VLSI TECHNOLOGY INC, 424B1, 1995-06-16

VLSI TECHNOLOGY INC
424B1, 1995-06-16
SEMICONDUCTORS & RELATED DEVICES

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<PAGE>
PROSPECTUS FILED PURSUANT TO RULE424(B)(1)
REGISTRATION NO. 33-60049

3,000,000 SHARES

[LOGO]

COMMON STOCK
($.01 PAR VALUE)

All of the 3,000,000 shares of Common Stock, $0.01 par value (the "Common
Stock"), offered hereby (the "Offering") are being offered by VLSI Technology,
Inc. ("VLSI" or the "Company") for sale through the several Underwriters named
herein. The Common Stock of the Company is quoted on the Nasdaq Stock Market
under the symbol "VLSI." The last reported sale price of the Company's Common
Stock on the Nasdaq Stock Market on June 15, 1995 was $28.875 per share. See
"Price Range of Common Stock and Dividend Policy."

SEE "RISK FACTORS" COMMENCING AT PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY (1)
<S> <C> <C> <C>
Per Share................................................. $28.625 $1.36 $27.265
Total (2)................................................. $85,875,000 $4,080,000 $81,795,000
- -------------------------------------------------------------------------------------------
<FN>
(1) Before deducting expenses paid or payable by the Company estimated to be
$325,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $98,756,250, $4,692,000, and $94,064,250, respectively. See
"Underwriting."
</TABLE>

The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the certificates for the shares of Common Stock will be made at
the office of Salomon Brothers Inc, Seven World Trade Center, New York, New
York, or through the facilities of The Depository Trust Company on or about June
21, 1995.

SALOMON BROTHERS INC

BEAR, STEARNS & CO. INC.

HAMBRECHT & QUIST

MONTGOMERY SECURITIES

THE DATE OF THIS PROSPECTUS IS JUNE 15, 1995.
<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

The Company has filed a registration statement on Form S-3 (herein, together
with all amendments and exhibits, referred to as the "Registration Statement")
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed by VLSI with the Commission (File No. 0-11879)
pursuant to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1994.

2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.

3. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on April 20,
1984, as amended, and the description of the Company's Preferred Share
Purchase Rights issued and issuable pursuant to its stockholder rights
plan, contained in the Registration Statement on Form 8-A filed with the
Commission on November 20, 1989, as amended.

In addition, all reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of Common
Stock shall be deemed to be incorporated by reference in this Prospectus from
the date of filing such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company will provide
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the documents that are incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be directed to Gregory K. Hinckley, Vice President, Finance, and Chief
Financial Officer at the principal executive offices of VLSI Technology, Inc.,
1109 McKay Drive, San Jose, California 95131 or by telephone at (408) 434-3100.
---------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ
IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
---------------------

The VLSI name and logo, Polar-TM- and FSB are trademarks of the Company.
This Prospectus also includes trademarks of companies other than VLSI.

The following companies are mentioned in this Prospectus: Alcatel Alsthom
Compagnie Generale d'Electricite ("Alcatel"), AT&T Corp. ("AT&T"), Apple
Computer, Inc. ("Apple"), Cadence Design Systems, Inc. ("Cadence"), Chips and
Technologies, Inc. ("Chips and Technologies"), Cisco Systems, Inc. ("Cisco"),
Compaq Computer Corporation ("Compaq"), DSC Communications Corporation ("DSC"),
Digital Equipment Corporation ("DEC"), Telefonaktiebolaget LM Ericsson
("Ericsson"), Hewlett-Packard Company ("Hewlett-Packard"), Hitachi, Ltd.
("Hitachi"), Hughes Corporation ("Hughes"), Intel Corporation ("Intel"),
International Business Machines Corporation ("IBM"), LSI Logic Corporation
("LSI"), Matsushita Electric Industrial Co., Ltd. ("Matsushita"), Mentor
Graphics Corporation ("Mentor Graphics"), Motorola, Inc. ("Motorola"), National
Semiconductor Corporation ("National Semiconductor"), NEC Corporation ("NEC"),
Newbridge Networks Corporation ("Newbridge"), NexGen, Inc. ("NexGen"), Oak
Technology, Inc. ("Oak Technology"), Packard Bell Electronics, Inc. ("Packard
Bell"), Pioneer Electronic Corporation ("Pioneer"), Rockwell International
Corporation ("Rockwell"), Sagem SA ("Sagem"), Silicon Graphics, Inc. ("Silicon
Graphics"), Sony Corporation ("Sony"), Tellabs, Inc. ("Tellabs"), Texas
Instruments Incorporated ("Texas Instruments" or "TI"), Thomson Consumer
Electronic ("Thomson"), Toshiba Corporation ("Toshiba") and UB Networks, Inc.
("UB Networks").

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS.

THE COMPANY

VLSI is a leader in the design, manufacture and sale of highly complex
application specific integrated circuits ("ASICs") -- custom designed chips for
an individual customer -- and application specific standard products ("ASSPs")
- -- semi-custom chips designed for a particular market application that may be
used by several different customers. The Company targets high-volume markets in
which it has built significant expertise and can use its library of proprietary
cells and highly integrated building blocks to assist customers in designing
products and bringing them to market rapidly. VLSI's target markets include the
computing, communications and consumer and entertainment markets. VLSI
emphasizes high performance applications where its products are critical
elements of complex electronic systems. VLSI targets key OEM customers who are
leaders in their respective industries. The Company's major customers include
Compaq, Apple, Ericsson, Hewlett-Packard, Tellabs, Alcatel and Silicon Graphics.

VLSI produces a significant portion of its wafers (approximately 73% in
1994) at its own facilities and augments internal manufacturing capacity with
the foundry services of third-party wafer subcontractors. The Company believes
that this strategy improves quality, cost-effectiveness, responsiveness to
customers, access to capacity, ability to implement leading edge process
technology and time to market, as compared to semiconductor companies that lack
fabrication facilities. The semiconductor industry is, however, currently facing
capacity constraints in wafer manufacturing and the availability of third-party
wafer foundries has diminished significantly. Due to this manufacturing capacity
shortage, as well as increased customer demand, the Company is seeking to
accelerate the expansion and upgrading of its internal and external
manufacturing capacity.

