UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

OR

Commission File Number 000-26690

ELANTEC SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)

675 Trade Zone Boulevard, Milpitas, California 95035
(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (408) 945-1323

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
(Title of class)

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 [_]

Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]

Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on October 27, 2000 as reported on the Nasdaq National Market: $2,355,465,618. This calculation does not include a determination that persons are affiliates for any other purpose.

Number of shares outstanding of the registrant’s common stock as of October 27, 2000: 21,936,816

Documents Incorporated By Reference

Items 10, 11, 12 and 13 of Part III incorporate information by reference to portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the annual meeting of stockholders to be held January 12, 2001.

ELANTEC SEMICONDUCTOR, INC.
FORM 10-K

For the Fiscal Year Ended September 30, 2000.

Table of Contents

PART 1

The following discussion contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Business” and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 1: BUSINESS

We are a leading designer, manufacturer and marketer of high performance analog integrated circuits, which provide specific analog solutions to manufacturers in the high growth markets for video, optical storage, communications and power management products. The rapid advances in digital technology and increasing demand for digital integrated circuits are driving the need for high speed, high precision, low distortion and power efficient analog circuits. Electronic systems manufacturers in these high growth markets require analog circuits with precision, linearity, speed, power and signal amplification capabilities specific to their applications. We believe we fulfill these circuit requirements with our standard line of products and with our application specific standard products, or ASSPs, which are designed to satisfy the needs of specific applications within our targeted markets.

We presently offer approximately 150 products, including amplifiers, drivers, faders, transceivers and multiplexers. We manufacture our products at our facilities in Milpitas, California and utilize third party wafer foundries. We sell our proprietary products to leading original equipment manufacturers, or OEMs, such as Globespan, Hitachi, Lucent, Lucky Goldstar, Motorola, Olympus, Philips, Ricoh, Samsung, Sanyo, Sony, Toshiba and Yamaha, either directly or through our distributors, such as Microtek International, Inc. and Insight Electronics, Inc.

Industry Overview

Semiconductors, also known as integrated circuits, can be divided into two broad categories: digital and analog. Digital circuits, such as memory devices and microprocessors, function as on and off switches expressed in binary code as “1‘s” and “0‘s.” In contrast, analog semiconductors monitor, regulate, amplify or transform signals associated with physical properties, such as temperature, pressure, weight, speed, sound and electrical current. Analog circuits play an important role in bridging the real world phenomena with a variety of electronic systems. The analog integrated circuit represents these real world properties by generating continuously varying voltages and currents that better reflect the items measured. There is a wide variation in the performance characteristics of analog integrated circuits generally. High performance analog integrated circuits are characterized by their high speed, high precision, low distortion and power efficiency.

Demand for analog integrated circuits has increased in recent years as the use of embedded digital circuits in a wide variety of communications, consumer and industrial products has accelerated. In turn, this has created the need for high performance analog products that enable digital circuits, such as computers, microprocessors, microcontrollers and signal processors, to interact with electronic signals derived from physical or analog phenomena. For example, flat panel displays, CD recordable devices, optical camcorders and digital subscriber line transceivers use both digital and high performance analog circuits.

     The market for analog integrated circuits differs from the digital circuit market in several significant ways. Analog applications involve more complex signals than digital applications, with analog signals having continuous variations in resolution, speed, power, signal amplitude and other specifications. Competition in analog integrated circuit markets is based primarily on performance, functionality, quality, reliability and power consumption. Analog circuits generally have longer life cycles than digital circuits because customers typically design the analog function block of their systems to span multiple generations of product. This is because switching analog components may cause unexpected problems with the rest of the product’s circuitry. As a result, the critical point of competition for analog integrated circuit manufacturers is at the design-in stage when a systems designer evaluates various alternative components for implementing the system architecture.

Designers of analog circuits must typically take into account complex interrelationships among the physical layout of the circuit elements, the manufacturing process and the finished product’s packaging, all of which can significantly affect performance. The high performance characteristics required by new and emerging applications for analog circuits involve increasingly advanced designs, which require highly skilled engineers, innovative design strategies and rigorous design methodologies. The number of design engineers who have the training, creativity and experience to design complex analog circuits is very limited, and the available computer-aided design tools for analog circuit design typically require substantial customization in order to provide adequate utility for complex analog circuit design.

The Elantec Solution

We design, manufacture and sell high performance analog integrated circuits primarily to designers and manufacturers of systems and subsystems in our targeted markets. We believe our products provide the precision, linearity, speed, power and signal amplification capabilities required by OEMs in these high growth markets. We provide ASSPs to satisfy the needs of a broad range of customers within our target markets and standard products to meet the needs of our broad customer base. The key elements of our solution include:

     High Performance Analog Expertise. Over the past 11 years, we have accumulated significant design and process technology expertise in producing high speed, high precision, low distortion and power efficient analog integrated circuits. We utilize our expertise to deliver high performance solutions that are cost-efficient and adhere to our customers’ demands.

     System Level Expertise. In addition to our design and process technology expertise in analog integrated circuits, we have accumulated system level expertise in our targeted markets whereby we can approach ASSP projects with an advanced understanding of the system constraints. This understanding facilitates the design process, allowing us to design optimal ASSP solutions that our customers can easily integrate into their products, thereby reducing their time-to-market cycle. Once our integrated circuits are designed into our customer’s products, we maintain a strong position to be considered for our customers’ next generation products.

     Proprietary Manufacturing Process Technology. We manufacture all of our digital subscriber line, or DSL, line drivers using our proprietary silicon-on-insulator, or SOI, technology. We believe our SOI process technology provides an optimal solution for satisfying the requirements of DSL equipment by reducing power consumption, while maintaining low distortion transmission quality.

     ASSP Design Capability. We develop ASSPs that are designed as solutions to the requirements of particular applications, and because these solutions are not custom designed for a specific customer, they potentially can be used by multiple customers in their products. They can therefore be easily integrated into multiple customers’ products with the same or similar application requirements. As a result, we believe our ASSPs are highly scalable and cost-efficient and meet the needs of a broad customer base, resulting in high volume.

The Elantec Strategy

Our goal is to be the leading provider of analog integrated circuits for the high growth video, optical storage, communications and power management markets. In order to achieve this goal, we are pursuing the following strategies:

     Offer Market Driven Proprietary Products. We will continue to supply market driven proprietary products to our target markets and develop general purpose standard products that are performance driven and address multiple markets with broad customer bases. Additionally, we will continue to develop ASSPs for specific high growth applications used in products such as flat panel displays, optical storage devices and asymmetrical digital subscriber line, or ADSL, modems.

     Strengthen Position in Selected High Growth Commercial Markets. We focus our design expertise on specific functions within our four target markets. As a result, we believe we have acquired a greater expertise in these areas and have developed a reputation for high performance products. We intend to leverage our existing customer relationships to supply them with successive generations of products for their systems and to identify new product opportunities within their systems. In addition, we believe there is significant growth potential within our target markets and we plan to leverage our systems expertise to penetrate new customer opportunities within these markets.

     Work Closely with Leading OEMs. We plan to continue to work closely with leading OEMs by developing products to address their specific applications. We plan to apply our systems level expertise and our relationships with the engineering teams of our OEMs to anticipate opportunities during the design of their products. We believe that by continuing to achieve reference design relationships with industry leaders we will further validate our products and will enhance our ability to accelerate acceptance of our product standards within the specific markets we target.

     Expand Design Team and Continue to Improve Design Productivity. To capitalize on the growth of our target markets and expand our position with existing customers, we plan to continue our investment in research and development. We intend to hire more engineers with experience in the design of analog integrated circuits and continue to make significant investments in design tools and other research and development equipment and applications that will complement the needs of our design teams. This commitment should allow us to increase the number of new products introduced per year.

Markets and Applications

We design and manufacture our products for four high growth commercial markets that we believe are increasingly demanding high performance and low power consumption analog solutions: video, optical storage, communications and power management. In each of our target markets, we offer a suite of standard products and ASSPs that are designed to provide effective solutions for electronic systems designers by addressing a number of common component requirements. Most of our standard products are used in more than one of these markets, while in general each ASSP is used in only one specific market.

The following table sets forth examples of typical applications of our products in each of our target commercial markets:

     Video. Video images are incorporated into electronic applications such as multimedia computing and communications. This trend has increased demand for high speed amplifiers and specialty analog circuits for the processing and display of video signals. We focus on manufacturing components for several segments of the video market, including displays such as cathode ray tubes and flat panels, set top converters, special effects generators, studio equipment and video distribution networks.

     Optical Storage. Optical storage, in the form of CD-ROM, has become the medium of choice for software and music. More recently, optical recordable devices such as CD read, CD read/write, and DVD read/write are being adopted in the marketplace. We currently provide products that control the laser diode contained in the optical pick-up unit of optical disk drives.

     Communications. Higher data transmission rates are important for emerging communications applications related to Internet access. The convergence of communications and computers has created opportunities for high performance analog circuits. For example, electronic communications through telephone lines increasingly include both digital and analog information such as audio, video and data and require digital and analog circuits to transmit and process that information. In this market, we supply transceivers and high speed amplifiers for ADSL and high bit rate digital subscriber line, or HDSL, for increasing the data transmission rate over conventional telephone lines.

     Power Management. The proliferation of high density, small, digital integrated circuits has increased demand for DC:DC converters which adjust the input voltages to meet the needs of the various components within the system. Current solutions for DC:DC converters are mostly comprised of stand alone components. We believe that the demand for single chip integrated converter solutions will increase as smaller portable devices become more prevalent. Our strategy is to provide highly integrated DC:DC converters in a single chip design that is cost competitive within a multiple chip implementation. Our integrated DC:DC products are used in products such as printed circuit boards, test and measurement equipment, and other devices.

Products

We offer both ASSPs and standard products for our four target markets. Our portfolio of approximately 150 high performance analog products, most of which are available in multiple pin-out configurations, provide our customers with a comprehensive choice of products in our targeted high growth markets.

Application Specific Standard Products. For the video market we offer a variety of ASSPs that can be used as standard building blocks to provide solutions to the video system designer for many common video circuit designs. Our ASSPs include sync separators, DC restoration circuits, video multiplexers, faders, laser diode drivers, DC:DC converter circuits and transceivers. Sync separators are timing circuits that control the position and stability of the video image on a video display. DC restoration circuits restore to the correct voltage level a video signal that has been amplified and processed in order to ensure accurate transfer of video information. Video multiplexers allow multiple video inputs to be connected to a single output. Faders combine separate signals in different ratios for special effects such as the fading of one video image into another. For the optical storage market we offer laser diode drivers that control the performance of the laser diode used in the read/write mode in optical storage pick-up heads. In the communications market, we offer transceivers that are used to transmit and receive high speed analog signals containing encoded digital information over conventional telephone lines. Our integrated DC:DC converter circuits convert supply voltages to a lower voltage required by modern microprocessors and digital signal processors.

