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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 27, 2004

For the Transition Period from              to             

Commission File Number 0-27026

Pericom Semiconductor Corporation

(Exact Name of Registrant as Specified in Its Charter)

3545 North First Street

San Jose, California 95134

(408) 435-0800

(Address of Principal Executive Offices and

Issuer’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):    Yes  x    No  ¨

As of May 5, 2004 the Registrant had outstanding 26,399,300 shares of Common Stock.

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Pericom Semiconductor Corporation

Form 10-Q for the Quarter Ended March 31, 2004

INDEX

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PART I. FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

Pericom Semiconductor Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

See notes to condensed consolidated financial statements.

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Pericom Semiconductor Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

See notes to condensed consolidated financial statements.

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Pericom Semiconductor Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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Pericom Semiconductor Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The financial statements have been prepared by Pericom Semiconductor Corporation (“Pericom” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s financial position as of March 31, 2004, the results of operations for the three and nine-month periods ended March 31, 2004 and 2003 and cash flows for the nine months ended March 31, 2004 and 2003. This unaudited quarterly information should be read in conjunction with the audited financial statements of Pericom and the notes thereto incorporated by reference in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

The preparation of the interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual amounts could differ from these estimates. The results of operations for the three and nine-month periods ended March 31, 2004 are not necessarily indicative of the results to be expected for the entire year.

The Company’s fiscal periods in the accompanying financial statements have been shown as ending on June 30 and March 31. The Company’s fiscal year 2003 ended on June 28, 2003. The three and nine-month periods in fiscal years 2004 and 2003 ended on March 27, 2004 and March 29, 2003, respectively, and each period included 13 and 39 weeks, respectively. Certain reclassifications have been made to conform prior year amounts to the current year’s presentation.

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: advances and trends in new technologies; competitive pressures in the form of new products or price reductions on current products; changes in the overall demand for products offered by the Company; changes in customer relationships; acquisitions and the subsequent integration of the acquired entity with the company; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; availability of necessary components; and the Company’s ability to attract and retain employees necessary to support its growth.

These condensed consolidated financial statements include the accounts of Pericom Semiconductor Corporation and its three wholly owned subsidiaries, SaRonix, Inc., Pericom Semiconductor (HK) Limited and Pericom Taiwan Limited Corporation. SaRonix, Inc. was formed in September, 2003 to purchase substantially all the assets and related liabilities of SaRonix, LLC effective October 1, 2003. (see Note 2) All significant intercompany balances and transactions are eliminated in consolidation.

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Stock Based Compensation

Had the Company amortized to expense the computed fair values of the awards under the 1990 Stock Option Plan, 1995 Stock Option Plan, 2001 Stock Option Plan, and 2000 Employee Stock Purchase Plan, for the three and nine-month periods ended March 31, 2004 and 2003, the Company’s net loss and loss per share would have been as follows (in thousands, except per share data):

2. Business Combinations

Acquisition of Assets of SaRonix, LLC.

On October 1, 2003 the Company, acting through its wholly-owned subsidiary SaRonix, Inc., exercised its option to acquire substantially all the assets and related liabilities of privately-held SaRonix, LLC (SaRonix). Total consideration paid was approximately $7,900,000 in the form of the cancellation of previously advanced loans pursuant to the terms of a Secured Loan Agreement. The Company also incurred approximately $1,731,000 in acquisition related costs, for a total purchase price of approximately $9,631,000. SaRonix designs, manufactures and distributes industry-standard and custom frequency control products (FCP) including Crystal and Surface Acoustic Wave Oscillators, Quartz Crystals, and Timing Modules. The Company acquired SaRonix for this complementary portfolio of timing solutions.

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The results of operations of SaRonix, Inc. from the date of acquisition have been included in the Company’s consolidated financial statements. The assets acquired and liabilities assumed at the date of the acquisition were recorded at estimated fair values. Fair values of intangible assets acquired are based on an independent valuation prepared using estimates and assumptions provided by management. Fair value of tangible assets acquired and liabilities assumed were determined by management using estimates of current replacement cost, present value of amounts to be collected in the future, and other techniques. The purchase price has been allocated as follows (in thousands):

The Company amortized customer backlog over the three months ended December 31, 2003. Supplier relationship and trade name will not be amortized, but will be reviewed at least annually for impairment. Core developed technology will be amortized over its estimated useful life of ten years. Amortization expense for the three months ended March 31, 2004 was $20,000. Amortization for the remainder of fiscal 2004 will be approximately $40,000, and amortization for each fiscal year through 2012 will be $119,000 per year and amortization for 2013 will be $32,000.

Approximately $360,000 of the purchase price was allocated to the estimated fair value of in-process research and development projects. At the date of acquisition, these projects had not reached technological feasibility and had no future alternative minimum use. Accordingly, the value allocated to these projects was immediately expensed in research and development on the acquisition date.

The following unaudited pro forma information shows the results of operations for the year ended June 30, 2003 and the three months ended September 30, 2003 as if the SaRonix acquisition occurred on the first day of fiscal year 2003, with the exception that the purchase accounting adjustments were estimated based on the closing date of the SaRonix acquisition.