Through its subsidiary, COMPASS Design Automation, Inc. ("COMPASS"), VLSI
offers an integrated suite of electronic design automation ("EDA") software
tools, foundry-flexible libraries and support services for use by systems and
circuit designers at other semiconductor and systems companies, as well as at
the Company, in creating complex integrated circuits.

The Company's principal executive offices are located at 1109 McKay Drive,
San Jose, California 95131, and the Company's telephone number is (408)
434-3100.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares (1)
Common Stock to be outstanding after the
Offering................................... 39,871,246 shares (1)(2)
Nasdaq Stock Market Symbol................... VLSI
Use of Proceeds.............................. To add wafer fabrication capacity
<FN>
- ------------------------
(1) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Based on 36,871,246 shares outstanding as of March 31, 1995. Does not
include shares reserved for issuance. See footnote 1 to the table under the
heading "Capitalization."
</TABLE>

3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
FISCAL YEAR (1) QUARTER ENDED (2)
------------------------------------------------ ----------------------------------
1990 (3) 1991 1992 (4) 1993 (5) 1994 APRIL 1, 1994 MARCH 31, 1995
-------- -------- -------- -------- -------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues.......................... $324,828 $413,376 $428,498 $515,946 $587,091 $138,123 $163,035
Operating income (loss)............... (6,062) 23,173 (19,282) 27,082 46,749 8,348 15,631
Net income (loss)..................... (12,740) 9,873 (32,217) 15,883 31,697 5,361 10,250
Fully diluted net income (loss) per
share................................ $ (0.52) $ 0.37 $ (1.12) $ 0.45 $ 0.85 $ 0.15 $ 0.26
Weighted average common and common
equivalent shares outstanding........ 24,339 26,657 28,865 35,276 37,446 36,802 41,798
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------
ACTUAL AS ADJUSTED (6)
--------- ------------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................................. $ 137,914 $ 219,384
Total assets..................................................................... 504,537 586,007
Short-term debt, including current portion of long-term obligations.............. 13,946 13,946
Long-term debt and noncurrent capital lease obligations.......................... 94,108 94,108
Stockholders' equity............................................................. 267,266 348,736
<FN>
- ------------------------------
(1) From 1990 through 1993, VLSI's fiscal year end was the last Saturday of
December. In 1994, the Company changed its fiscal year end to the last
Friday of December. The actual dates of the Company's fiscal year ends in
the table above are December 29, 1990, December 28, 1991, December 26,
1992, December 25, 1993 and December 30, 1994. The fiscal year ended
December 30, 1994 was a 53-week year. The current fiscal year is a 52-week
year ending on December 29, 1995.
(2) The quarter ended April 1, 1994 was a 14-week quarter. The quarter ended
March 31, 1995 was a 13-week quarter.
(3) Includes a special charge of $12.8 million reflecting the estimated cost of
corporate reorganization related to exiting the memory business.
(4) Includes a special charge of $22.5 million related to the de-emphasis of
older technologies, costs of streamlining sales distribution channels,
costs of relocating certain offices, writedowns of nonperforming assets and
costs associated with intellectual property matters.
(5) Includes a special charge of $1.0 million representing a write-off of
purchased in-process research and development expenses related to the
acquisition of certain assets.
(6) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting." Adjusted to reflect the sale of the 3,000,000 shares of
Common Stock offered hereby at a price of $28.625 per share. The estimated
net proceeds have been added to working capital pending their use. See "Use
of Proceeds."
</TABLE>

4
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION PROVIDED IN THIS PROSPECTUS AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN, THE FOLLOWING FACTORS SHOULD BE
CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS.

FLUCTUATIONS IN OPERATING RESULTS. The Company believes that its future
operating results will be subject to quarterly variations based upon a wide
variety of factors, including the cyclical nature of both the semiconductor
industry and the markets addressed by the Company's products, price erosion,
competitive factors, fluctuations in manufacturing yields, the timing of new
product introductions, changes in product mix, the availability and extent of
utilization of manufacturing capacity, product obsolescence, scheduling,
rescheduling and cancellation of large orders, the ability to develop and
implement new technologies, changes in effective tax rates and litigation
expenses. The Company's COMPASS subsidiary, like other companies in the EDA
business, is particularly subject to significant fluctuations in revenues due to
limited backlog and its reliance on large orders placed late in the quarter. The
Company increases its level of operating expenses and investment in
manufacturing capacity in anticipation of future growth in revenues. To the
extent this revenue growth does not materialize, the Company's operating results
would be adversely affected. In circumstances where the Company is operating at
less than full capacity or has targeted a market segment as a long-term
strategic focus, the Company may choose, in the face of severe pricing pressure,
to manufacture products at low or no profitability. The Company's second quarter
financial results will be adversely affected by a $19.4 million charge to
earnings relating to a May 1995 verdict against VLSI in a patent infringement
lawsuit. See
"-- TI Litigation; Intellectual Property Matters" and "Recent Developments -- TI
Litigation."

MANUFACTURING CAPACITY LIMITATIONS. The Company's manufacturing facilities
are operating at capacity. As a result, VLSI's growth is constrained and the
Company has experienced difficulty in meeting some delivery dates requested by
customers. Prolonged inability of VLSI to deliver products in a timely manner
could result in the loss of customers and materially adversely affect results of
operations. In addition, the Company is experiencing manufacturing
inefficiencies associated with the operation of its facilities at capacity while
simultaneously working to expand or upgrade that capacity. Significant lead time
is required to acquire and install additional wafer fabrication equipment. To
the extent that the Company is unable to procure and install such equipment in a
timely manner, the increase in wafer production capacity at its facilities would
be delayed.

In addition, available third-party wafer fabrication, assembly, testing and
packaging capacity has become very limited in recent months. The Company relied
on two outside suppliers for approximately 27% of its 1994 wafer production.
Although the Company has ongoing relationships with these suppliers, the Company
has only one contract for guaranteed capacity. The other supplier has notified
the Company that it will sequentially reduce its allocation of wafers to VLSI
from the third quarter of 1995 through the second quarter of 1996 and has
indicated that it does not intend to supply wafers to the Company thereafter.
There can be no assurance that such supplier will not further reduce its
allocation to VLSI. The Company will be required to find alternative sources of
wafer supply to replace the capacity previously provided by such supplier. If
the Company is unable to replace such wafer supplier, its sales of products
would be diminished, which could have a material adverse impact on the Company's
operations. In addition, the Company relies on three suppliers for almost all
assembly operations and a significant portion of test operations and any
reduction in allocation from these suppliers would adversely affect the
Company's operations.

