ALLIANCE SEMICONDUCTOR CORP /DE/
10-Q, 2000-11-14
SEMICONDUCTORS & RELATED DEVICES
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              -------------------
                                    FORM 10-Q


(MARK ONE)
[x]  Quarterly report pursuant to section 13 or 15(d) of the securities exchange
     act of 1934 For the quarterly period ended SEPTEMBER 30, 2000, or

[ ]  Transition  report  pursuant  to  section  13 or  15(d)  of the  securities
     exchange act of 1934
     For the transition period from __________ to __________.



Commission file number:  0-22594


                       ALLIANCE SEMICONDUCTOR CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                               77-0057842
             --------                               ----------
  (STATE OR OTHER JURISDICTION OF        (I.R.S. EMPLOYER IDENTIFICATION
  INCORPORATION OR ORGANIZATION)                     NUMBER)

                              2575 AUGUSTINE DRIVE
                       SANTA CLARA, CALIFORNIA 95054-2914
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

      Registrant's telephone number, including area code is (408) 855-4900
                               -------------------


        Securities registered pursuant to Section 12(b) of the Act:NONE
          Securities registered pursuant to Section 12(g) of the Act:

        TITLE OF EACH CLASS              NAME OF EACH EXCHANGE ON WHICH
        -------------------              ------------------------------
   Common Stock, par value $0.01                    REGISTERED
                                                      NASDAQ


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

As of November 10, 2000,  there were 41,288,116  shares of  Registrant's  Common
Stock outstanding.

                                      -1-
<PAGE>


                       ALLIANCE SEMICONDUCTOR CORPORATION
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000




<TABLE>
<CAPTION>
                                      INDEX

                                                                           PAGE
PART I  FINANCIAL INFORMATION

 Item 1 Financial Statements:
        <S>                                                                  <C>
        Condensed unaudited Consolidated Balance Sheets as of
        September 30, 2000 and March 31, 2000.................................3

        Condensed unaudited Consolidated Statements of Operations for the
        three and six months ended September 30, 2000 and 1999................4

        Condensed unaudited Consolidated Statements of Cash Flows for the
        six months ended September 30, 2000 and 1999..........................5

        Notes to unaudited Condensed Consolidated Financial Statements........6

 Item 2 Management's Discussion and Analysis of Financial
        Condition and Results of Operations..................................14


PART II OTHER INFORMATION

 Item 1 Legal Proceedings....................................................22

 Item 2 Other Information....................................................22

 Item 3 Submission of Matters to a Vote of Security Holders..................25

 Item 4 Exhibits and Reports on Form 8-K.....................................25


SIGNATURES...................................................................26
</TABLE>

                                      -2-
<PAGE>


===============================================================================
Part I - Financial Information
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)

                                                    September 30,    March 31,
                                                        2000           2000
                                                    -----------     -----------
                      ASSETS
     Current assets:
<S>                                                  <C>             <C>
      Cash and cash equivalents                         $17,494         $34,770
      Restricted cash                                     2,782           2,804
      Short term investments                            584,299         883,300
      Accounts receivable, net                           33,708          15,858
      Inventory                                          77,752          37,439
      Related party receivables                           2,650           1,778
      Other current assets                                1,866           1,958
                                                    -----------     -----------
           Total current assets                         720,551         977,907

    Property and equipment, net                          10,665           9,990
    Investment in United Microelectronics               505,478         505,478
    Corp. (excluding short term portion)
    Alliance Ventures and other investments              62,773          26,646
    Other assets                                            315             421
                                                    -----------     -----------
            Total assets                             $1,520,442      $1,299,782
                                                    ===========     ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Short term borrowings                             $10,000              $-
      Accounts payable                                   51,780          27,133
      Accrued liabilities                                 6,589          10,388
      Income taxes payable                                6,058           6,641
      Deferred income taxes                             199,044         316,903
      Current portion of long-term obligation               975             905
                                                    -----------     -----------
           Total current liabilities                    274,446         361,970

    Long term obligations                                 1,415           1,517
    Long term capital lease obligation                    1,071           1,197
    Deferred income taxes                               191,803         191,803
                                                    -----------     -----------
           Total liabilities                            468,735         556,487
                                                    -----------     -----------


    Stockholders' equity:
      Common stock                                          426             424
      Additional paid-in capital                        194,180         193,260
      Treasury stock                                    (22,762)        (12,468)
      Retained earnings                                 694,328         644,595
      Accumulated other comprehensive income (loss)     (35,125)        138,144
                                                    -----------     -----------
       Total stockholders' equity                       831,047         963,955
                                                    -----------     -----------
        Total liabilities and stockholders' equity   $1,520,442      $1,299,782
                                                    ===========     ===========
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      -3-
<PAGE>


<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except share amounts)
                                   (unaudited)

                                    Three months      Six months ended
                                       ended            September 30,
                                    September 30,
                                 ------------------- -------------------
                                   2000      1999      2000      1999
                                 --------- --------- --------- ---------
Revenue:
<S>                               <C>       <C>      <C>        <C>
  Net revenues                    $64,466   $19,112  $111,870   $36,823
  Cost of revenues                 39,943    12,304    69,826    24,774
                                 --------- --------- --------- ---------
    Gross Profit                   24,523     6,808    42,044    12,049
                                 --------- --------- --------- ---------

Operating expenses:
  Research and development          3,467     4,244     7,058     7,449
  Selling, general and              5,260     3,108     9,774     5,854
   administrative
                                 --------- --------- --------- ---------
   Total operating expenses         8,727     7,352    16,832    13,303
                                 --------- --------- --------- ---------
Income (loss) from operations      15,796      (544)   25,212    (1,254)
Gain on investments                13,485     3,696    61,002    55,302
Other income (expense), net           333      (270)      673      (149)
                                 --------- --------- --------- ---------
Income before income taxes         29,614     2,882    86,887    53,899
Provision for income taxes         12,053     1,186    35,363       367
                                 --------- --------- --------- ---------
Income before equity in income     17,561     1,696    51,524    53,532
 of investees
Equity in income (loss) of         (1,093)    2,796    (1,791)    4,328
 investees
                                 --------- --------- --------- ---------
  Net income                      $16,468    $4,492   $49,733   $57,860
                                 ========= ========= ========= =========

  Net income per share
   Basic                            $0.40     $0.11     $1.20     $1.39
                                 ========= ========= ========= =========
   Diluted                          $0.39     $0.10     $1.17     $1.36
                                 ========= ========= ========= =========

  Weighted average number of
   common shares
   Basic                           41,326    41,812    41,433    41,715
                                 ========= ========= ========= =========
   Diluted                         42,537    42,995    42,665    42,572
                                 ========= ========= ========= =========
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      -4-
<PAGE>


<TABLE>
<CAPTION>
                       ALLIANCE SEMICONDUCTOR CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

                                          Six months ended
                                              Sept 30,
                                        --------------------
                                          2000       1999
                                        ---------   --------
Cash flows from operating activities:
<S>                                      <C>        <C>
  Net income                             $49,733    $57,860
  Adjustments to reconcile net income
   to net cash used in operating
   activities:
   Depreciation and amortization           2,075      2,193
   Equity in income (loss) of investees    1,791     (4,328)
   Gain on investments                   (61,002)   (55,302)
   Changes in assets and liabilities:
    Accounts receivable                  (17,850)      (671)
    Inventory                            (40,313)   (13,157)
    Related party receivables               (872)       (73)
    Other assets                             198       (467)
    Accounts payable                      24,647      7,958
    Accrued liabilities                   (3,493)       (61)
    Deferred income tax                        -     (2,096)
    Income tax payable                       583          -
                                        ---------   --------
   Net cash used in operating            (44,503)    (8,144)
    activities
                                        ---------   --------

Cash provided by investing activities:
  Purchase of property and equipment      (2,335)      (796)
  Proceeds from sale of marketable        70,029     18,063
   securities
  Purchase of other investments          (40,647)    (7,537)
                                        ---------   --------
   Net cash provided by investing         27,047      9,730
    activities
                                        ---------   --------

Cash provided by financing activities:
  Net proceeds from issuance of common       922      5,901
   stock
  Principal payments on lease               (470)      (668)
   obligation
  Repurchase of common stock             (10,294)         -
  Borrowings from credit line             10,000
  Restricted cash                             22      1,500
                                        ---------   --------
   Net cash provided by financing            180      6,733
    activities
                                        ---------   --------

Net increase (decrease) in cash and      (17,276)     8,319
 cash equivalents
Cash and cash equivalents at beginning    34,770      6,219
 of the period
                                        ---------   --------
Cash and cash equivalents at end of       17,494    $14,537
the period
                                        =========   ========

Schedule of non-cash financing activities:
  Property and equipment leases         $    415    $     -
                                        =========   ========
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      -5-
<PAGE>


                       ALLIANCE SEMICONDUCTOR CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)
                                   (unaudited)

Note 1. BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
by Alliance  Semiconductor  Corporation  (the  "Company") in accordance with the
rules  and  regulations  of the  Securities  and  Exchange  Commission.  Certain
information and footnote  disclosure,  normally included in financial statements
prepared in accordance with generally accepted accounting principles,  have been
condensed  or omitted in  accordance  with such  rules and  regulations.  In the
opinion  of  management,   the  accompanying  unaudited  consolidated  financial
statements reflect all adjustments  necessary to present fairly the consolidated
financial  position of the Company and its subsidiaries,  and their consolidated
results of operations and cash flows. These financial  statements should be read
in  conjunction  with the audited  consolidated  financial  statements and notes
thereto  for the fiscal  years  ended  March 31,  2000 and 1999  included in the
Company's  Annual  Report on Form 10-K filed with the  Securities  and  Exchange
Commission on June 30, 2000.

For purposes of presentation,  the Company has indicated the first six months of
fiscal 2001 and 2000 as ending on September 30, respectively;  whereas, in fact,
the Company's  fiscal  quarters ended on September 30, 2000 and October 2, 1999,
respectively.  The financial  results for the second  quarter of fiscal 2001 and
2000 were reported on a 13-week quarter.

The results of operations for the three months ended  September 30, 2000 are not
necessarily  indicative  of the results that may be expected for the year ending
March 31, 2001 and the Company makes no representations related thereto.

Note 2. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
                      September     March 31,
                      30, 2000        2000
                    ------------  -----------
Inventory:
<S>                   <C>           <C>
  Work in process     $60,744       $20,737
  Finished goods       17,008        16,702
                    ------------  -----------
                      $77,752       $37,439
                    ============  ===========
</TABLE>

Note 3. INVESTMENTS

In  February  and  April  1995,  the  Company   purchased  shares  of  Chartered
Semiconductor  ("Chartered") for approximately  $51.6 million and entered into a
manufacturing  agreement whereby Chartered agreed to provide a minimum number of
wafers from its 8-inch wafer  fabrication  facility known as "Fab2", if Alliance
so chooses. In October 1999, Chartered  successfully completed an initial public
offering in Singapore  and the United  States.  At March 31,  2000,  the Company
owned  approximately  21.4 million ordinary shares or approximately 2.14 million
American Depository Shares or "ADSs."