The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results.

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3. Loss Per Share

Basic loss per share is based upon the weighted average number of common shares outstanding. Diluted loss per share reflects the additional potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Basic and diluted loss per share for the three and nine-month periods ended March 31, 2004 and 2003 are computed as follows (in thousands, except for per share data):

For the three and nine-month periods ended March 31, 2004, options to purchase 5,429,138 shares of common stock were not included in the computation of diluted net loss per share because the Company had a net loss for these periods and those options would be anti-dilutive. For the three and nine-month periods ended March 31, 2003, options to purchase 5,238,258 shares of common stock were not included in the computation of diluted net loss per share because the Company had a net loss for these periods and those options would be anti-dilutive.

4. Inventories

Inventories consist of (in thousands):

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5. Accrued Liabilities

Accrued liabilities consist of (in thousands):

6. Long Term Debt

Bank Loan

As part of the acquisition of SaRonix (see Note 2), the Company assumed a loan from a bank. The loan has a variable interest rate of 2.5% over the 30 day LIBOR rate (1.1% at March 31, 2004) and was payable in monthly installments of principal and interest in Irish Pounds for ten years. This loan was amended twice, with the latest amendment effective in September 2003, to modify the payment terms to require interest only payments until October 31, 2004. This loan is secured by a building owned by the Company in Ireland, which is classified as held for sale at March 31, 2004. At March 31, 2004, the Company had $1,291,000 outstanding under this loan classified as a current liability based on the Company’s intent to pay off this loan in connection with the sale of the building.

Capital Lease Obligations

As part of the acquisition of SaRonix (see Note 2), the Company assumed various capital leases with interest rates ranging from 6% to 16%. These leases were paid in full as of March 31, 2004.

7. Investments and Loans to SaRonix LLC

The Company has investments in certain privately held companies, which it accounts for under the cost method. The carrying amount of such investments was approximately $2.9 million and $10.0 million at March 31, 2004 and June 30, 2003, respectively, and these amounts are recorded in other assets and loans to SaRonix LLC (see Note 2).

8. Restructuring

During the quarter ended December 31, 2002, the Company revised its estimate of a previous restructuring charge for an unused portion of its San Jose, California facility. The Company recorded a restructuring charge of $1.4 million related to this facility. This charge represents the future lease payments and estimated utility and maintenance costs for the remainder of the lease, which expires in May 2005. The Company received notice that a sublessee would move from this facility and the Company estimated that it will not be able to sublease the facility due to the excess available real estate in the San Jose, California area. Due to the continued depression in the Company’s business, the Company determined that this portion of the facility will not be utilized over the remaining lease term.

During the quarter ended December 31, 2003, the Company recorded an additional restructuring charge of $784,000 when it moved out of this facility and into a new corporate headquarters. There were no restructuring charges recorded in the quarter ended March 31, 2004.

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The following table sets forth the activity of the restructuring accrual as of March 31, 2004 (in thousands):

The Company has classified $113,000 and $619,000 of this accrual in long-term liabilities and $1,127,000 and $653,000 in current accrued liabilities in the accompanying balance sheets as of March 31, 2004 and June 30, 2003, respectively.

9. Industry and Segment Information

Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” established annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographical areas and major customers. The Company operates and tracks its results in one reportable segment. The Company designs, develops, manufactures and markets a broad range of interface integrated circuits and frequency control products.

The following table sets forth significant customers for the three and nine-month periods ended March 31, 2004 and 2003.

There were no direct customers that individually accounted for more than 10% of net sales in the three months ended March 31, 2004. In the nine months ended March 31, 2004 there was one direct customer that accounted for 12% of net sales. In the three months ended March 31, 2003, there were three direct customers that individually accounted for 12%, 11% and 10% of net sales. In the nine months ended March 31, 2003 there were two direct customers that individually accounted for 14% and 11% of net sales. The majority of the Company’s property and equipment is located within the United States.

The following table sets forth net revenues by country as a percentage of total net revenues for the three and nine-month periods ended March 31, 2004 and 2003.

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10. Comprehensive Income

SFAS No. 130, “Reporting Comprehensive Income” requires an enterprise to report, by major components and as a single total, the change in net assets during the period from non-owner sources. For the three and nine-month periods ended March 31, 2004 and 2003, comprehensive income, which was comprised of the Company’s net loss for the periods and changes in cumulative unrealized gain/(loss) on short-term investments net of tax was as follows:

11. Stock Repurchase Program

On October 22, 2001 the Company’s Board of Directors authorized a stock repurchase program to repurchase up to 2,000,000 shares of Pericom’s common stock. Purchases may be made in the open market or in privately negotiated transactions from time to time at management’s discretion. The Company began repurchasing shares of Pericom’s stock on July 23, 2002. No shares were repurchased in the three months ended March 31, 2004. The Company has purchased a total of 274,500 shares at a total cost of approximately $2.2 million as of March 31, 2004.

