, the fee is fixed
and determinable, collection of resulting receivables is probable and product
returns are reasonably estimable. Revenues from shipments to distributors with
rights of return are deferred until the distributor resells the inventory. Upon
shipment, the Company also provides for the estimated costs that may be incurred
for product warranties.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. The Company has not
capitalized any software development costs to date and is in compliance with
Statement of Financial Accounting Standards No. 86 ("SFAS No. 86"), "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
Capitalization of software development costs begins upon the establishment of
technological feasibility of the product. After technological feasibility is
established, material software development costs are capitalized. The
capitalized cost is then amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. To date, the period between achieving
technological feasibility, which the Company has defined as the establishment of
a working model which typically occurs when beta testing commences, and the
general availability of such software has been short, and as such, software
development costs qualifying for capitalization have been insignificant.

F-8
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

ADVERTISING EXPENSES

Advertising expenses are charged to operations when incurred and totaled
$46,000, $0 and $63,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. During the three month periods ended March 31, 1999 and 2000, the
Company incurred $5,000 (unaudited) and $104,000 (unaudited) of advertising
expenses, respectively.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation arrangements in accordance
with the provisions of APB No. 25 ("APB No. 25"), "Accounting for Stock Issued
to Employees" and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation". Under APB No. 25, compensation cost is, in general,
recognized based on the difference, if any, between the fair market value of the
Company's stock on the date of grant and the amount an employee must pay to
acquire the stock. Equity instruments issued to non-employees are accounted for
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
96-18. Deferred stock-based compensation is being amortized using the graded
vesting method in accordance with Financial Accounting Standards Board
Interpretation No. 28 ("FIN No. 28") over the vesting period of each respective
option, which is generally four years. Under the graded vesting method, each
option grant is separated into portions based on its vesting terms which results
in acceleration of amortization expense for the overall award.

INCOME TAXES

The Company accounts for income taxes under the liability approach whereby
the expected future tax consequences of temporary differences between the book
and tax basis of assets and liabilities are recognized as deferred tax assets
and liabilities. A valuation allowance is established for any deferred tax
assets for which realization is uncertain.

NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss attributable
to common stockholders for the period by the weighted average number of shares
of common stock outstanding during the period less any shares subject to
repurchase. Diluted net loss per share is the same as basic net loss per share
for the periods presented because potentially dilutive common shares, composed
of common shares issuable upon the exercise of stock options and warrants and
upon conversion of convertible preferred shares, are not considered when their
effect would be to reduce the net loss per share.

PRO FORMA BALANCE SHEET INFORMATION (UNAUDITED)

Immediately prior to the effective date of the offering, the Company's
outstanding convertible preferred stock will automatically convert into common
stock at a one-to-one ratio and the underlying equity instrument into which the
preferred stock warrants are convertible will change to common stock from
preferred stock. The pro forma effects of this transaction are unaudited and
have been reflected in the accompanying Pro Forma Stockholders' Equity as of
March 31, 2000.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 is computed using the weighted average number
of common shares outstanding,

F-9
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

including the conversion of the Company's convertible preferred stock into the
Company's common stock effective upon the closing of the Company's initial
public offering, as if such conversion occurred at January 1, 1999 or at date of
original issuance, if later. The calculation of pro forma diluted net loss per
share excludes incremental common stock issuable upon the exercise of stock
options and warrants as the effect would be anti-dilutive.

BUSINESS SEGMENTS

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one reportable
segment, using one measurement of profitability for its business. The Company
has sales outside the United States, which are described in Note 11. All
long-lived assets are maintained in the United States.

COMPREHENSIVE INCOME

Effective January 1, 1999, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income and its components in the financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources and does not differ from net losses for
the years ended December 31, 1997, 1998 and 1999 and the three month periods
ended March 1999 and 2000 (unaudited), respectively.

INTERIM RESULTS (UNAUDITED)

The accompanying balance sheet as of March 31, 2000, the statements of
operations and the cash flows for the three months ended March 31, 1999 and 2000
and the statements of stockholders' equity (deficit) for the three months ended
March 31, 2000 are unaudited. In the opinion of Management such unaudited
financial statements have been prepared on the same basis as the audited
financial statements referred to above and include all adjustments, consisting
only of normal recurring adjustments necessary for a fair statement of the
results of the interim period. The data disclosed in the Notes to Financial
Statements as of such dates and for such periods are unaudited. The results for
the three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable are carried at cost, which approximates
their fair value because of the short-term maturity of these instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities in the balance
sheet and measurement of those instruments at fair value. The statement is
effective for fiscal years beginning after June 15,

F-10
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2000. The Company will adopt the standard no later than the first quarter of
fiscal year 2001 and Management does not expect a material impact on the
Company's financial statements.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". This SOP
provides guidance on accounting for certain costs in connection with obtaining
or developing computer software for internal use and requires that entities
capitalize such costs once certain criteria are met. The Company adopted SOP
98-1 as of January 1, 1999. The adoption of this SOP did not have a material
effect on the Company's financial position or results of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities". This SOP requires that entities expense start-up costs and
organization costs as they are incurred. The Company adopted SOP 98-5 as of
January 1, 1999. The adoption of this SOP did not have a material effect on the
Company's financial position or results of operations.

In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides interpretive guidance on the recognition,
presentation, and disclosure of revenue in financial statements under certain
circumstances. The Company adopted the provisions of SAB 101 in these financial
statements for all periods presented.

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation--an interpretation of APB
Opinion No. 25". FIN 44 clarifies, among other issues (a) the definition of
employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a non compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000.
The Company does not expect the adoption of FIN 44 to have a material effect on
the Company's financial position or results of operations.

2. RELATED-PARTY TRANSACTIONS AND DISCONTINUED OPERATIONS

SALE OF ITE

In May 1996, the Company formed a Taiwanese subsidiary, Integrated
Technology Express (Taiwan), Inc. ("ITE") and was issued 19,980,000 shares in
exchange for $7,302,000, representing 99.9% of all ITE's shares issued and
outstanding. In December 1997, the Company decided to exit its previous business
of developing and marketing peripheral input/output and mixed signal integrated
circuits for personal computers, ceased all related activities and sold its
investment in ITE to UMC for cash consideration of $7,330,000. These operations
represented a different segment than the Company's current operations in the
broadband access communications equipment industry due to differences in the
nature of the products and in the type and class of customers. Therefore, the
operations in the previous business are reflected as discontinued operations in
the Company's statements of operations and statements of cash flows for the year
ended December 31, 1997. Net sales and costs of sales for discontinued
operations amounted to $38.2 million and $29.4 million for the year ended
December 31, 1997, respectively. The excess of the net assets of ITE at the time
of the sale over the sales consideration was charged to additional paid-in
capital as a deemed dividend in the amount of $323,000.

F-11
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In June 1998, the Company sold certain assets, mainly trademarks, licensing
agreements and service contracts, to ITE and its U.S. subsidiary ("ITE-US") for
$1,911,000 in cash and $1,931,000 in a note receivable. The note is due in five
equal, annual installments beginning July 1, 1998 and bears interest at 6% per
annum. As ITE and the Company have certain common stockholders, the excess of
$2,853,000 of the sales price over the net book value of the assets sold was
credited to additional paid-in capital. At December 31, 1999, the current and
long-term portions of the note receivable amounted to $363,000 and $793,000,
respectively. Interest income for 1998 and 1999 and the three month periods
ended March 31, 1999 and 2000 was $45,000 and $80,000 and $22,000 (unaudited)
and $17,000 (unaudited), of which $45,000 and $35,000 was accrued at
December 31, 1998 and 1999, respectively, and $52,000 (unaudited) at March 31,
2000.

In the year ended December 31, 1999, the Company sold to and purchased fixed
assets from ITE-US in the amount of $28,000 and $152,000, respectively.

SHARED FACILITIES, PURCHASE OF PRODUCTS AND SERVICES

In March 1998, the Company entered into a reimbursement agreement with
ITE-US to share facilities and services of administrative staff and resources.
Under the agreement, the parties allocate the costs of the shared portion of
their respective operations, using methods that the Company's management
believes are reasonable. Such allocations are not necessarily indicative of the
costs that would have been incurred by the Company in transactions with
unrelated third parties. The agreement has no expiration date. The total amounts
the Company billed and was reimbursed by ITE-US were $2,539,000 and $1,936,000
in 1998 and $843,000 and $812,000 in 1999 and $233,000 (unaudited) and $323,000
(unaudited) for the three month period ended March 31, 1999, and $107,000
(unaudited) and $210,000 (unaudited) for the three month period ended March 31,
2000, respectively. These amounts are principally included in general and
administrative expenses. The Company also purchases certain of its finished
products from ITE-US, which amounted to $746,000 and $718,000 (unaudited) for
the year ended December 31, 1999, and the three month period ended March 31,
2000, respectively. Additionally, in 1998 ITE-US performed certain nonrecurring
engineering services for the Company in the amount of $290,000. At December 31,
1998 and 1999, the net balance due to the Company from ITE-US was $313,000 and
$192,000, respectively. At March 31, 2000, the net balance due to ITE-US was
$196,000 (unaudited).

PURCHASE OF RAW MATERIALS

The Company purchases the wafers for its products from UMC and is dependent
upon UMC as its sole manufacturer of its integrated circuits. For the year ended
December 31, 1999, total purchases from UMC amounted to $2,509,000. At
December 31, 1999, the net balance due UMC was $634,000. For the three month
period ended March 31, 2000, purchases from UMC amounted to $719,000 (unaudited)
and the net balance due to UMC was $685,000 (unaudited).

PROVIDING CONSULTING SERVICES

In 1997, the Company entered into an agreement in which the Company would
provide consulting services to a related company. Total consulting service
revenue was approximately $175,000 for the year ended December 31, 1997, and is
included in the loss from discontinued operations. There was none for the years
ended December 31, 1998 and 1999.

F-12
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

LOAN TO CHIEF EXECUTIVE OFFICER

In 1999, the Company granted its Chief Executive Officer a loan in the
amount of $462,000. The note receivable earned interest at 7.75% (subsequently
increased to 8.25%) and was secured by certain publicly traded securities. The
interest income recognized for the fiscal year 1999 and balance outstanding,
which is included in Prepaid Expenses and Other Assets in the Company's balance
sheets, were $15,000 and $477,000 at December 31, 1999, and $6,000 (unaudited)
and $483,000 (unaudited) for the three month period ended March 31, 2000,
respectively. The loan was subsequently repaid.

3. BALANCE SHEET DETAIL

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -----------
1998 1999 2000
-------- -------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
INVENTORY:
Raw materials............................................. $ -- $ 119 $ 120
Work in progress.......................................... -- -- 243
Finished goods............................................ -- 1,774 950
------ ------- -------
$ -- $ 1,893 $ 1,313
====== ======= =======

PROPERTY AND EQUIPMENT:
Machinery and equipment................................... $ 714 $ 874 $ 1,012
Software.................................................. 1,380 1,912 2,038
Furniture and equipment................................... 832 994 999
Leasehold improvements.................................... 57 55 111
------ ------- -------
2,983 3,835 4,160
Less: Accumulated depreciation and amortization........... (811) (1,695) (1,939)
------ ------- -------
$2,172 $ 2,140 $ 2,221
====== ======= =======
ACCRUED EXPENSES AND OTHER LIABILITIES:
Deferred revenue.......................................... $ -- $ 167 $ 74
Accrued compensation costs................................ 318 600 884
Other accruals............................................ 424 108 315
------ ------- -------
$ 742 $ 875 $ 1,273
====== ======= =======
</TABLE>

4. LICENSING AND ROYALTY ARRANGEMENTS

In April 1998, the Company entered into a ten year licensing agreement with
an unrelated party. Under the terms of the agreement, the Company licensed
certain technology to develop, manufacture and distribute products. Initial
payments for the licenses were $5,000,000. In addition, the Company is obligated
to pay royalties on sales of products developed at rates ranging from 2.5% to
6%. Minimum royalties payable for 1999, 2000 and 2001 amounted to $500,000,
$1,000,000 and $1,500,000, respectively.

The Company has capitalized the $8.0 million cost of this license including
minimum royalties and is amortizing the cost on a straight-line basis over its
estimated useful life of seven years, resulting in

F-13
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

amortization expense in the year ended December 31, 1999 of $1,143,000 and
$286,000 (unaudited) for each of the three month periods ended March 31, 1999
and 2000, respectively.

5. INCOME TAXES

There was no provision for income taxes in 1997, 1998 and 1999 because of
the losses incurred.

As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $23,016,000 and $8,471,000, respectively.
The net operating loss carryforwards will expire at various dates beginning in
2004 through 2019, if not utilized.

Under current tax rules, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events which
cause limitations in the amount of net operating loss that the Company may
utilize in any year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three-year period.

Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1999
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 4,159 $ 8,320
Accruals and allowances............................. 42 317
Property and equipment.............................. 160 516
Credit carryforwards................................ 600 1,314
Capitalized R&D expenses............................ -- 700
------- --------
Total deferred tax assets............................. 4,961 11,167
Valuation allowance................................. (4,961) (11,167)
------- --------
Net deferred tax assets............................... $ -- $ --
======= ========
</TABLE>

Realization of deferred tax assets is dependent upon future earnings, the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance, and no income tax
benefit was recorded in 1997, 1998 and 1999. The valuation allowance for
deferred tax assets increased by $1,258,000, $3,569,000 and $6,206,000 during
1997, 1998 and 1999, respectively.

F-14
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss
per share for the period indicated:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- -------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Loss from continuing operations.................. $(1,268) $(9,296) $(13,636) $(3,458) $(3,552)
Loss from discontinued operations................ (2,638) -- -- -- --
------- ------- -------- ------- -------
Net loss attributable to common stockholders..... $(3,906) $(9,296) $(13,636) $(3,458) $(3,552)
======= ======= ======== ======= =======

Denominator:
Shares used in computing basic and diluted net
loss per share................................. 22,753 23,058 23,148 23,090 23,371
======= ======= ======== ======= =======

Basic and diluted loss from continuing operations
per share........................................ $ (0.06) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
======= ======= ======== ======= =======

Basic and diluted loss from discontinued operations
per share........................................ $ (0.11) $ -- $ -- $ -- $ --
======= ======= ======== ======= =======

Basic and diluted net loss per share attributable
to common stockholders........................... $ (0.17) $ (0.40) $ (0.59) $ (0.15) $ (0.15)
======= ======= ======== ======= =======

Antidilutive securities including options,
warrants, convertible preferred stock not
included in loss per shares calculation.......... 2,868 8,683 19,759 8,590 19,989
======= ======= ======== ======= =======

Pro forma:
Shares used above.................................. 23,148 23,371

Pro forma adjustment to reflect weighted average
effect of the assumed conversion of convertible
preferred stock.................................. 3,486 11,429
-------- -------
Shares used in computing pro forma basic and
diluted net loss per share attributable to common
stockholders..................................... 26,634 34,800
======== =======

Pro forma basic and diluted net loss per share
attributable to common stockholders.............. $ (0.51) $ (0.10)
======== =======
</TABLE>

7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

In October 1998, the Company issued to a third-party 1,428,571 shares of
Series A Convertible Preferred Stock at $3.50 per share. In connection with the
issuance of Series A Convertible Preferred Stock, the Company issued a warrant
to purchase a total of 714,286 shares of convertible preferred stock with an
exercise price of $3.50 per share. The warrants are exercisable at any time
until October 2003. The Company has reserved 714,286 shares of Series A
Convertible Preferred Stock for the conversion of the outstanding warrants.

F-15
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

During October and November 1999, the Company issued to various third
parties 10,000,000 shares of Series B Convertible Preferred Stock at $4.00 per
share. In connection with the issuance of Series B Convertible Preferred Stock,
the Company issued two warrants to purchase a total of 500,000 shares of
convertible preferred stock with an exercise price of $4.00 per share. The
warrants are exercisable at any time until October 2004. The Company has
reserved 500,000 shares of Series B Convertible Preferred Stock for the
conversion of the outstanding warrants.

The warrants issued in connection with Series A and Series B Convertible
Preferred Stock were valued at approximately $1.32 and $2.04, respectively.

The Company estimated the fair value of each warrant using the Black-Scholes
option pricing model using the following assumptions in addition to the
estimated fair value of the stock and the exercise price:

<TABLE>
<CAPTION>
SERIES A SERIES B
-------- --------
<S> <C> <C>
Risk free interest rate..................................... 4.18% 6.03%
Expected life............................................... term term
Dividend yield.............................................. 0% 0%
Expected volatility......................................... 50% 50%
</TABLE>

In determining the estimated fair value of the convertible preferred stock,
the Company considered among other things, the sale of similar securities to
outside parties, the relative level of revenues and other operating results, the
absence of a public trading market for the Company's securities and the
competitive nature of the Company's market.

The following table summarizes the activity of convertible preferred stock
and warrants to purchase convertible preferred stock:

<TABLE>
<CAPTION>
SERIES A SERIES B WARRANTS TOTAL
------------------- ------------------- --------- -------------------
SHARES AMOUNT SHARES AMOUNT AMOUNT SHARES AMOUNT
-------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 and 1997.............. -- $ -- -- $ -- $ -- -- $ --

Issuance of preferred stock for cash................ 1,429 4,207 -- -- 793 1,429 5,000
----- ------ ------ ------- ------ ------ -------

Balances at December 31, 1998....................... 1,429 4,207 -- -- 793 1,429 5,000

Issuance of preferred stock for cash................ -- -- 10,000 39,186 814 10,000 40,000
----- ------ ------ ------- ------ ------ -------

Balances at December 31, 1999 and at March 31, 2000
(unaudited)....................................... 1,429 $4,207 10,000 $39,186 $1,607 11,429 $45,000
===== ====== ====== ======= ====== ====== =======
</TABLE>

The rights, privileges and preferences of Series A and Series B Convertible
Preferred Stock are as follows:

CONVERSION

Each share of Series A and Series B Convertible Preferred Stock may be
converted into shares of common stock on a one-for-one basis, subject to
adjustments under specific circumstances. Conversion is (i) at the option of the
preferred stockholder or (ii) automatic upon the closing of an initial public
offering at a per share price of not less than $10.50, as adjusted, and with
gross proceeds to the Company of more than $10,000,000. The Company has reserved
2,150,000 and 11,350,000 shares of

F-16
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

common stock for the conversion of the outstanding shares of Series A and
Series B Convertible Preferred Stock.

REDEMPTION

Both Series A and Series B Convertible Preferred Stock are redeemable upon a
change in control or sale of substantially all of the assets of the Company at a
redemption price equal to the liquidation preferences as described below.

DIVIDENDS

The holders of Series A and Series B Convertible Preferred Stock are
entitled to annual non-cumulative dividends of $0.185 and $0.20 per share, when,
and if, declared by the Company's Board of Directors. As of December 31, 1999,
no dividends have been declared.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the assets available for distribution shall be
distributed up to $3.50 and $4.00 plus any declared but unpaid dividends per
outstanding share of Series A and Series B Convertible Preferred Stock,
respectively. If the Company's assets are insufficient to pay this distribution,
then the assets and the funds of the Company will be distributed ratably among
the holders of Series A and Series B Convertible Preferred Stock in proportion
to the preferential amount each such holder is entitled to receive. Any amounts
available for distribution in excess of the Series A and Series B liquidation
preference amounts will be distributed to the holders of common stock and
convertible preferred stock, on a as if converted basis, pro rata based on the
number of shares held. Holders of Series A and Series B Convertible Preferred
Stock may receive a maximum distribution of $10.50 per share. Any assets
available for distribution in excess of the Series A and Series B maximum
liquidation distribution will be distributed to the holders of common stock pro
rata based on the number of shares held. No conversion of convertible preferred
stock shall be permitted after a preferred stockholder has received payment
pursuant to his/her distribution rights herein.

VOTING RIGHTS

Each share of Series A and Series B Convertible Preferred Stock has one vote
for any and all matters upon which common stockholders are entitled to vote
upon.

8. STOCK OPTION PLAN

In January 1996, the Company authorized the 1996 Stock Option Plan (the
"Plan") under which the board of directors may issue incentive stock options or
nonstatutory stock options to employees, officers, directors and consultants of
the Company or any parent or subsidiary of the Company. Under the Plan,
9,000,000 shares of the Company's common stock have been reserved for stock
options issuance. Incentive and nonstatutory options to purchase shares of
common stock were granted at not less than 100% and 85%, respectively, of the
fair market value of the shares at the date of grant, as determined by the board
of directors, and generally expire six years from the date of grant. Incentive
and nonstatutory options which are granted to optionees who own more than 10% of
the total combined voting power of all classes of Company's stock were granted
at not less than 110% of the fair market value of the shares at the date of
grant, as determined by the board of directors. The term of options granted to
the optionees who own more than 10% of the total combined voting power of all

F-17
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

classes of stock of the Company is five years from the date of grant or shorter
term as provided in the written option agreement. Options granted under the Plan
generally vest and become exercisable over four years from the date the option
is granted.

Activity under the Company's Stock Option Plan is summarized as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED
SHARES ------------------------ AVERAGE
AVAILABLE NUMBER EXERCISE EXERCISE
FOR GRANT OF SHARES PRICE PRICE
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..................... 1,475,000 2,525,000 $ 0.50-1.00 $0.510

Options granted................................ (1,061,150) 1,061,150 2.55 2.55
Options exercised.............................. -- (13,475) 0.50-2.55 0.75
Options canceled............................... 705,075 (705,075) 0.50-2.55 0.75
---------- ----------

Balance at December 31, 1997..................... 1,118,925 2,867,600 $0.50-$2.55 $ 1.18

Additional shares reserved..................... 3,000,000 -- -- --
Options granted................................ (5,471,500) 5,471,500 2.55-3.00 2.97
Options exercised.............................. -- (316,163) 0.50-2.55 0.56
Options canceled............................... 1,482,344 (1,482,344) 0.50-2.55 1.50
---------- ----------

Balance at December 31, 1998..................... 129,769 6,540,593 $ 0.50-3.00 $ 2.64

Additional shares reserved..................... 2,000,000 -- -- --
Options granted................................ (2,080,400) 2,080,400 3.00 3.00
Options exercised.............................. -- (289,347) 0.50-2.55 1.16
Options canceled............................... 1,215,496 (1,215,496) 0.50-3.00 2.79
---------- ----------

Balance at December 31, 1999..................... 1,264,865 7,116,150 $ 0.50-3.00 $ 2.78

Additional shares reserved (unaudited)......... 4,000,000 -- -- --
Options granted (unaudited).................... (655,000) 655,000 3.00 3.00
Options exercised (unaudited).................. -- (28,075) 3.00 3.00
Options canceled (unaudited)................... 375,055 (375,055) 3.00 3.00
---------- ----------

Balance at March 31, 2000 (unaudited)............ 4,984,920 7,368,020 $ 0.50-3.00 $ 2.78
========== ==========
</TABLE>

F-18
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

APB NO. 25 COMPENSATION COSTS TO EMPLOYEES

As calculated under APB No. 25, deferred stock-based compensation costs
related to stock options granted amounted to $266,000 through December 31, 1999
and $2,626,000 (unaudited) through March 31, 2000, of which $121,000, $71,000
and $51,000 was expensed in 1997, 1998 and 1999, respectively, and $18,000
(unaudited) and $520,000 (unaudited) was expensed in the three month periods
ended March 31, 1999 and 2000, respectively.

SFAS NO. 123 COMPENSATION COSTS TO CONSULTANTS

For the years ended December 31, 1997, 1998 and 1999 and the three month
period ended March 31, 2000, the Company granted options of 66,150 shares,
380,000 shares, zero shares and 65,000 (unaudited) shares for the Company's
common stock, amounting to an aggregate exercise price at December 31, 1999 of
$1,219,000 and $1,414,000 (unaudited) at March 31, 2000 to consultants and
advisors under the 1996 Plan. Certain of these options vest over periods of up
to four years and the Company will be required to record the change in the fair
value of these options at each reporting date prior to vesting and then finally
at the vesting date of the option. Deferred stock-based compensation expense in
accordance with SFAS No. 123 related to these options totaled $1,601,000 at
December 31, 1999 and $3,209,000 (unaudited) at March 31, 2000. Amortization of
deferred stock-based compensation expenses amounted to $15,000, $155,000 and
$213,000 for the year ended December 31, 1997, 1998 and 1999 and $57,000
(unaudited) and $242,000 (unaudited) for the three month periods ended
March 31, 1999 and 2000, respectively.

Total compensation expenses for employees, consultants and advisors were
allocated among the associated expense categories as follows:

<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Research and development.................... $ 10 $ 58 $ 97 $27 $157
Sales and marketing......................... -- 57 86 23 346
General and administrative.................. 23 111 81 25 259
Discontinued operations..................... 103 -- -- -- --
---- ---- ---- --- ----
$136 $226 $264 $75 $762
==== ==== ==== === ====
</TABLE>

SFAS NO. 123 PRO FORMA DISCLOSURES

In accordance with the provisions of SFAS No. 123, the fair value of each
option was estimated using the following assumptions for option grants during
1999: dividend yield of 0%; expected volatility of 0%; risk-free interest rates
ranging from 5.08% to 5.86%; and expected life of five years. The weighted
average fair value of options granted in 1997, 1998 and 1999 was $1.14, $1.20
and $0.74, respectively.

For purposes of SFAS No. 123 pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period. Had
compensation expense for the Company's stock option plan been determined on the
fair value at the grant dates for awards under the Plan

F-19
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

consistent with the method of SFAS No. 123, the Company's net loss would have
been increased to the following approximate pro forma amounts:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SFAS No. 123 pro forma net
loss applicable to common
stockholders................ $(4,115) $(10,704) $(15,892) $(4,055) $(4,092)
SFAS No. 123 pro forma basic
and diluted net loss per
share applicable to common
stockholders................ $ (0.18) $ (0.46) $ (0.60) $ (0.18) $ (0.12)
</TABLE>

The pro forma impact of options on the net losses for the year ended
December 31, 1997, 1998 and 1999 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
options vesting as well as the impact of multiple years of stock option grants.

The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.50..................... 520,000 2.6 years $0.50 519,322 $0.50
$2.55..................... 668,250 3.9 years 2.55 327,229 2.55
$3.00..................... 5,927,900 5.0 years 3.00 881,106 3.00
--------- ---------
$0.50 - $3.00............. 7,116,150 4.7 years $2.78 1,727,657 $2.16
========= =========
</TABLE>

9. 401(K) PLAN

The Company's employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the 401(k) Plan. The Company
currently does not make matching or additional contributions to the 401(k) Plan
on its employees' behalf.

10. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company limits the amount of deposits to any one
financial institution and financial instrument. The Company invests its excess
cash principally in certificates of deposit and money market accounts with
financial institutions in the U.S.

F-20
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
also performs an analysis of the expected collectibility of accounts receivable
and makes an allowance for doubtful accounts receivable when necessary. For the
year ended December 31, 1999, two customers accounted for 36% and 11% of net
revenues. At December 31, 1999, two customers accounted for 44% and 22% of total
accounts receivable. For the three month period ended March 31, 2000, two
customers accounted for 36% and 11% (unaudited) of net revenues. At March 31,
2000, three customers accounted for 39%, 15% and 13% (unaudited) of total
accounts receivable.

11. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS

The Company operates in a single industry segment. The Company's accounts
receivable are derived from revenues generated from the following geographic
regions:

<TABLE>
<CAPTION>
THREE MONTH
PERIOD
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States............................ $ -- $ -- $1,432 $83 $2,360
Taiwan................................... -- -- 1,109 -- 890
Europe................................... -- -- 7 -- 208
Rest of Asia............................. -- -- 505 -- 657
---- ---- ------ --- ------
$ -- $ -- $3,053 $83 $4,115
==== ==== ====== === ======
</TABLE>

12. COMMITMENTS

The Company leases its facilities in California, Texas and Taiwan under
noncancelable operating leases which will expire between December 2000 and
February 2002. Total future minimum lease payments under operating leases at
December 31, 1999 were $474,000, $44,000 and $9,000 in 2000, 2001 and 2002,
respectively. Total rent expense was approximately $245,000, $411,000 and
$458,000 for the year ended December 31, 1997, 1998 and 1999, respectively.

13. SUBSEQUENT EVENTS

On May 15, 2000, the board of directors adopted the 2000 Stock Incentive
Plan (the "Plan") and terminated its 1996 Stock Option Plan. At that time, all
shares of common stock which were reserved and available for issuance under the
1996 Stock Option Plan were cancelled. The Plan provides for the grant of
incentive stock options ("ISOs") as well as nonqualified options ("NSOs"). The
board of directors administers the Plan and has sole discretion to grant options
to purchase shares of the Company's common stock. The board of directors
determines the term of each option, option price, number of shares for which
each option is granted, whether restrictions will be imposed on the shares
subject to options and the rate at which each option is exercisable. The
exercise price for options granted will be determined by the board of directors,
and for ISOs the exercise price shall not be less than 100% of the fair market
value per share of the underlying common stock on the date granted (110% of fair
market value for ISOs granted to holders of more than 10% of the voting stock of
the Company). The exercise price for NSO's shall not be less than 100% of the
fair market value per share of the underlying common stock on the date granted,
except for options granted pursuant to a merger

F-21
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

or other corporate transaction. The term of the options shall be set forth in
the applicable option agreement, except that in the case of ISOs the option term
shall not exceed ten years (five years for ISOs granted to holders of more than
10% of the total combined voting power of the Company). The aggregate number of
shares of stock that may be delivered upon the exercise of awards granted shall
be 2,500,000 plus an annual increase to be added on the first day of the
Company's fiscal year beginning in 2001, equal to the lesser of (i) 2,500,000
shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser amount
determined by the board.

On January 22, 2000, the board of directors granted options to purchase a
total of 655,000 shares of common stock at a price of $3.00 per share.

On May 10, 2000, the board of directors granted options to purchase a total
of 3,434,000 shares of common stock at a price of $4.00 per share and options to
purchase 560,000 shares of restricted common stock, also at a price of $4.00 per
share.

F-22
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
<PAGE>
[GRAPHIC -- BACKGROUND MAP]

[LOGO]

COMMON STOCK

-------------

PROSPECTUS
, 2000

---------------------

LEHMAN BROTHERS

BEAR, STEARNS & CO. INC.

WIT SOUNDVIEW

FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by ITeX in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. 3,000
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total................................................... $ *
=======
</TABLE>

------------------------

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.

The Registrant's Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.

The Registrant's Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the Registrant, and, with respect to any criminal action
or proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.

The Registrant will enter into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
Registrant's Bylaws, and intends to enter into indemnification agreements with
any new directors and executive officers in the future.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since inception, the Registrant has issued unregistered securities to a
limited number of persons as described below:

(a) From August 1996 through May 31, 2000, (the most recent practicable
date) we granted stock options to acquire an aggregate of 15,319,580 shares of
our common stock at prices ranging from $0.50

II-1
<PAGE>
to $4.00 to employees, consultants and directors pursuant to our 1996 Stock
Plan. Each transaction pursuant to our 1996 Stock Plan, was exempt from
registration requirements in reliance on Rule 701 promulgated under
Section 3(b) under the Securities Act.

(b) From October 1995 through February 1998, we issued 23,079,138 shares of
common stock to certain investors at prices ranging from $.05 to $3.00 per
share. Each transaction was exempt from registration requirements in reliance on
Section 4(2) of the Securities Act.

(c) On October 28, 1998 we sold 1,428,571 shares of Series A Convertible
Preferred Stock for $3.50 per share to Intel Corporation for an aggregate
purchase price of $4,999,998.50. This transaction was exempt from registration
in reliance on Section 4(2) of the Securities Act.

(d) On October 28, 1998, in connection with the sale of Series A Convertible
Preferred Stock, we issued a warrant to purchase 714,286 shares of Series A
Preferred Stock at an exercise price of $3.50 per share to Intel Corporation.
The issuance of this warrant was exempt from registration in reliance on
Section 4(2) of the Securities Act.

(e) From October 6, 1999 through November 5, 1999, we sold 10,000,000 shares
of Series B Convertible Preferred Stock for $4.00 per share to a group of
private investors for an aggregate purchase price of $40,000,000. This
transaction was exempt from registration in reliance on Section 4(2) of the
Securities Act.

(f) On October 6, 1999 we issued two warrants to purchase 375,000 and
125,000 shares of Series B Convertible Preferred Stock, respectively, each at an
exercise price of $4.00 per share to Taiwan Special Opportunity Fund II and
Hanmore Investment Corporation, respectively. The issuance of these warrants was
exempt from registration in reliance on Section 4(2) of the Securities Act.

For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.

None of these transactions involved any underwriters, underwriting discounts
or commissions, or any public offering. The sales of the above securities were
deemed to be exempt from registration in reliance on Rule 701 promulgated under
Section 3(b) under the Securities Act as transactions pursuant to a compensatory
benefit plan or a written contract relating to compensation, or in reliance on
Section 4(2) of the Securities Act or Regulation D promulgated thereunder as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about Integrated Telecom Express, Inc. or
had access, through employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement

3.1 Certificate of Incorporation of the Registrant, as currently
in effect

3.2 Restated Certificate of Incorporation of the Registrant to
be filed upon completion of the offering

4.1 Specimen certificate of common stock
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<S> <C>
4.2 Bylaws of the Registrant as currently in effect

4.3 Restated Bylaws of the Registrant as in effect upon
completion of the offering

4.4 Warrant to Purchase Series A Convertible Preferred Stock
dated October 29, 1998 between the Registrant and Intel
Corporation

4.5 Warrant to Purchase Series B Convertible Preferred Stock
dated October 6, 1999 between the Registrant and Taiwan
Special Opportunities Fund II

4.6 Warrant to Purchase Series B Convertible Preferred Stock
dated October 6, 1999 between the Registrant and Hanmore
Investment Corporation

4.7 First Amended and Restated Stockholders' Agreement dated as
of October 6, 1999 between the Registrant and certain
stockholders of the Registrant

5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation

10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers

10.2 Employment, Confidentiality & Invention Assignment Agreement
dated June 28, 1999 between the Registrant and Richard H.
Forte

10.3 Employment, Confidentiality & Invention Assignment Agreement
dated March 21, 1997 between the Registrant and Young Way
Liu

10.4 Employment, Confidentiality & Invention Assignment Agreement
dated May 11, 1998 between the Registrant and Timothy A.
Rogers

10.5 Timothy A. Rogers Offer Letter dated April 30, 1998

10.6 Employment, Confidentiality & Invention Assignment Agreement
between the Registrant and Jow Peng

10.7 Jow Peng Offer Letter dated August 18, 1997

10.8 Employment, Confidentiality & Invention Assignment Agreement
between the Registrant and Max (Ming Kang) Liu

10.9 Max (Ming Kang) Liu Offer Letter dated April 10, 1997

10.10 Robert A. Gardner Offer Letter dated September 24, 1999

10.11 Brian Gillings Offer Letter dated July 9, 1999

10.12 Ralph A. Cognac Offer Letter dated October 6, 1999

10.13 1996 Stock Plan

10.14 Amendment to Option Agreements for Certain Individuals under
the 1996 Stock Plan

10.15 2000 Restricted Stock Plan

10.16 2000 Stock Plan

10.17 2000 Employee Stock Purchase Plan

10.18* Lease dated (Santa Clara Facility)

10.19 Technology Cooperation Agreement dated March 8, 2000 between
the Registrant and United Microelectronics Corporation

10.20*+ Capacity and Loading Agreement dated February 14, 2000
between the Registrant and United Microelectronics
Corporation

10.21*+ License Agreement dated April 20, 1998 between the
Registrant and Alcatel Bell N.V.

16.1* Letter Regarding Change in Certifying Accountant

23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<S> <C>
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 5.1)

24.1 Power of Attorney (see page II-5)

27.1 Financial Data Schedule
</TABLE>

------------------------

* To be filed by amendment.

+ A request for confidential treatment for portions of this agreement has been
submitted to the Commission. Omitted portions have been filed separately
with the Commission.

(b) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts

Schedules other than that listed above have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 12th day of June, 2000.

INTEGRATED TELECOM EXPRESS, INC.

By: /s/ RICHARD H. FORTE
-----------------------------------------
Richard H. Forte
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard H. Forte and Timothy Rogers and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission granting
unto said attorneys-in-fact and agents the full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the foregoing, as to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or his substitute, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DANIEL (WEN CHI) CHEN
------------------------------ Chairman of the Board of June 12, 2000
Daniel (Wen Chi) Chen Directors

President, Chief Executive
/s/ RICHARD H. FORTE Officer and Director
------------------------------ (PRINCIPAL EXECUTIVE June 12, 2000
Richard H. Forte OFFICER)

Chief Financial and
/s/ TIMOTHY A. ROGERS Administrative Officer
------------------------------ (PRINCIPAL FINANCIAL AND June 12, 2000
Timothy A. Rogers ACCOUNTING OFFICER)

/s/ YOUNG WAY LIU
------------------------------ Vice Chairman of the Board June 12, 2000
Young Way Liu of Directors
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER J. COURTURE
------------------------------ Secretary and Director June 12, 2000
Peter J. Courture

/s/ JOHN M. CIOFFI
------------------------------ Director June 12, 2000
John M. Cioffi

/s/ TERRY GOU
------------------------------ Director June 12, 2000
Terry Gou

/s/ DAVID LAM
------------------------------ Director June 12, 2000
David Lam
</TABLE>

II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors

of Integrated Telecom Express, Inc.

Our audits of the financial statements referred to in our report dated
January 26, 2000, appearing elsewhere in this prospectus of Integrated Telecom
Express, Inc. also included an audit of the financial statement schedules listed
in Item 16 of this Form S-1. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
San Jose, CA
January 26, 2000

S-1
<PAGE>
INTEGRATED TELECOM EXPRESS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

VALUATION ALLOWANCE FOR DOUBTFUL ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
FOR THE YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1997....................... $ -- $ -- $ -- $ -- $ --
December 31, 1998....................... -- -- -- -- --
December 31, 1999....................... -- -- -- -- --
</TABLE>

VALUATION ALLOWANCE FOR DEFERRED TAX ASSET

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
FOR THE YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1997....................... $ 134 $1,258 $ -- $ -- $ 1,392
December 31, 1998....................... 1,392 3,569 -- -- 4,961
December 31, 1999....................... 4,961 6,206 -- -- 11,167
</TABLE>

VALUATION ALLOWANCE FOR INVENTORY

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
FOR THE YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1997....................... $ -- $-- $ -- $ -- $--
December 31, 1998....................... -- -- -- -- --
December 31, 1999....................... -- 24 -- -- 24
</TABLE>

VALUATION ALLOWANCE FOR WARRANTY AND RETURNS

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED TO
BEGINNING DEDUCTED FROM OTHER BALANCE AT
FOR THE YEAR ENDED: OF PERIOD REVENUE ACCOUNTS DEDUCTIONS END OF PERIOD
------------------- ---------- ------------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1997.................... $ -- $-- $ -- $ -- $--
December 31, 1998.................... -- -- -- -- --
December 31, 1999.................... -- 62 -- -- 62
</TABLE>

S-2
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as currently
in effect
3.2 Restated Certificate of Incorporation of the Registrant to
be filed upon completion of the offering
4.1 Specimen certificate of common stock
4.2 Bylaws of the Registrant as currently in effect
4.3 Restated Bylaws of the Registrant as in effect upon
completion of the offering
4.4 Warrant to Purchase Series A Convertible Preferred Stock
dated October 29, 1998 between the Registrant and Intel
Corporation
4.5 Warrant to Purchase Series B Convertible Preferred Stock
dated October 6, 1999 between the Registrant and Taiwan
Special Opportunities Fund II
4.6 Warrant to Purchase Series B Convertible Preferred Stock
dated October 6, 1999 between the Registrant and Hanmore
Investment Corporation
4.7 First Amended and Restated Stockholders' Agreement dated as
of October 6, 1999 between the Registrant and certain
stockholders of the Registrant
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2 Employment, Confidentiality & Invention Assignment Agreement
dated June 28, 1999 between the Registrant and Richard H.
Forte
10.3 Employment, Confidentiality & Invention Assignment Agreement
dated March 21, 1997 between the Registrant and Young Way
Liu
10.4 Employment, Confidentiality & Invention Assignment Agreement
dated May 11, 1998 between the Registrant and Timothy A.
Rogers
10.5 Timothy A. Rogers Offer Letter dated April 30, 1998
10.6 Employment, Confidentiality & Invention Assignment Agreement
between the Registrant and Jow H. Peng
10.7 Jow Peng Offer Letter dated August 18, 1997
10.8 Employment, Confidentiality & Invention Assignment Agreement
between the Registrant and Max (Ming Kang) Liu
10.9 Max (Ming Kang) Liu Offer Letter dated April 10, 1997
10.10 Robert A. Gardner Offer Letter dated September 24, 1999
10.11 Brian Gillings Offer Letter dated July 9, 1999
10.12 Ralph A. Cognac Offer Letter dated October 6, 1999
10.13 1996 Stock Plan
10.14 Amendment to Option Agreements for Certain Individuals under
the 1996 Stock Plan
10.15 2000 Restricted Stock Plan
10.16 2000 Stock Plan
10.17 2000 Employee Stock Purchase Plan
10.18* Lease dated (Santa Clara Facility)
10.19 Technology Cooperation Agreement dated March 8, 2000 between
the Registrant and United Microelectronics Corporation
10.20*+ Capacity and Loading Agreement dated February 14, 2000
between the Registrant and United Microelectronics
Corporation
10.21*+ License Agreement dated April 20, 1998 between the
Registrant and Alcatel Bell N.V.
16.1* Letter Regarding Change in Certifying Accountant
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>

------------------------

* To be filed by amendment.

+ A request for confidential treatment for portions of this agreement has been
submitted to the Commission. Omitted portions have been filed separately
with the Commission.