Standard Products. Our standard products consist of amplifiers, buffers, comparators and metal-oxide-semiconductor field effect transistor, or MOSFET, drivers. Amplifiers and buffers are used to amplify or reproduce analog electrical signals, either voltage or current, with minimal distortion. High power amplifiers provide a large electrical output current or voltage and are particularly useful in video transmission and communications applications. High speed amplifiers and buffers are designed specifically to process high frequency signals such as video information with minimal distortion. Comparators are circuits that accurately measure an electrical signal level in comparison with a predetermined value and indicate the result. MOSFET drivers are circuits that control the switching functions of metal-oxide-semiconductor field effect transistors.

Sales, Distribution and Marketing

Sales and Distribution. We sell our products directly with the assistance of independent sales representatives, and indirectly through independent distributors. Our direct sales force consists of sales managers and field application engineers who support customers, sales representatives and distributors in major markets. The sales staff and field application engineers are located at our Milpitas, California headquarters and in field offices in Massachusetts, New Hampshire, United Kingdom and Japan.

In North America, we sell our products through our direct sales force, approximately 18 independent sales representative organizations and four distributors. These distributors are entitled to price rebates on unsold inventory if we lower the prices of our products. In addition, on a semi-annual basis, these distributors are permitted to return for credit against purchases of an equivalent dollar value of products up to five percent of their total product purchases during the most recent six-month period.

Outside North America, we sell our products through our direct sales force and approximately 20 international distributors. These distributors are primarily located in Japan, Korea, Taiwan and Europe. Our international distributors are entitled to rebates and price protection according to local practices. International sales have typically represented over half of our net revenues.

Marketing. Our marketing strategy is focused on building market awareness and acceptance of current and future products. Our marketing activities include advertising in print and Internet media and marketing programs to support our direct sales force, distributors and independent sales representatives.

Our sales force has a high level of product knowledge and industry background. Our technical support team is available to provide our distributors and independent representatives with ongoing technical support through help desks, detailed technical information on our website, application notes and technical briefs. We also employ a team of field application engineers to assist our customers in defining their needs, propose customized solutions and qualifying our products as part of their product definition.

Design Methodology and Process Technology

Design Methodology. Our designers apply a rigorous, standardized design methodology intended to accelerate the development and introduction of new products, maintain consistent quality and promote the development and sharing of design expertise among the engineering staff. Each designer utilizes a common set of customized computer-aided design tools on a network of computer workstations and applies standardized design rules in order to facilitate the integration of different designs or design elements. We promote design integrity and sharing of expertise by requiring each designer to subject designs to a series of peer reviews and simulation and verification tests at different stages of design development. We have developed proprietary computer models of circuit elements to assist in the modeling, simulation, layout and verification of circuit designs.

Our approach to new product development is driven by specific market requirements and by advances in technology and design methodology. We have adopted a systematic approach of using our field application engineers and strategic marketing personnel to identify new market opportunities for ASSPs applicable to a broad range of customers within our targeted markets. We then consult with our circuit designers to determine whether it is technically feasible to develop such ASSPs.

Manufacturing Process Technology. We use a variety of semiconductor process technologies for our products in order to meet the particular requirements of different customers and applications. Our manufacturing process technologies include:

     Dielectric Isolation (DI) Complementary Bipolar Technology. Dielectric isolation is a manufacturing technique that uses insulating oxide to isolate transistors from each other electrically. This technique has the inherent advantages of low electrical capacitance, which allows high speed signal processing and minimizes cross-talk or unwanted interference from other signals, and higher voltage operation, which is useful for instrumentation and many other analog applications. We fabricate wafers for our products using our DI technology at our own facilities.

     Junction Isolation Complementary Bipolar Technology. We use junction isolation complementary bipolar technologies primarily for high speed applications such as video amplifiers and video ASSPs. Junction isolation complementary bipolar technology uses two different types of transistors to process high speed analog signals efficiently in either positive or negative polarity, which substantially simplifies the design process by allowing symmetrical design architectures, permits improved speed and requires less power. We fabricate wafers for our products using junction isolation complementary bipolar technology at a third party foundry.

     Complementary Metal-Oxide-Semiconductor (CMOS) Technology. Since 1992, we have pursued a strategy to provide a wider range of products using CMOS technology. CMOS technology enables the design of circuits with lower power consumption than bipolar circuits, but with relatively lower speed, and is well suited for analog switching and mixed signal applications. We use several third party foundries to supply wafers for our CMOS products.

     Silicon-On-Insulator (SOI) Technology. We recently introduced a silicon-on-insulator technology called bonded wafer. Bonded wafer technology uses two flat oxidized silicon wafers that are thermally bonded to one another. After the bonding process, one wafer is precisely ground and polished to form a thin silicon layer supported by the insulating oxide and the remaining silicon wafer. This thin silicon layer is suitable for making individual elements of the semiconductor circuits that are electrically isolated from each other by insulating oxide to provide performance characteristics superior to those achievable with most other technologies. We fabricate wafers for our products using SOI technology at our own facilities.

Manufacturing

Fabrication. The number of foundries that have the capability to produce DI wafers is limited. Currently, we manufacture wafers for our DI and SOI products in our own facilities at Milpitas, California, except for the poly deposition process step. We supplement our manufacturing capabilities by using third party foundries to produce junction isolation complementary bipolar wafers and CMOS wafers. Using third party foundries enables us to focus on our design strengths and minimize fixed costs and capital expenditures while providing access to diverse manufacturing technologies without bearing the full risk of obsolescence.

Testing and Assembly. We initially test each integrated circuit on the wafers produced by us and our foundries for compliance with performance specifications before assembly. Our products are then assembled by a variety of subcontractors in Asia. Following assembly, the packaged units are returned to us for final testing and inspection prior to shipment to customers. We then perform extensive testing on all circuits using advanced automated test equipment to ensure that the circuits satisfy specified performance levels. All testing is performed on standard test equipment using proprietary test programs developed by our test engineers.

Quality Assurance. We prequalify each third party foundry and subcontractor prior to entering into full production. We also participate in quality monitoring of our wafer manufacturing and assembly subcontractors. We closely monitor wafer manufacturing production to enhance product quality and yield levels.

Reliability. Prior to full scale production of new products, we perform a number of tests to determine the reliability of the production units. For example, we perform burn-in, scanning electron microscope examination, and environmental and motion stress tests. During full scale production, we also audit our products to ensure that they continue to meet our reliability standards.

Research and Development

Our ability to compete depends, in part, upon our continued introduction of technologically innovative products on a timely basis. Our product development strategy emphasizes a family of products for our target markets. Our research and development efforts are directed primarily at designing and introducing new products and technologies and, to a lesser extent, developing new testing and packaging techniques. We continually upgrade our internal technology while also utilizing the technology from third party foundries to develop new generations of products. In addition, we continually refine our manufacturing practices and technology to improve the yields of our products.

We have assembled a team of highly skilled analog design engineers. The majority of our design engineers work in our Milpitas facilities, while additional engineers work in our European design facility which we recently launched in the United Kingdom. As performance demands have increased the complexity of analog circuits, the design and development process has become a multi-disciplinary effort, requiring expertise ranging from detailed knowledge of device physics to expertise in device placement and packaging. We support our design engineers with an infrastructure of process engineers, product engineers and test engineers.

Our research and development expenses were $14.9 million or 14.7% of net revenues for fiscal 2000, $7.8 million or 15.4% of net revenues for fiscal 1999,and $7.2 million or 15.6% of net revenues for fiscal 1998. These expenses consisted primarily of salaries and related personnel costs, fees paid to consultants and outside service providers, prototype costs and depreciation associated with development tools.

Patents and Licenses

We seek to protect our proprietary technology through patents and trade secret protection. Currently, we hold 45 United States patents and five foreign patents, expiring between the years 2008 and 2017. We also have six pending United States patent applications, although we cannot assure you that any patents will result from these applications. While we intend to continue seeking patent coverage for our products and manufacturing technology where appropriate, we believe that our success depends more heavily on the technical expertise and innovative abilities of our personnel. Accordingly, we also rely on trade secrets and confidential technological know-how in the conduct of our business. We generally enter into confidentiality agreements with our employees, consultants and other parties. We cannot assure you that our patents or applicable trade secret laws provide adequate protection for our technology against competitors who may develop or patent similar technology or reverse engineer our products. In addition, the laws of certain territories in which our products are or may be developed, manufactured or sold, including Africa, Asia, Europe and Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

Customers

We sell our products worldwide to OEMs such as Globespan, Hitachi, Lucent, Lucky Goldstar, Motorola, Olympus, Philips, Ricoh, Samsung, Sanyo, Sony, Toshiba and Yamaha, both directly and through distributors such as Microtek and Insight. Our products are used in applications such as CD recordable devices, flat panel displays, optical camcorders and digital subscriber line transceivers.

We sell our products worldwide through direct sales efforts and independent distributors. In some countries, it is customary for OEMs to purchase our products through distributors even though our sales office maintains the customer relationship. We have direct business relationships with all major original equipment manufacturers using our products.

Historically, a small number of our customers have accounted for a significant portion of our net revenues. In fiscal 2000, Microtek accounted for 32% of our net revenues and Samsung accounted for 12% of our net revenues. Microtek and Insight accounted for 30% and 10% of our net revenues in the year ended September 30, 1999, and 23% and 11% of our net revenues in the year ended September 30, 1998, respectively. We have no long-term purchase contracts with these or any of our other important customers.

Competition

The semiconductor industry is intensely competitive and is characterized by rapid technological change, product obsolescence and price erosion. The analog integrated circuit segment of the semiconductor industry is also intensely competitive, and many major semiconductor companies presently compete or could compete in some segment of our market. Most of these competitors have substantially greater financial, technical, manufacturing, marketing and other resources than we do. In addition, many of our competitors have greater name recognition, broader product lines in some markets than us and greater service and support capabilities.

Competition within our industry is based on a variety of factors, including:

We believe that we compete favorably with respect to each of these factors. We intend to continue to address these competitive factors by working to introduce product enhancements and new products, seeking to establish our products as industry standards in their respective markets, and working to reduce the manufacturing cost of our products.