These shares were subject to a six-month  "lock-up",  or no trade period,  which
expired in April 2000.  In May 2000,  Chartered  completed  a  secondary  public
offering,  in which Alliance  decided not to participate,  and as a result,  the
Company's  shares  were to be subject to an  additional  three-month  "lock-up,"
which was to expire in August 2000.  However,  in June 2000, the  underwriter of
the secondary  offering  released the Company from the lock-up,  and the Company
sold some of its shares.  The Company does not own a material  percentage of the
equity of Chartered. If the Company sells more that 50% of its original holdings
in Chartered,  the Company will start to lose a proportionate share of its wafer
production capacity rights, which could materially affect its ability to conduct
its  business.  Additionally,  because  of  the  potential  loss  of  its  wafer
production  capacity  rights if the Company  sells more than 50% of its original
holdings in  Chartered,  there can be no assurance  that the Company can realize
its value on its investment in Chartered.

                                      -6-
<PAGE>


In June 2000, the Company sold 500,000 shares of Chartered, recording a realized
gain of approximately  $33.5 million. As a result of the sale, at June 30, 2000,
the Company owned  approximately  16.4 million  ordinary shares or approximately
1.64 million American Depository Shares or "ADSs."

Prior to the fiscal third quarter of fiscal year 2000, the Company  recorded its
investment  in  Chartered  as a  long-term  investment  using the cost method of
accounting. The Company currently accounts for its investment in Chartered as an
available-for-sale marketable security in accordance with SFAS 115. At September
30,  2000,  the Company  owned  approximately  16.4 million  ordinary  shares or
approximately  1.64 million American  Depository  Shares or "ADSs." At September
30, 2000,  the Company has recorded an unrealized  gain of  approximately  $35.6
million, which is net of deferred tax of approximately $24.5 million, as part of
accumulated other  comprehensive  income in the stockholder's  equity section of
the balance sheet.

In July 1995, the Company entered into an agreement with United Microelectronics
Corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the purpose of building
and managing an 8-inch semiconductor  manufacturing  facility in Taiwan. Between
September 1995 and July 1997 the Company invested approximately $70.4 million in
USC in exchange for 190 million  shares or 19.0% of the  outstanding  shares and
25% of the total  wafer  capacity.  In April 1998,  the Company  sold 35 million
shares of USC to an affiliate of UMC and received approximately US$31.7 million.
In connection  with the sale, the Company had the right to receive an additional
NTD 665 million upon the occurrence of certain  potential  future events,  which
included  the  sale  or  transfer  of  USC  shares  by  USC  in an  arms  length
transaction,  or by a public  offering  of USC  stock,  or by the sale of all or
substantially  all of the  assets  of USC.  In  March  2000,  Alliance  received
approximately  NTD 665  million  (US$21.5  million)  as a result  of the  merger
between USC and UMC, described below.

Subsequent  to the April 1998 USC stock sale,  the Company  owned  approximately
15.5% of the  outstanding  shares of USC. In October 1998, USC issued 46 million
shares to the Company by way of a dividend distribution.  Additionally, USC also
made a stock  distribution  to its  employees,  thereby  reducing the  Company's
ownership in USC to 14.8% of the outstanding shares.

Prior to the merger with UMC, the Company, as part of its investment in USC, was
entitled  to 25% of the  output  capacity  of  the  wafer  fabrication  facility
operated by USC, as well as a seat on the board of directors of USC. As a result
of the capacity rights, the board seat, and certain contractual rights, Alliance
had  participated in both strategic and operating  decisions of USC on a routine
basis,  had rights of approval  with  respect to major  business  decisions  and
concluded that it had significant influence on financial and operating decisions
of USC.  Accordingly,  the Company accounted for its investment in USC using the
equity method with a ninety-day lag in reporting the Company's  share of results
for the entity.  In fiscal  years 2000,  1999 and 1998 the Company  reported its
proportionate share of equity income of USC of $9.5 million,  $10.9 million, and
$15.5 million, net of tax, respectively.

In October  1995,  the Company  entered  into an  agreement  with UMC, and other
parties, to form a separate Taiwanese company, United Silicon Inc. ("USIC"), for
the  purpose of building  and  managing  an 8-inch  semiconductor  manufacturing
facility in Taiwan.  Between  January 1996 and July 1998,  the Company  invested
approximately  $16.8  million and owned  approximately  3.2% of the  outstanding
shares  of  USIC  and  had  the  right  to  purchase  approximately  3.7% of the
manufacturing capacity of the facility. The Company accounted for its investment
in USIC using the cost  method of  accounting  prior to the  merger  with UMC in
January 2000.

In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four  semiconductor  wafer foundry units, USC, USIC,  United Integrated  Circuit
Corporation  and  UTEK  Semiconductor  Corporation,  into  UMC and  subsequently
completed the merger in January 2000. Through its representation on USC's board,
the  Company  had the right to choose  whether  to  consent  to the  merger  and
concluded it to be in the Company's  best interest to do so.  Alliance  received
247.7  million  shares  of UMC  stock for its  247.7  million  shares,  or 14.8%
ownership of USC,  and  approximately  35.6 million  shares of UMC stock for its
48.1  million  shares,  or 3.2%  ownership of USIC.  At March 31, 2000  Alliance
Semiconductor owned approximately 283.3 million shares, or approximately 3.2% of
UMC, and  maintained its 25% and 3.7% wafer  capacity  allocation  rights in the
former  USC and USIC  foundries,  respectively.  As a result  of the  merger  in
January 2000, the Company no longer recorded its  proportionate  share of equity
income in USC, as the  Company no longer has an ability to exercise  significant
influence  over UMC's  operations.  The  investment in UMC is accounted for as a
cost method investment.

                                      -7-
<PAGE>


During the fiscal fourth quarter of 2000, the Company  recognized a $908 million
pre-tax,  non-operating  gain as a result of the merger.  The gain was  computed
based on the share price of UMC at the date of the merger (i.e.  NTD 112, or US$
3.5685),  as well as the approximately  $21.5 million additional gain related to
the sale of the USC shares in April 1998. The Company has accrued  approximately
$2.8 million for the Taiwan  securities  transaction  tax in connection with the
shares  received by the Company.  This  transaction  tax will be paid,  on a per
share basis, when the securities are sold.

In May 2000,  the Company  received an additional  20% or 56.7 million shares of
UMC by way of a stock  dividend.  At  September  30,  2000,  the  Company  owned
approximately 340 million shares of UMC.

According to Taiwanese laws and regulations,  50% of the 340 million  Alliance's
UMC shares are subject to a six-month "lock-up" or no trade period. This lock-up
period  expired in July 2000.  Of the  remaining  50%,  or 170  million  shares,
approximately 34 million shares will become eligible for sale two years from the
closing date of the  transaction  (i.e.  January 2002),  with  approximately  34
million  shares  available-for-sale  every six months  thereafter,  during years
three and four (i.e.2002-2004).

Subsequent to the completion of the merger, the Company accounts for the portion
(approximately 50% at September 30, 2000) of its investment in UMC which becomes
unrestricted within twelve months as an  available-for-sale  marketable security
in accordance  with SFAS 115. At September 30, 2000, the Company has recorded an
unrealized loss of approximately $84.2 million,  which is net of deferred tax of
$57.8  million,  as  part  of  accumulated  other  comprehensive  income  in the
stockholders' equity section of the balance sheet with respect to the short-term
portion  of the  investments.  The  portion  of the  investment  in UMC which is
restricted beyond twelve months  (approximately 50% of the Company's holdings at
September  30,  2000)  is  accounted  for as a  cost  method  investment  and is
classified as a long-term investment.  As this long-term portion becomes current
over time, the investment will be transferred to short-term investments and will
be accounted for as an available-for-sale marketable security in accordance with
SFAS 115. The long-term portion of the investment becomes  unrestricted  between
2002 and 2004.

Given the market risk for securities,  when these shares are ultimately sold, it
is possible that additional gain or loss will be reported.

In 1998, the Company was  approached by a startup  company,  Maverick  Networks,
Inc. ("Maverick"), regarding their need for imbedded memory in a internet router
semiconductor  that  Maverick  was  designing.  Because  the  Company  was  also
interested in eventually entering the internet router semiconductor  market, the
Company  entered into an agreement with Maverick which called for the Company to
provide memory technology access to the Company's wafer production  rights,  and
cash to Maverick,  in exchange for certain  rights to Maverick's  technology and
stock in  Maverick.  On May 31,  1999,  Maverick  completed a  transaction  with
Broadcom  Corporation,  resulting  in the  Company  selling  its  39%  ownership
interest in Maverick in exchange for 538,961 shares of Broadcom's Class B common
stock.  Based on Broadcom's closing share price on the date of sale, the Company
recorded a pre-tax,  non-operating  gain in the first  quarter of fiscal 2000 of
approximately  $51.6 million based on the closing share price of Broadcom at the
date of the merger.  During  fiscal 2000,  the Company  sold  275,600  shares of
Broadcom  stock  and  realized  an  additional  pre-tax,  non-operating  gain of
approximately $23.7 million. In February 2000, Broadcom Corporation  announced a
two for one stock split.

In the  September  2000  quarter,  the Company sold 150,891  shares of Broadcom,
recording a realized  gain of  approximately  $13.5  million.  The Company  also
recognized a $3.1 million gain during the June 2000 quarter  related to the sale
of shares of  Broadcom  stock.  For the first  six  months of fiscal  2001,  the
Company has recorded  approximately  $16.6 million in realized gains on the sale
of Broadcom stock.

The  Company  records  its  investment  in  Broadcom  as  an  available-for-sale
marketable  security in  accordance  with SFAS 115. At September  30, 2000,  the
Company  owned  336,631  shares of Broadcom and recorded an  unrealized  gain of
approximately $15.2 million, which is net of deferred tax of approximately $10.4
million, as part of accumulated other  comprehensive  income in the stockholders
equity section of the balance sheet.

In October 1999, the Company formed Alliance Venture Management,  LLC ("Alliance
Venture Management"),  a California limited liability corporation, to manage and
act as the general partner in the investment funds the Company intended to form.
Alliance  Venture  Management does not directly  invest in the investment  funds
with the Company,  but is entitled to a management  fee and a percentage  of the
net profits of the  investment  funds.  This  management  company  structure was
created  to  provide  incentives  to  the  individuals  who  participate  in the
management  of  the  investment  funds  by  allowing  such  individuals  limited
participation  in the

                                      -8-
<PAGE>


profits  of  the  various  investment  funds  through  the  management  fee  and
percentage of the net profits paid by the investment funds.