12. Commitments

In October 2003, the Company entered into a lease for a new corporate headquarters for a period of ten years with two consecutive options to extend for an additional five years each. The future minimum operating lease commitments, including leases on abandoned facilities (see Note 8), at March 31, 2004 are as follows (in thousands):

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Item 2: Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Pericom Semiconductor Corporation

The following information should be read in conjunction with the unaudited financial statements and notes thereto included in Part 1 - Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K (the “Form 10-K”).

Significant Events

On October 1, 2003, Pericom Semiconductor Corporation, acting through its wholly-owned subsidiary SaRonix, Inc. (“SaRonix”), exercised its option to acquire substantially all of the assets and related liabilities of SaRonix, LLC (see Note 2 to the condensed consolidated financial statements). Beginning with the three months ended December 31, 2003, the Company’s operating results include the operations of SaRonix.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be reasonable given the circumstances. Actual results may vary from our estimates.

We consider the following accounting policies to be “critical” as defined by the Securities and Exchange Commission, in that they are both highly important to the portrayal of our financial condition and results, and require us to make difficult judgements and assumptions about matters that are inherently uncertain. We also have other important policies that are discussed in Note 1 to the Consolidated Financial Statements in our Form 10-K.

Revenue Recognition. We recognize revenue from the sale of our products upon shipment, provided title and risk of loss has passed to the customer, the fee is fixed and determinable and collection of the revenue is reasonably assured. A provision for estimated future returns and other charges against revenue is recorded at the time of shipment. For the three months ended March 31, 2004 approximately 57% of our sales were to distributors. We have agreements for price protection and stock rotation programs with our distributors. The revenue we record for sales to our distributors is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgments and estimates. Our estimates are based on historical experience rates, inventory levels in the distribution channel, current trends and other related factors. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results depend on our ability to make reliable estimates and we believe that our estimates are reasonable.

Inventories. Inventories are recorded at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. We adjust the carrying value of inventory for excess and obsolete inventory based on inventory age, shipment history and our forecast of demand over a specific future period of time. The semiconductor markets that we serve are volatile and actual results may vary from our forecast or other assumptions, potentially impacting our inventory valuation and resulting in material effects on our gross margin.

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Investments. As required by SFAS No. 142, “Goodwill and Other Intangible Assets”, which we adopted in fiscal 2002, we ceased amortizing goodwill with a net carrying value of $1.3 million that resulted from our investment in Pericom Technology, Inc. SFAS No. 142 also requires that goodwill be tested for impairment at least annually. We determined that no impairment of this goodwill existed in fiscal 2003, and we will continue to evaluate such goodwill at least annually.

We have also made other investments including loans, bridge loans convertible to equity or asset purchases as well as direct equity investments. These loans and investments are made with strategic intentions and have been in privately held technology companies, which by their nature are high risk. These investments are included in other assets in the balance sheet and are carried at the lower of cost, or market if the investment has experienced an other-than-temporary decline in value. We monitor these investments quarterly and make appropriate reductions in carrying value if a decline in value is deemed to be other than temporary.

Deferred Tax Assets

Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carryforwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If these estimates and related assumptions change in the future, we may be required to increase our valuation allowance against the deferred tax assets resulting in additional income tax expense.

Results of Operations

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

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Net Revenues

The following table sets forth our revenues and the customer concentrations with respect to such revenues for the periods indicated.

On October 1, 2003, the Company exercised its option to acquire SaRonix LLC of Menlo Park, California. Beginning with the quarter ended December 31, 2003, the Company’s revenues included revenues for the three and nine-month periods ended March 31, 2004 of $5.0 million and $9.7 million, respectively, from sales of SaRonix products.

The rapid semiconductor industry downturn that began in fiscal 2001 caused an over-supply of inventories in the global distribution and contract manufacturing channels. This inventory imbalance pushed order rates down, caused a corresponding drop in backlog, and caused the percentage of net sales represented by orders placed and shipped in the same quarter to grow. These orders are called “turns” orders. Even with the recovery that is currently taking place, there is still significant reliance on turns orders. With such a reliance on turns orders, it is difficult for the Company to predict future revenue levels.

Net revenues consist of product sales, which are recognized upon shipment, less an estimate for returns and allowances. The increase in revenues for the three and nine-month periods ended March 31, 2004 as compared with the same periods in the prior year is primarily attributable to the acquisition of SaRonix. The increase in revenues is also attributable to the recovery currently taking place in the end markets the Company serves and to customer acceptance of the Company’s new product offerings. The recovery has resulted in an increase in unit volumes shipped in our core integrated circuit business and, along with favorable changes to product mix, a slight improvement in average selling price.

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The following table sets forth net revenues by country as a percentage of total net revenues for the three and nine-month periods ended March 31, 2004 and 2003.

For the three months ended March 31, 2004, as compared with the same period in the prior year, the effect of the ongoing shift of contract manufacturing production from North America to Asia on our net revenues was largely offset by the SaRonix acquisition which has a higher concentration of sales in North America. For the nine-month period ended March 31, 2004 as compared with the same period in the prior year the percentage of our net revenues derived from sales to China, Taiwan and Singapore combined increased slightly and the percentage derived from sales to the United States decreased. These changes were primarily driven by the ongoing shift of contract manufacturing production from North America to Asia which was partially offset by the SaRonix acquisition.

Gross Profit