Competition among analog semiconductor providers is intense at the design-in stage, when a manufacturer is selecting a component provider for potential generations of future products. We believe that, by virtue of our design expertise, manufacturing process technology expertise and specialized application knowledge, we compete favorably in the areas of rapid product introduction, product innovation, quality, reliability and performance.

Our primary competitors are Analog Devices, Inc., Burr-Brown Corporation, Linear Technology Corporation, National Semiconductor Corporation, Maxim Integrated Products, Inc., Texas Instruments and Toshiba. We also compete indirectly with the in-house design staffs of some of our customers, which often provide alternative solutions for individual analog systems requirements. As we expand our product lines, we expect that competition will increase with these and other domestic and foreign companies. Although foreign companies traditionally have not focused on the high performance analog market, many foreign companies, particularly Asian companies, have the financial and other resources to participate successfully in these markets. These companies may become formidable competitors in the future.

Employees

As of September 30, 2000, we had 337 full-time employees. Of the total, 41 are in sales and marketing, 201 in manufacturing, 71 in engineering and product development, and 24 in finance and administration. None of our employees are represented by any collective bargaining agreement, and we have never experienced a work stoppage. We consider our relations with our employees to be good.

Executive Officers and Directors of the Company

The following table sets forth information regarding our executive officers and directors.

     Richard Beyer has been the Company’s President, Chief Executive Officer and director since July 2000. From January 1999 through July 2000, Mr. Beyer served as President and Chief Executive Officer at FVC.COM, Inc. From July 1996 through August 1998, Mr. Beyer served as President, Chief Operating Officer, and director of VLSI Technology, Incorporated. From June 1995 through June 1996, Mr. Beyer served as Executive Vice President and Chief Operating Officer at National Semiconductor Corporation, and from February 1993 through May 1995 he held the position of President of the Communications and Computing Group of National Semiconductor Corporation. Prior to this, Mr. Beyer served in a number of senior managerial positions in the telecommunications and computer industries. Richard Beyer served three years as an officer in the United States Marine Corps. He holds a B.S. degree and a M.S. degree in Russian from Georgetown University as well as a M.B.A. degree in marketing and international business from Columbia University.

     Ephraim Kwok has served as our Vice President of Finance and Administration, Chief Financial Officer and Secretary since January 1998. From June 1996 through December 1997, Mr. Kwok served as Vice President of Finance & Administration and Chief Financial Officer of Ascent Logic Corporation. From September 1989 through June 1996, Mr. Kwok served as Chief Operating Officer and Chief Financial Officer of KMOS Semiconductor. Mr. Kwok holds a B.S. degree in physiology from the University of California, Davis and a M.B.A. degree from the University of California, Berkeley.

     Alden J. Chauvin, Jr. has served as our Vice President of Worldwide Sales since April 1999. Prior to this, Mr. Chauvin served as Vice President of Worldwide Sales (based in Singapore) of Tritech Microelectronics, a division of Singapore Technologies from August 1997 through July 1998. Prior to this, Mr. Chauvin served as Vice President of Worldwide Sales for Sierra Semiconductor (now PMC-Sierra) from April 1995 through June 1997 and previously, he served as Vice President of North America Sales from June 1986 through March 1995. Prior to Sierra Semiconductor, Mr. Chauvin held various sales and marketing management positions over a 17 year period at Texas Instruments, Inc. Mr. Chauvin holds a B.S. degree in industrial technology from Louisiana State University.

     Ralph S. Granchelli, Jr. has served as our Vice President of Marketing since September 1994 and previously served as Vice President of Marketing and Sales from November 1990 to August 1994. From 1985 to October 1990 he served as our Vice President of Sales. From 1983 to 1985, Mr. Granchelli was National Sales Manager of Teledyne Semiconductor, Inc., a division of Teledyne Industries, Inc. Previously, Mr. Granchelli held senior sales positions with Micro Power Systems, Inc., an analog semiconductor company, and the Advanced Analog Division of Intech, Inc., an analog hybrid semiconductor company, and an engineering position at Teledyne Philbrick, a division of Teledyne Industries, Inc. Mr. Granchelli holds an A.S. degree in electronics engineering from Wentworth Institute of Technology and attended the University of Massachusetts, Amherst from 1976 to 1979, where he studied electrical engineering and marketing.

     James V. Diller has been Chairman of the Board since 1997 and a director of the Company since 1986. From November 1998 to July 2000, he served as our President and Chief Executive Officer. Mr. Diller was a Founder of PMC-Sierra, Inc. a communications semiconductor Company, was its President and Chief Executive Officer from 1983 to 1997 and is currently its Vice Chairman of the Board. Mr. Diller has been a director of Sierra Wireless, a provider of wireless data communications hardware and software products, since 1993. Mr. Diller holds a B.S. degree in physics from the University of Rhode Island.

     Chuck K. Chan has been a Director of the Company since January 1992 and also served as a Director from 1983 to 1984. Dr. Chan has been a Partner in Alpine Technology Ventures, a venture capital firm, since December 1994 and was a Partner in Associated Venture Investors, a venture capital firm from 1982 to 1996. In addition, Dr. Chan serves on the Board of Directors of a number of privately held companies. Dr. Chan holds B.S., M.S. and Ph.D. degrees in physics from the Massachusetts Institute of Technology and an M.B.A. degree from Harvard University.

     Alan V. King has been a Director of the Company since December 1997. Mr. King has been Chairman of the Board of Volterra Semiconductor Corporation, a start-up Company developing power management integrated circuits, since September 1996. In addition, Mr. King was previously the Chief Executive Officer of Volterra from September 1996 to August 2000. Mr. King was President and Chief Executive Officer of Silicon Systems, Inc., a semiconductor Company, from September 1991 to November 1994 and was President and Chief Executive Officer of Precision Monolithics, Inc., a semiconductor Company, from September 1987 to September 1991, and from September 1986 to September 1987 he was its Executive Vice President. In addition, Mr. King serves on the Board of Directors of a number of privately held companies. Mr. King holds a B.S. degree in engineering from the University of Washington.

     Umesh Padval has been a Director of the Company since November 1999. Mr. Padval has been the President of C-Cube Microsystem’s Semiconductor Division since October 1998 and was named Chief Executive Officer and Director of C-Cube Microsystem Incorporated in May 2000. Prior to joining C-Cube, Mr. Padval served as Senior Vice President and General Manager of the Consumer Digital Entertainment Division at VLSI Technology, Inc. from May 1997 to October 1998, and as Senior Vice President and General Manager for VLSI’s Computing Solution Division from 1987 to April 1997. Before joining VLSI Technology, Mr. Padval worked for Advanced Micro Devices, where he held a variety of marketing and engineering positions. Mr. Padval holds a B.S. degree in engineering from the Indian Institute of Mumbai, India, a M.S. degree in engineering from Pennsylvania State University, and a M.S. degree in engineering from Stanford University.

Each director holds office until the next annual meeting of stockholders and until his successor has been elected and qualified or until his earlier resignation or removal. Each officer was chosen by the Board of Directors and serves at the pleasure of the Board of Directors until his successor is appointed or until his earlier resignation or removal.

ITEM 2: PROPERTIES

Our corporate headquarters, which serve as our principal administrative, sales, marketing, manufacturing, and research and development offices, are located in three buildings in Milpitas, California. We lease approximately 39,000 square feet of space in one building for our manufacturing and engineering functions pursuant to a lease that expires on June 30, 2005. We have a seven year lease expiring on October 1, 2003 for a total of approximately 21,500 square feet of space located in another building adjacent to our manufacturing facility for administrative functions. We also have a lease expiring on May 15, 2005 for a total of approximately 21,000 square feet of space in a third building adjacent to our manufacturing facility for testing, quality assurance and product engineering.

In addition to our headquarters and our manufacturing facilities, we have field offices for some of our sales staff and field application engineers located in Massachusetts, New Hampshire, United Kingdom and Japan. We lease approximately 1,331 square feet of space for our sales office in the Boston, Massachusetts metropolitan area, approximately 300 square feet for our sales office in Nashua, New Hampshire, approximately 1,112 square feet for our sales office in Wokingham, United Kingdom, and approximately 1,457 square feet for our technical sales support center in Yokohama, Japan. We also lease approximately 3,434 square feet for our design center in Harlow, United Kingdom. We believe that our existing facilities are adequate to meet our current needs.

ITEM 3: LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter ended September 30, 2000.

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range Of Common Stock

Our common stock has been traded on the Nasdaq National Market under the Nasdaq symbol “ELNT” since our initial public offering on October 11, 1995. As of September 30, 2000, there were approximately 176 stockholders of record, and we believe there are in excess of 12,700 beneficial stockholders of our common stock. The high and low closing sale prices of Elantec’s Common Stock on the Nasdaq National Market for each fiscal quarter for our last two fiscal years were as follows:

Dividend Policy

We have never declared or paid any cash dividends on our common stock, and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Any future determination to pay cash dividends will be at the discretion of our board of directors in light of our earnings, financial condition, operating results, capital requirements and other factors, as our board of directors may deem relevant.

ITEM 6: SELECTED FINANCIAL DATA

The following selected consolidated financial data is qualified by reference to and should be read in conjunction with the consolidated financial statements and related notes thereto and the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this Annual Report on Form 10-K.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those anticipated in those forward-looking statements as a result of a number of factors, including those set forth in “factors affecting future operating results” and elsewhere in this form 10-K.

Overview

We are a leading designer, manufacturer and marketer of high performance analog integrated circuits. Through our design expertise, process technology expertise and specialized application knowledge, we have developed and sell approximately 150 innovative products, including amplifiers, drivers, faders, transceivers and multiplexers, to a large and diverse group of customers worldwide. We target four high growth commercial markets: video, optical storage, communications and power management.

We were incorporated in California in July 1983 as Elantec, Inc. In September 1995, we reincorporated in Delaware as Elantec Semiconductor, Inc., and in October 1995, we completed our initial public offering. We introduced our first products in fiscal 1984, and, during the period from fiscal 1984 to fiscal 1989, military and commercial hybrid product sales represented the majority of our net revenues. Beginning in fiscal 1989, we changed our strategy to focus on high growth commercial markets. We announced the discontinuance of our military and commercial hybrid products in July 1997, and shipments of these products ended in September 1999. Beginning in fiscal 1999, we narrowed our product focus, concentrating on our current markets where we could exploit our design and process technology expertise. We opened a design center in the United Kingdom in the third quarter of fiscal 2000.

In the first quarter of fiscal 1999, we took an unusual charge of $13.0 million under a plan to restructure our manufacturing operations by moving towards a primarily outsourced model. We restructured our operations in response to a shift in the mix of products fabricated internally compared to products fabricated by outside foundries, which caused significant over-capacity in our internal 4-inch fabrication facility.