In November 1999, the Company formed Alliance Ventures I, LP ("Alliance Ventures
I") and Alliance  Ventures II, LP  ("Alliance  Ventures  II"),  both  California
limited partnerships. The Company, as the sole limited partner, owns 100% of the
shares of each  partnership.  Alliance  Venture  Management  acts as the general
partner of these  partnerships  and receives a management fee of 1% of the total
committed  capital and 15% of the net profits  from these  partnerships  for its
managerial  efforts. In February 2000, the Company formed Alliance Ventures III,
LP ("Alliance Ventures III"), a California limited partnership.  The Company, as
the sole limited partner, owns 100% of the shares of this partnership.  Alliance
Venture  Management acts as the general partner of this partnership and receives
a  management  fee of 1% of the total  committed  capital and 16% of the profits
from  this  partnership  for its  managerial  efforts.  Several  members  of the
Company's  senior  management  hold a majority of the units of Alliance  Venture
Management.

After  Alliance  Ventures I was  formed,  the Company  contributed  all its then
current investments,  except Chartered, UMC and Broadcom, to Alliance Ventures I
to  allow  Alliance  Venture  Management  to  manage  these  investments.  As of
September 30, 2000,  Alliance Ventures I, whose focus is investing in networking
and communication  start-up companies,  has invested approximately $20.1 million
in 9  companies  with a total  fund  allocation  of $20  million,  and  Alliance
Ventures  II,  whose focus is in  investing  in internet  start-up  ventures has
approximately $8.0 million in 10 companies,  with a total fund allocation of $15
million.  As of  September  30,  2000,  Alliance  Ventures  III,  whose focus is
investing  in emerging  companies in the  networking  and  communication  market
areas,  has invested  approximately  $28.8 million in 9 companies,  with a total
fund allocation of $100 million.

Several of these  investments  are accounted for as the equity method due to the
Company's  ability to exercise  its  influence  on the  operations  of investees
resulting  primarily from ownership  interest and/or board  representation.  The
total equity in the net losses of the equity  investees of these  venture  funds
was approximately $1.1 million,  net of tax, for the quarter ended September 30,
2000.  For the six months ended  September  30, 2000 the total equity in the net
losses of the equity in investees was approximately, $1.8 million, net of tax.

In  August  1999,  the  Company  made  an  investment  in  Orologic  Corporation
("Orologic"),  a fabless  semiconductor  company that develops high  performance
system on a chip  solutions.  In  November  1999,  the Company  transferred  its
interest  in  Orologic  to  Alliance  Ventures  I, to allow it to be  managed by
Alliance Venture Management.  Subsequently, in March 2000, Vitesse Semiconductor
Corporation  ("Vitesse") acquired Orologic.  In connection with this merger, the
Company  received 728,293 shares of Vitesse for its equity interest in Orologic,
after  distribution of the management fee to Alliance Venture  Management.  As a
result  of  the  merger,   the  Company   recognized  a  $69  million   pre-tax,
non-operating  gain in its fiscal fourth quarter ending March 31, 2000, based on
the closing share price of Vitesse of $96.25 on March 31, 2000, the closing date
of the merger.  In May,  Alliance  Ventures I made a distribution  of the shares
received from Vitesse to Alliance Venture Management and the Company.

The Company  records its investment in Vitesse  Semiconductor  Corporation as an
available-for-sale marketable security in accordance with SFAS 115. At September
30, 2000, the Company owned 728,293 shares of Vitesse and recorded an unrealized
loss  of  approximately   $3.1  million,   which  is  net  of  deferred  tax  of
approximately $2.1 million, as part of accumulated other comprehensive income in
the stockholders equity section of the balance sheet.

In July 1999,  the Company made an  investment in Malleable  Technologies,  Inc.
("Malleable"), a fabless semiconductor company whose focus is in developing high
density,  voice over packet  digital  signal  processors.  In November 1999, the
Company  transferred its interest in Malleable to Alliance  Ventures I, to allow
it to be managed by Alliance Venture Management.  On June 27, 2000,  PMC-Sierra,
Inc. ("PMC"),  acquired  Malleable.  In connection with the merger,  the Company
received  68,152  shares  of  PMC  for  its  7%  interest  in  Malleable,  after
distribution of the management fee to Alliance Venture Management.  In the first
fiscal quarter of 2001,  the Company  reported a pre-tax  non-operating  gain of
approximately  $11.0 million based on the closing share price of PMC of $182.875
on June 27, 2000, the closing date of the merger.

The Company records its investment in PMC-Sierra,  Inc. as an available-for-sale
marketable  security in  accordance  with SFAS 115. At September  30, 2000,  the
Company  owned 68,152 shares of  PMC-Sierra  and recorded an unrealized  loss of
approximately $1.3 million, which is net of deferred tax of $898,000, as part of
accumulated other comprehensive income in the stockholders equity section of the
balance sheet.

                                      -9-
<PAGE>


In August  2000,  the  Company  agreed to invest $20  million  in Solar  Venture
Partners,  LP.  ("Solar"),  a  venture  capital  partnership  whose  focus is in
investing  in  early  stage  companies  in  the  following  areas:   networking,
telecommunications,  wireless,  software infrastructure enabling efficiencies of
the  Web  and  e-commerce,   semiconductors  for  emerging  markets  and  design
automation.  The  Company  also has an  option  during  the next six  months  of
investing an  additional  $30 million to $55 million in Solar.  In addition to a
number  of  outside  investors,  some of the  Company's  executives  have or are
planning to personally  invest in Solar.  As of September 30, 2000,  the Company
has  invested,  in the form of two  promissory  notes a total of $7.0 million in
Solar. Both promissory notes bear interest at a rate of 6% per annum and are due
on December 31, 2000.

As summary of marketable securities held by the Company at September 30, 2000 is
as follows (in thousands):

<TABLE>
<CAPTION>
            Number of Shares  Market Value
            ----------------  ------------
                      (in thousands)
<S>             <C>             <C>
UMC             340,000         $727,068
Chartered         1,642           99,638
Broadcom            337           41,684
Vitesse             728           64,772
PMC Sierra           68           14,670
                              ------------
         Total                  $947,832
                              ============
</TABLE>

Note 4. COMPREHENSIVE INCOME

The following are the components of comprehensive income:

<TABLE>
<CAPTION>
                        Three months ended  Six months ended
                           September 30,      September 30,
                        -----------------  ------------------
                         2000      1999      2000      1999
                        --------  -------  --------  --------
                                   (in thousands)
<S>                      <C>       <C>      <C>       <C>
 Net income              $16,468   $4,493   $49,733   $57,861
 Unrealized gain         (92,295)  (9,249) (173,269)    3,945
   (loss) on
   marketable
   securities, net of
   deferred taxes of
   ($63,346) and
   ($118,922) at Sept
   30, 2000 and
   ($6,402) and $2,652
   at Sept 30, 1999,
   respectively
 Cumulative
   translation                 -    2,508         -     6,902
   adjustments
                        --------  -------  --------  --------
   Comprehensive        ($75,828) ($2,248)($123,536)  $68,708
     income (loss)
                        ========  =======  ========  ========
</TABLE>

The components of accumulated other comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                      September     March 31,
                                      30, 2000        2000
                                     -----------  ------------
                                          (in thousands)
<S>                                  <C>          <C>
Unrealized gain (loss) marketable
  securities, net of deferred taxes
  of ($24,108) at September 30,        ($35,125)    $138,144
  2000 and $94,814 at March 31, 2000
                                     -----------  ------------
  Accumulated other comprehensive      ($35,125)    $138,144
   income (loss)
                                     ===========  ============
</TABLE>

                                      -10-
<PAGE>


Note 5. LETTERS OF CREDIT

As of September 30, 2000, one million  dollars of standby letters of credit were
outstanding  and expire on or before  September  1, 2001,  which are  secured by
restricted cash and short-term investments.

Note 6. SHORT-TERM BORROWINGS

In September 2000, the Company  borrowed $10 million under an open-ended line of
credit,  against  a  portion  of its  marketable  securities  holdings,  bearing
interest at a rate of 7.5% per annum.

Note 7. NET INCOME PER SHARE

Basic  Earnings Per Share (EPS) is computed by dividing net income  available to
common stockholders  (numerator) by the weighted average number of common shares
outstanding  (denominator)  during the period.  Diluted EPS gives  effect to all
dilutive  potential common shares  outstanding during the period including stock
options,  using the treasury stock method. In computing Diluted EPS, the average
stock price for the period is used in  determining  the number of shares assumed
to be purchased from the proceeds obtained upon exercise of stock options.

The computations for basic and diluted EPS are presented below:

<TABLE>
<CAPTION>
                                Three months ended    Six months ended
                                   September 30,        September 30,
                                ------------------  -------------------
                                  2000      1999      2000      1999
                                ---------  -------  --------- ---------
                                           (in thousands)
<S>                              <C>       <C>       <C>       <C>
Net income                       $16,468   $4,492    $49,733   $57,860
                                =========  =======  ========= =========
Weighted average shares           41,326   41,812     41,433    41,715
 outstanding
Effect of dilutive employee        1,211    1,183      1,232       857
 stock options
                                ---------  -------  --------- ---------
Average shares outstanding        42,537   42,995     42,665    42,572
assuming dilution
                                =========  =======  ========= =========
Net income per share:
   Basic                           $0.40    $0.11      $1.20     $1.39
                                =========  =======  ========= =========
   Diluted                         $0.39    $0.10      $1.17     $1.36
                                =========  =======  ========= =========
</TABLE>

The following are not included in the above  calculation as they were considered
anti-dilutive:

<TABLE>
<CAPTION>
                            Three months ended     Six months ended
                               September 30,         September 30,
                           ---------------------  -------------------
                             2000        1999        2000      1999
                           ---------  ----------  ---------  --------
                                          (in thousands)
<S>                           <C>         <C>        <C>        <C>
Employee stock options        173         91         162        882
outstanding
                           =========  ==========  =========  ========
</TABLE>

Note 8.  LEGAL MATTERS

In December 1996, Alliance Semiconductor  International  Corporation ("ASIC"), a
wholly-owned  subsidiary  of the Company,  was served with a complaint  filed in
Federal Court  alleging that ASIC had infringed two patents owned by AMD related
to flash memory devices,  and seeking  injunctive  relief and damages.  In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand  its  claims to  include  several  new flash  products  which had been
recently  announced by the Company.  In January and February 2000,  both parties
filed  for  motions  for  summary  judgment.   Each  defendant  has  denied  the
allegations of the complaint and asserted a counterclaim  for  declaration  that
each of the AMD patents is invalid and not infringed by such defendant.  A trial
date is currently set for January  2001.  In October  2000,  the Company and AMD
participated in a court ordered mediation and reached a preliminary agreement in
principle on terms of a proposed settlement. The impact on the Company cannot be
estimated  at  this  time.  However,  there  can be no  assurance  that a  final
settlement will be reached and executed.  The Company believes the resolution of
this matter will not have a material adverse effect on its financial  conditions
and its results of operations.