MANUFACTURING RISKS. The fabrication of integrated circuits is an extremely
complex and precise process consisting of hundreds of separate steps and
requiring production in a highly controlled, clean environment. Minute
impurities, errors in any step of the fabrication process, defects in the masks
used to print circuits on a wafer or other factors can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer to be
nonfunctional. The Company may experience problems in achieving acceptable
yields in the manufacture of wafers, particularly in connection with any
expansion of its capacity or change in its processing steps. For example, in
late 1992, the Company switched processes

5
<PAGE>
at one step in the manufacturing line, which caused certain VLSI chips to fail.
The Company's replacement of these chips at no charge to the customers adversely
affected results of operations in the first quarter of 1993.

In addition to manufacturing in its own facilities, VLSI has wafer
manufacturing arrangements with two integrated circuit manufacturing companies.
These wafer subcontractors are themselves subject to all of the manufacturing
risks that are applicable to VLSI's own wafer manufacturing operations. The
Company also subcontracts virtually all of its integrated circuit packaging and
a significant portion of its final testing to third parties, principally ANAM
Industrial Company in Korea, ASE Corporation in Taiwan, Advanced Semiconductor
Assembly Technology in Hong Kong and Mitsui Incorporated in Japan. In addition,
the Company's foreign subcontract manufacturing arrangements are subject to
risks such as changes in government policies, transportation delays, increased
tariffs, fluctuations in foreign exchange rates, and export and tax controls.
Any problems experienced in obtaining acceptable wafers from third party wafer
subcontractors on a timely basis to augment the Company's internal manufacturing
capacity or in the integrated circuit packaging, assembly and test operations
performed by subcontractors could delay shipments of the Company's products and
materially adversely affect the Company's results of operations.

The Company's success is also dependent upon its ability to develop and
implement new manufacturing process technologies. Semiconductor design and
process methodologies are subject to rapid technological change, requiring large
expenditures for research and development. Most of the Company's products are
currently manufactured using sub-micron CMOS processes. The Company believes
that the transition to smaller geometry process technologies will be important
to remaining competitive. The Company is in the process of expanding and
upgrading its manufacturing facility in San Jose, California to convert
production to a 6-inch CMOS wafer process. The Company's San Antonio facility,
which is currently using both 0.6-micron and 0.8-micron processes, is being
converted to 100% 0.5-micron CMOS process capability. These conversion
activities could result in a disruption to the facilities' manufacturing cycles,
thereby lowering the output of the facilities as well as wafer yields. Any lack
of success of the Company's facilities conversion efforts would have a material
adverse effect on future operating results and, in particular, delay of planned
increased production of 6-inch CMOS wafers at the San Jose facility, currently
scheduled for the third quarter of 1995, could adversely affect near-term
results.

The Company is party to a joint development agreement with Hitachi, which
expires in 1997. Under such agreement, the Company and Hitachi work together to
develop advanced sub-micron processes for the manufacture of integrated
circuits. In addition, the Company is dependent on Hitachi for assistance in
developing other state-of-the-art manufacturing processes. Any failure or
disruption of the Company's joint development activities could have a material
adverse effect upon the Company's ability to implement state-of-the-art
manufacturing processes.

The Company's San Jose facility, which accounted for approximately 42% of
its total internal production in the first quarter of 1995, is located near
major earthquake faults and in an area that has in the recent past experienced
an extended drought. Even though the Company utilizes both of its fabrication
plants and two subcontractors to manufacture its wafers and has the ability to
shift manufacturing from one plant to another for many of its products,
disruption of operations at either of the Company's production facilities or at
those of its subcontractors for any reason, such as fire or earthquake, would
cause delays in shipments until the Company could shift the products from the
affected facility or subcontractor to another facility.

FUTURE CAPITAL NEEDS. Semiconductor companies such as VLSI have substantial
ongoing capital requirements to obtain internal or external manufacturing
capacity. In order to remain competitive, the Company must continue to make
significant investments in capital equipment and expansion of facilities, as
well as in research and development. Development and implementation of
sub-micron manufacturing processes is particularly capital intensive, requiring
significant investments in new state-of-the-art equipment. The Company currently
anticipates that its capital expenditures for 1995 will be approximately $200
million. The Company believes that the net proceeds from the sale of the Common
Stock in

6
<PAGE>
this offering, together with existing cash balances, cash flow from operations,
available equipment financing and proceeds from the expected exercise by Intel
of its warrant for an aggregate exercise price of approximately $31.3 million,
will be sufficient to meet the Company's liquidity and capital requirements
through 1996. However, the Company is currently exploring methods of increasing
both its internal and external manufacturing capacity. As a result, the Company
may be required or choose to seek additional equity or debt financing to fund
further expansion of its internal or external wafer fabrication capacity or for
other purposes. The timing and amount of such capital requirements cannot be
precisely determined and will depend on a number of factors, including demand
for the Company's products, product mix, changes in semiconductor industry
conditions and competitive factors. There can be no assurance that such
additional financing will be available when needed or, if available, will be on
satisfactory terms. The failure to obtain financing would hinder the Company's
ability to make continued investments in capital equipment and facilities, which
could materially adversely affect the Company's results of operations.

DEPENDENCE ON PERSONAL COMPUTER INDUSTRY. The Company estimates that total
sales to the personal computer market during 1994 represented approximately 47%
of the Company's net revenues. With five of the Company's top ten customers in
1994 operating in the personal computer industry, a deterioration of business
conditions in the personal computer industry would have a material adverse
effect on VLSI's operations. The personal computer market is volatile and is
subject to significant shifts in demand and severe pricing pressures. In
addition, the market for the Company's personal computer devices is
characterized by rapid technological change and product obsolescence. The
Company's results in the PC market will also be dependent in part on the
Company's ability to respond quickly to new microprocessor architectures adopted
by major OEMs. The Company's need to anticipate customer product transitions
also leads to potential inventory exposure, which could adversely affect the
Company's financial results.

CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The semiconductor industry
has historically been characterized by wide fluctuations in product supply and
demand. From time to time, the industry has also experienced significant
downturns, often in connection with, or in anticipation of, declines in general
economic conditions. These downturns, which in some cases have lasted for more
than a year, have been characterized by diminished product demand, production
over-capacity and subsequent accelerated erosion of average sales prices. The
Company, like other semiconductor manufacturers with fabrication facilities, has
high fixed costs for its manufacturing facilities and believes that its
operating results were adversely affected by an industry-wide downturn in the
demand for semiconductors in 1990. This downturn coincided with the recession in
the U.S. economy and slower growth in various electronics industries using
semiconductors, including market segments in which the Company was engaged at
the time.

NEW PRODUCT RISKS. The Company's future success depends on its ability to
continue to develop and introduce new products that compete effectively on the
basis of price and performance and that satisfy customer requirements. New
product development often requires long-term forecasting of market trends,
development and implementation of new processes and technologies and substantial
capital commitments. If the Company is unable to design, develop, manufacture
and market new products successfully and in a timely manner, its operating
results will be materially adversely affected. No assurance can be given that
the Company's product and process development efforts will be successful or that
new products will achieve market acceptance. For example, the Company expended
considerable financial and technical resources during 1993 and part of 1994
toward the development of its Polar product, a device intended for the handheld
computer market integrating Intel's 386SL microprocessor. Because the handheld
market developed more slowly than initial expectations, the Company and Intel,
its partner in the Polar development effort, canceled the Polar project and
terminated the amended July 8, 1992 Technology Agreement between the companies.

COMPETITION. The semiconductor industry in general and the markets in which
the Company competes in particular are intensely competitive, exhibiting both
rapid technological change and ongoing price erosion as technologies mature. The
Company competes with large domestic and foreign companies that

7
<PAGE>
have substantially greater financial, technical, marketing and management
resources than the Company, such as AT&T, IBM, Intel, LSI, Motorola, TI and
Toshiba. Competition is particularly intense in X86 core logic chip sets where
Intel, a dominant supplier of microprocessors to the PC industry, has become the
major supplier of Pentium PC chip sets, as well as motherboards, which is likely
to cause increased pricing and margin pressure on such chip sets. Competition
faced by COMPASS in the EDA market comes primarily from a few large established
vendors, such as Cadence and Mentor Graphics. There is no assurance that the
Company will be able to compete successfully in the future.

CONCENTRATION OF CUSTOMER BASE. Approximately two-thirds of the Company's
net revenues for 1994 were derived from sales to its top 20 customers, a large
percentage of which are in the personal computer business. As a result of the
concentration of the Company's customer base, loss or cancellation of business
from any of these major customers, significant changes in scheduled deliveries
to any of these customers or decreases in the prices of products sold to any of
these customers could materially adversely affect the Company's results of
operations. These risks of customer concentration are exacerbated by the fact
that the Company's agreements with its customers for the purchase of products
are generally terminable by such customers at any time and permit customers to
cancel orders previously placed for the Company's products without penalty. For
example, in the fourth quarter of 1993, Apple, which accounted for 19% of 1993
net revenues, postponed and, in certain cases, canceled, approximately $20
million of shipments originally planned for delivery in 1994, adversely
affecting VLSI's 1994 results of operations. Shipments to another customer,
Compaq, accounted for 22% of net revenues in 1994 and 11% of net revenues in the
first quarter of 1995.

TI LITIGATION; INTELLECTUAL PROPERTY MATTERS. The Company is one of three
defendants in a major patent infringement suit brought by Texas Instruments with
respect to patents that have now expired, which suit resulted in a May 1995 jury
verdict against VLSI for damages of $19.4 million. The Company intends to
contest the verdict. However, the Company will record a charge to earnings of
$19.4 million in the second quarter of 1995. Based on the jury's finding that
the alleged infringement was intentional, TI may also request that the judge
award treble damages. In the event that treble damages are awarded, the judgment
could result in a material reduction in liquidity, as well as an increased
impact on the Company's reported results of operations. See "Recent Developments
- -- TI Litigation."

The semiconductor industry is generally characterized by vigorous protection
and pursuit of intellectual property rights and positions, which have on
occasion resulted in protracted litigation that utilizes cash and management
resources, which can have a significant adverse effect on operating results.
There can be no assurance that additional intellectual property claims will not
be made against the Company in the future or that the Company will not be
prohibited from using the technologies subject to such claims or be required to
obtain licenses and make corresponding royalty payments for past or future use.
There can be no assurance that any such licenses could be obtained on
commercially reasonable terms.

AVAILABILITY OF RAW MATERIALS. Raw materials essential to the Company's
business are generally available from multiple sources. However, due to
increased levels of demand, there may be an industrywide shortage of raw silicon
wafers. A prolonged inability to obtain silicon wafers or any other raw
materials could have a material adverse impact on the Company's business.

ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of federal,
state and local governmental regulations related to the storage, use, discharge
and disposal of toxic, volatile or otherwise hazardous chemicals used in its
manufacturing process. Increasing public attention has been focused on the
environmental impact of semiconductor manufacturing operations. The Company's
San Jose, California facilities are located near residential areas, which could
increase the incidence of environmental complaints or investigations. There can
be no assurance that changes in environmental regulations will not impose the
need for additional capital equipment or other requirements. Any failure by the
Company to control the use of, or adequately to restrict the discharge of,
hazardous substances under present or future regulations could subject VLSI to
substantial liability or could cause its manufacturing operations to be
suspended. Such liability or suspension of manufacturing operations could have a
material adverse effect on the Company's operating results.

8
<PAGE>
VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced and
can be expected to experience substantial price volatility. In addition, the
stock market in general has experienced extreme price and volume fluctuations,
which have particularly affected the market price of many technology companies
and which have often been unrelated to the operating performance of those
companies. See "Price Range of Common Stock and Dividend Policy."

EFFECT OF POTENTIAL STOCK SALES. Intel has the right to demand registration
of 2,677,604 shares of Common Stock issuable upon exercise of a fully
exercisable warrant. Such rights may be exercised by Intel at any time, subject
to the Company's ability to delay registration for 90 days if Intel makes the
demand during an offering by the Company or the Company initiates an offering
within 30 days of Intel's demand. There can be no assurance that Intel will not
elect to exercise its demand right during or shortly after this offering, which
election could adversely affect the market price of the Company's Common Stock.
In addition, as of March 31, 1995, approximately 3,742,984 vested and unvested
shares of the Company's Common Stock (the "Option Shares") were subject to
employee and director stock options having exercise prices below the market
price of the Common Stock shown on the cover page of this Prospectus. Many
optionees may choose to exercise their options and sell the Common Stock
acquired upon exercise in the coming months due to the significant spread
between the exercise prices and current market prices. Shares of the Company's
Common Stock are currently trading in excess of the conversion price of the
Company's outstanding convertible subordinated debentures. This could lead to
conversion of such debentures into shares of VLSI Common Stock, either voluntary
or in response to a call for redemption by the Company. Sales of large numbers
of shares by Intel, optionees, holders of convertible debentures who convert
into Common Stock or others may have a depressing effect on the market price for
the Company's Common Stock. See "Capitalization."