Our net revenues are derived from the sale of analog integrated circuits. We have developed a broad range of high performance application specific standard products, or ASSPs, and standard products for our four target markets. In fiscal 2000, video represented 41%, optical storage represented 42%, communications represented 11%, and power management and others represented 6% of net revenues.

We sell our products both domestically and internationally to a large and diverse group of original equipment manufacturers, or OEMs, through a combination of direct sales offices, independent sales representatives and distributors. In fiscal 2000, sales to Microtek International in Japan and Samsung Electronics in Korea accounted for 32% and 12%, respectively of our net revenues. Microtek is a distributor who sells to a diverse base of OEMs, while Samsung is one of our direct customers.

We have focused our sales and marketing efforts in Asia, North America and Europe. During the year ended September 30, 2000 and for fiscal 1999 and fiscal 1998, approximately 75%, 57% and 53%,respectively, of our net revenues were derived from customers outside of North America. Our customers are both distributors and OEMs. The majority of our international net revenues are derived from sales through our distributors. We work with 11 distributors in Asia and nine distributors covering Europe, Africa, South America and Australia, each selling to OEMs within their own territory. We also work with four distributors and 18 independent sales representatives in North America. While we are continuing to expand our sales organizations worldwide, we expect that the majority of our net revenues will continue to be derived from Asia in the foreseeable future. Some of our net revenues from sales in Japan are denominated in Japanese Yen while the remaining net revenues from sales worldwide are denominated in United States Dollars.

We recognize revenue at the time of shipment to direct customers, at the time of shipment to foreign distributors, and at the time domestic distributors sell our products to their customers. Allowances are provided for estimated returns at the time of shipment. Our domestic distributors have rights of return and price protection privileges on unsold merchandise. Net revenues are stated net of estimated discounts and allowances.

We work with our customers to achieve design wins whereby our products will be incorporated into our customers’ product. Our customers then complete the design, testing and evaluation of their products and begin the marketing process. Several months may elapse between our sales efforts and our realization of revenues, if any, from volume purchases of our products. The duration of the actual lapse depends upon the product type and market segment. Our customers are not obligated by long-term contracts to purchase our products and can generally cancel or reschedule orders on short notice.

We manufacture semiconductor wafers using our proprietary dielectric isolation and silicon-on-insulator technologies. In addition, we utilize a limited number of third party foundries for the manufacture of our junction isolation complementary bipolar and complementary metal-oxide semiconductor, or CMOS, wafers. We use third party subcontractors for assembly and packaging services. We place purchase orders for specific quantities of wafers, and assembly and packaging services. We test all wafers produced by us and our third party foundries. In addition, we perform final testing on all packaged units. Accordingly, a significant portion of our cost of revenues consists of payments to our manufacturing subcontractors. Costs of revenues also encompass our internal manufacturing and operations functions and a portion of our information systems and facilities costs.

Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers, prototype costs related to the fabrication of our integrated circuits, and depreciation associated with development tools. We expense our research and development costs as they are incurred. Several components of our research and development initiatives require significant expenditures, such as prototype expenses, the timing of which can cause significant quarterly variability in our expenses. Because our research and development is critical to our future success, we expect to continue to increase our research and development expenditures.

Marketing, sales, general and administrative expenses consist primarily of salaries and commissions and related expenses for executives, finance, accounting, information services, human resources, recruiting, professional fees and other corporate expenses, and costs associated with promotional and other marketing activities. We expect to continue to expand our direct and indirect sales operations in an attempt to secure more design wins and increase product orders. We expect these expenses will increase over the next year as we hire additional sales and marketing personnel, initiate additional marketing programs to support our products, establish new sales offices, amortize deferred compensation associated with the hiring of our new chief executive officer, add personnel and incur additional costs related to the continued growth of our business. We will continue to expand our use of independent sales representatives. In addition, the complexity of integrating our products within our customer’s systems requires highly trained field application engineers, customer service and support personnel. We plan to continue to expand our field application engineering and our customer service and support organization.

Results of Operations

The following table sets forth, as a percentage of net revenues, certain consolidated statement of operations data for the periods indicated.

Years ended September 30, 2000, 1999 and 1998.

Net Revenues. In fiscal 2000, net revenues were $101.2 million, an increase of 100.0% from the $50.7 million reported in fiscal 1999. This increase over the prior year was due to a significant increase in total units shipped despite a decline in average selling prices. Sales increased in all geographic areas, especially in Asia.

In fiscal 2000, international net revenues were 75.1% compared to 57.4% in fiscal 1999. This increase was due primarily to strong demand for our video and optical storage products resulting from improved demand as well as improved conditions in Asia.

Domestic net revenues in fiscal 2000 increased slightly to $25.2 million from $21.6 million in fiscal 1999 as a result of increased sales of our products despite the discontinuation of our military and commercial hybrid product line at the end of fiscal 1999. This product line accounted for $5.0 million or 9.8% of our product revenues in fiscal 1999. As a percentage of total net revenues, domestic net revenues in fiscal 2000 decreased from 42.6% in fiscal 1999 to 24.9%.

Net revenues were $50.7 million in fiscal 1999, an increase of 9.6% over net revenues of $46.2 million in fiscal 1998. The increase in net revenues was due to an increase in unit shipments, while the average selling price for our products remained relatively constant during the year. We experienced strong revenue growth in the optical storage market, which represented 26.0% of net revenues, up from approximately 8.2% of net revenues in fiscal 1998.

International net revenues represented 57.4% of net revenues in fiscal 1999, up slightly from 53.0% of net revenues in fiscal 1998. Net revenues from Japan and other Pacific Rim countries increased 23.9% over fiscal 1998 as a result of improvement in the economic and financial situation in the region.

In fiscal 1999, domestic net revenues remained flat in absolute dollars compared to 1998, but as a percentage of our net revenues decreased to 42.6% compared to 47.0% in fiscal 1998.

Gross Margin. Gross margin was 60.8% for fiscal 2000 compared to 47.1% in the corresponding period in fiscal 1999. The improvement in gross margin reflects the allocation of fixed manufacturing costs across a higher revenue base and improvements in manufacturing efficiencies and yields as well as the write-down of inventory in the first quarter of fiscal 1999.

During the first quarter of fiscal 1999, we implemented a plan to restructure our manufacturing operations by moving towards a primarily outsourced model through a period of several years. We further decided to discontinue development of future dielectric process technology in favor of the silicon-on-insulator technology, where volume production is expected to be outsourced if a suitable foundry is qualified. As a result of that decision, we concluded that certain quantities of dielectric inventory in excess of known customer demand might become obsolete. Of the $1.0 million write-down of inventory in the first quarter of fiscal 1999, approximately $0.8 million related to work in process and approximately $0.2 million related to finished goods. The amount of dielectric inventory on the balance sheet, after the write-down, at September 30, 2000 was $4.1 million in work in process and $0.5 million in finished goods.

While we are working on programs to continue to improve manufacturing efficiencies, we may encounter difficulties due to delays with technology introduction, changes in product mix, unfavorable manufacturing yields or other manufacturing difficulties in the future. Gross margin may continue to fluctuate from quarter to quarter.

Gross margin was $23.9 million or 47.1% of net revenues in fiscal 1999. The increase in gross margin as a percentage of net revenues as compared to 46.3% in fiscal 1998 was due primarily to the absorption of fixed costs over a larger revenue base and improved manufacturing yields and pricing at third party foundries. This increase was partially offset by higher unfavorable overhead variances relating to internal production and increased provisions for excess and obsolete inventory of approximately $1.0 million in the first quarter of fiscal 1999 as product mix shifted towards products manufactured by third party foundries. The improvement in gross margin in fiscal 1999 compared to fiscal 1998 also resulted from our change in strategy, discussed above.

Research and Development Expenses. Research and development expenses increased by $7.1 million or 91.0% for fiscal 2000 as compared to fiscal 1999. In fiscal 2000, research and development expenses were 14.7% of net revenue. The increase in research and development expenses in fiscal 2000 as compared to fiscal 1999 was due primarily to an increase in staffing and related compensation of $3.4 million, particularly design engineering personnel, fees paid to consultants and outside service providers of $1.4 million and prototype costs and depreciation associated with development tools of $2.3 million. During the third quarter of fiscal 2000, we also opened a design center in the United Kingdom.

Research and development expenses were $7.8 million or 15.4% of net revenues in fiscal 1999 and $7.2 million or 15.6% of net revenues in fiscal 1998. The increase in research and development expenses in fiscal 1999 as compared to 1998 was due primarily to an increase in staffing and related compensation of $0.3 million, particularly design engineering personnel, and higher spending of $0.3 million on new product designs.

Marketing, Sales, General and Administrative Expenses. Marketing, sales, general and administrative expenses increased by $5.5 million or 50.7% for fiscal 2000 as compared to fiscal 1999. In fiscal 2000, marketing, sales, general and administrative expenses were 16.1% of net revenue. The increase in these expenses in fiscal 2000 as compared to fiscal 1999 was due primarily to an increase in staffing and related compensation of $3.1 million, particularly sales and marketing personnel, fees paid to consultants of $0.2 million and higher commissions paid to outside manufacturer’s representatives and other selling expenses of $2.2 million due to the increase in net revenues.

Marketing, sales, general and administrative expenses were $10.8 million or 21.4% of net revenues in fiscal 1999 and $9.9 million or 21.4% of net revenues in fiscal 1998. The increase in these expenses in fiscal 1999 over fiscal 1998 was due primarily to an increase in staffing and related compensation of $0.5 million and higher outside services costs of $0.4 million. As a percentage of net sales, marketing, sales, general and administrative expenses remained flat in fiscal 1999 as such costs increased at the same rate as net revenue growth.

Unusual Charges. Our unusual charges, as discussed in gross margin for fiscal 2000 and fiscal 1999, consisted primarily of a write-down of certain equipment, a write-down of inventory, severance costs and a write-down of previously capitalized patent costs (See Note 11 of notes to consolidated financial statements). These actions resulted in pretax charges of $12.0 million to operating expenses and $1.0 million to cost of goods sold. Approximately $0.3 million was utilized in fiscal 2000 and $12.7 million was utilized in fiscal 1999.

Interest and Other Income, Net. Interest and other income, net was $1.6 million in fiscal 2000, an increase of $1.1 million over fiscal 1999. The increase in interest and other income was due primarily to higher levels of cash, cash equivalents and short-term investments and gains from the sale of foreign exchange forward contracts.

Interest and other income, net was $0.5 million in fiscal 1999 and $0.7 million in fiscal 1998. Interest income for fiscal 1999 decreased from fiscal 1998 due to a lower rate of return on cash equivalents and short-term investments.