                                      -11-
<PAGE>


In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs  were  granted  leave by the  Court to  appeal  this  judgment.  Oral
arguments  were made before the Court of Appeals in June 2000.  In July 2000 the
Court of  Appeals  instructed  the  lower  Court to allow  the  parties  to take
depositions regarding the issue of service of process,  while also setting aside
the default judgment against the Company.

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States  International In February 1997, Micron Technology,  Inc. filed an
antidumping  petition  with the United  States  International  Trade  Commission
("ITC") and United States  Department of Commerce  ("DOC"),  alleging that SRAMs
fabricated  in Taiwan  were being  sold in the  United  States at less than fair
value,  and that the  United  States  industry  producing  SRAMs was  materially
injured  or  threatened  with  material  injury by reason  of  imports  of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury,  DOC issued an antidumping duty
order in April 1998.  Under that order,  the  Company's  imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping  Margin") of
the entered  value of such SRAMs.  (The  Company  posted a bond in the amount of
59.06%  (the  preliminary  margin)  with  respect  to its  importation,  between
approximately  October 1997 and April 1998,  of SRAMs  fabricated in Taiwan.) In
May 1998,  the Company and others filed an appeal in the United  States Court of
International  Trade (the "CIT"),  challenging the determination by the ITC that
imports of  Taiwan-fabricated  SRAMs were  causing  material  injury to the U.S.
industry.  On June 30,  1999,  the CIT  issued a  decision  remanding  the ITC's
affirmative material injury  determination to the ITC for  reconsideration.  The
ITC's  remand  determination  reaffirmed  its  original  determination.  The CIT
considered the remand  determination and remanded it back to the ITC for further
reconsideration.  On June 12, 2000, in its second remand  determination  the ITC
voted  negative on injury,  thereby  reversing its original  determination  that
Taiwan-fabricated  SRAMs were causing material injury to the U.S. industry.  The
second  remand  determination  was  transmitted  to the CIT on June 26, 2000 for
consideration.  Micron  has  appealed  the  decision  of the CIT to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal,  although it is expected to take a year or
more to  conclude.  Until a final  judgment is entered in the  appeal,  no final
duties will be assessed on the Company's entries of SRAMs from Taiwan covered by
the DOC  antidumping  duty order.  If the appeal is successful,  the antidumping
order will be terminated  and cash deposits will be refunded with  interest.  If
the appeal is unsuccessful,  the Company's  entries of  Taiwan-fabricated  SRAMs
from October 1, 1997 through  March 31, 2000 will be  liquidated  at the deposit
rate in effect at the time of entry. On subsequent entries of  Taiwan-fabricated
SRAMs,  the Company will  continue to make cash deposits in the amount of 50.15%
of the entered  value.  In April 2001,  the Company will have an  opportunity to
request a review  of its sales of  Taiwan-fabricated  SRAMs  from  April 1, 2000
through  March 31,  2001 (the  "Review  Period").  If it does so,  the amount of
antidumping  duties,  if any, owed on imports from April 2000 through March 2001
will remain  undetermined  until the  conclusion of the review in early 2002. If
the DOC found,  based upon  analysis of the  Company's  sales  during the Review
Period,  that  antidumping  duties  either  should  not be  imposed or should be
imposed at a lower rate than the Antidumping  Margin, the difference between the
cash  deposits  made by the Company,  and the deposits that would have been made
had the lower  rate (or no rate,  as the case may be) been in  effect,  would be
returned to the Company,  plus  interest.  If, on the other hand,  the DOC found
that higher margins were  appropriate,  the Company would have to pay difference
between the cash  deposits  paid by the Company and the deposits that would have
been made had the higher rate been in effect. At September 30, 2000, the Company
had posted a bond  secured by a letter of credit in the amount of  approximately
$1.7 million and made cash  deposits in the amount of $1.7  million  relating to
the Company's importation of Taiwan-manufactured SRAMs.

                                      -12-
<PAGE>


Note 9.  COMMITMENTS

In August 2000, the Company  entered into an agreement with Tower  Semiconductor
Ltd. ("Tower") under which Alliance will make a $75 million strategic investment
in Tower as part of  Tower's  plan to build  its new  fabrication  facility.  In
return  for  its  investment,   Alliance  will  receive  equity,   corresponding
representation on Tower's Board of Directors and committed  production  capacity
in the advanced  fabrication  facility which Tower intends to commence  building
this year.

In August  2000,  the  Company  agreed to invest $20  million  in Solar  Venture
Partners,  LP  ("Solar"),  a  venture  capital  partnership  whose  focus  is in
investing in early stage companies in networking, telecommunications,  wireless,
software  infrastructure  enabling  efficiencies of the Internet and e-commerce,
semiconductors for emerging markets, and design automation. The Company also has
an option during the next six months of investing an  additional  $30 million to
$55 million in Solar. A number of the company's  executives have or are planning
to  personally  invest in Solar.  As of  September  30,  2000,  the  Company has
invested, in the form of two promissory notes, a total of $7.0 million in Solar.
Both  promissory  notes bear  interest  at a rate of 6% per annum and are due on
December 31, 2000.

                                      -13-
<PAGE>


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

WHEN  USED  IN THIS  REPORT,  THE  WORDS  "EXPECTS,"  ANTICIPATES,"  "BELIEVES,"
"ESTIMATES"  AND SIMILAR  EXPRESSIONS  ARE INTENDED TO IDENTIFY  FORWARD-LOOKING
STATEMENTS  WITHIN THE MEANING OF SECTION 27A OF THE  SECURITIES ACT OF 1933, AS
AMENDED,  AND SECTION 21E OF THE  SECURITIES  EXCHANGE ACT OF 1934,  AS AMENDED.
SUCH  FORWARD-LOOKING  STATEMENTS,  ARE SUBJECT TO RISKS AND  UNCERTAINTIES  AND
INCLUDE  THE  FOLLOWING   STATEMENTS   CONCERNING  THE  TIMING  OF  NEW  PRODUCT
INTRODUCTIONS; THE FUNCTIONALITY AND AVAILABILITY OF PRODUCTS UNDER DEVELOPMENT;
TRENDS IN THE PERSONAL COMPUTER, NETWORKING, TELECOMMUNICATIONS, INSTRUMENTATION
AND CONSUMER MARKETS,  IN PARTICULAR AS THEY MAY AFFECT DEMAND FOR OR PRICING OF
THE COMPANY'S  PRODUCTS;  THE  PERCENTAGE OF EXPORT SALES AND SALES TO STRATEGIC
CUSTOMERS;  THE PERCENTAGE OF REVENUE BY PRODUCT LINE; THE AVAILABILITY AND COST
OF PRODUCTS  FROM THE  COMPANY'S  SUPPLIERS;  CHANGES IN STOCK PRICE OF BROADCOM
CORPORATION,  CHARTERED  SEMICONDUCTOR,   UNITED  MICROELECTRONICS  CORPORATION,
VITESSE  SEMICONDUCTOR  CORPORATION,  PMC-SIERRA,  INC. AND TOWER  SEMICONDUCTOR
LTD.;  ADVERSE  CHANGES  IN  VALUE  OF  INVESTMENTS  MADE  BY  ALLIANCE  VENTURE
MANAGEMENT,  LLC; AND THE COMPANY'S  POTENTIAL  STATUS AS INVESTMENT ACT OF 1940
REPORTING COMPANY. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE SET FORTH IN ITEM
2 (ENTITLED  "MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS") OF THIS REPORT,  AND IN ITEM 1 (ENTITLED  "BUSINESS") OF
PART  I AND  IN  ITEM 7  (ENTITLED  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS")  OF PART II OF THE  COMPANY'S
ANNUAL  REPORT ON FORM 10-K FOR THE FISCAL  YEAR ENDED  APRIL 1, 2000 FILED WITH
THE  SECURITIES  AND EXCHANGE  COMMISSION ON JUNE 30, 2000,  AND THE  SUBSEQUENT
QUARTERLY  REPORT ON FORM 10-Q FOR THE QUARTER ENDING JULY 1, 2000.  THESE RISKS
AND UNCERTAINTIES, OR THE OCCURRENCE OF OTHER EVENTS, COULD CAUSE ACTUAL RESULTS
TO DIFFER  MATERIALLY  FROM THOSE PROJECTED IN THE  FORWARD-LOOKING  STATEMENTS.
THESE  FORWARD-LOOKING  STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. THE
COMPANY  EXPRESSLY  DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE  PUBLICLY
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING  STATEMENTS  CONTAINED HEREIN TO
REFLECT  ANY CHANGE IN THE  COMPANY'S  EXPECTATIONS  WITH  REGARD  THERETO OR TO
REFLECT  ANY CHANGE IN EVENTS,  CONDITIONS  OR  CIRCUMSTANCES  ON WHICH ANY SUCH
FORWARD-LOOKING STATEMENT IS BASED, IN WHOLE OR IN PART.

RESULTS OF OPERATIONS

The following table sets forth,  for the periods  indicated,  certain  operating
data as a percentage of net revenue:

<TABLE>
<CAPTION>
                                  Three months ended    Six months ended
                                    September 30,         September 30,
                                 ---------------------  ------------------
                                    2000        1999      2000      1999
                                 ----------  ---------  --------  --------
<S>                               <C>         <C>         <C>       <C>
Net revenues                      100.0%      100.0%      100.0%    100.0%
Cost of revenues                   62.0        64.4        62.4      67.3
                                 ----------  ---------  --------  --------
  Gross profit                     38.0        35.6        37.6      32.7
Operating expenses:
  Research and development          5.4        22.2         6.3      20.2
  Selling, general and              8.2        16.3         8.7      15.9
   administrative
                                 ----------  ---------  --------  --------
Total operating expenses           13.6        38.5        15.0      36.1
                                 ----------  ---------  --------  --------
Income (loss) from operations      24.4        (2.9)       22.6      (3.4)
Gain on Investments                20.9        19.3        54.5     150.2
Other income (expense), net         0.5        (1.4)        0.6      (0.4)
                                 ----------  ---------  --------  --------
Income before income taxes         45.8        15.0        77.7     146.4
Provision for income taxes         18.7         6.2        31.6       1.0
                                 ----------  ---------  --------  --------
Income before equity in income     27.1         8.9        46.1     145.4
 of investees
Equity in income (loss) of         (1.7)       14.6        (1.6)     11.8
 investees
                                 ----------  ---------  --------  --------
Net income                         25.4%       23.4%       44.5%    157.2%
                                 ==========  =========  ========  ========
</TABLE>

NET REVENUES

Net  revenues  increased  by 237% to $64.5  million for the three  months  ended
September  2000 from $19.1 million for the similar  period in 1999. The increase
in revenues was mainly due an 111% increase in unit  shipments of dynamic random
access  memory  ("DRAM") and static random  access  memory  ("SRAM")  products ,
combined with an overall  increase of  approximately  52% in the overall average
selling  prices of the Company's  products.