9
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered hereby
are estimated to be approximately $81,470,000 ($93,739,250 if the Underwriters'
over-allotment option is exercised in full). The proceeds will be used primarily
for adding internal or external wafer fabrication capacity. In particular, the
Company intends to install additional manufacturing equipment and build out the
third of four modules in its San Antonio fabrication facility to increase
manufacturing capacity. Although the Company does not currently intend to use
the proceeds of this offering for the acquisition of the business, products or
technologies of other companies, it may in the future enter into agreements for
such acquisitions. There are no pending agreements or arrangements concerning
material acquisitions. Pending such uses, the net proceeds will be invested in
investment grade securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock has been traded on the over-the-counter market
under the Nasdaq Stock Market symbol VLSI since the Company's initial public
offering in 1983. The following table sets forth, for the periods indicated, the
high and low closing prices for the Common Stock on the Nasdaq Stock Market. The
last reported sale price for the Common Stock of the Company on June 15, 1995 as
reported by the Nasdaq Stock Market is set forth on the cover page of this
Prospectus. At March 31, 1995, the Company had approximately 1,695 holders of
record of its Common Stock and 36,871,246 shares outstanding. See also "Risk
Factors--Volatility of Stock Price" and "--Effect of Potential Stock Sales."

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1992:
First Quarter................................................................. $10 $ 7 1/2
Second Quarter................................................................ 9 1/8 6 7/8
Third Quarter................................................................. 8 1/2 6 1/8
Fourth Quarter................................................................ 8 7
1993:
First Quarter................................................................. $ 8 7/8 $ 6 3/4
Second Quarter................................................................ 8 7/8 6 1/2
Third Quarter................................................................. 18 5/8 9 1/2
Fourth Quarter................................................................ 18 5/8 9 3/4
1994:
First Quarter................................................................. $16 $ 9 5/8
Second Quarter................................................................ 15 3/8 12 1/8
Third Quarter................................................................. 15 15/16 11
Fourth Quarter................................................................ 13 1/8 10 1/2
1995:
First Quarter................................................................. 18 3/16 11 11/16
Second Quarter (through June 15, 1995)........................................ 29 5/8 16 3/4
</TABLE>

The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future. Certain of VLSI's debt agreements prohibit the payment of dividends
without the lender's consent.

10
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization and short-term debt of the
Company at March 31, 1995, and as adjusted to give effect to the receipt of the
estimated net proceeds from the sale of the 3,000,000 shares of Common Stock
offered hereby at an offering price of $28.625 per share.

<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt.................................................... $ 7,703 $ 7,703
Current capital lease obligations.................................................... 6,243 6,243
----------- ------------
Total short-term debt.............................................................. $ 13,946 $ 13,946
----------- ------------
----------- ------------
Long-term debt:
7% Convertible Subordinated Debentures due May 1, 2012............................... $ 57,500 $ 57,500
Other long-term debt................................................................. 32,374 32,374
Noncurrent capital lease obligations................................................. 4,234 4,234
----------- ------------
Total long-term debt............................................................... 94,108 94,108
----------- ------------
Stockholders' equity:
Preferred Shares, $.01 par value, Authorized: 2,000,000 shares; no shares issued and
outstanding......................................................................... -- --
Common Stock, $.01 par value, Authorized: 99,000,000 shares; Issued and outstanding:
36,871,246 shares; 39,871,246 shares, as adjusted(1)................................ 369 399
Junior Common Stock, $.01 par value, Authorized: 1,000,000 shares; no shares issued
and outstanding..................................................................... -- --
Additional paid-in capital........................................................... 233,486 314,926
Retained earnings.................................................................... 33,411 33,411
----------- ------------
Total stockholders' equity......................................................... 267,266 348,736
----------- ------------
Total capitalization............................................................. $ 361,374 $ 442,844
----------- ------------
----------- ------------
<FN>
- ------------------------
(1) Excludes (i) 1,740,691 shares of Common Stock subject to outstanding
options under the Company's 1982 Incentive Stock Option Plan, which plan
has expired as to future grants, (ii) 4,393,371 shares of Common Stock
reserved for issuance upon exercise of stock options under the Company's
1992 Stock Plan, of which 1,877,293 shares are subject to outstanding
options and 2,516,078 shares are available for future grant as of March 31,
1995, (iii) 523,838 shares of Common Stock reserved for issuance under the
Company's employee stock purchase plan, (iv) 285,000 shares of Common Stock
reserved for issuance upon exercise of stock options under the Company's
1986 Directors' Stock Option Plan, of which 125,000 shares are subject to
outstanding options and 160,000 shares are available for future grant, (v)
2,613,636 shares reserved for issuance upon conversion of the Company's 7%
Convertible Subordinated Debentures due May 1, 2012, and (vi) 2,677,604
shares of Common Stock reserved for issuance under a warrant granted to
Intel.
</TABLE>