Provision for (Benefit From) Taxes on Income. Our effective tax rate for fiscal 2000 was 37.0% compared to (41.7%) for the comparable prior year period. The fiscal 1999 provision for taxes on income reflected the benefit from the unusual charges we recorded in the first quarter of fiscal 1999. In addition, we reversed the remaining valuation allowance of $0.5 million due to the conclusion that realization of the remaining deferred tax assets subject to the valuation allowance is more likely than not. See Note 7 of notes to consolidated financial statements. Results for the fourth fiscal quarter of 1998 included a $3.1 million favorable tax adjustment resulting primarily from the reversal of our valuation allowance for certain deferred tax assets at September 30, 1998.

Factors Affecting Future Operating Results

Except for historical information contained herein, the matters set forth in this Annual Report on Form 10-K, including the statements in the following paragraphs, are forward-looking statements that are dependent on certain risks and uncertainties including such factors as, among others, delays in new product and process technology announcements and product introductions by us or our competitors, competitive pricing pressures, fluctuations in manufacturing yields, changes in the mix or markets in which products are sold, availability and costs of raw materials, reliance on subcontractors, the cyclical nature of the semiconductor industry, industry-wide wafer processing capacity, political and economic conditions in various geographic areas, and costs associated with other events, such as under-utilization or expansion of production capacity, intellectual property disputes, litigation, or environmental regulation and other factors described below.

THE MARKETS IN WHICH WE PARTICIPATE ARE INTENSELY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, OUR OPERATING RESULTS COULD BE HARMED.

The analog semiconductor industry is intensely competitive and is characterized by rapid technological change, product obsolescence and price erosion. Competition among analog semiconductor providers is intense at the design-in stage, when a manufacturer is selecting a component provider for potential generations of future products. Increased competition has in the past, and could in the future, result in price reductions, reduced gross margins or loss of market share, any of which could harm our operating results. In our primary markets, we compete with Analog Devices, Inc., Burr-Brown Corporation, Linear Technology Corporation, Maxim Integrated Products, Inc., National Semiconductor Corporation, Texas Instruments and Toshiba. We also compete indirectly with the in-house design staffs of some of our customers, which often provide alternative solutions for individual analog systems requirements. Many of our current and potential competitors have greater name recognition, larger customer bases and greater financial, technical, manufacturing, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share. Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors. These combinations may provide our competitors and potential competitors with a competitive advantage over us by enabling them to expand their product offerings and service capabilities to meet a broader range of customer needs. In addition, the introduction of new technologies and new market entrants may increase competitive pressures.

CYCLICALITY IN THE SEMICONDUCTOR INDUSTRY HAS HISTORICALLY LED TO SUBSTANTIAL DECREASES IN DEMAND FOR OUR PRODUCTS AND TECHNOLOGIES AND MAY DO SO IN THE FUTURE.

Although the semiconductor industry has recently experienced strong demand, the industry may experience severe or prolonged downturns in the future. As a result, our operating results are subject to significant variation. The semiconductor industry experienced a downturn in 1998 and 1999 that seriously harmed our operating results during that period. Our business depends upon the current and anticipated market demand for analog semiconductors and products using analog semiconductors. Future downturns in the semiconductor industry will likely lead to proportionately greater downturns in our net income or increases in net losses.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE, WHICH COULD CAUSE US TO MISS EXPECTATIONS ABOUT THOSE RESULTS AND CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE.

Our operating results are likely to fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Some of the important factors that could cause our net revenues and operating results to fluctuate from period to period include:

     Although our net revenues have increased in recent quarters, fluctuations in our net revenues and operating results due to these factors could prevent us from sustaining these growth rates. As a result, we believe that period-to-period comparisons of our net revenues and operating results are not necessarily meaningful and, accordingly, that these comparisons should not be relied upon as indications of future performance.

WE DEPEND UPON THE CONTINUED DEMAND FOR OUR PRODUCTS IN THE VIDEO AND OPTICAL STORAGE MARKETS FOR A SIGNIFICANT PORTION OF OUR NET REVENUES.

We have derived, and expect to continue to derive, a significant portion of our net revenues from products that we sell in the video and optical storage markets. Therefore, our success depends in part on the continued acceptance of our products within these markets and our ability to continue to develop and introduce new products on a timely basis for these markets. In addition, although the video and optical storage markets have grown rapidly in the last few years, we cannot be certain that these markets will continue to grow or that a significant slowdown in these markets will not occur. Any downturn in these markets could harm our business and operating results.

THE FAILURE TO MANAGE AND SUSTAIN OUR GROWTH MAY HARM OUR BUSINESS.

Our ability to continue to grow successfully requires an effective planning and management process. Since September 30, 1999, we increased our headcount substantially, from 175 employees to 337 employees as of September 30, 2000. Our growth has placed, and the recruitment and integration of additional employees will continue to place, a significant strain on our infrastructure, internal systems and other resources. To manage our growth effectively, we must continue to improve and expand our operational, financial and management information systems in a timely and efficient manner and invest the necessary capital. We cannot assure you that those resources will be available when we need them or that we will have sufficient capital to invest when required. If we are unable to manage and sustain our growth, our operating results may be harmed.

DIFFICULTIES IN ESTIMATING THE AMOUNT AND TIMING OF SALES TO OUR CUSTOMERS COULD HARM OUR OPERATING RESULTS.

It is difficult for us to forecast accurately the timing and amount of sales to our customers, which include distributors and original equipment manufacturers, or OEMs. Our customers generally take a long time to evaluate our products and technologies before committing to design our products into their systems. In addition, some of the OEMs who purchase products from us or our distributors require a set of related products from multiple manufacturers to be delivered to them together for a complete bill of materials. Delays in delivery by other vendors could result in delayed or cancelled sales of our products. Moreover, our business is characterized by short-term orders and shipment schedules, and customer orders typically can be canceled or rescheduled on short notice to us and without significant penalty. We do not have substantial noncancellable backlog and often we are forced to obtain inventory and materials from our manufacturing subcontractors in advance of anticipated customer demand. Because we incur expenses, many of which are fixed, based in part on our forecasts of future product sales, our operating results could be harmed if sales levels are below our expectations.

OUR NET REVENUES MAY DECREASE IF WE LOSE ANY OF OUR SIGNIFICANT CUSTOMERS, THEREBY HARMING OUR OPERATING RESULTS.

A relatively small number of customers account for a significant portion of our net revenues in any particular period. In fiscal 2000, Microtek International, Inc. accounted for 32% of our net revenues and Samsung accounted for 12%. In fiscal 1999, Microtek accounted for 30% of our net revenues and Insight (a domestic distributor) accounted for 10%. The loss of any significant customer coupled with our inability to obtain orders from new customers to compensate for such loss could cause our net revenues to decline, thereby harming our operating results.

We have no long-term purchase commitments with these or any of our other important customers. These customers, therefore, could cease purchasing our products with short notice to us and without significant penalty. In addition, Microtek and Insight are distributors of our products to various OEMs, any of whom could choose to reduce or eliminate orders that would reduce our distributor’s orders for our products.

Because we anticipate that sales of our products to a relatively small number of customers will continue to account for a significant portion of our net revenues, the following may reduce our operating results:

WE MUST ACHIEVE NEW DESIGN WINS, AND THESE DESIGN WINS MUST TRANSLATE INTO CUSTOMER PURCHASES.

Our success depends in part upon achieving design wins for our products with current and future customers. Design wins are indications by existing and potential customers that they intend to incorporate our products into their new product designs. To achieve design wins, we must continually increase the performance levels of our products, keep pace with evolving industry standards and introduce new products in a timely manner. If we fail to achieve design wins, we may lose potential sales opportunities. Design wins also do not necessarily result in purchase orders for our products. In addition, it could take up to several months before a design win translates into a purchase order, if at all. The value of any design win, moreover, will largely depend upon the commercial success of our customer’s product and on the extent to which the design of the customer’s electronic system accommodates components manufactured by our competitors.

IF WE FAIL TO DEVELOP AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS.

We operate in an industry that is characterized by rapidly changing technology, frequent product introductions, product obsolescence, and ongoing demands for greater performance and functionality. We, therefore, must continually design, develop and introduce on a timely basis new products with improved features to retain and attract customers and be competitive. Successful product development and introduction on a timely basis requires that we:

We cannot assure you that we will be able to meet the design and market introduction schedules for our new products or enhancements to our existing products or that these products will achieve market acceptance.

IN ORDER TO REMAIN COMPETITIVE IN THE ANALOG SEMICONDUCTOR INDUSTRY, WE MUST DEVELOP AND INTRODUCE NEW SEMICONDUCTOR DESIGN AND MANUFACTURING PROCESS TECHNOLOGIES ON A TIMELY BASIS.

Our future success depends upon our ability to:

Semiconductor design and manufacturing process technologies are subject to rapid technological change, and require large expenditures for research and development. We incurred research and development expenses of $14.9 million for the year ended September 30, 2000, $7.8 million for the year ended September 30, 1999 and $7.2 million for the year ended September 30, 1998. We expect that our expenses for research and development will continue to increase because we continuously attempt, on a product-by-product basis, to migrate to smaller geometry process technologies. Other companies in the industry have experienced difficulty in transitioning to new manufacturing processes and, consequently, have suffered reduced yields or delays in product deliveries. While we believe that transitioning our products to smaller geometries will be important for us to remain competitive, we cannot be certain that we can make these transitions successfully and on a cost-effective basis.

DUE TO OUR SIGNIFICANT LEVEL OF INTERNATIONAL NET REVENUES AND THE UTILIZATION OF FOREIGN MANUFACTURERS AND SUBCONTRACTORS, WE ARE SUBJECT TO INTERNATIONAL OPERATIONAL, FINANCIAL AND POLITICAL RISKS.

Sales of our products to customers outside the United States have accounted for a significant part of our net revenues. Our total international net revenues, as a percentage of our net revenues, were 75% for the year ended September 30, 2000, 57% for the year ended September 30, 1999 and 53% for the year ended September 30, 1998. We expect our international net revenues, particularly into Japan, Taiwan and Korea, to continue to account for a significant percentage of our net revenues in the future. In addition, we expect to continue to rely on manufacturers and subcontractors located in Taiwan, Malaysia and Thailand. Accordingly, we will be subject to risks and challenges that we would not otherwise face if we conducted our business only in the United States. These include:

Any of these factors could harm our existing international operations and business or impair our ability to continue expanding into international markets. To the extent we are unable to expand our international net revenues in a timely and cost-effective manner, our business could be harmed. We cannot assure you that we will be able to maintain or increase international market demand for our products.