                                      -14-
<PAGE>


During this comparison period the overall blended average selling prices ("ASP")
for SRAMs increased by 74% and DRAMS by 36%.

Revenues from the Company's DRAM products  contributed  approximately 59% of the
Company's net revenues for the September 2000 quarter and  approximately  61% of
the  Company's net revenues for the  September  1999 quarter.  The DRAM revenues
increased  by 235% to $37.9  million in the  September  2000  quarter from $11.3
million for the September 1999 quarter.  The revenue growth in DRAMs during this
period was primarily  related to increased  shipments of 4 and 16 Mb products to
the non-PC market segments (i.e. communications, networking and consumer OEMs).

Revenues from the Company's SRAM products  contributed  approximately 41% of the
Company's net revenues for the September 2000 quarter and  approximately  38% of
the  Company's net revenues for the  September  1999 quarter.  The SRAM revenues
increased  by 244% to $26.3  million in the  September  2000  quarter  from $7.6
million for the September 1999 quarter. During the September 2000 quarter, sales
from the Company's 4-Mbit 5V Fast Asynchronous and 4-Mbit 3.3V Fast Asynchronous
SRAMS in the 512K x 8 and 256K x 16  configuration  increased $10.4 million over
the June 2000 quarter.  There were no sales from these products in the September
1999 quarter.  Also, the Company  experienced  higher average selling prices and
higher unit shipments on other SRAM products.

In the September 2000 quarter,  sales to the computing market segment  accounted
for  approximately 18% of the total sales, with 82% attributable to sales in the
communication,  networking and consumer  markets,  whereas in the September 1999
quarter  approximately  49% of the Companies sales were in the computing  market
segment and 51 % in the non-PC market segments (i.e. communications,  networking
and consumer).

In the September 2000 quarter,  sales by geographic areas were as follows;  U.S.
36%, Asia 48% and Europe 17%,  whereas  during the September  1999 quarter U.S.,
Asia and Europe accounted for 23%, 53% and 24% respectively.

One customer accounted for approximately  11.6% of the Company's net revenues in
the  September  2000  quarter,  whereas one customer  accounted for 10.9% of the
Company's net revenues in the September 1999 quarter.


Net revenues for the six months ended September 2000 increased by 204% to $111.9
million  compared to $36.6 million during the same period last year.  Again, the
revenue  increase  during the first six months of fiscal year 2001 was primarily
due to a 100% increase in unit shipments of SRAM and DRAM products as well as an
overall  average  selling  price  increase of 52%. The blended  average  selling
prices for SRAMs  increased by 74% while the average DRAM price increased by 55%
during the six-month comparison period.

Revenues from the Company's SRAM products  during the first six months of fiscal
year 2001 accounted for  approximately  42% of the total net revenues with DRAMs
accounting  for the balance or 58%. The revenue  growth in the DRAM product line
was  primarily 16 Mb products  which were sold  primarily in the  communication,
networking and consumer markets.

For the first six months of fiscal  year  2001,  sales to the  computing  market
segment accounted for approximately 16% of total sales, with 84% attributable to
sales in the  communication,  networking and consumer markets whereas during the
first six months of fiscal year 2000,  approximately  46% of the Companies sales
were in the computing market segment and 54% in the non-PC market segments (i.e.
communications,  networking  and  consumer).  The Companies  sales and marketing
focus is now primarily in the communications,  networking, wireless and consumer
markets.

The  geographic  breakdown  of sales for the first six months of fiscal 2001 was
36% in U.S.,  46% in Asia, and 18% in Europe whereas during the first six months
of fiscal year 2000 U.S.,  Asia and European sales  accounted for  approximately
35%, 44% and 21%, respectively.

The largest  customer  accounted  for  approximately  8.4% of the  Company's net
revenues  during  the first  six  months of fiscal  2001  whereas  one  customer
accounted for approximately  11.3% of total revenues during the first six months
of fiscal 2000.

                                      -15-
<PAGE>


Generally,  the markets for the Company's products are characterized by volatile
supply and demand conditions,  numerous competitors,  rapid technological change
and product  obsolescence.  These  conditions  could require the Company to make
significant  shifts in its product  mix in a  relatively  short  period of time.
These changes involve  several risks,  including,  among others,  constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated  wafer  manufacturing  yields;  lower than expected  throughput from
assembly  and test  suppliers;  and less than  anticipated  demand  and  selling
prices.  The occurrence of any problems  resulting from these risks could have a
material adverse effect on the Company's operating results.

GROSS PROFIT

Gross profit for the second quarter of fiscal 2001 was $24.5 million,  or 38% of
net  revenues  compared  to a gross  profit of $6.8  million or 36% for the same
period of fiscal 2000.  The increase in gross  profits  primarily  resulted from
higher overall  average  selling prices for the Company's DRAM and SRAM products
and higher unit shipments as well as an increased mix of higher  margin,  higher
density SRAM products. The gross profit was $42.0 million or 38% of net revenues
for the first six  months of fiscal  2001  compared  to a gross  profit of $12.0
million,  or 33% for the first six months of fiscal  2000.  The  increase in the
gross profits for the first six months  primarily  resulted from higher  average
selling prices  coupled with higher units  shipments as well as an increased mix
of higher margin, higher density SRAM products.

The Company is subject to a number of factors  which may have an adverse  impact
on gross  margins  including  the  availability  and cost of  products  from the
Company's suppliers; increased competition and related decreases in average unit
selling  prices;  changes in the mix of  products  sold;  timing of new  product
introductions  and  volume  shipments;  and  antidumping  duties  related to the
importation  of products from Taiwan.  In addition,  the Company may seek to add
additional  foundry suppliers and transfer existing and newly developed products
to more advanced manufacturing processes. The commencement of manufacturing at a
new foundry is often characterized by lower yields as the manufacturing  process
is refined.  There can be no assurance that one or more of the factors set forth
in this paragraph will not have a material adverse effect on the Company's gross
margins in future periods.

RESEARCH AND DEVELOPMENT

Research and development  expenses consist  principally of salaries and benefits
for  engineering  design,  contracted  development  efforts,  facilities  costs,
equipment and software  depreciation and  amortization,  wafer masks and tooling
costs, test wafers and other expense items.

Research and development expenses were $3.5 million, or 5% of net revenue in the
second quarter of fiscal 2001 compared to $4.2 million, or 22% of net revenue in
the same period of the prior fiscal year.  Research and development  expenses in
the first six months of fiscal  2001 were $7.1  million,  or 6% of net  revenues
compared to $7.4 million, or 20% for the same period one year ago. The reduction
in expense for the second  quarter of fiscal 2001 as compared to the same period
one-year  ago,  as well as the  reduction  during the first six months of fiscal
year 2001 versus 2000 was due to a decrease in mask and tooling costs.

During September 2000 quarter and first six months of fiscal 2000, the Company's
development efforts focused on advanced process and design technology  involving
SRAMs, DRAMs and Flash memory products.

The Company  believes that investments in research and development are necessary
to  remain  competitive  in  the  marketplace  and  accordingly,   research  and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.

SELLING, GENERAL AND ADMINISTRATIVE

Selling,  general and  administrative  expenses  generally  include salaries and
benefits, sales commissions, marketing costs, travel, equipment depreciation and
software  amortization,  facilities costs, bad debt expense as well as insurance
and  legal  costs for the  Company's  sales,  marketing,  customer  support  and
administrative personnel.

Selling,  general and  administrative  expenses were $5.3 million,  or 8% of net
revenue in the second quarter of fiscal 2001 compared to $3.1 million, or 16% of
net  revenue  in the same  period of the prior  fiscal  year.  For the

                                      -16-
<PAGE>


first six months of fiscal 2001,  expenses were $9.8 million,  or 9% compared to
$5.9  million,  or 16% one year  ago.  The  increase  in  selling,  general  and
administrative  expenses for the September quarter 2001 versus September 2000 as
well as the  first  six  months  of  fiscal  2001  compared  to one year ago was
primarily  the result of  increased  sales  commissions  due to the  increase in
revenues as well as increased  headcount and personnel  related costs and higher
legal expenses.

Selling,  general and  administrative  expenses may increase in absolute dollars
and may also increase as a percentage of net revenue in future periods.

Selling,  general and  administrative  expenses may increase in absolute dollars
and may also  fluctuate as a percentage of net revenues in the future  primarily
due higher commissions,  which are dependent on the level of revenues as well as
increased headcount and personnel related costs.

GAIN ON INVESTMENTS

In the  September  2000  quarter,  the Company sold 150,891  shares of Broadcom,
recording a gain of  approximately  $13.5  million and in the June 2000  quarter
recognized a $3.1 million gain related to the sale of shares of Broadcom stock.

During the September  1999 quarter,  the Company sold 150,000 shares of Broadcom
stock and reported a gain of approximately  $3.7 million in addition to the gain
of approximately $51.6 million recorded in the June 1999 quarter,  when Broadcom
acquired Maverick Networks, an entity that the Company had 28% interest in.

During the June 2000  quarter,  the Company  sold  500,000  shares of  Chartered
Semiconductor and reported a gain of approximately  $33.5 million. In June 2000,
PMC-Sierra,  Inc. ("PMC"), acquired Malleable Technologies,  Inc. ("Malleable").
In connection with the merger,  the Company received 68,152 shares of PMC, after
distribution to Alliance Venture  Management,  for its 7% interest in Malleable.
The Company reported a gain of approximately  $11.0 million during the June 2000
quarter.

OTHER INCOME (EXPENSE), NET

Other  Income  (expense),   net  represents   interest  income  from  short-term
investments  and  interest  expense on short and  long-term  obligations.  Other
Income (expense),  net was approximately  $333,000 in the September 2000 quarter
compared  Other  expense,  net of  approximately  $270,000 in the September 1999
quarter.  For the six months of fiscal  2001,  Other Income  (expense),  net was
approximately  $673,000 compared to Other Expense, net of approximately $149,000
for the first six months of fiscal  2000.  The change from fiscal 2000 to fiscal
2001 was attributed to higher interest income, and lower interest expense.

PROVISION FOR INCOME TAXES

Income tax expense  for the  September  2000  quarter  was  approximately  $12.1
million and $35.4 million for the first six months of fiscal 2001 for an overall
effective tax rate of 40.7%.

During the  September  1999  quarter  the Company  recorded  tax expense of $1.2
million and $.4 million for the first six months of fiscal year 2000. During the
June 1999 quarter the Company was able to utilize  existing  loss  carryforwards
and tax  credits,  which  were  available  to  offset  the  gain  on  marketable
securities related to the Broadcom shares.

EQUITY IN INCOME OF INVESTEES

Prior to the UMC  merger  discussed  elsewhere,  the  Company  had made  several
investments with other parties to form a separate Taiwanese  company,  USC. This
investment  was  accounted  for under the  equity  method of  accounting  with a
ninety-day  lag in  reporting  the  Company's  share of results  for the entity.
Equity in income of USC reflects the company's share of income earned by USC for
the previous  quarter.  During the first six months of fiscal 2000,  the Company
reported  its share in the  income of USC in the  amount of $4.3  million.  As a
result of the UMC merger in January  2000,  the Company no longer  recorded  its
proportionate  share of equity  income in USC,  as the  Company no longer has an
ability to exercise significant influence over UMC's operations.  The investment
in UMC is accounted for as a cost method investment.

                                      -17-
<PAGE>


As of  September  30,  2000,  Alliance  Ventures I, whose focus is  investing in
networking and  communication  start-up  companies,  has invested  approximately
$20.1 million in 9 companies  with a total fund  allocation of $20 million,  and
Alliance  Ventures II, whose focus is in investing in internet start-up ventures
has approximately $8.0 million in 10 companies,  with a total fund allocation of
$15 million.  As of September 30, 2000,  Alliance  Ventures III,  whose focus is
investing  in emerging  companies in the  networking  and  communication  market
areas,  has invested  approximately  $28.8 million in 9 companies,  with a total
fund allocation of $100 million.

The Company,  through Alliance Venture Management,  invested approximately $18.5
million  during the second  quarter of fiscal 2001 and a total of $33.6  million
during the first six months of fiscal 2001.  A total of $56.9  million have been
invested  in three  Alliance  ventures  funds,  Alliance  Ventures  I,  Alliance
Ventures  II and  Alliance  Ventures  III.  Several  of  these  investments  are
accounted  for on the equity  method due to the  Company's  ability to  exercise
significant  influence on the operations of investees  resulting  primarily from
ownership  interest  and/or board  representation.  The Company's  proportionate
share in the net  losses of the  equity  investees  of these  venture  funds was
approximately  $1.1 million net of deferred tax, for the quarter ended September
30, 2000 and approximately $1.8 million,  net of deferred tax for the six months
ended September 30, 2000.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company's quarterly and annual operating results have historically been, and
will  continue  to be,  subject to  quarterly  and other  fluctuations  due to a
variety of factors, including:  general economic conditions;  changes in pricing
policies by the Company,  its  competitors  or its  suppliers;  anticipated  and
unanticipated  decreases  in  unit  average  selling  prices  of  the  Company's
products;  fluctuations  in  manufacturing  yields,  availability  and  cost  of
products from the Company's suppliers;  the timing of new product  announcements
and  introductions  by the  Company  or its  competitors;  changes in the mix of
products sold; the cyclical nature of the  semiconductor  industry;  the gain or
loss of  significant  customers;  increased  research and  development  expenses
associated with new product introductions;  market acceptance of new or enhanced
versions of the Company's products;  seasonal customer demand; and the timing of
significant  orders.  Results of operations could also be adversely  affected by
economic  conditions  generally or in various geographic areas, other conditions
affecting the timing of customer orders and capital spending,  a downturn in the
market  for  personal   computers,   or  order  cancellations  or  rescheduling.
Additionally,  because  the Company is  continuing  to  increase  its  operating
expenses  for  personnel  and new  product  development  to be  able to  support
increased  sales levels,  the Company's  results of operations will be adversely
affected if such increased sales levels are not achieved.

The markets for the Company's products are characterized by rapid  technological
change, evolving industry standards,  product obsolescence and significant price
competition  and,  as a result,  are  subject to  decreases  in average  selling
prices. The Company experienced significant deterioration in the average selling
prices for its SRAM and DRAM products  during  fiscal years  1999,1998 and 1997.
The  Company  is  unable  to  predict  the  future   prices  for  its  products.
Historically,  average  selling prices for  semiconductor  memory  products have
declined and the Company expects that average-selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly  dependent  on its ability to increase  unit sales  volume of existing
products and to successfully develop, introduce and sell new products. Declining
average  selling prices will also adversely  affect the Company's  gross margins
unless  the  Company  is able to  significantly  reduce  its cost per unit in an
amount to  offset  the  declines  in  average  selling  prices.  There can be no
assurance  that the  Company  will be able to  increase  unit  sales  volumes of
existing  products,  develop,  introduce and sell new products or  significantly
reduce  its cost per  unit.  There  also can be no  assurance  that  even if the
Company were to increase  unit sales volumes and  sufficiently  reduce its costs
per unit,  the Company  would be able to maintain or increase  revenues or gross
margins.

The Company  usually  ships more product in the third month of each quarter than
in either of the first two months of the  quarter,  with  shipments in the third
month  higher  at the end of the  month.  This  pattern,  which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last  month  of the  quarter  may  cause  the  Company's  quarterly  results  of
operations  to be more  difficult  to predict.  Moreover,  a  disruption  in the
Company's  production  or shipping  near the end of a quarter  could  materially
reduce the  Company's  net sales for that  quarter.  The  Company's  reliance on
outside  foundries  and  independent  assembly  and testing  houses  reduces the
Company's ability to control, among other things, delivery schedules.

The  cyclical  nature of the  semiconductor  industry  periodically  results  in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to

                                      -18-
<PAGE>


meet future  demand,  and any  inability  of the  Company to  maintain  adequate
inventory  levels may adversely  affect its  relations  with its  customers.  In
addition,  the Company must order products and build inventory  substantially in
advance of products  shipments,  and there is a risk that because demand for the
Company's products is volatile and subject to rapid technology and price change,
the  Company  will  forecast  incorrectly  and  produce  excess or  insufficient
inventories of particular  products.  This inventory risk is heightened  because
certain of the Company's key customers  place orders with short lead times.  The
Company's  customers' ability to reschedule or cancel orders without significant
penalty could adversely  affect the Company's  liquidity,  as the Company may be
unable to adjust its  purchases  from its  independent  foundries  to match such
customer changes and cancellations.  The Company has in the past produced excess
quantities of certain  products,  which has had a material adverse effect on the
Company's  results of operations.  There can be no assurance that the Company in
the future will not produce  excess  quantities of any of its  products.  To the
extent the Company  produces  excess or  insufficient  inventories of particular
products,  the Company's results of operations could be adversely  affected,  as
was the case in fiscal 1999,  1998 and 1997, when the Company  recorded  pre-tax
charges  totaling  approximately  $20  million,  $15  million  and $17  million,
respectively,  primarily  to  reflect  a  decline  in  market  value of  certain
inventory.

The Company currently relies on independent  foundries to manufacture all of the
Company's  products.   Reliance  on  these  foundries  involves  several  risks,
including  constraints or delays in timely  delivery of the Company's  products,
reduced control over delivery schedules, quality assurance and costs and loss of
production due to seismic activity,  weather conditions and other factors. In or
about October 1997, a fire caused extensive damage to United Integrated Circuits
Corporation ("UICC"), a foundry joint venture between UMC and various companies.
UICC is located next to UMC in the Hsin-Chu Science-Based Industrial Park, where
Company has products  manufactured.  UICC suffered an additional fire in January
1998,  and since  October  1996,  there  have  been at least two other  fires at
semiconductor  manufacturing facilities in the Hsin-Chu Science-Based Industrial
Park.  There can be no assurance  that fires or other  disasters will not have a
material  adverse affect on UMC in the future.  In addition,  as a result of the
rapid growth of the semiconductor  industry based in the Hsin-Chu  Science-Based
Industrial  Park,  severe   constraints  have  been  placed  on  the  water  and
electricity  supply in that region.  Any shortages of water or electricity could
adversely  affect the  Company's  foundries'  ability  to supply  the  Company's
products, which could have a material adverse effect on the Company's results of
operations or financial condition.  Although the Company continuously  evaluates
sources of supply and may seek to add additional foundry capacity,  there can be
no assurance that such additional capacity can be obtained at acceptable prices,
if at all. The  occurrence of any supply or other problem  resulting  from these
risks  could  have a  material  adverse  effect  on  the  Company's  results  of
operations,  as was the case  during the third  quarter of fiscal  1996,  during
which  period  manufacturing  yields  of  one  of the  Company's  products  were
materially adversely affected by manufacturing  problems at one of the Company's
foundry  suppliers.  There can be no  assurance  that other  problems  affecting
manufacturing yields of the Company's products will not occur in the future.

There is an ongoing risk that the  suppliers of wafer  fabrication,  wafer sort,
assembly and test  services to the Company may increase the price charged to the
Company for the services they provide,  to the point that the Company may not be
able to profitably have its products produced at such suppliers.  The occurrence
of such price  increases  could have a material  adverse affect on the Company's
results of operations.

The Company conducts a significant  portion of its business  internationally and
is  subject  to a number of risks  resulting  from such  operations.  Such risks
include  political and economic  instability and changes in diplomatic and trade
relationships,  foreign currency fluctuations,  unexpected changes in regulatory
requirements,  delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying  with a variety of foreign laws.  With the Company's  commitment to
invest in a new  fabrication  facility  of Tower  Semiconductor  Ltd. in Israel,
there  will  additional   risks  at  that  facility  because  of  the  political
instability  in that region.  Current or  potential  customers of the Company in
Asia,  for  instance,  may become  unwilling or unable to purchase the Company's
products,  and the  Company's  Asian  competitors  may be able  to  become  more
price-competitive  relative  to the  Company  due to  declining  values of their
national  currencies.  There  can be no  assurance  that such  factors  will not
adversely  impact the  Company's  results of operations in the future or require
the Company to modify its current business practices.

Additionally,  other  factors  may  materially  adversely  affect the  Company's
results  of   operations.   The  Company   relies  on  domestic   and   offshore
subcontractors for die assembly and testing of products, and is subject to risks
of disruption in adequate supply of such services and quality problems with such
services.  The Company is subject to the risks of shortages of goods or services
and increases in the cost of raw materials  used in the  manufacture or assembly
of the Company's products.  The Company faces intense  competition,  and many of
its principal  competitors and potential  competitors have substantially greater
financial,  technical,  marketing,  distribution  and

                                      -19-
<PAGE>


other resources,  broader product lines and  longer-standing  relationships with
customers than does the Company, any of which factors may place such competitors
and potential  competitors in a stronger  competitive position than the Company.
The Company's  corporate  headquarters are located near major earthquake faults,
and the Company is subject to the risk of damage or  disruption  in the event of
seismic  activity.  There can be no assurance that any of the foregoing  factors
will not materially adversely affect the Company's results of operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective  accounting  standards for reporting changes in the fair value of the
instruments.  The statement is effective for all fiscal quarters of fiscal years
beginning  after  June 15,  2000.  Upon  adoption  of SFAS No.  133,  we will be
required to adjust hedging  instruments to fair value in the balance sheet,  and
recognize the offsetting  gain or loss as transition  adjustments to be reported
in net income or other comprehensive income, as appropriate,  and presented in a
manner similar to the cumulative effect of a change in accounting principle.  We
believe the adoption of this statement will not have a significant effect on our
results of operations.

Current pending litigation,  administrative proceedings and claims are set forth
in Item 1-Legal Proceedings.  The Company intends to vigorously defend itself in
the  litigation  and  claims  and,  subject  to the  inherent  uncertainties  of
litigation and based upon discovery completed to date,  management believes that
the  resolution of these matters will not have a material  adverse effect on the
Company's  financial  position.  However,  should  the  outcome  of any of these
actions be  unfavorable,  the  Company  may be required to pay damages and other
expenses,  or may be enjoined from  manufacturing or selling any products deemed
to  infringe  the  intellectual  property  rights of others,  which could have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations.  Moreover,  the semiconductor  industry is characterized by frequent
claims and litigation  regarding patent and other intellectual  property rights.
The Company has from time to time received,  and believes that it likely will in
the  future  receive,  notices  alleging  that the  Company's  products,  or the
processes used to manufacture the Company's products,  infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation  involving such claims (the Company  currently is
involved in patent  litigation).  In the event of  litigation  to determine  the
validity of any third-party claims (such as the current patent  litigation),  or
claims  against  the  Company for  indemnification  related to such  third-party
claims,  such  litigation,  whether or not  determined  in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes,  expend significant resources to develop non-infringing technology or
obtain licenses to the infringing  technology.  In addition,  depending upon the
number of  infringing  products  and the extent of sales of such  products,  the
Company could suffer significant  monetary damages. In the event of a successful
claim  against  the Company  and the  Company's  failure to develop or license a
substitute  technology,  the Company's results of operations could be materially
adversely affected.

The Company also, as a result of an antidumping proceeding commenced in February
1997,  must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured  (wafer  fabrication) in Taiwan, in order to import such goods into
the U.S.  Although the Company may be refunded  such deposits in the future (see
Item 1- Legal Proceedings),  the deposit requirement, and the potential that all
entries of  Taiwan-fabricated  SRAMs from October 1, 1997 through March 31, 1999
will be  liquidated  at the bond rate or  deposit  rate in effect at the time of
entry,  may  materially  adversely  affect the Company's  ability to sell in the
United States SRAMs  manufactured  (wafer  fabrication)  in Taiwan.  The Company
currently manufactures SRAMs in Singapore and the United States, and may be able
to support its U.S.  customers with products that are not subject to antidumping
duties. There can be no assurance,  however, that the Company will be able to do
so.

The  Company,  through  Alliance  Venture  Management,   generally  directs  the
individual  funds to  invest  in  startup,  pre-IPO  (initial  public  offering)
companies.  These types of investments  are inherently  risky,  and many venture
funds  have a large  percentage  of  investments  decrease  in  value  or  fail.
Successful investing relies on the skill of the investment managers, but also on
market and other factors outside the control of the managers.  Over the last few
years,  the market for these types of investments  has been  successful and many
venture  capital  funds  have been  profitable.  More  recently,  the market has
weaker,  so while the Company  has been  successful  in its recent  investments,
there can be no assurance as to any future or  continued  success.  It is likely
there will be a downturn  in the success of these  types of  investments  in the
future and the  Company  will  suffer  significant  diminished  success in these
investments.  There can be no assurance,  and in fact it is likely, that many or
most,  and perhaps

                                      -20-
<PAGE>


all of the  Company's  venture  type  investments  may  fail,  resulting  in the
complete  loss of some or all the money the Company has  invested in these early
stage companies.

As a result of the foregoing  factors,  as well as other  factors  affecting the
Company's results of operations, past performance should not be considered to be
a  reliable  indicator  of  future  performance  and  investors  should  not use
historical  trends  to  anticipate  results  or trends  in  future  periods.  In
addition,  stock prices for many technology companies are subject to significant
volatility,  particularly on a quarterly  basis. If revenues or earnings fail to
meet expectations of the investment  community,  there could be an immediate and
significant impact on the market price of the Company's Common Stock.

Due to the  foregoing  factors,  it is likely  that in some  future  quarter  or
quarters the Company's  results of operations may be below the  expectations  of
public market analysts and investors.  In such event, the price of the Company's
Common Stock would likely be materially and adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000, the Company had  approximately  $17.5 million in cash and
cash equivalents, a decrease of approximately $17.3 million from March 31, 2000;
and approximately $446.1 million in working capital, a decrease of approximately
$169.8 million from $615.9 million at March 31, 2000.

Additionally,  the Company had short-term  investments in marketable  securities
whose fair value at September 30, 2000 was $584.3 million.

The Company's  operating  activities utilized cash of $44.5 million in first six
months of fiscal 2001 compared to $8.1 million in the first six months of fiscal
2000.  Cash  utilized in operating  activities in the first six months of fiscal
2001 was primarily the result of increased  levels of  inventories  and accounts
receivable due to increased growth in sales.

Investing  activities  provided cash in the amount of $27.0  million  during the
first six months of fiscal 2001 as the result of the  proceeds  from the sale of
marketable  securities  of $70.0  million,  offset in part,  by $40.6 million in
investments  made by  Alliance  Ventures  and in  Solar  Venture  Partners,  and
purchases of equipment of $2.3 million.

Net cash provided by financing  activities during the first six months of fiscal
2001 was the result of $10.0 million short-term borrowing, net proceeds from the
exercise of employee stock options of $0.9 million, off set by the repurchase of
565,000 shares of the Company's common stock at a cost of $10.3 million

The Company  believes  these sources of liquidity,  and financing  opportunities
available to it will be  sufficient to meet its  projected  working  capital and
other cash requirements for the foreseeable future. However, it is possible that
the Company may need to raise additional funds to fund its activities beyond the
next year or to consummate  acquisitions of other  businesses,  products,  wafer
capacity or technologies. The Company could raise such funds by selling some its
short-term  investments,  selling  more  stock  to  the  public  or to  selected
investors,  or by  borrowing  money.  The  Company  may not be  able  to  obtain
additional  funds on terms that would be favorable to its  shareholders  and the
Company, or at all. If the Company raises additional funds by issuing additional
equity, the ownership percentages of existing shareholders would be reduced.

In order to obtain an adequate supply of wafers,  especially wafers manufactured
using  advanced  process  technologies,  the Company  has entered  into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for  guaranteed  production  capacity,  the
formation of joint ventures to own and operate  foundries,  as was the case with
Chartered  Semiconductor,  UMC and the planned  investment  in Tower (please see
"Note 9-Commitments" for details),  or the usage of "take or pay" contracts that
commit the  Company to purchase  specified  quantities  of wafers over  extended
periods.  Manufacturing  arrangements  such as  these  may  require  substantial
capital investments,  which may require the Company to seek additional equity or
debt  financing.  There can be no assurance that such additional  financing,  if
required,  will  be  available  when  needed  or,  if  available,   will  be  on
satisfactory terms. Additionally, the Company has entered into and will continue
to enter into various  transactions,  including the licensing of its  integrated
circuit designs in exchange for royalties,  fees or guarantees of  manufacturing
capacity.

                                      -21-
<PAGE>


===============================================================================
Part I - Other Information
ITEM 1
LEGAL PROCEEDINGS

In December 1996, Alliance Semiconductor  International  Corporation ("ASIC"), a
wholly-owned  subsidiary  of the Company,  was served with a complaint  filed in
Federal Court  alleging that ASIC had infringed two patents owned by AMD related
to flash memory devices,  and seeking  injunctive  relief and damages.  In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand  its  claims to  include  several  new flash  products  which had been
recently  announced by the Company.  In January and February 2000,  both parties
filed  for  motions  for  summary  judgment.   Each  defendant  has  denied  the
allegations of the complaint and asserted a counterclaim  for  declaration  that
each of the AMD patents is invalid and not infringed by such defendant.  A trial
date is currently set for January  2001.  In October  2000,  the Company and AMD
participated in a court ordered mediation and reached a preliminary agreement in
principle on terms of a proposed settlement. The impact on the Company cannot me
estimated at this time. The Company  believes the resolution of this matter will
not have a material  adverse effect on its financial  conditions and its results
of operations.

In July 1998, the Company  learned that a default  judgment was entered  against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs  were  granted  leave by the  Court to  appeal  this  judgment.  Oral
arguments  were made before the Court of Appeals in June 2000.  In July 2000 the
Court of  Appeals  instructed  the  lower  Court to allow  the  parties  to take
depositions regarding the issue of service of process,  while also setting aside
the default judgment against the Company.

ITEM 2
OTHER INFORMATION

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States  International In February 1997, Micron Technology,  Inc. filed an
antidumping  petition  with the United  States  International  Trade  Commission
("ITC") and United States  Department of Commerce  ("DOC"),  alleging that SRAMs
fabricated  in Taiwan  were being  sold in the  United  States at less than fair
value,  and that the  United  States  industry  producing  SRAMs was  materially
injured  or  threatened  with  material  injury by reason  of  imports  of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury,  DOC issued an antidumping duty
order in April 1998.  Under that order,  the  Company's  imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping  Margin") of
the entered  value of such SRAMs.  (The  Company  posted a bond in the amount of
59.06%  (the  preliminary  margin)  with  respect  to its  importation,  between
approximately  October 1997 and April 1998,  of SRAMs  fabricated in Taiwan.) In
May 1998,  the Company and others filed an appeal in the United  States Court of
International  Trade (the "CIT"),  challenging the determination by the ITC that
imports of  Taiwan-fabricated  SRAMs were  causing  material  injury to the U.S.
industry.  On June 30,  1999,  the CIT  issued a  decision  remanding  the ITC's
affirmative material injury  determination to the ITC for  reconsideration.  The
ITC's  remand  determination  reaffirmed  its  original  determination.  The CIT
considered the remand  determination and remanded it back to the ITC for further
reconsideration.  On June 12, 2000, in its second remand  determination  the ITC
voted  negative on injury,  thereby  reversing its original  determination  that
Taiwan-fabricated  SRAMs were causing material injury to the U.S. industry.  The
second  remand  determination  was  transmitted  to the CIT on June 26, 2000 for
consideration.  Micron  has  appealed  the  decision  of the CIT to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal,  although it is expected to take a year or
more to  conclude.  Until a final  judgment is entered in the  appeal,  no final
duties will be assessed on the Company's entries of SRAMs from Taiwan covered by
the DOC  antidumping  duty order.  If the appeal is successful,  the antidumping
order will be terminated  and cash deposits will be refunded with  interest.  If
the appeal is unsuccessful,  the Company's  entries of  Taiwan-fabricated  SRAMs
from October 1, 1997 through  March 31, 2000 will be  liquidated  at the deposit
rate in effect at the time of entry. On subsequent entries of  Taiwan-fabricated
SRAMs,  the Company will  continue to make cash deposits in the amount of 50.15%
of the

                                      -22-
<PAGE>


entered value.  In April 2001, the Company will have an opportunity to request a
review of its sales of Taiwan-fabricated  SRAMs from April 1, 2000 through March
31, 2001 (the "Review Period"). If it does so, the amount of antidumping duties,
if any,  owed on  imports  from  April  2000  through  March  2001  will  remain
undetermined until the conclusion of the review in early 2002. If the DOC found,
based upon  analysis  of the  Company's  sales  during the Review  Period,  that
antidumping  duties either should not be imposed or should be imposed at a lower
rate than the Antidumping  Margin, the difference between the cash deposits made
by the Company,  and the  deposits  that would have been made had the lower rate
(or no  rate,  as the  case may be) been in  effect,  would be  returned  to the
Company, plus interest. If, on the other hand, the DOC found that higher margins
were  appropriate,  the Company  would have to pay  difference  between the cash
deposits  paid by the Company and the deposits that would have been made had the
higher rate been in effect. At September 30, 2000, the Company had posted a bond
secured by a letter of credit in the amount of  approximately  $1.7  million and
made cash  deposits  in the amount of $1.7  million  relating  to the  Company's
importation of Taiwan-manufactured SRAMs.

THE INVESTMENT COMPANY ACT OF 1940

Following a special  study after the stock  market crash of 1929 and the ensuing
Depression, Congress enacted the Investment Company Act of 1940 (the "Act"). The
Act was primarily meant to regulate mutual funds,  such as the families of funds
offered by the Fidelity and Vanguard  organizations  (to pick two of many),  and
the smaller  number of closed-end  investment  companies  that are traded on the
public stock markets.  In those cases the funds in question describe  themselves
as being in the business of investing, reinvesting and trading in securities and
generally own relatively  diversified  portfolios of publicly traded  securities
that are issued by companies that the investment  companies do not control.  The
fundamental  intent of the Act is to protect the  interests of public  investors
from fraud and  manipulation  by the  people  who  establish  and  operate  such
investment  companies,  which constitute large pools of liquid assets that could
be used improperly, or be not properly safeguarded, by the persons in control of
them.

When the Act was written,  its drafters (and  Congress) also felt that a company
could,  either  deliberately  or  inadvertently,   come  to  have  the  defining
characteristics of an investment company without  proclaiming that fact or being
willing to voluntarily submit itself to regulation as an acknowledged investment
company,  and that  investors in such a company could be just as much in need of
protection  as are  investors  in  companies  that are openly  and  deliberately
established  as  investment  companies.  In order to deal  with  this  perceived
potential  abuse,  the Act and rules under it contain  provisions  and set forth
principles that are designed to differentiate  "true"  operating  companies from
companies  that may be  considered  to have  sufficient  investment-company-like
characteristics  to  require  regulation  by the Act's  complex  procedural  and
substantive  requirements.  These provisions apply to companies that own or hold
securities,  as well as companies that invest, reinvest and trade in securities,
and  particularly  focus  on  determining  the  primary  nature  of a  company's
activities,  including  whether an investing  company controls and does business
through  the  entities  in which it invests or,  instead,  holds its  securities
investments  passively and not as part of an operating  business.  For instance,
under what is, for most  purposes,  the most  liberal of the relevant  tests,  a
company may become subject to the Act's  registration  requirements if it either
holds more than 45% of its  assets  in, or  derives  more than 45% of its income
from,  investments in companies that the investor does not primarily  control or
through which it does not actively do business.  In making these  determinations
the Act generally  requires that a company's  assets be valued on a current fair
market value basis,  determined on the basis of securities' public trading price
or, in the case of illiquid  securities  and other assets,  in good faith by the
company's board of directors.

The Company  viewed its  investments  in  Chartered,  USC and USIC as  operating
investments primarily intended to secure adequate wafer manufacturing  capacity;
as previously noted, the Company's access to the manufacturing resources that it
obtained in  conjunction  with those  investments  will  decrease if the Company
ceases to own at least 50% of its original  investments in the  enterprises,  as
modified,  in the cases of USC and USIC,  by their merger into UMC. In addition,
the  Company  believes  that,  before  USC's  merger  into  UMC,  the  Company's
investment in USC  constituted  a joint  venture  interest that the staff of the
Securities  and Exchange  Commission  (the "SEC") would not regard as a security
for purposes of determining the proportion of the Company's assets that might be
viewed as having been held in passive investment securities. However, because of
the success  during the last year of the  Company's  investments,  including its
strategic  wafer  manufacturing  investments,  at  least  from  the  time of the
completion  of the merger of USC and USIC into UMC in January  2000 the  Company
believes that it could be viewed as holding a much larger  portion of its assets
in  investment  securities  than  is  presumptively  permitted  by the Act for a
company that is not registered under it.

                                      -23-
<PAGE>


On the other hand,  the  Company  also  believes  that the  investments  that it
currently  holds in Chartered and UMC, even though in companies that the Company
does not control,  should be regarded as strategic deployments of Company assets
for the purpose of furthering the Company's memory chip business, rather than as
the kind of financial  investments  that  generally are considered to constitute
investment  securities.  Applying  certain  other tests that the SEC utilizes in
determining  investment company status, the Company has never held itself out as
an investment company; its historical development has focused almost exclusively
on the memory chip  business;  the activities of its officers and employees have
been overwhelmingly  addressed to achieving success in the memory chip business;
and until the past year, its income (and losses) have derived almost exclusively
from the memory chip business.  Accordingly, the Company believes that it should
be  regarded  as being  primarily  engaged in a business  other than  investing,
reinvesting,  owning,  holding or trading in securities,  and has applied to the
SEC  for  an  order   under   section   3(b)(2)  of  the  Act   confirming   its
non-investment-company   status.   However,  if  the  Company's  investments  in
Chartered and UMC are now viewed as investment  securities,  it must be conceded
that an unusually  large  proportion of the Company's  assets could be viewed as
invested in assets that would, under most circumstances, give rise to investment
company status.  Therefore,  while the Company  believes that it has meritorious
arguments as to why it should not be considered an investment company and should
not be subject to regulation  under the Act,  there can be no assurance that the
SEC  will  agree.  And  even if the SEC  grants  some  kind  of  exemption  from
investment company status to the Company, it may place significant  restrictions
on the  amount and type of  investments  the  Company is allowed to hold,  which
might  force the Company to divest  itself of many of its  current  investments.
Significant  potential  penalties  may be imposed  upon a company that should be
registered  under  the Act  but is  not,  and the  Company  intends  to  proceed
expeditiously to resolve its status.

If the Company does not receive an exemption  from the SEC, the Company would be
required  to  register  under  the  Act as a  closed-end  management  investment
company. In the absence of exemptions granted by the SEC (if it determines to do
so in its  discretion  after an  assessment  of the  public  interest),  the Act
imposes a number of significant  requirements and  restrictions  upon registered
investment  companies that do not normally apply to operating  companies.  These
would  include,  but not be limited to, a  requirement  that at least 40% of the
Company's  board of  directors  not be  "interested  persons"  of the Company as
defined in the Act and that those  directors be granted  certain  special rights
with  respect to the  approval of certain  kinds of  transactions  (particularly
those  that  pose a  possibility  of  giving  rise to  conflicts  of  interest);
prohibitions  on the grant of stock options that would be  outstanding  for more
than 120 days and upon the use of stock for compensation  (which could be highly
detrimental to the Company in view of the competitive  circumstances in which it
seeks to attract and retain  qualified  employees);  and broad  prohibitions  on
affiliate transactions,  such as the compensation arrangements applicable to the
management of Alliance Venture Management,  many kinds of incentive compensation
arrangements  for  management  employees  and joint  investment  by persons  who
control the Company in  entities in which the Company is also  investing  (which
could require the Company to abandon or significantly restructure its management
arrangements, particularly with respect to its investment activities). While the
Company could apply for individual  exemptions  from these  restrictions,  there
could be no guarantee that such exemptions would be granted, or granted on terms
that the  Company  would deem  practical.  Additionally,  the  Company  would be
required to report its financial results in a different form from that currently
used by the  Company,  which  would  have the effect of  turning  the  Company's
Statement of Operations  "upside down" by requiring  that the Company report its
investment income and the results of its investment  activities,  instead of its
operations, as its primary sources of revenue.

While the Company is working  diligently to deal with these  investment  company
issues,  there can be no assurance that a manageable solution will be found. The
SEC may be hesitant to grant an exemption from investment  company status in the
Company's  situation,  and it may not be feasible  for the Company to operate in
its present manner as a registered  investment company. As a result, the Company
might be required to divest  itself of assets  that it  considers  strategically
necessary  for the  conduct  of its  operations,  to  reorganize  as two or more
separate companies,  or both. Such divestitures or reorganizations  could have a
material adverse effect upon the Company's business and results of operations.

                                      -24-
<PAGE>


ITEM 3
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

An annual  meeting of the  stockholders  of the Company was held on September 8,
2000.  Company's  stockholders  elected the Board's nominees as directors by the
votes indicated:

<TABLE>
<CAPTION>
           NOMINEE                 VOTES FOR              VOTES WITHHELD
           ------------------    --------------          ----------------
<S>                                 <C>                      <C>
           N. Damodar Reddy         35,900,700               4,157,163
           C. N. Reddy              38,074,736               1,983,127
           Jon B. Minnis            38,139,406               1,918,457
           Stanford L. Kane         38,130,827               1,927,036
</TABLE>


The  proposal to amend the  Company's  1992 Stock Plan to increase the number of
shares  of  common  stock  reserved  for  issuance  by  2,000,000  shares,  from
11,000,000 to 13,000,000  shares,  was ratified with 33,279,626  votes in favor,
6,731,393 against and 46,844 abstentions.

The  selection  of  PricewaterhouseCoopers  LLP  as  the  Company's  independent
auditors was ratified with 39,547,907 votes in favor, 485,777 against and 24,179
abstentions.

ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K.

      (a)  Exhibits:

<TABLE>
<CAPTION>
             Exhibit     Document Description
             Number
           ------------  ------------------------------------------------
           <S>           <C>
              27.01      Financial Data Schedule (filed only with the
                         electronic submission of Form 10-Q in
                         accordance with the EDGAR requirements)
</TABLE>


      (b)  No reports  on Form 8-K were filed  during  quarter  ended  September
           30, 2000.

                                      -25-
<PAGE>


================================================================================
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                          ALLIANCE SEMICONDUCTOR CORPORATION


November 14, 2000         By: /S/ N. DAMODAR REDDY
                              -------------------------------------
                              N. Damodar Reddy
                              Chairman of the Board, President and Chief
                              Executive Officer
                              (Principal Executive Officer)


November 14, 2000          By: /S/ DAVID EICHLER
                               -------------------------------------
                               David Eichler
                               Vice President, Finance and Administration
                               and Chief Financial Officer
                               (Principal Financial and Accounting Officer)


                                      -26-


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