11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data set forth below for the years
ended December 26, 1992, December 25, 1993 and December 30, 1994 and the
consolidated balance sheet data at December 25, 1993 and December 30, 1994 are
derived from the financial statements of the Company, audited by Ernst & Young
LLP, independent auditors, that are incorporated herein by reference, and are
qualified by reference to such financial statements. The consolidated statement
of operations data for the years ended December 29, 1990, and December 28, 1991,
and the consolidated balance sheet data at December 29, 1990, December 28, 1991
and December 26, 1992 are derived from financial statements of the Company that
also have been audited by Ernst & Young LLP but are not incorporated herein by
reference. The financial data at March 31, 1995 and for the three-month periods
ended April 1, 1994 and March 31, 1995 are derived from unaudited financial
statements, which include all adjustments, consisting only of normal recurring
accruals, that the Company considers necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations for
these periods. Operating results for the three months ended March 31, 1995 are
not necessarily indicative of the results that may be expected for future
periods or for the year ending December 29, 1995. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included herein or incorporated herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR (1)(2) QUARTER ENDED (3)
-------------------------------------------------------- -----------------------------------
1990 1991 1992 1993 1994 APRIL 1, 1994 MARCH 31, 1995
-------- -------- -------- -------- -------- ---------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues.............. $324,828 $413,376 $428,498 $515,946 $587,091 $138,123 $163,035
Cost of sales............. 215,757 275,414 293,392 327,774 356,858 86,940 98,961
-------- -------- -------- -------- -------- ---------------- --------------
Gross profit............ 109,071 137,962 135,106 188,172 230,233 51,183 64,074
Operating expenses:
Research and
development............ 35,521 39,167 50,442 65,431 78,889 18,705 20,668
Marketing, general and
administrative......... 66,862 75,622 81,446 94,651 104,595 24,130 27,775
Special charge.......... 12,750(4) -- 22,500(5) 1,008(6) -- -- --
-------- -------- -------- -------- -------- ---------------- --------------
Operating income (loss)... (6,062) 23,173 (19,282) 27,082 46,749 8,348 15,631
Interest income and other
expenses (net)........... 2,395 (1,161) (3,282) 1,512 3,301 802 881
Interest expense.......... (9,073) (9,234) (9,053) (8,063) (8,343) (2,004) (1,862)
-------- -------- -------- -------- -------- ---------------- --------------
Income (loss) before
provision for taxes on
income................... (12,740) 12,778 (31,617) 20,531 41,707 7,146 14,650
Provision for taxes on
income................... -- 2,905 600 4,648 10,010 1,785 4,400
-------- -------- -------- -------- -------- ---------------- --------------
Net income (loss)......... $(12,740) $ 9,873 $(32,217) $ 15,883 $ 31,697 $ 5,361 $ 10,250
-------- -------- -------- -------- -------- ---------------- --------------
-------- -------- -------- -------- -------- ---------------- --------------
Fully diluted net income
(loss) per share......... $ (0.52) $ 0.37 $ (1.12) $ 0.45 $ 0.85 $ 0.15 $ 0.26
-------- -------- -------- -------- -------- ---------------- --------------
-------- -------- -------- -------- -------- ---------------- --------------
Weighted average common
and common equivalent
shares outstanding....... 24,339 26,657 28,865 35,276 37,446 36,802 41,798

FISCAL YEAR (1)(2) QUARTER ENDED (3)
-------------------------------------------------------- -----------------------------------
1990 1991 1992 1993 1994 APRIL 1, 1994 MARCH 31, 1995
-------- -------- -------- -------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 66.4 66.6 68.5 63.5 60.8 62.9 60.7
-------- -------- -------- -------- -------- ---------------- --------------
Gross profit............ 33.6 33.4 31.5 36.5 39.2 37.1 39.3
Operating expenses:
Research and
development............ 10.9 9.5 11.8 12.7 13.4 13.6 12.7
Marketing, general and
administrative......... 20.7 18.3 19.0 18.3 17.8 17.5 17.0
Special charge.......... 3.9(4) -- 5.2(5) 0.2(6) -- -- --
-------- -------- -------- -------- -------- ---------------- --------------
Operating income (loss)... (1.9) 5.6 (4.5) 5.3 8.0 6.0 9.6
Interest expense and
other, net............... 2.0 2.5 2.9 1.3 0.9 0.8 0.6
Provision for taxes on
income................... -- 0.7 0.1 0.9 1.7 1.3 2.7
-------- -------- -------- -------- -------- ---------------- --------------
Net income (loss)......... (3.9)% 2.4% (7.5)% 3.1% 5.4% 3.9% 6.3%
-------- -------- -------- -------- -------- ---------------- --------------
-------- -------- -------- -------- -------- ---------------- --------------
</TABLE>

<TABLE>
<CAPTION>
AT FISCAL YEAR END (1)
------------------------------------------------ AT
1990 1991 1992 1993 1994 MARCH 31, 1995
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 65,960 $ 76,127 $102,149 $114,423 $138,704 $137,914
Total assets.............................................. 327,340 364,018 368,208 412,223 490,216 504,537
Short-term debt, including current portion of long-term
obligations.............................................. 34,945 39,661 15,707 14,606 15,516 13,946
Long-term debt and non-current capital lease
obligations.............................................. 89,277 92,633 83,178 85,855 96,804 94,108
Stockholders' equity...................................... 147,110 161,628 185,008 212,508 255,430 267,266
<FN>
- ----------------------------------
(1) From 1990 through 1993, VLSI's fiscal year end was the last Saturday of
December. In 1994, the Company changed its fiscal year end to the last
Friday of December. The actual dates of the Company's fiscal year ends in
the table above are December 29, 1990, December 28, 1991, December 26,
1992, December 25, 1993 and December 30, 1994. The fiscal year ended
December 30, 1994 was a 53-week year. The current fiscal year is a 52-week
year ending on December 29, 1995.
(2) During 1994, the Company reclassified costs associated with its Technology
Centers from research and development to cost of sales and marketing,
general and administrative in order to make the presentation of the
Company's financial statements more comparable with the financial
statements of its closest competitors and to better reflect the nature of
these costs. Amounts reclassified in 1990, 1991, 1992, 1993 and 1994 total
$18.1 million, $18.8 million, $19.1 million, $18.4 million and $22.7
million, respectively. Cost of sales were increased $14.1 million, $14.7
million, $14.9 million, $14.2 million and $17.9 million for 1990, 1991,
1992, 1993 and 1994, respectively. Marketing, general and administrative
expenses were increased $4.0 million, $4.1 million, $4.2 million, $4.2
million and $4.8 million for 1990, 1991, 1992, 1993 and 1994, respectively.
(3) The quarter ended April 1, 1994 was a 14-week quarter. The quarter ended
March 31, 1995 was a 13-week quarter.
(4) Represents a special charge of $12.8 million reflecting the estimated cost
of corporate reorganization related to exiting the memory business.
(5) Represents a special charge of $22.5 million related to the de-emphasis of
older technologies, costs of streamlining sales distribution channels,
costs of relocating certain offices, writedowns of nonperforming assets and
costs associated with intellectual property matters.
(6) Represents a special charge of $1.0 million reflecting a write-off of
purchased in-process research and development expenses related to the
acquisition of certain assets.
</TABLE>

12
<PAGE>
BUSINESS

BUSINESS STRATEGY

VLSI's objective is to design and manufacture highly-integrated, complex
semiconductor devices that allow its customers to develop and bring to market
higher value-added systems and products. Key elements in its strategy to achieve
this objective include:

- TARGET HIGH-VOLUME MARKETS. VLSI targets high-volume markets in which it
has built significant expertise and can utilize its library of proprietary
cells and high-level building blocks to assist customers in designing and
bringing the customers' products to market rapidly. VLSI believes that
this allows the Company to offer more value to the customer at higher
gross margins for the Company.

- FOCUS ON LARGE, INDUSTRY-LEADING OEM CUSTOMERS. VLSI focuses its
manufacturing and research and development resources on products for OEM
customers that are leaders in their respective industries. During 1994,
approximately two-thirds of the Company's net revenues were derived from
sales to its top 20 customers, including Compaq, Apple, Ericsson,
Hewlett-Packard, Tellabs, Alcatel and Silicon Graphics.

- EMPHASIZE STANDARD CELL ASICS AND ASSPS. VLSI emphasizes standard cell
ASICs and ASSPs as compared to gate arrays and other design methodologies.
The Company believes that the standard cell approach is a superior
methodology for satisfying the size, performance and power consumption
requirements of the highly complex products that form VLSI's target
markets.

- LEVERAGE LIBRARY OF STANDARD CELLS TO REDUCE CUSTOMERS' TIME TO MARKET.
VLSI's Functional System Block ("FSB") library, an expanding collection of
pre-designed cells and high-level building blocks, provides frequently
used integrated circuit functions. The FSB library allows VLSI and its
customers to more rapidly design and integrate products, thereby reducing
VLSI's customers' time to market. VLSI's library of FSBs includes Graphics
Controllers (LCD and CRT), a DES Encryption FSB, a PCI FSB, SCSI
Controllers, an ARM RISC-based microprocessor (low

13
<PAGE>
power, high performance embedded control applications), power management,
communications (including standards such as DECT, CT2, GSM and PHS),
signal converters, forward error correction, digital demodulation, MPEG2
and digital signal processing.

- PROVIDE ENGINEERING DESIGN SUPPORT. The Company seeks to differentiate
itself from its competitors not only through the quality of its products,
but also through the level of its technological support and service. VLSI
operates a network of geographically dispersed Technology Centers where
experienced engineers with a specific technical focus work with customers
to develop designs for new products and to provide continuing after-sale
customer support. In 1993, VLSI established a Customer Excellence program,
which is designed to foster relationships with customers through the use
of teams focused on elements such as customer satisfaction, manufacturing
competence and technical excellence.

- EMPLOY BOTH INTERNAL AND EXTERNAL MANUFACTURING CAPACITY. VLSI produces a
significant portion of its wafers (approximately 73% in 1994) at its own
facilities and augments internal manufacturing capacity with the foundry
services of third-party wafer subcontractors. The Company believes that
this strategy improves quality, cost-effectiveness, responsiveness to
customers, access to capacity, ability to implement leading edge process
technology and time to market, as compared to semiconductor companies that
lack fabrication facilities. The semiconductor industry is, however,
currently facing capacity constraints in wafer manufacturing and the
availability of third-party wafer foundries has diminished significantly.
Due to this manufacturing capacity shortage, as well as increased customer
demand, the Company is seeking to accelerate the expansion and upgrading
of its internal and external manufacturing capacity.

14
<PAGE>
PRODUCTS AND MARKETS

VLSI shipped over 2,000 different products in 1994. The following table
illustrates certain current VLSI products, their applications and customers, all
as selected by the Company in its discretion.

SELECTED VLSI PRODUCTS AND CUSTOMERS

<TABLE>
<CAPTION>
TARGET MARKET SELECTED PRODUCTS AND DESCRIPTION SELECTED CUSTOMER(S)
<S> <C> <C>
COMPUTING
ASICs and ASSPs for personal Core logic chip sets for Pentium personal computers AT&T, Compaq, DEC,
computers, workstations and Hewlett-Packard,
mass storage application Packard Bell
Core logic and multimedia ASICs for various Macintosh Apple and Apple
Power PC systems licensees
Core logic chip set for NexGen microprocessor NexGen
ASICs for Onyx high-end 3D Graphics and high volume Silicon Graphics
entry-level workstations
COMMUNICATIONS
ASICs and ASSPs for wireless ASICs for Titan digital access cross connect system Tellabs
communication and network and
voice application
ASICs and ASSPs for ATM and hub/router based solutions Cisco, Newbridge, UB
Networks
ARM-based microcontroller for Marco-TM- wireless Motorola
communicator
Ericsson
Signal processing and call control chips for GSM phones
ASICs for digital subscriber loop and central office Alcatel, DSC
application
CONSUMER & ENTERTAINMENT
ASICs and ASSPs for digital Forward error correction chip and QPSK demodulator for Hughes, Matsushita,
satellite and cable set top satellite set top box NEC, Pioneer, Sagem,
box, arcade and video game Sony, Thomson
application
High performance encryption engine chip AT&T
EDA
Electronic design automation of Top-down design tools, which include ASIC Synthesizer-TM- National
complex ASICs, ICs and ASSPs and Datapath Compiler-TM- Semiconductor,
Oak Technology,
Silicon Graphics
Physical design tools, which include a floorplanning tool Rockwell
and a place and route tool Tellabs, Thomson
Sub-micron physical library products Chips and
Technologies,
Hitachi, NEC, TI
</TABLE>

15
<PAGE>
RECENT DEVELOPMENTS

SALE OF STOCK BY INTEL

In January and February 1995, Intel sold an aggregate of 5,355,207 shares of
Common Stock of the Company that it had acquired pursuant to the Intel/VLSI
Stock and Warrant Purchase Agreement dated July 8, 1992. As a result, Intel is
no longer a stockholder of the Company, although it currently holds a fully
exercisable warrant to purchase an aggregate of 2,677,604 shares of Common Stock
at an exercise price of $11.69 per share and expiring in August 1995. See "Risk
Factors--Effect of Potential Stock Sales."

DEVELOPMENT OF 0.35-MICRON PROCESS TECHNOLOGY WITH HITACHI

In April 1995, the Company and Hitachi announced the joint development of a
new 0.35-micron process technology for ASICs. The Company believes that the new
process technology will be used for ASICs in the computing, communications and
consumer and entertainment markets. The Company's development and initial
fabrication of ASICs using the 0.35-micron process is taking place at the
Company's San Antonio, Texas facility. The Company and Hitachi are parties to a
joint development agreement for the development of 0.35-micron and smaller
geometry process technologies, which expires in 1997. See "Risk Factors --
Manufacturing Risks."

TI LITIGATION

In July 1990, Texas Instruments filed two actions against the Company and
four other defendants, Analog Devices, Inc., Integrated Device Technology, Inc.
("IDT"), LSI Logic Corporation and Cypress Semiconductor Corporation (the
Company and such other defendants are collectively referred to as the "TI
Defendants"). IDT settled its cases with TI in late December 1992.

In the action filed before the United States International Trade Commission
("ITC"), TI sought to exclude from importation into the U.S. all TI Defendants'
products manufactured outside the U.S. that allegedly utilize a plastic
encapsulation process described in U.S. Patent No. 4,043,027 (the "027 patent").
On October 15, 1991, the Administrative Law Judge ("ALJ") found the 027 patent
to be valid and infringed by the Company's old plastic encapsulation gating
process. However, a new plastic encapsulation gating process developed and used
by the TI Defendants was found not to infringe the 027 patent. In December 1991,
the full ITC determined that it would not consider TI's appeal to overturn the
ALJ's decision on noninfringement of the new process. The United States Court of
Appeals for the Federal Circuit affirmed the ITC decision in March 1993. The 027
patent has since expired.

TI also filed a patent infringement action against the TI Defendants in the
United States District Court for the Northern District of Texas seeking an
injunction against the sale and/or manufacture by the TI Defendants of products
that allegedly infringe the 027 patent. The action also sought damages for
alleged past infringement of the 027 patent and now expired U.S. Patent No.
43,716,764. A trial for this matter was held in April 1995, which resulted in a
May 1995 verdict against VLSI for $19.4 million. The Company intends to contest
the verdict. However, the Company will record a charge to earnings of $19.4
million in the second quarter of 1995. Based on the jury's finding that the
alleged infringement was intentional, TI may also request that the judge award
treble damages. In the event that treble damages are awarded, the judgment could
result in a material reduction in liquidity, as well as an increased impact on
the Company's reported results of operations.

16
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), for whom Salomon Brothers Inc,
Bear, Stearns & Co. Inc., Hambrecht & Quist LLC and Montgomery Securities are
acting as Representatives (the "Representatives"), and each of the Underwriters
has severally agreed to purchase from the Company, the number of shares set
forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
Salomon Brothers Inc ............................................................... 432,000
Bear, Stearns & Co. Inc. ........................................................... 431,000
Hambrecht & Quist LLC............................................................... 431,000
Montgomery Securities............................................................... 431,000
Donaldson, Lufkin & Jenrette Securities Corporation................................. 300,000
Fahnestock & Co. Inc................................................................ 195,000
First Albany Corporation............................................................ 195,000
Gruntal & Co., Incorporated......................................................... 195,000
Needham & Company, Inc.............................................................. 195,000
SoundView Financial Group, Inc...................................................... 195,000
----------
Total............................................................................. 3,000,000
----------
----------
</TABLE>

In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the shares of
Common Stock offered hereby if any such shares are purchased.

The Company has been advised by the Representatives that they propose
initially to offer part of the shares of Common Stock offered hereby directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at such price less a concession not in
excess of $0.80 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per share to certain other dealers.
After the closing of the offering, the public offering price and such
concessions may be changed.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 450,000 shares of Common Stock at the same price per share as the
initial 3,000,000 shares to be purchased by the Underwriters. The Underwriters
may exercise such option only to cover over-allotments in the sale of the shares
of Common Stock that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase option shares in the same
proportion as the number of shares of Common Stock to be purchased and offered
by such Underwriter in the table above bears to the total number of shares of
Common Stock initially offered by the Underwriters hereby.

The Company has agreed that it will not, without the prior written consent
of Salomon Brothers Inc, sell, offer or contract to sell or otherwise dispose of
directly or indirectly (except as required upon the exercise of warrants), or
announce the offering of, any shares of Common Stock or any securities
convertible into, or exchangeable for, Common Stock, except those offered
hereby, for a period of 90 days from the date of the Underwriting Agreement. The
foregoing notwithstanding, the Company may during such period issue or sell
shares of its Common Stock pursuant to the Company's existing stock option and
stock purchase plans. Furthermore, all directors and executive officers of the
Company have agreed that they will not offer, sell or contract to sell, or
otherwise dispose of, any shares of Common Stock for a period of 90 days from
the date of the Underwriting Agreement without the prior written consent of
Salomon Brothers Inc (other than shares disposed of as BONA FIDE gifts or shares
of Common Stock delivered to the Company in order to exercise, but not dispose
of shares of Common Stock received pursuant to the exercise of, stock options).

17
<PAGE>
In connection with the offering, certain Underwriters and selling group
members who are qualifying registered market makers on Nasdaq may engage in
passive market-making transactions in the Common Stock on Nasdaq in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock in the offering.
Passive market making transactions must comply with certain volume and price
limitations and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for the
security, and if all independent bids are lowered below the passive market
maker's bid, then such bid must be lowered when certain purchase limits are
exceeded.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Act, or contribute to payments the Underwriters may be required to make in
respect thereof.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for the
Company by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo
Alto, California, and for the Underwriters by Latham & Watkins, San Francisco,
California.

EXPERTS

The consolidated financial statements and schedule of VLSI Technology, Inc.
included in the Company's Annual Report (Form 10-K) for the year ended December
30, 1994, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

18
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Information Incorporated by Reference.......... 2
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 10
Price Range of Common Stock and Dividend
Policy....................................... 10
Capitalization................................. 11
Selected Consolidated Financial Data........... 12
Business....................................... 13
Recent Developments............................ 16
Underwriting................................... 17
Legal Matters.................................. 18
Experts........................................ 18
</TABLE>

3,000,000 SHARES

[LOGO]

COMMON STOCK
($.01 PAR VALUE)
SALOMON BROTHERS INC

BEAR, STEARNS & CO. INC.

HAMBRECHT & QUIST

MONTGOMERY SECURITIES

PROSPECTUS

DATED JUNE 15, 1995