WE DEPEND ON A LIMITED NUMBER OF THIRD PARTY FOUNDRIES TO MANUFACTURE MOST OF OUR PRODUCTS, WHICH REDUCES OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY OF OUR PRODUCTS.

We depend on a limited number of third party foundries for the production of most of our products. In particular, Lucent Technologies Inc. manufactures all of our junction isolation complementary bipolar wafers, and American Microsystems, Inc. and United Microelectronics Corporation manufacture all of our complementary metal-oxide-semiconductor wafers. In addition, another foundry provides poly deposition on all of our dielectric isolation wafers and silicon-on-insulator wafers. Our dependence on third parties to fabricate our products has significant risks that could potentially harm our operating results, including:

We cannot be certain that we will be able to maintain our good relationships with our existing foundries. In addition, we cannot be certain that we will be able to form relationships with other foundries as favorable as our current ones. Moreover, transferring from our existing foundries to another foundry could require a significant amount of time and loss of revenue, and we cannot assure you that we could make a smooth and timely transition. If foundries are unable or unwilling to continue to supply us with these semiconductor devices in required time frames and volumes or at commercially acceptable costs, our business may be harmed.

WE ARE RESPONSIBLE FOR THE PRODUCTION OF OUR DIELECTRIC ISOLATION WAFERS AND SILICON-ON-INSULATOR WAFERS AND OUR RESULTS OF OPERATIONS COULD BE HARMED IF OUR SUPPLY OF THOSE WAFERS DOES NOT MEET THE DEMAND.

Our own fabrication facilities are the only facilities currently available to us that are capable of manufacturing dielectric isolation wafers and silicon-on-insulator wafers for our products. If we experience a reduction or interruption in the supply, or a degradation in the quality of any of the wafers, we may be forced to discontinue products based upon those wafers until we can contract with third party foundries that are qualified to produce those wafers. As a result, our relationships with our customers could be harmed if we are unable to deliver sufficient quantities of wafers. We intend to outsource the high-volume production of silicon-on-insulator wafers in the future. We intend to transfer the process to a suitable foundry, but we cannot provide any assurance that a suitable foundry can be qualified for this production. If we are unable to locate and qualify a suitable foundry, we will be required to make significant capital investments in our internal foundry capacity, which is likely to increase our costs of doing business.

IF WE FAIL TO DEVELOP OUR NEXT GENERATION SILICON-ON-INSULATOR TECHNOLOGY IN A TIMELY MANNER, OUR BUSINESS AND OPERATING RESULTS COULD BE HARMED.

Part of our future product development strategy includes the development of an advanced silicon-on-insulator technology. As with the development of any process technology, we cannot assure you that this new technology can be successfully implemented in a timely manner or that it will provide the desired improvements over our current technology. In addition, our next generation silicon-on-insulator technology could be supplanted by alternative new technologies and may not be able to be transferred to third party foundries. Significant delays or cancellation of the development of this new generation of technology or manufacturing problems associated with transferring our current product line to this technology could harm our business and results of operations. Significant delays or cancellation of the development of this technology also could harm our new product development program.

WE RELY ON A LIMITED NUMBER OF PACKAGING SUBCONTRACTORS THAT MAY NOT HAVE ADEQUATE CAPACITY TO MEET OUR PRODUCT DELIVERY REQUIREMENTS.

We rely on a limited number of packaging subcontractors with whom we do not have long-term contracts. In general, the wafers we manufacture at our fabrication facilities and the wafers we purchase from our outside foundries are tested at our facilities. The wafers are then sent to our packaging subcontractors for packaging and assembling. Our reliance on these subcontractors involves significant risks, including a lack of adequate capacity, the possibility that they may eliminate the necessary manufacturing process technologies, and reduced control over quality and delivery schedules. These independent subcontractors may discontinue doing business with us for a variety of reasons. As a result, we may experience product delivery and quality assurance problems, which in turn may harm our reputation and operating results.

IF OUR PRODUCTS CONTAIN DEFECTS OR FAIL TO ACHIEVE INDUSTRY RELIABILITY STANDARDS, OUR REPUTATION MAY BE HARMED, AND WE MAY INCUR SIGNIFICANT UNEXPECTED EXPENSES AND LOSE SALES OPPORTUNITIES.

Our products have in the past occasionally contained, and may in the future contain, undetected errors or defects. Any similar problem in the future may:

In addition, we may not find defects or failures in our products until after commencement of commercial shipments, which may result in loss or delay in market acceptance and could significantly harm our operating results. Our current or potential customers also might seek to recover from us any losses resulting from defects or failures in our products. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any of these claims, whether or not successful, could seriously damage our reputation and business.

EARTHQUAKES, OTHER NATURAL DISASTERS AND POWER SHORTAGES MAY DAMAGE OUR FACILITIES OR THE FACILITIES OF THIRD-PARTIES ON WHICH WE DEPEND.

Our corporate headquarters are located in California near major earthquake faults which have experienced earthquakes in the past. In addition, some of the foundries, suppliers and other third parties upon which we rely are located near fault lines. In the event of an earthquake or other natural disaster near one or more of the facilities of third parties upon which we rely, like the earthquake in Taiwan in September 1999, could disrupt the operations of those parties. Additionally, the loss of power, such as the temporary loss of power caused by power shortages in the grid servicing our facilities in Northern California, could disrupt our operations or impair our critical systems. None of these disruptions would be covered by insurance, so the supply of our products could be limited and our business could be hampered.

IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS MAY BE HARMED.

Our future success depends largely upon the continued service of our key management and technical personnel, and on our continued ability to hire, integrate and retain qualified management and technical personnel, particularly engineers. Competition for these employees in the analog semiconductor industry is intense, and we may not be successful in attracting or retaining these personnel. In addition, even if we are able to attract qualified personnel, it is difficult to obtain work visas for foreign professionals trained in the United States. The loss of any key employee, the failure of any key employee to perform in his or her current position or our inability to attract and retain skilled employees as needed could impair our ability to meet customer and technological demands. The loss of the services of any executive officer or other key technical or management personnel could harm our business. To help retain the continued services of some of our key executives, we have entered into employment agreements with some of them. We do not have key person life insurance on any of our key personnel.

IF DIGITAL INTEGRATED CIRCUITS REPLACE ANALOG INTEGRATED CIRCUITS, OUR BUSINESS, WHICH DEPENDS ON THE DEMAND FOR PRODUCTS BASED ON ANALOG TECHNOLOGIES, MAY FAIL.

All of our products are based on analog technologies. However, as digital integrated circuits have become faster and their processing capacity has expanded, digital circuits have increasingly been used to perform functions in electronic systems that were previously performed with analog technologies. We cannot assure you that further advances in digital processing power will not eventually supplant analog technologies in those new applications, which could harm our business and results of operations.

IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITORS COULD MARKET PRODUCTS WITH SIMILAR FEATURES, REDUCING DEMAND FOR OUR PRODUCTS AND HARMING OUR OPERATING RESULTS.

Our success depends in part on our ability to protect our intellectual property rights covering our products and technologies. We rely on a combination of patent, copyright, trademark, trade secret laws and confidentiality procedures to protect our proprietary rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries, and the enforcement of those laws, do not protect proprietary rights to as great an extent as do the laws of the United States. We also cannot assure you that:

In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights to establish the validity of our proprietary rights. This litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.

FROM TIME TO TIME WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF OTHER PARTIES’ PROPRIETARY RIGHTS, OR TO CLAIMS THAT OUR INTELLECTUAL PROPERTY RIGHTS ARE INVALID, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL PROPERTY RIGHTS.

From time to time we have received, and, in the future, may receive claims that we are infringing third parties’ intellectual property rights or claims that our trademarks, patents or other intellectual property rights are invalid. The semiconductor industry is characterized by uncertain and conflicting intellectual property claims and vigorous protection and pursuit of these rights. The resolution of any claims of this nature, with or without merit, could be time consuming, result in costly litigation or cause product shipment delays. In the event of an adverse ruling, we might be required to discontinue the use of certain processes, cease the manufacture and sale of infringing products, expend significant resources to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, might not be available on terms acceptable to us or at all. The loss of access to any intellectual property could harm our business.

OUR FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS COULD SUBJECT US TO SIGNIFICANT FINES AND LIABILITIES, AND NEW LAWS AND REGULATIONS OR CHANGES IN REGULATORY INTERPRETATION OR ENFORCEMENT COULD MAKE COMPLIANCE MORE DIFFICULT AND COSTLY.

We are subject to a variety of federal, state, local and foreign governmental laws and regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing of semiconductor wafers. Our failure to comply with present or future environmental laws and regulations could result in fines being imposed on us, suspension of our production or a cessation of our operations. Any failure by us to comply with these laws and regulations could subject us to significant liabilities, thereby harming our business and operating results. In addition, new environmental laws and regulations or changes in regulatory interpretation and enforcement could render compliance more difficult and costly and require significant capital expenditures.

WE MAY REQUIRE ADDITIONAL CAPITAL TO FUND OUR CAPITAL EXPENDITURES AND OPERATIONS, HOWEVER, SUCH CAPITAL MAY NOT BE AVAILABLE.

The operation of our fabrication facility requires the continued investment of substantial capital. We intend to make capital investments to support business growth and achieve manufacturing cost reductions and improved yields. We may need equity or debt financing to fund further expansion of our wafer fabrication capacity or to fund other projects. The timing and amount of these capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for our products, our product mix, changes in semiconductor industry conditions and competitive factors. Debt or equity financing may not be available when needed or, if available, may not be available on terms satisfactory to us.

WE MAY ENGAGE IN FUTURE ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY, PUT A STRAIN ON OUR RESOURCES, OR CAUSE DILUTION TO OUR STOCKHOLDERS.

While we have made no acquisitions of businesses in the past, we may make acquisitions of complementary businesses, products or technologies in the future. Integrating newly acquired organizations, products or technologies into our business could be expensive, time consuming and may not be successful. Future acquisitions could divert our management’s attention from other business concerns and expose our business to unforeseen liabilities or risks associated with entering new markets. In addition, we may lose key employees while integrating new organizations. Consequently, we may not be successful in integrating any acquired business, products or technologies and may not achieve anticipated revenue and cost benefits. In addition, future acquisitions could result in customer dissatisfaction, performance problems with an acquired company, potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, amortization expenses related to goodwill and other intangible assets or other unanticipated events or circumstances, any of which could harm our business.

THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

The market for securities of technology companies in general, and of companies in the semiconductor industry, including us in particular, has been highly volatile. It is likely that the trading price of our common stock will continue to fluctuate in the future. Factors affecting the trading price of our common stock include:

In addition, the stock market has experienced substantial price and volume volatility that has particularly affected the trading prices of equity securities of many technology companies and that often has been unrelated or disproportionate to the operating results of these companies. As a result, any broad market fluctuations may adversely affect the trading price of our common stock.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS OR DELAWARE LAW MAY DELAY OR PREVENT A CHANGE OF CONTROL OF ELANTEC OR CHANGES IN OUR MANAGEMENT AND THEREFORE, DEPRESS THE TRADING PRICE OF OUR COMMON STOCK.

Delaware corporate law and our certificate of incorporation and bylaws contain provisions that could delay, defer or prevent a change in control of our company or changes in our management that you may deem advantageous. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions:

In addition, our board of directors declared a dividend of one preferred share purchase right for each share of our common stock outstanding, subject to limitations stated in the stockholder rights plan. These rights may delay, defer or prevent a change of control of our company.

Liquidity and Capital Resources

Our primary sources of liquidity are cash, cash equivalents and short-term investments of $160.6 million at September 30, 2000.

Cash and cash equivalents were $159.5 million at September 30, 2000, representing an increase of $142.1 million from September 30, 1999. The increase is primarily a result of net proceeds of $135.1 million from a secondary stock offering in September 2000, cash generated from operations of $20.3 million and proceeds from the exercise of employee stock options and issuance of stock under our employee stock purchase plan of $3.5 million. These cash inflows were offset by capital expenditures of approximately $15.7 million primarily for new process development, assembly and test facilities and payments on capital leases of approximately $1.4 million.

Cash and cash equivalents at September 30, 1999 increased by $11.6 million from September 30, 1998 to $17.4 million. The primary source of cash during fiscal 1999 was $12.9 million from operations. Investing activities used $0.8 million primarily due to the acquisition of $3.2 million in property, equipment and other assets, net of proceeds from disposition of property and equipment, which was partially offset by net sales of available for sale securities of $2.4 million. Financing activities used $0.4 million, primarily for payments on long-term debt of $0.1 million and payments on capital lease financing of $1.4 million, which was partially offset by proceeds from the exercise of employee stock options of $1.2 million.

We believe that our existing cash and cash equivalents, our short-term Investments and cash from operations will be sufficient to support our operating and capital needs for at least the next 12 months. Any major change in the nature of our business, such as the acquisition of products, the design of products not currently under development or the need for significant unplanned capital expenditures, could change our capital requirements. To the extent we require additional cash, we cannot assure you that we will be able to obtain financing on favorable terms, or at all.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Sensitivity

We maintain a short-term investment portfolio consisting mainly of income securities with an average maturity of less than one year. These securities are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10.0% from levels at September 30, 2000, the fair value of the portfolio would decline by an immaterial amount. We presently intend to hold our fixed income investments until maturity, and therefore we do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden short-term change in market interest rates on our securities portfolio.

At September 30, 2000, we had approximately $2.9 million of outstanding obligations under capital lease arrangements. As the lease payments associated with these arrangements do not have variable interest rates, an increase of 10.0% in short-term interest rates would not have a material impact on our net income or cash flows. We do not hedge any interest rate exposures.

Since we do not have any significant exposure to changing interest rates because of the low levels of marketable securities with maturities more than 90 days, we did not undertake any specific actions to cover exposure to interest rate risk and we are not a party to any interest rate risk management transactions. We did not purchase or hold any derivative financial instruments for trading purposes.

Foreign Currency Exchange Risk

The Japanese Yen and British Pound are the functional currencies of our subsidiaries in Japan and the United Kingdom, respectively. We also denominate certain sales transactions in Yen. We have established a foreign currency-hedging program, utilizing foreign currency forward exchange contracts or forward contracts of various durations to hedge trade receivables denominated in Yen. Under this program, gains and losses on the forward contracts mitigate the risk of material foreign currency transaction gains and losses and offset increases or decreases in our foreign currency receivables. We do not use forward contracts for trading purposes. We believe that the use of foreign currency financial instruments should reduce the risks that arise from conducting business in international markets.

We do not currently enter into foreign exchange forward contracts to hedge balance sheet exposures of our subsidiaries in Japan and the United Kingdom, and intercompany balances against future movements in foreign exchange rates. However, we do maintain cash balances denominated in Yen and Pound Sterling. If foreign exchange rates were to weaken against the United States Dollar immediately and uniformly by 10.0% from the exchange rate at September 30, 2000, the fair value of these foreign currency amounts would decline by an immaterial amount.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     Not applicable

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item with respect to Directors and Executive Officers may be found in Part I hereof in the section captioned “Executive Officers and Directors of the Company.” Information required by this Item with respect to filings under Section 16 of the Securities Exchange Act of 1934 may be found in the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on January 12, 2001. Such information is incorporated herein by reference.

ITEM 11: EXECUTIVE COMPENSATION

Information with respect to this Item may be found in the section captioned “Proposal No. 1 – Election of Directors – Director’s Compensation”, “Executive Compensation”, “Employment Agreements”, “Severance” and “Compensation Committee Interlocks and Insider Participation” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on January 12, 2001. Such information is incorporated herein by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to this Item may be found in the section captioned “Security Ownership of Certain Beneficial Owners and Management” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on January 12, 2001. Such information is incorporated herein by reference.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this Item may be found in the section captioned “Certain Transactions” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on January 12, 2001. Such information is incorporated herein by reference.

PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

Independent Auditors’ Report

To the Board of Directors and Stockholders of
Elantec Semiconductor, Inc.
Milpitas, California:

We have audited the accompanying consolidated balance sheets of Elantec Semiconductor, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended September 30, 2000. Our audits also included the consolidated financial statement schedule listed in Item 8(3). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Elantec Semiconductor, Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the consolidated financial statement schedule listed in Item 8(3), when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

San Jose, California
October 18, 2000

Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)

See accompanying notes to consolidated financial statements.

Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Stockholders’Equity and
Comprehensive Income (Loss)
(in thousands)

See accompanying notes to consolidated financial statements.

Elantec Semiconductor, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)

See accompanying notes to consolidated financial statements.

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIESNOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Significant Accounting Policies

Nature of Business. Elantec Semiconductor, Inc. (the “Company”) designs, manufactures and markets high performance analog integrated circuits used in the video, optical storage, integrated DC:DC, and xDSL markets. The Company’s principal markets include North America, Asia, Europe and other countries.

Fiscal Year. The Company’s fiscal year ends on the Sunday closest to September 30. Fiscal years 2000, 1999, and 1998 ended on October 1, October 3, and September 27, respectively. For convenience, the accompanying consolidated financial statements have been shown as ending on September 30 for each fiscal year. Fiscal year 1999 included 53 weeks while fiscal years 2000 and 1998 included 52 weeks per year.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Such estimates include allowance for potentially uncollectible accounts receivable, inventory reserves, warranty costs, sales returns and accrued liabilities. Actual results could differ from those estimates.

Basis of Presentation. All share amounts and per share calculations in the accompanying consolidated financial statements give effect to the two-for-one stock split effected on April 21, 2000.

Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity (at the date of purchase) of three months or less to be cash equivalents.

Short-Term Investments. The Company’s policy is to invest in various short-term instruments with investment grade credit ratings. Generally such investments have contractual maturities of less than one year. All of the Company’s marketable investments are classified as “available-for-sale” and the Company views its available-for-sale portfolio as available for use in its current operations. At September 30, 2000, short-term investments consisted of corporate debt of $1,023,000, all maturing within one year. At September 30, 1999, short-term investments consisted of corporate debt of $1,204,000, all maturing within one year.

In accordance with Statement of Financial Accounting Standards (FAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” the Company classifies its short-term investments as “available-for-sale” securities and the cost of securities sold is based on the specific identification method. At September 30, 2000 carrying value exceeded fair value, determined by quoted market prices by $9,000. At September 30, 1999 there was no significant difference between the fair market value, determined by quoted market prices, and the underlying cost of such investments. Realized gains and losses were immaterial.

Significant Risks and Concentration of Credit. The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position or results of operations: delays in new product and process technology announcements and product introductions by the Company or its competitors, competitive pricing pressures, fluctuations in manufacturing yields, changes in the mix or markets in which products are sold, availability and costs of raw materials, reliance on subcontractors, the cyclical nature of the semiconductor industry, industry-wide wafer processing capacity, political and economic conditions in various geographic areas, and costs associated with other events, such as under-utilization or expansion of production capacity, intellectual property disputes, litigation, or environmental regulation among other factors.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and short term investments, trade receivables and foreign exchange forward contracts.

The Company’s policy is to place its cash, cash equivalents and short-term investments with high credit quality institutions and limit the amount invested with any one institution or in any type of financial instrument. The Company does not hold or issue financial instruments for trading purposes.

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s products are sold to a wide variety of original equipment manufacturers through a direct sales force and to a network of distributors. The Company generally does not require collateral from its accounts receivable. However, the Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral, primarily letters of credit, if necessary.

Customers comprising 10% or greater of the Company’s net revenues are summarized as follows:

Microtek International, located in Japan, and Insight Electronics, Inc., located in North America, are distributors who are supporting our sales to a large number of customers.

At September 30, 2000, Microtek International and Samsung Electronics accounted for 32% and 13%, respectively, of the Company’s trade receivables. At September 30, 1999, Microtek International and Insight Electronics accounted for 44% and 11%, respectively, of the Company’s trade receivables.

Inventories. Inventories are stated at the lower of cost or market with actual cost determined using the first-in, first-out method.

Property and Equipment. Machinery and equipment as well as furniture and fixtures are stated at cost and depreciated over the estimated useful lives of the assets (three to ten years) using the straight-line method. Leasehold improvements are stated at cost and amortized on a straight-line basis over the shorter of the useful lives of the assets or the remaining lease term. Assets under capital leases are recorded at the present value of the related lease obligations and amortized on a straight-line basis over the lease term.

Long-lived Assets. The Company accounts for long-lived assets in accordance with Statement of Financial Accounting Standards (“FAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” FAS No. 121 requires long-lived assets to be evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Stock-Based Compensation. The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.”

Revenue Recognition. Net revenues are stated net of estimated discounts and allowances. Revenue from product sales direct to customers and foreign distributors is generally recognized upon shipment. However, the Company defers the recognition of revenue and the related cost of revenue on shipments to domestic distributors that have certain rights of return and price protection privileges on unsold merchandise until the merchandise is sold by the distributor.

Foreign Currency Translation. The functional currencies of our foreign subsidiaries are their respective local currencies. Accordingly, gains and losses from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of accumulated other comprehensive income. Foreign currency transaction gains and losses are included in net earnings.

Income Taxes. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established to reduce the deferred tax asset if it is “more likely than not” that the related tax benefits will not be realized in the future.

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Advertising Expense. The Company expenses the costs of advertising as incurred. Advertising expense was approximately $600,000, $671,000, and $555,000 for the fiscal years ended September 30, 2000, 1999, and 1998, respectively.

Earnings (Loss) Per Share. Earnings (loss) per share (EPS) is computed as basic EPS using the weighted average number of shares of common stock outstanding and diluted EPS using the weighted average number of shares of common stock and dilutive common equivalent shares outstanding from convertible preferred stock (using the if-converted method) and from stock options (using the treasury stock method).

Comprehensive Income. In the first quarter of fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” FAS 130 establishes new rules for the reporting and display of comprehensive income (loss) and its components. Components of comprehensive income (loss) include net income (loss) and certain transactions that are reported directly to the consolidated statement of stockholders’ equity.

Reclassifications. Certain prior year amounts have been reclassified to conform to current year presentation. Such reclassifications had no impact on net income (loss) or stockholders’ equity.

2. Recent Accounting Pronouncements

Derivative Investments and Hedging Activities. Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, as amended is effective for the Company as of October 1, 2000. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. Management does not believe that adoption of this new accounting standard will have a material effect on our consolidated results of operations or cash flows. The adoption will impact assets and liabilities recorded on the balance sheet.

Revenue Recognition. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition,” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met in order to recognize revenue and provides guidance for disclosures related to revenue recognition policies. We are required to adopt SAB No. 101, as amended, in the fourth quarter of fiscal 2001. Although we have not fully assessed the implications of SAB No. 101, our management does not believe that adoption of this bulletin will have a material impact on our consolidated financial position, results of operations or cash flows.

3. Inventories

Inventories consisted of the following (in thousands):

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4. Commitments and Contingencies

The Company leases its principal facilities under operating leases that expire at various dates through 2005. The Company is generally responsible for taxes, assessments, maintenance and insurance under its leases. In addition, machinery and equipment included approximately $6,795,000 and $7,058,000 of equipment acquired under capital leases and approximately $5,410,000 and $4,857,000 of related accumulated amortization at September 30, 2000 and 1999, respectively. Amortization of capital leases is included in depreciation and amortization expense. The following is a schedule by year of future minimum lease payments under capital and operating leases as of September 30 (in thousands):

Total rental expense on all operating leases was approximately $1,028,000, $1,177,000, and $812,000 for the fiscal years ended September 30, 2000, 1999 and 1998, respectively. At September 30 2000, outstanding commitments to purchase capital equipment totaled approximately $5.3 million.

The Company is a party to a number of legal proceedings arising in the course of its business. These actions include employee-related issues. While it is not feasible to predict or determine the outcome of these matters, the Company believes that the ultimate resolution of these claims will not have a material adverse effect on its financial position or results of operations.

5. Stockholders’ Equity

Stock Split. On April 21, 2000, the Company effected a two-for-one stock split of the outstanding shares of common stock. All share and per share amounts in these consolidated financial statements have been adjusted to give effect to the stock split.

Stockholder Rights Plan. In September 1998, the Company’s Board of Directors adopted a Stockholder Rights Plan under which the Board of Directors declared a dividend of one preferred share purchase right for each outstanding share of common stock, par value $0.01 per share, of the Company stock held as of September 21, 1998. In addition subsequent to September 21, 1998, one right will be issued with each newly issued and outstanding share of our common stock issued, except in certain circumstances. Each preferred share purchase right entitles the registered holder to purchase one four-hundredth of the Company’s Series A Junior Participating Preferred Stock, par value $0.01 per share, at a price of $12.50. The rights become exercisable ten days following the announcement that an entity or person has commenced a tender offer to acquire or has acquired 20% or more of the Company’s outstanding common stock (the “Distribution Date”). After the Distribution Date, the rights may be exchanged at an exchange ratio of one common share or one four-hundredth of a preferred share per right. Otherwise, each holder of a right, other than rights beneficially owned by the acquiring entity or person (which will thereafter be void), will have

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

the right to receive upon exercise that number of common shares having a market value of two times the exercise price of the right. The rights will expire on September 14, 2008.

Employee Stock Purchase Plan. The Company has reserved and the stockholders approved 450,000 shares of common stock for issuance to eligible employees under the 1995 Purchase Plan (the Purchase Plan). Under the Purchase Plan, eligible employees, subject to certain restrictions, may purchase shares of common stock at a price equal to the lesser of 85% of the fair market value at either the beginning of each six-month offering period or the end of each six-month offering period. As of September 30, 2000, 35,862 shares have been issued under the Purchase Plan.

Restricted Stock Awards. The compensation committee may grant participants restricted stock awards to purchase stock either in addition to, or in tandem with, other awards under the 1995 Equity Incentive Plan, under such terms, conditions and restrictions as the compensation committee may determine. A Restricted Stock Purchase Award for 86,500 shares of common stock was issued to Richard Beyer in July 2000. The Company has a right of repurchase on these shares that expires ratably over a five-year period. In accordance with APB No. 25, the Company recorded $5,017,000 as deferred compensation in the year ended September 30, 2000. This amount is being amortized on a straight-line basis over 5 years. During the year ended September 30, 2000 the related amortization expense amounted to $250,000.

Stock Option Plans. In August 1995, the Board of Directors approved and in September 1995, the stockholders approved (i) the adoption of the 1995 Equity Incentive Plan (the 1995 Equity Plan) as the successor to the 1994 Equity Incentive Plan (the Predecessor Plan), pursuant to which 1,100,000 shares of the Company’s common stock, plus the number of shares remaining unissued and not subject to outstanding options under the Predecessor Plan and any shares issuable upon exercise of options granted under the Predecessor Plan that expire or become unexercisable for any reason without having been exercised in full, have been reserved for future issuance, and (ii) the adoption of the 1995 Directors’ Stock Option Plan (the 1995 Directors’ Plan) pursuant to which 300,000 shares of the Company’s common stock have been reserved for future issuance. Each outstanding option under the Predecessor Plan will continue to be governed by the terms and conditions of such plan; no additional options will be granted under the Predecessor Plan.

In December 1996, the Board of Directors approved and in February 1997, the stockholders approved the adoption of an amendment to the 1995 Equity Plan pursuant to which an additional 800,000 shares of the Company’s Common Stock have been reserved for future issuance. In December 1997, the Board of Directors approved and in February 1998, the stockholders approved the adoption of an amendment to the 1995 Equity Plan pursuant to which an additional 800,000 shares of the Company’s Common Stock have been reserved for future issuance. In November 1998, the Board of Directors approved and in January 1999, the stockholders approved the adoption of an amendment to the 1995 Equity Plan pursuant to which an additional 2,000,000 shares of the Company’s Common Stock have been reserved for future issuance. Also in November 1998, the Board of Directors approved and in January 1999, the stockholders approved the adoption of an amendment to the 1995 Directors’ Plan pursuant to which an additional 200,000 shares of the Company’s Common Stock have been reserved for future issuance. In November 1999, the Board of Directors approved and in January 2000, the stockholders approved the adoption of an amendment to the 1995 Equity Plan pursuant to which an additional 940,000 shares of the Company’s Common Stock have been reserved for future issuance. Also, in July 2000, the Board of Directors approved the adoption of an amendment to the 1995 Equity Plan pursuant to which an additional 613,500 shares of the Company’s common stock have been reserved for future issuance.

Under the 1995 Equity Plan, incentive stock options may be granted to employees only at the price per share that is not less than the fair market value of common stock on the date of grant. Nonqualified options may be granted to employees or others at a price per share not less than 85% of fair market value of the common stock on the date of grant. Options are exercisable to the extent vested. Vesting, as established by the Board of Directors, generally accrues monthly over four years from the date of grant. The Company may also grant stock bonuses and issue restricted stock to employees and others. The Company has made no such grants since the 1995 Equity Plan’s inception. The 1995 Equity Plan expires ten years after adoption.

Under the 1995 Directors’ Plan, nonqualified options may be granted to nonemployee directors only at the price per share that is not less than the fair market value of common stock on the date of grant. Vesting under the 1995 Directors’ Plan accrues monthly over four years from the date of grant. The 1995 Directors’ Plan expires ten years after adoption.

Option Repricing Programs. Competition for skilled engineers and other key employees in the semiconductor industry is intense and the use of significant stock options for retention and motivation of such personnel is widespread in the high technology industries. The Compensation Committee of the Board of Directors believes that stock options are a critical component of the compensation offered by the Company to promote long-term retention of key employees, motivate high levels of performance and recognize employee contributions in the success of the Company. In light of substantial declines in the market price of the Company’s common stock in 1998, the Compensation Committee believed that the large numbers of outstanding stock options with an exercise price in excess of the actual market price were no longer an effective tool to encourage employee retention or to motivate high levels of performance.

1998 Employees and Consultants. In August 1998, the Compensation Committee approved an option repricing program for all employees and consultants to the Company who were not executive officers of the Company. Under this program, the eligible optionees were permitted to exchange their then outstanding stock options for new stock options having an exercise price of $1.81 per share (equal to the fair market value on August 28, 1998), with vesting annually during the subsequent four years. Approximately 907,800 options were repriced by employees (excluding executive officers) and consultants.

Additional information with respect to the Company’s stock option plans follows:

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes information about stock options outstanding at September 30, 2000:

At September 30, 1999 and 1998, 1,861,828 and 1,167,004 options were exercisable at weighted average exercise prices of $2.24 and $1.81, respectively.

Stock-Based Compensation. Under APB 25, the Company generally recognizes no compensation expense with respect to stock-based awards to employees. Pro forma information regarding net income and earnings per share is required by FAS 123, “Accounting for Stock-Based Compensation”, for awards granted in fiscal years that begin after December 31, 1994, as if the Company had accounted for its stock-based awards to employees under the fair value method of FAS 123.

The fair value of the Company’s stock-based awards to employees was estimated using a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock-based awards to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees.

The fair value of the Company’s stock-based awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:

ELANTEC SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The weighted-average fair value of stock options granted during 2000, 1999 and 1998 was $34.31, $3.48 and $2.93, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to pro forma net income (loss) over the options’ vesting period. The Company’s historical and pro forma information follows (in thousands, except for per share information):

6. Earnings (Loss) Per Share

The following table sets forth the reconciliation of weighted average common shares outstanding used in the computation of basic and diluted earnings per share computations for the years ended September 30: