PLX TECHNOLOGY INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - PLX TECHNOLOGY INC	Financial_Report.xls
EX-10.1 - PLX TECHNOLOGY, INC. EXHIBIT 10.1 - PLX TECHNOLOGY INC	plx_exhibit10-1.htm
EX-31.2 - PLX TECHNOLOGY, INC. EXHIBIT 31.2 - PLX TECHNOLOGY INC	plx_exhibit31-2.htm
EX-32.1 - PLX TECHNOLOGY, INC. EXHIBIT 32.1 - PLX TECHNOLOGY INC	plx_exhibit32-1.htm
EX-32.2 - PLX TECHNOLOGY, INC. EXHIBIT 32.2 - PLX TECHNOLOGY INC	plx_exhibit32-2.htm
EX-31.1 - PLX TECHNOLOGY, INC. EXHIBIT 31.1 - PLX TECHNOLOGY INC	plx_exhibit31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 000-25699

PLX Technology, Inc.

(Exact name of Registrant as Specified in its Charter)

Delaware	94-3008334
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

870 W. Maude Avenue

Sunnyvale, California 94085

(408) 774-9060

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

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[X] No[ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definition of “large accelerated filer”, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check One):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of September 30, 2011 there were 44,550,936 shares of common stock, par value $0.001 per share, outstanding.

PLX TECHNOLOGY, INC.

INDEX TO

REPORT ON FORM 10-Q

FOR QUARTER ENDED SEPTEMBER 30, 2011

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	30
Item 6.	Exhibits	38
Signature		39

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

	September 30,			December 31,
	2011			2010

ASSETS
Current Assets:
Cash and cash equivalents	$	9,610		$	5,835
Short-term marketable securities		5,004			10,398
Accounts receivable, net		12,822			13,555
Inventories		13,078			13,318
Other current assets		1,903			4,159
Total current assets		42,417			47,265
Property and equipment, net		12,965			12,554
Goodwill		21,412			21,412
Other acquired intangible assets, net		24,151			31,484
Long-term marketable securities		3,645			7,346
Other assets		1,352			1,910
Total assets	$	105,942		$	121,971

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	7,454		$	8,783
Accrued compensation and benefits		5,900			5,266
Accrued commissions		660			514
Short term note payable and capital lease obligation		5,810			6,066
Other accrued expenses		2,424			1,803
Total current liabilities		22,248			22,432
Long term borrowing against line of credit		2,000			-
Long term note payable and capital lease obligation		1,397			1,731
Total liabilities		25,645			24,163

Stockholders' Equity:
Common stock, par value		45			45
Additional paid-in capital		184,928			183,090
Accumulated other comprehensive loss		(127	)		(148	)
Accumulated deficit		(104,549	)		(85,179	)
Total stockholders' equity		80,297			97,808
Total liabilities and stockholders' equity	$	105,942		$	121,971

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net revenues	$	31,076		$	30,234		$	89,900		$	88,774
Cost of revenues		13,537			12,307			39,056			37,010
Gross margin		17,539			17,927			50,844			51,764

Operating expenses:
Research and development		11,661			7,605			38,095			23,392
Selling, general and administrative		6,856			6,570			20,659			19,734
Acquisition and restructuring related costs		699			510			3,805			510
Amortization of acquired intangible assets		2,445			648			7,333			1,945
Total operating expenses		21,661			15,333			69,892			45,581

Income (loss) from operations		(4,122	)		2,594			(19,048	)		6,183
Interest income (expense) and other, net		(42	)		(1	)		(209	)		108
Income (loss) before provision for income taxes		(4,164	)		2,593			(19,257	)		6,291

Provision for income taxes		62			1,445			113			1,948

Net income (loss)	$	(4,226	)	$	1,148		$	(19,370	)	$	4,343

Basic net income (loss) per share	$	(0.09	)	$	0.03		$	(0.44	)	$	0.12
Shares used to compute basic per share amounts		44,537			37,098			44,525			37,068

Diluted net income (loss) per share	$	(0.09	)	$	0.03		$	(0.44	)	$	0.11
Shares used to compute diluted per share amounts		44,537			37,683			44,525			37,795

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	(19,370	)	$	4,343
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities,
net of assets acquired and liabilities assumed:
Depreciation and amortization		2,670			2,448
Share-based compensation expense		1,748			943
Amortization of acquired intangible assets		7,333			1,945
Write-downs of inventories		1,015			401
Other non-cash items		242			208
Changes in operating assets and liabilities:
Accounts receivable		733			(3,754	)
Inventories		(775	)		(4,825	)
Income tax receivable		901			84
Other current assets		1,356			109
Other assets		(139	)		595
Accounts payable		(1,329	)		831
Accrued compensation and benefits		633			1,996
Other accrued expenses		792			509
Net cash provided by (used in) operating activities		(4,190	)		5,833

Cash flows from investing activities:
Purchases of marketable securities		(4,823	)		(26,824	)
Sales and maturities of marketable securities		13,841			37,298
Purchase of property and equipment		(2,487	)		(2,225	)
Proceeds from sales of property and equipment		-			22
Net cash provided by investing activities		6,531			8,271

Cash flows from financing activities:
Borrowings against line of credit		2,000			-
Proceeds from exercise of common stock options		91			216
Principal payments on capital lease obligations		(615	)		(493	)
Net cash provided by (used in) financing activities		1,476			(277	)

Effect of exchange rate fluctuations on cash and cash equivalents		(42	)		(26	)

Net increase in cash and cash equivalents		3,775			13,801
Cash and cash equivalents at beginning of period		5,835			11,299
Cash and cash equivalents at end of period	$	9,610		$	25,100

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	6		$	1,017
Cash from income tax refunds	$	978		$	-
Cash paid for interest	$	36		$	47

See accompanying notes to condensed consolidated financial statements.

PLX TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PLX Technology, Inc. and its wholly-owned subsidiaries (collectively, “PLX” or the “Company”) as of September 30, 2011 and for the three and nine month periods ended September 30, 2011 and 2010 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) that management considers necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year.

The unaudited condensed consolidated financial statements include all of the accounts of the Company and those of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

This financial data should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect various accounts, including but not limited to goodwill, acquired intangible assets, long-lived assets, income taxes, inventories, revenue recognition and related sales reserves, allowance for doubtful accounts, share-based compensation and warranty reserves as reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.

Comprehensive Net Income (Loss)

The Company’s comprehensive net income (loss) for the three and nine month periods ended September 30, 2011 and 2010 was as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss)	$	(4,226	)	$	1,148		$	(19,370	)	$	4,343
Unrealized gain (loss) on marketable securities, net		2			(5	)		12			(13	)
Cumulative translation adjustments		(20	)		(4	)		9			(22	)
Comprehensive net income (loss)	$	(4,244	)	$	1,139		$	(19,349	)	$	4,308

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance, where applicable, has occurred, the fee is fixed or determinable, and collection is reasonably assured.

Revenue from product sales to direct customers and distributors is recognized upon shipment and transfer of risk of loss, if the Company believes collection is reasonably assured and all other revenue recognition criteria are met. The Company assesses the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

The Company offers pricing protection to two distributors whereby the Company supports the distributor’s resale product margin on certain products held in the distributor’s inventory. The Company analyzes current requests for credit in process, also known as ship and debits, and inventory at the distributor to determine the ending sales reserve required for this program. The Company also offers stock rotation rights to three distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. The Company analyzes inventory at distributors, current stock rotation requests and past experience to determine the ending sales reserve required for this program. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.

The Company evaluates revenue agreements under the accounting guidance for multiple-deliverable revenue arrangements. A multiple-deliverable arrangement is separated into more than one unit of accounting if (a) the delivered item(s) has value to the customer on a stand-alone basis, (b) the arrangement includes a general right of return relative to the delivered item(s) and (c) delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met for each, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. The selling price for each element is based upon the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

On occasion, the Company enters into development service arrangements in which customer payments are tied to achievements of specific milestones. The Company has elected to use the milestone method of revenue recognition for development service agreements upon the achievement of substantive milestones. When determining if a milestone is substantive, the Company assesses whether the milestone consideration (a) is commensurate with the Company’s performance to achieve the milestone or the enhancement of the value of the delivered item as a result of the outcome from the Company’s performance, (b) relates solely to past performance and (c) is reasonable relative to all deliverables and payments terms within the arrangement.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued a standard which revised the presentation of other comprehensive income (“OCI”). The new guidance requires entities to present net income and OCI in either a single continuous statement or in separate consecutive statements. The guidance does not change the components of net income or OCI, when OCI should be reclassified to net income, or the earnings per share calculation. This accounting guidance is effective for annual reporting periods beginning after December 15, 2011. Although adopting the guidance will not impact the Company’s accounting for comprehensive income, it will affect the Company’s presentation of components of comprehensive income by eliminating its practice of showing these items within the Consolidated Statements of Stockholders’ Equity.

In September 2011, the FASB updated the guidance related to testing goodwill for impairment. This guidance simplifies how registrants test goodwill for impairment and permits registrants to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test included in U.S. GAAP. A registrant would not be required to calculate the fair value of a reporting unit unless the registrant determines that it is more likely than not that its fair value is less than its carrying amount. This accounting guidance is effective for annual and interim goodwill impairment tests performed for years beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

2. Share-Based Compensation

Stock Option Plans

In May 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (“2008 Plan”). The 2008 Plan was then amended by the Company’s stockholders in May 2010 to increase the number of shares reserved for issuance under the Plan by 1,500,000 shares. In May 2011, the 2008 Plan was amended again by the Company’s stockholders to increase the number of shares reserved for issuance under the Plan by 2,300,000 shares. Under the 2008 Plan, there is currently authorized for issuance and available for awards an aggregate of 5,000,000 shares of the Company’s common stock, plus up to an additional 2,407,369 shares that otherwise would have reverted to the share reserve of the Company’s prior incentive plan, the Company’s 1999 Stock Incentive Plan, subject to an overall, aggregate share reserve limit of 7,407,369 shares. Awards under the 2008 Plan may include stock options, restricted stock, stock appreciation rights, performance awards, restricted stock units and other awards, provided that with respect to full value awards, such as restricted stock or restricted stock units, no more than 300,000 shares may be issued in the form of full value awards during the term of the 2008 Plan. Awards under the 2008 Plan may be made to the Company’s officers and other employees, its board members and consultants that it hires. The 2008 Plan has a term of ten years.

Share-Based Compensation Expense

The fair value of share-based awards is calculated using the Black-Scholes option pricing model, which requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.

The weighted-average fair value of share-based compensation to employees is based on the multiple option valuation approach. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of share-based compensation awards to employees is amortized using the straight-line method over the vesting period of the options. The weighted-average fair value calculations are based on the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Risk-free interest rate		0.78	%		1.09	%		1.24	%		1.59	%
Expected volatility		0.61			0.62			0.61			0.62
Expected life (years)		4.32			4.19			4.32			4.19

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

Expected Life: The Company’s expected life represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected life is based on the observed and expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options in relation to stock price movements to derive an employee behavioral pattern used to forecast expected exercise patterns.

Expected Volatility: The Company believes that historical volatility best represents expected volatility due to the lack of market data consistently available to calculate implied volatility. The historical volatility is based on the weekly closing prices of its common stock over a period equal to the expected term of the option and is a strong indicator of the expected future volatility.

These factors could change in the future, which would affect the share-based compensation expense in future periods.

As share-based compensation expense recognized in the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s estimated forfeiture rate at September 30, 2011 and 2010 of 26% was based on historical experience.

The following table shows total share-based compensation and employee stock ownership plan expenses for the three and nine months ended September 30, 2011 and 2010, included in the respective line items of the Condensed Consolidated Statements of Operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Cost of revenues	$	11	$	8	$	34	$	25
Research and development		406		155		1,145		464
Selling, general and administrative		254		223		940		706
Total share-based compensation expense	$	671	$	386	$	2,119	$	1,195

A summary of option activity under the Company’s stock equity plans during the first three quarters of 2011 is as follows:

									Weighted Average
									Remaining		Aggregate
	Options Available			Number of			Weighted Average		Contratual Term		Intrinsic
Options	for Grant			Shares			Exercise Price		(in years)		Value
Outstanding at December 31, 2010		898,724			4,202,653		$	4.34		5.06	$	2,314,975
Granted		(772,000	)		772,000			3.73
Exercised		-			(12,489	)		1.95
Cancelled		116,798			(116,798	)		5.52
Plan Termination		(11	)		-			-

Outstanding at March 31, 2011		243,511			4,845,366		$	4.22		5.18	$	2,337,903
Authorized		2,300,000			-			-
Granted		(420,000	)		420,000			3.35
Exercised		-			(18,619	)		1.90
Cancelled		77,522			(77,522	)		4.30
Plan Termination		(989	)		-			-

Outstanding at June 30, 2011		2,200,044			5,169,225		$	4.15		5.10	$	1,977,661
Granted		(36,500	)		36,500			3.28
Exercised		-			(15,457	)		2.00
Cancelled		109,005			(109,005	)		4.77

Outstanding at September 30, 2011		2,272,549			5,081,263		$	4.14		4.90	$	1,285,059

Exercisable at September 30, 2011					2,223,929		$	4.85		3.75	$	830,390

The Black-Scholes weighted average fair values of options granted during the three months ended September 30, 2011 and 2010 were $1.57 and $1.88, respectively.

The Black-Scholes weighted average fair values of options granted during the nine months ended September 30, 2011 and 2010 were $1.76 and $2.40, respectively.

The following table summarizes ranges of outstanding and exercisable options as of September 30, 2011:

	Options Outstanding						Options Exercisable
			Weighted Average
			Remaining		Weighted				Weighted
			Contractual Term		Average				Average
Range of Exercise Prices	Number		(in years)		Exercise Price		Number		Exercise Price
$1.50-$2.05		1,232,237		4.29	$	1.97		797,998	$	1.97
$2.06-$3.48		1,206,007		5.88		3.40		202,110		3.24
$3.49-$3.87		1,101,220		5.71		3.76		213,155		3.83
$3.88-$7.03		1,081,574		4.91		5.11		550,441		5.26
$7.04-$16.65		460,225		1.45		10.52		460,225		10.52
Total		5,081,263		4.85	$	4.14		2,223,929	$	4.85

The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $20,000 and $73,000, respectively. For the same periods in 2010, the total intrinsic value of options exercised was $14,000 and $0.3 million, respectively. The fair value of options vested during the three and nine months ended September 30, 2011 was approximately $0.5 million and $2.1 million, respectively. As of September 30, 2011, total unrecognized compensation costs related to nonvested stock options including estimated forfeitures was $2.1 million which is expected to be recognized as expense over a weighted average period of approximately 1.3 years.

3. Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market (net realizable value). Inventories were as follows (in thousands):

	September 30,		December 31,
	2011		2010
Work-in-process	$	6,439	$	5,016
Finished goods		6,639		8,302
Total	$	13,078	$	13,318

The Company evaluates the need for potential inventory provisions by considering a combination of factors including the life of the product, sales history, obsolescence and sales forecasts.

4. Net Income (Loss) Per Share

The Company uses the treasury stock method to calculate the weighted average shares used in the diluted earnings per share. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010

Net income (loss)	$	(4,226	)	$	1,148	$	(19,370	)	$	4,343
Weighted average shares of common stock outstanding		44,537			37,098		44,525			37,068
Net income (loss) per share - basic	$	(0.09	)	$	0.03	$	(0.44	)	$	0.12
Shares used in computing basic net income (loss) per share		44,537			37,098		44,525			37,068
Dilutive effect of stock options		-			585		-			727
Shares used in computing diluted net income (loss) per share		44,537			37,683		44,525			37,795
Net income (loss) per share - diluted	$	(0.09	)	$	0.03	$	(0.44	)	$	0.11

As the Company incurred a net loss for the three and nine month periods ended September 30, 2011, the effect of dilutive securities, totaling 5.1 million shares has been excluded from the computation of diluted loss per share, as its impact would be anti-dilutive. Dilutive securities are comprised of options to purchase common stock.

Weighted average employee stock options to purchase approximately 2.0 million and 1.8 million for the three and nine month periods ended September 30, 2010, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of stock options was greater than the average share price of the Company’s stock and, therefore, the effect would have been anti-dilutive.

5. Fair Value Measurements

The accounting guidance for fair value measurements provided a framework for measuring fair value and expands related disclosures. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The guidance also established a hierarchy which requires an entity to maximize the use of observable inputs, when available. The guidance requires fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the level 1 category is based on quoted prices that are readily and regularly available in an active market.

Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based upon quoted prices in markets that are not active and incorporate available trade, bid and other market information.

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.

The fair value of financial assets and liabilities measured on a recurring basis is as follows (in thousands):

			Fair Value Measurement as Reporting Date Using
			Quoted Prices in Active Markets		Significant Other		Significant
			for Identical Assets or Liabilities		Observable Inputs		Unobservable Inputs
	September 30, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	61	$	61	$	-	$	-
Certificate of deposit		1,494		1,494		-		-
Marketable securities		7,653		-		7,653		-
Total	$	9,208	$	1,555	$	7,653	$	-

			Fair Value Measurement as Reporting Date Using
			Quoted Prices in Active Markets		Significant Other		Significant
			for Identical Assets or Liabilities		Observable Inputs		Unobservable Inputs
	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	1	$	1	$	-	$	-
Certificate of deposit		1,494		1,494		-		-
Marketable securities		16,997		-		16,997		-
Total	$	18,492	$	1,495	$	16,997	$	-

6. Investments

As of September 30, 2011, the Company’s securities consisted of debt securities and were designated as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices or prices quoted in markets that are not active, with unrealized gains and losses reported in a separate component of stockholders’ equity. The amortized cost of debt securities is adjusted for the amortization of premiums and the accretion of discounts to maturity, both of which are included in interest income. Realized gains and losses are recorded on the specific identification method.

The fair value of available-for-sale investments is as follows (in thousands):

	September 30, 2011
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gain		Loss		Fair Value

Certificate of deposit	$	1,494	$	-	$	-	$	1,494
Corporate bonds and notes		1,686		-		-		1,686
Municipal bonds		2,322		2		-		2,324
US treasury and government agencies securities		3,639		4		-		3,643
Total bonds, notes and equity securities	$	9,141	$	6	$	-	$	9,147
Less amounts classified as cash equivalents								(498	)
Total short and long-term available-for-sale investments							$	8,649

Contractual maturity dates for investments:
Less than one year:								5,004
One to two years:								3,645
							$	8,649

	December 31, 2010
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gain		Loss			Fair Value

Certificate of deposit	$	1,494	$	-	$	-		$	1,494
Corporate bonds and notes		3,879		2		(1	)		3,880
Municipal bonds		1,988		-		(7	)		1,981
US treasury and government agencies securities		11,136		11		(11	)		11,136
Total bonds, notes and equity securities	$	18,497	$	13	$	(19	)	$	18,491
Less amounts classified as cash equivalents									(747	)
Total short and long-term available-for-sale investments								$	17,744

Contractual maturity dates for investments:
Less than one year:									10,398
One to two years:									7,346
								$	17,744

The following tables show the gross unrealized losses and fair value for investments in an unrealized loss position as of December 31, 2010, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

	December 31, 2010
	Less than 12 Months					12 months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

Corporate bonds and notes	$	1,620	$	(1	)	$	-	$	-	$	1,620	$	(1	)
Municipal Bonds		1,877		(7	)		-		-		1,877		(7	)
US treasury and government agencies securities		3,915		(11	)		-		-		3,915		(11	)
Total	$	7,412	$	(19	)	$	-	$	-	$	7,412	$	(19	)

As of September 30, 2011, the Company had an aggregate unrealized loss of less than $1,000.

The Company reviews its available for sale investments for impairment at the end of each period. Investments in debt securities, which make up the majority of the Company’s investments, are considered impaired when the fair value of the debt security is below its amortized cost. If an impairment exists and the Company determines it has intent to sell the debt security or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis, an other-than-temporary impairment loss is recognized in earnings to write the debt security down to its fair value. However, even if the Company does not expect to sell the debt security, it must evaluate expected cash flows to be received and determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recognized in other comprehensive income (loss). The Company did not record any other-than-temporary write-downs in the accompanying financial statements.

7. Acquisition of Teranetics Inc.

On October 1, 2010, the Company acquired all of the outstanding shares of capital stock of Teranetics, Inc. (Teranetics), a privately held fabless provider of high performance mixed-signal semiconductors.

Teranetics’ corporate headquarters were located in San Jose, California. Founded in 2003, Teranetics provides state-of-the-art silicon solutions that enable 10 Gigabit per second rates over widely installed low-cost CAT6 and CAT6a cabling. Teranetics’ products allow data centers and enterprise networks to increase scalability and improve throughput while dramatically lowering the cost of ownership for 10 Gigabit per second links.

The Company believes that this acquisition provides another leadership position into its product portfolio. There are major synergies in the design process, technology, sales, marketing, and supply chains. The company can leverage its technology and IP with PCI Express and 10 Gigabit Ethernet to bring out new architectures for the data centers. Teranetics’ customers included Arista Networks, Cisco, Extreme Networks and Intel.

The total consideration paid for the transaction was $34.7 million, consisting of 7.4 million shares valued at $3.71 per share, the closing price on October 1, 2010, the date the transaction was closed, cash of $1.0 million and assessed fair value of two promissory notes in aggregate amount of approximately $6.7 million, less $1.3 million allocated to Teranetics’ chief executive officer’s bonus.

The following table summarizes the consideration paid for Teranetics (in thousands):

	Common		Cash at		Notes		Bridge
	Shares of PLX		Closing		A and B		Note		Total

Purchase price	$	26,406	$	887	$	6,386	$	1,000	$	34,679
Allocated to CEO bonus		1,048		35		264		-		1,347
Total	$	27,454	$	922	$	6,650	$	1,000	$	36,026

As a part of the merger agreement, the Company acquired all of the outstanding shares of capital stock of Teranetics in exchange for 7.4 million shares of common stock of PLX, cash of approximately $1.0 million and two promissory notes in the aggregate principal amount of $6.9 million. One note is for the principal amount of approximately $1.5 million and is due 3 years after the closing of the Merger, and the other note is for the principal amount of $5.4 million and is due 12 months after the closing of the Merger (this $5.4 million note was delivered into an escrow fund that may be used to satisfy indemnity obligations owed to PLX). The Company has delayed payment of the $5.4 million note as a result of indemnity claims it has communicated to the Teranetics stockholders representative. The parties are discussing these claims, and the Company cannot currently predict the outcome of these discussions. The stated interest rate on the promissory notes is 0.46%. In accordance with the business combinations guidance, the promissory notes were fair valued based on market interest rates and the assessed fair value of the promissory notes was approximately $6.7 million.

Under a prior employment agreement between Teranetics and its chief executive officer, the chief executive officer was entitled to receive a bonus for prior services rendered based on the merger consideration amount. The agreement provided that the chief executive officer was to receive his distribution in the same manner and timing in which the shareholders of Teranetics receive their purchase consideration and did not require continuing employment after the merger. The chief executive officer’s bonus of approximately $1.3 million is included in the stock, cash and promissory notes issued.

The Company extended a bridge loan to Teranetics in the amount of $1.0 million during negotiations to support the working capital needs of Teranetics and in contemplation of the Merger. Upon closing of the Merger, the $1.0 million bridge note was also considered part of the merger consideration provided as a component of the purchase price.

In addition to consideration transferred to former stockholders of Teranetics, PLX made payments at closing in the amount of $13.2 million to repay debt and other assumed liabilities. The payments consisted of $11.2 million for convertible promissory note and line of credit debt and $2.0 million of payables for legal and investment banking services performed for Teranetics prior to closing and in connection with the merger.

The Company agreed to pay the former Teranetics employees a bonus pool under the Teranetics Employee Retention Plan which required continued employment in order to be earned by individual employees. Under the final plan, a total of $5.3 million was carved out of the consideration as a bonus pool to be paid out over a period of time to participants who were employees of Teranetics at the time of a change in control, provided they fulfilled certain future service requirements for the combined entity. As of September 30, 2011, the Company has paid $3.3 million of the retention bonus. The Company also accrued the remaining $2.0 million commitment based on the required service period which ended on October 1, 2011. If any individual left prior to the completion of the required service period, any amounts forfeited by the individual was added back to the bonus pool and re-allocated to the remaining participants. Approximately $2.3 million of retention bonus expense was recorded in 2011 and included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations.

Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents	$	112
Trade receivables		443
Inventories		444
Other current assets		360
Property, plant and equipment		673
Identifiable intangible assets		30,500
Other assets		42
Trade and other payable		(2,919	)
Accruals and other liabilities		(15,021	)
Total indentifiable net assets	$	14,634
Goodwill		20,045
	$	34,679

The fair value of assets acquired includes trade receivables of $0.4 million. The gross amount due under sales related contracts was $0.4 million, of which none was expected to be uncollectible.

The identified intangible assets consist of core technology, trade name and customer relationships. The valuation of the acquired intangibles is classified as a level 3 measurement under the fair value measurement guidance, because the valuation was based on significant unobservable inputs and involved management judgment and assumptions about market participants and pricing. In determining fair value of the acquired intangible assets, we determined the appropriate unit of measure, the exit market and the highest and best use for the assets. The fair value was estimated using an incremental income approach.

The goodwill arising from the acquisition is largely attributable to the synergies expected to be realized after the Company’s acquisition and integration of Teranetics. The Company only has one operating segment, semiconductor products, so all of the goodwill was assigned to the one segment. Goodwill is not expected to be deductible for tax purposes.

Teranetics contributed revenues and gross profit of $1.3 million and $0.4 million, respectively, to the Company for the three months ended September 30, 2011 and $3.6 million and $1.6 million, respectively, for the nine months ended September 30, 2011. The Company integrated Teranetics operations shortly after acquisition and was fully integrated as of December 31, 2010 and it is therefore not practicable to identify earnings associated with Teranetics’ contribution.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination occurred at the beginning of 2009 (in thousands):

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2010			2010
Revenue	$	30,896		$	91,412
Net loss	$	(5,996	)	$	(16,505	)

The unaudited pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Teranetics to reflect the acquisition carve-out retention bonus and amortization that would have been recorded assuming the acquisition occurred on January 1, 2009.

8. Goodwill and Intangibles

The acquisition of Teranetics, as discussed in Note 7 above, and the 2009 acquisition Oxford included the acquisition of $30.5 million and $9.1 million, respectively, of identifiable intangible assets. All of these intangibles are subject to amortization. There is no estimated residual value on any of the intangible assets.

The following table summarizes the gross carrying amount and accumulated amortization for each major intangible class and the weighted average amortization period, in total and by major intangible asset class, as of September 30, 2011 (in thousands):

	2011
	Gross Carrying		Accumulated			Net		Amortization	Estimated
	Value		Amortization			Value		Method	Useful Life
Existing and core technology
Oxford USB and Serial Connectivity	$	4,600	$	(4,409	)	$	191	Accelerated	3 years
Oxford Network Attached Storage Connectivity		3,800		(2,090	)		1,710	Accelerated	4 years
Teranetics Network PHY		20,100		(3,350	)		16,750	Straight-line	6 years
Trade Name
Oxford		600		(600	)		-	Straight-line	2 years
Teranetics		200		(100	)		100	Straight-line	2 years
Customer Relationships
Oxford		56		(56	)		-	Accelerated	1 year
Teranetics		10,200		(4,800	)		5,400	Accelerated	3.5 years
Totals	$	39,556	$	(15,405	)	$	24,151		4.8 years

The amortization expense for the three and nine months periods ended September 30, 2011 was $2.4 million and $7.3 million respectively. For the same periods in 2010 the amortization expense was $0.6 million and $1.9 million, respectively.

As of the result of the divestiture of the UK design team on October 21, 2011, the Company reviewed the useful life of its storage acquired intangibles and has determined a change in the assets useful life and method of amortization was required. The Company reduced the useful life of the intangible from five years to four years and changed the amortization method from straight-line to accelerated. The change and amortization acceleration will be reflected in the fourth quarter of 2011, the period of change.

Estimated future amortization expense is as follows (in thousands):

Remainder of 2011	$	3,265
2012		6,449
2013		4,663
2014		3,912
2015		3,350
2016		2,512
Total	$	24,151

9. Acquisition and Restructuring Costs

Acquisition Costs

For the three and nine months ended September 30, 2011, the Company recorded $0.5 million and $2.3 million, respectively of carve-out retention bonus expense associated with the acquisition of Teranetics. See Note 7 to the condensed consolidated financial statements for additional information. For the nine months ended September 30, 2011, the Company also incurred $88,000 of third party acquisition related costs, primarily for outside legal and accounting costs. These expenses were included in operating expenses under acquisition and restructuring related costs in the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2011.

Severance

In the nine months ended September 30, 2011, the Company recorded approximately $0.5 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations, related to the termination of 14 employees worldwide as a result of the downsizing and refocus of the operations in the UK and cost control efforts as a result of the Teranetics acquisition. As of June 30, 2011, all of the $0.5 million severance and benefit related costs were paid.

Lease Terminations

In October 2010, associated with the acquisition of Teranetics, the Company assumed a building lease in San Jose, California which was vacated in March 2011. Given current lease rates and the available space in the area when the property was vacated, the Company recorded a $0.4 million liability, included in other accrued expenses in the Condensed Consolidated Balance Sheet, for the estimated fair value of the future lease costs through June 2012, reduced by estimated sublease rental and adjusted for deferred rent. As of September 30, 2011, the Company was not able to sublease the property and as a result recoded the remaining liability of $0.2 million. The total adjusted cash payment was not materially different from the fair value. The lease accrual charge of $0.6 million was recorded in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations. The Company expects the lease liability to be fully paid by June 2012.

In connection with the downsizing of UK operations, the Company vacated the first floor of its building as of March 2011 and terminated the lease for this space. In March 2011, the Company recorded a $0.2 million liability, included in other accrued expenses in the Condensed Consolidated Balance Sheet, for future lease costs and early termination fees. The lease accrual charge of $0.2 million was recorded in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations. The Company expects the lease liability to be fully paid by December 2011.

10. Segments of an Enterprise and Related Information

The Company has one operating segment, the sale of semiconductor devices. The Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) because he has final authority over resource allocation decisions and performance assessment. The CODM does not receive discrete financial information about individual components of the Company’s business. The majority of the Company’s assets are located in the United States.

Revenues by geographic region based on customer location were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues:
Taiwan	$	8,355	$	5,653	$	21,666	$	16,521
China		7,920		8,904		21,750		27,483
United States		5,192		5,854		16,355		15,393
Germany		2,514		2,929		9,765		7,144
Other Asia Pacific		2,989		2,467		8,429		8,490
Singapore		3,565		3,657		10,146		11,600
Europe, Middle East and Africa		513		680		1,689		1,766
The Americas - excluding United States		28		90		100		377
Total	$	31,076	$	30,234	$	89,900	$	88,774

There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Excelpoint Systems Pte Ltd		24	%		27	%		23	%		27	%
Avnet, Inc.		21	%		26	%		22	%		21	%
Answer Technology, Inc.		20	%		16	%		20	%		18	%
Promate Electronics Co., Ltd		10	%		*	%		*	%		10	%

* Less than 10%

The following distributors accounted for 10% or more of the total accounts receivable balance:

	September 30,
	2011			2010
Excelpoint Systems Pte Ltd		31	%		31	%
Answer Technology, Inc.		22	%		21	%
Avnet, Inc.		16	%		20	%
Promate Electronics Co., Ltd		12	%		*	%

* Less than 10%

11. Line of Credit

On September 30, 2011, the Company entered into an agreement with Silicon Valley Bank to establish a two-year $10 million revolving loan facility. The facility provides for revolving advances based on a borrowing-base formula tied to the Company’s receivables and also provides for month-end and fiscal quarter-end advances beyond the borrowing-base formula subject to certain limitations and requirements. Borrowings under the credit facility bear interest at rates equal to the prime rate announced from time to time in The Wall Street Journal. As of September 30, 2011 the prime rate was 3.25%. The facility also provides for commitment, unused facility and letter-of-credit fees. The facility is secured by liens on the Company’s personal property assets except for intellectual property, which is subject to a negative pledge against encumbrance. On September 30, 2011, the Company borrowed $2.0 million against the facility.

The facility is subject to certain financial covenants. The Company was in compliance with all financial covenants associated with this facility as of September 30, 2011.

12. Contingencies

To date, Internet Machines LLC ("Internet Machines") has filed three separate lawsuits against the Company. The first suit was filed on February 2, 2010, which has been served on PLX, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, Tyler Division. This first suit alleges infringement by PLX and the other defendants in the lawsuit of two patents held by Internet Machines. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents. On May 14, 2010, the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. On December 6, 2010, the Court held a case-management conference and subsequently entered a scheduling order in this matter, setting trial for February 2012.

Internet Machines's second lawsuit, which has also been served on PLX, was filed on October 17, 2010, again in the United States District Court for the Eastern District of Texas, Tyler Division. This suit, entitled Internet Machines LLC v. ASUS Computer International, et al., alleges infringement by PLX of another patent held by Internet Machines. The complaint also asserts infringement claims against a separate group of defendants not named in the first Internet Machines lawsuit, and accuses those defendants of infringing the two patents asserted against PLX in the first suit, as well as the additional patent listed in this second lawsuit. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents.

On December 28, 2010, the Company filed its answer to the live complaint in the second lawsuit and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. The Court recently issued a scheduling order, and the Court has set a trial date for this lawsuit of June 4, 2012. Because this lawsuit accuses PLX of infringing a separate patent not listed in the first suit, and because this suit involves additional parties not named as defendants in the first lawsuit, this trial date is separate from the February 2012 trial mentioned above.

On May 17, 2011, Internet Machines filed a third lawsuit entitled Internet Machines LLC v. Avnet, Inc., et al., again in the United States District Court for the Eastern District of Texas, Tyler Division. The third lawsuit has been served on PLX and alleges that PLX infringes a fourth patent held by Internet Machines. This lawsuit also accuses a new group of defendants of infringing each of Internet Machines's patents at issue in the first two lawsuits filed, as well as the fourth patent asserted against PLX in this third suit. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents. On September 27, 2011,the Company filed its answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. All parties have appeared, but the Court has not set this matter for a scheduling conference.

On March 25, 2011, a related entity, Internet Machines MC LLC, filed a lawsuit against the Company, entitled Internet Machines MC LLC v. PLX Technology, Inc., et al., in the United States District Court for the Eastern District of Texas, Marshall Division. Internet Machines MC LLC, however, did not serve the initial complaint on PLX. Instead, on August 26, 2011, Internet Machines MC LLC filed a first amended complaint, which has now been served on PLX, alleging infringement by PLX and the other defendants in the lawsuit of one patent held by Internet Machines MC LLC. The Company currently has a deadline to answer or otherwise respond to the complaint by Friday, November 11, 2011.

While it is not possible to determine the ultimate outcome of the above mentioned litigation, which involves various related cases, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend our position. The Company is unable to estimate a range of possible loss and believes that any ultimate liability in this litigation will not have a material impact on its financial position or results of operations.

13. Income Taxes

A provision for income tax of $0.1 million has been recorded for the nine month period ended September 30, 2011, compared to a provision of $1.9 million for the same period in 2010. Income tax expense for the nine months ended September 30, 2011 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur and miscellaneous state income taxes. The Company excluded from its calculation of the effective tax rate losses in the US and certain foreign jurisdiction since it cannot benefit those losses. For the same period in 2010, the income tax provision was the result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items.

The Company has determined that negative evidence supports the need for a full valuation allowance against its net deferred tax assets at this time. The Company will maintain a full valuation allowance until sufficient positive evidence exists to support a reversal of the valuation allowance.

As of September 30, 2011, the Company had unrecognized tax benefits of approximately $4.0 million of which none, if recognized, would result in a reduction of the Company’s effective tax rate. There were no material changes in the amount of unrecognized tax benefits during the nine months ended September 30, 2011. Future changes in the balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. The Company does not believe the amount of its unrecognized tax benefits will significantly change within the next twelve months.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. The tax years 1997 through 2010 remain open to examination by the federal and most state tax authorities due to certain acquired net operating loss and overall credit carryforward positions.

14. Subsequent Events

On October 5, 2011 the Company signed a definitive agreement with OCZ Technology Group, whereby OCZ will acquire the Company’s UK design team and related assets. In addition, the Company entered into a license agreement with OCZ for the license of its consumer storage technology. The deal closed on October 21, 2011. The Company will continue to offer and support its current consumer storage products.

As of September 30, 2011, the assets transferred in this divestiture of $0.5 million were classified as held for use as it did not meet all the criteria to be classified as held for sale under the accounting guidance related to property, plant and equipment. The Company also reviewed the useful life of its storage acquired intangibles and has determined a change in the assets useful life was required. The Company reduced the useful life of the intangible from five years to four years. The change and amortization acceleration will be reflected in the fourth quarter of 2011, the period of change.

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

This Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, hopes, intentions, beliefs or strategies regarding the future. Such forward-looking statements also include statements regarding our future gross margin, our future research and development expenses, our expectations and plans for the 10G Ethernet over copper products that we are developing based on our acquisition of Teranetics, our future unrecognized tax benefits, our ability to meet our capital requirements for the next twelve months, our future capital requirements, current high turns fill requirements and our anticipation that sales to a small number of customers will account for a significant portion of our sales. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ include unexpected changes in the mix of our product sales, unexpected pricing pressures, unexpected capital requirements that may arise due to other possible acquisitions or other events, unanticipated changes in the businesses of our suppliers, and unanticipated cash shortfalls. Actual results could also differ for the reasons noted under the sub-heading “Factors That May Affect Future Operating Results” in Item 1A, Risk Factors in Part II of this report on Form 10-Q and in other sections of this report on Form 10-Q. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this report on Form 10-Q, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

OVERVIEW

PLX Technology, Inc. ("PLX" or the "Company"), a Delaware corporation established in 1986, designs, develops, manufactures, and sells integrated circuits that perform critical system connectivity functions. These interconnect products are a fundamental building block for standards-based subsystems. We market our products to major customers that sell electronic systems in the enterprise, consumer, server, storage, communications, PC peripheral and embedded markets.

Products based on current serial interconnect technology standards such as PCI Express, USB, Serial ATA, and Ethernet provide capabilities to customers that previous parallel technologies did not. They offer the ability for systems to scale in performance and capabilities, and allow for a standards-based building block approach that was not feasible in the past. As these serial technologies have become mainstream, we have been able to offer differentiated products based on these standards that provide scalability and performance at a low cost.

PLX is the market share leader in PCI Express switches and bridges. We recognized the trend towards this serial, switched interconnect technology early, launched products for this market long before our competitors and have deployed multiple generations of products to serve a general-purpose, horizontal market. In addition to enabling customer differentiation through our product features, the breadth of our product offering is in itself a significant benefit to our customers, since we can serve the complete needs of our customers with cost-effective solutions tailored to the specific system requirements. Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate under non-ideal real-world, system environments.

PLX has extended its penetration into the overall enterprise market through the October 2010 acquisition of Teranetics, Inc., a privately held fabless provider of high-performance mixed-signal semiconductors. Teranetics, the broadly recognized leader in 10 Gigabit Ethernet over copper physical layer (10GBase-T PHY) technology, delivered the industry’s first fully integrated single-chip implementation of single-port and dual-port 10GBase-T PHY silicon. We are currently developing the next generation of these products, which should provide a much more cost effective and lower power solution. It is expected that these products will become mainstream, growing much more rapidly than the current optical products that currently offer this speed. Given the widespread copper infrastructure for Ethernet in data centers, and the ability of the 10G PHYs to interoperate with the current 1G installed base, we anticipate solid demand for this technology.

Consumer storage has been a part of PLX’s focus since 2009, and complements our success in enterprise storage. We have brought to market several generations of products that allow storage customers to attach their disk subsystems directly to a computer through USB (DAS), or to attach them through their local area network (NAS) via Ethernet. We identified the shift from parallel to serial hard disk connectivity early, and benefited from this trend to become the leader in high performance consumer storage connectivity. Our products provide the richest variety of connectivity options, including USB, Serial ATA, external Serial ATA, 1394, and Ethernet, and offer capabilities such as RAID and data encryption at industry leading performance levels.

PLX offers a complete solution consisting of semiconductor devices, software development kits, hardware design kits, operating system ports, and firmware solutions that enable added-value features in our products. We differentiate our products by offering higher performance at lower power, by enabling a richer customer experience based on proprietary features that enable system-level customer advantages, and by providing capabilities that enable a customer to get to market more quickly.

We utilize a “fabless” semiconductor business model whereby we purchase wafers or packaged and tested semiconductor devices from independent manufacturing foundries. The advantage of this approach, in our opinion, is that it allows us to focus on defining, developing and marketing our products and eliminates the need for us to invest large amounts of capital in manufacturing facilities and work-in-process inventory.

We rely on a combination of direct sales personnel, distributors and manufacturers’ representatives throughout the world to sell a significant portion of our products. We pay manufacturers’ representatives a commission on sales while we sell products to distributors at a discount from the selling price.

The time period between initial customer evaluation and design completion can range from six to twelve months or more. Furthermore, there is typically an additional six to twelve month or greater period after design completion before a customer orders volume production of our products. Due to the variability and length of these design cycles and variable demand from customers, we may experience significant fluctuations in new orders from month to month. In addition, we typically make inventory purchases prior to receiving customer orders. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our results for that quarter and potentially future quarters would be materially and adversely affected.

Our long-term success will depend on our ability to successfully introduce new products. While new products typically generate little or no revenue during the first twelve months following their introduction, our revenues in subsequent periods depend upon these new products. Due to the lengthy sales cycle and additional time before our customers request volume production, significant revenues from our new products typically occur twelve to twenty-four months after product introduction. As a result, revenues from newly introduced products have, in the past, produced a small percentage of our total revenues in the year the product was introduced. See –“Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues” in Item 1A, Risk Factors, in Part II of this report on Form 10-Q.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND SEPTEMBER 30, 2010

Net Revenues

The following table shows the revenue by type (in thousands) and as a percentage of net revenues:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2011				2010				2011				2010
PCI Express Revenue	$	16,263	52.3	%	$	14,434	47.7	%	$	47,312	52.6	%	$	41,804	47.1	%
Storage Revenue	$	4,468	14.4	%	$	3,679	12.2	%	$	10,597	11.8	%	$	12,759	14.4	%
Network PHY Revenue	$	1,313	4.2	%	$	-	-		$	3,644	4.1	%	$	-	-
Connectivity Revenue	$	9,032	29.1	%	$	12,121	40.1	%	$	28,347	31.5	%	$	34,211	38.5	%

Net revenues consist primarily of product revenues generated principally by sales of our semiconductor devices. In the first quarter of 2011, we recorded development service revenues of approximately $1.6 million primarily associated with our Network PHY technology, which was accounted for under the milestone method of revenue recognition. Net revenues for the three months ended September 30, 2011 were $31.1 million, an increase of 2.8% from $30.2 million for the same period in 2010. The increase was due to higher sales of our PCI Express and Storage products and the introduction of the Network PHY products acquired as part of the Teranetics acquisition, partially offset by lower sales of Connectivity products.

Net revenues for the nine months ended September 30, 2011 were $89.9 million, an increase of 1.3% from $88.8 million for the same period in 2010. The increase was due to higher sales of our PCI Express products and the introduction of the Network PHY products and services acquired as part of the Teranetics acquisition, partially offset by lower sales of Connectivity and Storage products as well as lower ASPs of our Storage products as a result of the transition to the low ASP markets.

There were no direct end customers that accounted for more than 10% of net revenues. Sales to the following distributors accounted for 10% or more of net revenues:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Excelpoint Systems Pte Ltd		24	%		27	%		23	%		27	%
Avnet, Inc.		21	%		26	%		22	%		21	%
Answer Technology, Inc.		20	%		16	%		20	%		18	%
Promate Electronics Co., Ltd		10	%		*	%		*	%		10	%

* Less than 10%

As of September 30, 2011, we have one remaining milestone of $1.5 million relating to the development services of our Network PHY technology, which will be recognized upon completion and customer acceptance.

Future demand for our products is uncertain and is highly dependent on general economic conditions and the demand for products that contain our chips. Customer demand for semiconductors can change quickly and unexpectedly. Our revenue levels have been highly dependent on the amount of new orders that are received for products to be delivered to the customer within the same quarter, also called “turns fill” orders. Because of the long cycle time to build our products and our lack of visibility into demand when turns fill orders are high, it is difficult to predict which products to build to match future demand. We believe the current high turns fill requirements will continue indefinitely. The high turns fill orders pattern, together with the uncertainty of product mix and pricing, makes it difficult to predict future levels of sales and profitability and may require us to carry higher levels of inventory.

Gross Margin

Gross margin represents net revenues less the cost of revenues. Cost of revenues includes the cost of (1) purchasing semiconductor devices or wafers from our independent foundries, (2) packaging, assembly and test services from our independent foundries, assembly contractors and test contractors and (3) our operating costs associated with the procurement, storage, and shipment of products as allocated to production.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	in thousands
Gross profit	$	17,539		$	17,927		$	50,844		$	51,764
Gross margin		56.4	%		59.3	%		56.6	%		58.3	%

Gross profit for the three months ended September 30, 2011 decreased by 2.2% compared to the same period in 2010. The decrease in absolute dollars and as a percentage was primarily due to overall product mix as well as the introduction of the 40nm products acquired as part of the Teranetics acquisition.

Gross profit for the nine months ended September 30, 2011 decreased by 1.8% compared to the same period in 2010. The decrease in absolute dollars and as a percentage was primarily due to decreased Storage product margins as a result of the transition to the low ASP markets and the decrease in Connectivity product shipment which generally have higher margins, partially offset by development service revenues which were recorded in the first quarter of 2011 at 100% margin.

We expect gross margin to increase slightly in the fourth quarter of 2011 as a result of product, development services and IP mix. Future gross profit and gross margin are highly dependent on the product and customer mix, provisions and sales of previously written down inventory, the position of our products in their respective life cycles and specific manufacturing costs. Accordingly, we are not able to predict future gross profit levels or gross margins with certainty.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of tape-out costs at our independent foundries, salaries and related costs, including share-based compensation and expenses for outside engineering consultants.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	in thousands
R&D expenses	$	11,661		$	7,605		$	38,095		$	23,392
As a percentage of revenues		37.5	%		25.2	%		42.4	%		26.4	%

R&D expenses increased by $4.1 million or 53.3% in the three months ended September 30, 2011 compared to the same period in 2010. The increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increased R&D spending, as a result of the acquisition of Teranetics, which increased spending by $4.7 million, primarily in compensation and benefit expenses of $2.7 million and tape-out related activities and engineering tools of $1.6 million. Excluding the effect of the acquisition, R&D spending decreased approximately $0.6 million. The decrease was primarily due to a decrease in engineering tools.

R&D expenses increased by $14.7 million or 62.9% in the nine months ended September 30, 2011 compared to the same period in 2010. The increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increased R&D spending, as a result of the acquisition of Teranetics, which increased spending by $15.1 million, primarily in compensation and benefit expenses of $7.7 million and tape-out related activities and engineering tools of $5.9 million. Excluding the effect of the acquisition, R&D spending decreased approximately $0.4 million. The decrease was due to decreases in engineering tools of $1.1 million, consulting expenses of $0.4 million and compensation and benefit expenses of $0.3 million, partially offset by increases in tape-out related activities of $1.2 million due to timing of projects taped-out and share-based compensation expense of $0.2 million.

We believe continued spending on research and development to develop new products is critical to our success. We anticipate the R&D expenses will remain higher compared to 2010 levels as a result of the Teranetics acquisition, partially offset by the October 21, 2011 divestiture of our UK design team and over time will fluctuate due to timing of projects and tape-out related activities.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and related costs, including share-based compensation, commissions to manufactures’ representatives and professional fees, as well as trade show and other promotional expenses.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	in thousands
SG&A expenses	$	6,856		$	6,570		$	20,659		$	19,734
As a percentage of revenues		22.1	%		21.7	%		23.0	%		22.2	%

SG&A expenses increased by $0.3 million or 4.4% in the three months ended September 30, 2011 compared to the same period in 2010. The increase in SG&A in absolute dollars and a percentage of revenue was due primarily to an increase in legal fees of $0.6 million relating to the patent infringement lawsuit, partially offset by a decrease in compensation and benefit expenses, primarily variable compensation, as a result of decreased profitability.

SG&A expenses increased by $0.9 million or 4.7% in the nine months ended September 30, 2011 compared to the same period in 2010. The increase in SG&A in absolute dollars and a percentage of revenue was due primarily to an increase in legal fees of $1.1 million relating to the patent infringement lawsuit and consulting expenses of $0.2 million, partially offset by a decrease in compensation and benefit expenses, primarily variable compensation, as a result of decreased profitability.

Acquisition and Restructuring Related Costs

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	in thousands
Carve-out retention bonus expense	$	491	$	-	$	2,319	$	-
Deal costs		-		510		88		510
Severance costs		-		-		501		-
Asset impairment		-		-		42		-
Lease commitment accrual		208		-		855		-
	$	699	$	510	$	3,805	$	510

We recorded acquisition related costs associated with the October 1, 2010 acquisition of Teranetics during the three and nine months ended September 30, 2011 of $0.5 million and $2.4 million, respectively. Approximately $5.3 million was carved out of the consideration as a bonus pool under the Teranetics Employee Retention Plan to be paid out over a period of time, to participants who were employees of Teranetics at the time of a change in control, provided they fulfilled certain future service requirements under the combined entity. In the three and nine months ended September 30, 2011, we recorded $0.5 million and $2.3 million, respectively, in expense for this retention bonus plan. See Note 7 of the condensed consolidated financial statements for additional information. For the nine months ended September 30, 2011, we also incurred $88,000 of third party acquisition related costs, primarily for outside legal and accounting costs. Deal costs for the three and nine months ended September 30, 2010 were $0.5 million.

In the nine months ended September 30, 2011, we recorded approximately $0.5 million of severance and benefit related costs, included in acquisition and restructuring related costs in the Condensed Consolidated Statement of Operations, related to the termination of 14 employees as a result of the downsizing and refocus of the operations in the UK and cost control efforts as a result of the Teranetics acquisition. See Note 9 of the condensed consolidated financial statements for additional information.

In the three and nine months ended September 30, 2011, in connection with the lease acquired in the Teranetics acquisition and the downsizing of the UK operations, we recorded lease commitment accrual and leasehold impairment charges of $0.2 million and $0.9 million, respectively. See Note 9 of the condensed consolidated financial statements for additional information.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets consists of amortization expense related to developed core technology, trade name and customer base acquired as a result of the Teranetics acquisition in October 2010 and the Oxford acquisition in January 2009.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	in thousands
Amortization of acquired intangible assets	$	2,445		$	648		$	7,333		$	1,945
As a percentage of revenues		7.9	%		2.1	%		8.2	%		2.2	%

Amortization of acquired intangible assets increased by $1.8 million or 277.3% in the three months ended September 30, 2011 compared to the same period in 2010. The increase in amortization expense was due to the addition of developed core technology, trade name and customer base acquired through the October 1, 2010 acquisition of Teranetics. See Note 7 to our condensed consolidated financial statements for additional information.

Amortization of acquired intangible assets increased by $5.4 million or 277.0% in the nine months ended September 30, 2011 compared to the same period in 2010. The increase in amortization expense was due to the addition of developed core technology, trade name and customer base acquired through the October 1, 2010 acquisition of Teranetics.

Interest Income (Expense) and Other, Net

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	in thousands
Interest income	$	15		$	50		$	60		$	163
Interest expense		(60	)		(15	)		(188	)		(50	)
Other income (expense)		3			(36	)		(81	)		(5	)
	$	(42	)	$	(1	)	$	(209	)	$	108

Interest income reflects interest earned on cash, cash equivalents and short-term and long-term investment balances. Interest income for the three months ended September 30, 2011 decreased by $35,000 or 70.0%, compared to the same period in 2010. The decrease was due to lower investment balances largely due to payments associated with the Teranetics acquisition and operations.

Interest income for the nine months ended September 30, 2011 decreased by $0.1 million or 63.2%, compared to the same period in 2010. The decrease was due to lower investment balances largely due to payments associated with the Teranetics acquisition and operations.

Interest expense for the three and nine months ended September 30, 2011 of $60,000 and $0.2 million, respectively, primarily consisted of interest recorded on the notes associated with the acquisition of Teranetics and interest recorded on our capital lease obligations. For the same periods in 2010, interest expense of $15,000 and $50,000, respectively, consisted of interest recorded on our capital lease obligations.

Other income includes foreign currency transaction gains and losses and other miscellaneous transactions. Other income may fluctuate significantly due to currency fluctuations.

Provision for Income Taxes

A provision for income tax of $0.1 million has been recorded for the nine month period ended September 30, 2011, compared to a provision of $1.9 million for the same period in 2010. Income tax provision for the nine months ended September 30, 2011 is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items which are fully recognized in the period they occur and miscellaneous state income taxes. We excluded from our calculation of the effective tax rate losses in the US and certain foreign jurisdiction since we cannot benefit those losses. For the same period in 2010, the income tax expense is a result of applying the estimated annual effective tax rate to cumulative profit before taxes adjusted for certain discrete items.

We have determined that negative evidence supports the need for a full valuation allowance against our net deferred tax assets at this time. We will maintain a full valuation allowance until sufficient positive evidence exists to support a reversal of the valuation allowance.

As of September 30, 2011, we have unrecognized tax benefits of approximately $4.0 million of which none, if recognized, would result in a reduction of our effective tax rate. There were no material changes in the amount of unrecognized tax benefits during the nine months ended September 30, 2011. Future changes in the balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. We do not expect that the amount of our unrecognized tax benefits will significantly change within the next twelve months.

We are subject to taxation in the United States and various states and foreign jurisdictions. The tax years 1997 through 2010 remain open to examination by the federal and most state tax authorities due to certain acquired net operating loss and overall credit carryforward positions.

Liquidity and Capital Resources

Cash and Investments

We invest excess cash predominantly in debt instruments that are highly liquid, of high-quality investment grade, and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. As of September 30, 2011 cash, cash equivalents, short and long-term marketable securities were $18.3 million, a decrease of $5.3 million from $23.6 million at December 31, 2010.

Operating Activities

Cash provided by (used in) operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation, amortization, share-based compensation expense, impairments, fair value remeasurements, provisions for excess and obsolete inventories, other non-cash items, and the effect of changes in working capital and other activities. Cash used in operating activities for the nine months ended September 30, 2011 was $4.2 million compared to cash provided by operating activities of $5.8 million in the same period in 2010. The increase in cash flow used in operations was primarily due to changes in our working capital in connection with the Teranetics acquisition and Network PHY operations. Our days sales outstanding remained flat. The decrease in inventory reflects our efforts to control inventory levels as orders softened late in the third quarter. Our days payable outstanding decreased due to timing of vendor payments.

Investing Activities

Our investing activities are primarily driven by investment of our excess cash, sales of investments, business acquisitions and capital expenditures. Capital expenditures have generally been comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures. The cash provided by investing activities for the nine months ended September 30, 2011 of $6.5 million was due to the sales and maturities of investments (net of purchases) of $9.0 million, partially offset by capital expenditures of $2.5 million. Cash provided by investing activities for the nine months ended September 30, 2010 of $8.3 million was due to the sales and maturities of investments (net of purchases) of $10.5 million, partially offset by capital expenditures of $2.2 million.

Financing Activities

Cash provided by financing activities for the nine month period ended September 30, 2011 of $1.5 million was due to borrowings against the line of credit of $2.0 million and proceeds from the exercise of stock options of $0.1 million, partially offset by payments made on capital lease obligations of $0.6 million. Cash used in financing activities for the nine month period ended September 30, 2010 of $0.3 million was due to the payments made on capital lease obligations of $0.5 million, partially offset by proceeds from the exercise of stock options of $0.2 million.

Obligations

As of September 30, 2011, we had the following significant contractual obligations and commercial commitments (in thousands):

	Payments due in
			Less than		1-3		More than
	Total		1 Year		Years		3 Years
Operating leases - facilities and equipment	$	729	$	299	$	359	$	71
Capital leases - IP		675		675		-		-
Software licenses		6,958		5,183		1,775		-
Teranetics acquisition notes		6,917		5,400		1,517		-
Carve-out retention bonus		1,997		1,997		-		-
Inventory purchase commitments		5,662		5,662		-		-
Borrowing against line of credit		2,000		-		2,000		-
Total cash obligations	$	24,938	$	19,216	$	5,651	$	71

On October 1, 2010, we closed the acquisition of Teranetics. Under the merger agreement, we issued 7,399,980 shares of our common stock and cash of $922,000. In addition, we issued two promissory notes in the aggregate amount of approximately $6.9 million. One note is for the principal amount of approximately $1.5 million and is due 3 years after the closing of the merger, and the other note is for the principal amount of $5.4 million and is due 12 months after the closing of the merger (this $5.4 million note was delivered into an escrow fund that may be used to satisfy indemnity obligations owed to PLX). We have delayed payment of the $5.4 million note as a result of indemnity claims we have communicated to the Teranetics stockholders representative. The parties are discussing these claims, and we cannot currently predict the outcome of these discussions. The stated interest rate on the promissory notes is 0.46%. In accordance with the guidance related to business combinations, the promissory notes were fair valued based on market interest rates and the assessed fair value of the promissory notes are approximately $6.7 million.

In connection with the Teranetics acquisition, we agreed to pay former Teranetics employees a bonus pool under the Teranetics Employee Retention Plan. Under the final plan, a total of $5.3 million was carved out of the consideration as a bonus pool to be paid out over a period of time to participants who were employees of Teranetics at the time of a change in control, provided they fulfilled certain future ongoing service requirements for the combined entity. As of September 30, 2011, we paid $3.3 million and had accrued the remaining $2.0 million based on the required continued service period which ended on October 1, 2011. The $2.0 million was paid in October 2011. See Note 7 of the condensed consolidated financial statements for additional information.

On September 30, 2011, we entered into an agreement with Silicon Valley Bank to establish a two-year $10 million revolving loan facility. Borrowings under the credit facility bear interest at rates equal to the prime rate announced from time to time in The Wall Street Journal. As of September 30, 2011 the prime rate was 3.25%. The facility also provides for commitment, unused facility and letter-of-credit fees. On September 30, 2011, we borrowed $2.0 million against the facility. See Note 11 of the condensed consolidated financial statements for additional information.

We believe that our existing resources, together with cash generated from our operations will be sufficient to meet our capital requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including the inventory levels we maintain, the level of investment we make in new technologies and improvements to existing technologies and the levels of monthly expenses required to launch new products. From time to time, we may also evaluate potential acquisitions and equity investments complementary to our technologies and market strategies. To the extent that existing resources and future earnings are insufficient to fund our future activities, we may need to raise additional funds through public or private financings. Additional funds may not be available or, if available, we may not be able to obtain them on terms favorable to us and our stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. The U.S. Securities and Exchange Commission (“SEC”) has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance, where applicable, has occurred, the fee is fixed or determinable, and collection is reasonably assured.

Revenue from product sales to direct customers and distributors is recognized upon shipment and transfer of risk of loss, if we believe collection is reasonably assured and all other revenue recognition criteria are met. We assess the probability of collection based on a number of factors, including past transaction history and the customer’s creditworthiness. At the end of each reporting period, the sufficiency of allowances for doubtful accounts is assessed based on the age of the receivable and the individual customer’s creditworthiness.

As of September 30, 2011, we offer pricing protection to two distributors whereby the Company supports the distributor’s resale product margin on certain products held in the distributor’s inventory. We analyze current requests for credit in process, also known as ship and debits, and inventory at the distributor to determine the ending sales reserve required for this program. We also offer stock rotation rights to three distributors such that they can return up to a total of 5% of products purchased every six months in exchange for other PLX products of equal value. We analyze inventory at distributors, current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required for this program. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.

We evaluate revenue agreements under the accounting guidance for multiple-deliverable revenue arrangements. A multiple-deliverable arrangement is separated into more than one unit of accounting if (a) the delivered item(s) has value to the customer on a stand-alone basis, (b) the arrangement includes a general right of return relative to the delivered item(s) and (c) delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met for each, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. The selling price for each element is based upon the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

On occasion, we enter into development service arrangements in which customer payments are tied to achievements of specific milestones. We have elected to use the milestone method of revenue recognition for development service agreements upon the achievement of substantive milestones. When determining if a milestone is substantive, we assess whether the milestone consideration (a) is commensurate with our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of the outcome from our performance, (b) relates solely to past performance and (c) is reasonable relative to all deliverables and payments terms within the arrangement.

Inventory Valuation

We evaluate the need for potential inventory provisions by considering a combination of factors, including the life of the product, sales history, obsolescence, and sales forecasts. Any adverse changes to our future product demand may result in increased provisions, resulting in decreased gross margin. In addition, future sales on any of our previously written down inventory may result in increased gross margin in the period of sale.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on length of time the receivables are past due. Generally, our customers have between thirty to forty five days to remit payment of invoices. We record reserves for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Once we have exhausted collection efforts, we will reduce the related accounts receivable against the allowance established for that receivable. We have certain customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers’ creditworthiness or other matters affecting the collectibility of amounts due from such customers could have a material adverse affect on our results of operations in the period in which such changes or events occur. Historically, our write-offs have been insignificant.

Goodwill

Our methodology for allocating the purchase price related to business acquisitions is determined through established valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the amounts assigned to identifiable tangible and intangible assets acquired less assumed liabilities. We have one operating segment and business reporting unit, the sales of semiconductor devices, and we perform goodwill impairment tests annually during the fourth quarter and between annual tests if indicators of potential impairment exist.

Long-lived Assets

We review long-lived assets, principally property and equipment and identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to estimated future net undiscounted cash flows generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. In addition, if we determine the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful life.

Share-Based Compensation

We estimate the value of employee stock options on the date of grant using the Black-Scholes model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the expected stock price volatility over the term of the awards and the actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. We calculate expected volatility using the historical volatility of stock. We estimate the amount of forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Taxes

We account for income taxes using the asset and liability method. Deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. As of September 30, 2011, we carried a valuation allowance for the entire deferred tax asset as a result of uncertainties regarding the realization of the asset balance. We will maintain a full valuation allowance against our deferred tax assets until sufficient positive evidence exists to support a reversal of the valuation allowance.

Future taxable income and/or tax planning strategies may eliminate all or a portion of the need for the valuation allowance. In the event we determine we are able to realize our deferred tax asset, an adjustment to the valuation allowance may increase income in the period such determination is made.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have an investment portfolio of fixed income securities, including amounts classified as cash equivalents, short-term investments and long-term investments of $9.2 million at September 30, 2011. These securities are subject to interest rate fluctuations and will decrease in market value if interest rates increase.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. We invest primarily in high quality, short-term and long-term debt instruments. A hypothetical 100 basis point increase in interest rates would result in less than a $58,000 decrease (less than 1%) in the fair value of our available-for-sale securities.

Foreign Currency Exchange Risk

All of our revenue and a majority of our expense and capital purchasing activities are transacted in U.S. dollars. However, we have significant operating activities incurred in or exposed to other currencies, primarily the British Pound. Therefore, significant strengthening or weakening of the U.S. dollar relative to those foreign currencies could have a material impact on our results of operations. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change would have resulted in an adverse impact on income before taxes of $1.9 million as of September 30, 2011.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Based on their evaluation as of September 30, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and instructions for Form 10-Q and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

To date, Internet Machines LLC ("Internet Machines") has filed three separate lawsuits against PLX. The first suit was filed on February 2, 2010, which has been served on PLX, entitled Internet Machines LLC v. Alienware Corporation, et al., in the United States District Court for the Eastern District of Texas, Tyler Division. This first suit alleges infringement by PLX and the other defendants in the lawsuit of two patents held by Internet Machines. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents. On May 14, 2010, we filed our answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. On December 6, 2010, the Court held a case-management conference and subsequently entered a scheduling order in this matter, setting trial for February 2012.

On December 28, 2010, we filed our answer to the live complaint in the second lawsuit and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. The Court recently issued a scheduling order, and the Court has set a trial date for this lawsuit of June 4, 2012. Because this lawsuit accuses PLX of infringing a separate patent not listed in the first suit, and because this suit involves additional parties not named as defendants in the first lawsuit, this trial date is separate from the February 2012 trial mentioned above.

On May 17, 2011, Internet Machines filed a third lawsuit entitled Internet Machines LLC v. Avnet, Inc., et al., again in the United States District Court for the Eastern District of Texas, Tyler Division. The third lawsuit has been served on PLX and alleges that PLX infringes a fourth patent held by Internet Machines. This lawsuit also accuses a new group of defendants of infringing each of Internet Machines's patents at issue in the first two lawsuits filed, as well as the fourth patent asserted against PLX in this third suit. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents. On September 27, 2011, we filed our answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. All parties have appeared, but the Court has not set this matter for a scheduling conference.

On March 25, 2011, a related entity, Internet Machines MC LLC, filed a lawsuit against PLX, entitled Internet Machines MC LLC v. PLX Technology, Inc., et al., in the United States District Court for the Eastern District of Texas, Marshall Division. Internet Machines MC LLC, however, did not serve the initial complaint on PLX. Instead, on August 26, 2011, Internet Machines MC LLC filed a first amended complaint, which has now been served on PLX, alleging infringement by PLX and the other defendants in the lawsuit of one patent held by Internet Machines MC LLC. We currently have a deadline to answer or otherwise respond to the complaint by Friday, November 11, 2011.

While it is not possible to determine the ultimate outcome of the above mentioned litigation, which involves various related cases, we believes that we have meritorious defenses with respect to the claims asserted against us and intends to vigorously defend our position. We are unable to estimate a range of possible loss and believe that any ultimate liability in this litigation will not have a material impact on our financial position or results of operations.

ITEM 1A. RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

This quarterly report on Form 10-Q contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statements as a result of certain factors, including those set forth below. The following risk factors have been updated from those set forth in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2010, and are included herein in their entirety.

Global Economic Conditions May Continue to Have an Adverse Effect on Our Businesses and Results of Operations

In late 2008 and 2009, the severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy contributed to slowdowns in the industries in which we operate. Economic uncertainty exacerbated negative trends in spending and caused certain customers to push out, cancel, or refrain from placing orders, which reduced revenue. We have seen market conditions improve since the second half of 2009 and throughout most of 2010; however, we are seeing the rate of growth has slowed as inventory levels have balanced themselves out in the nine months of 2011. Difficulties in obtaining capital and uncertain market conditions may lead to the inability of some customers to obtain affordable financing, resulting in lower sales. Customers with liquidity issues may lead to additional bad debt expense. These conditions may also similarly affect key suppliers, which could affect their ability to deliver parts and result in delays in the availability of product. Further, these conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations. In addition, we maintain an investment portfolio that is subject to general credit, liquidity, market and interest rate risks that may be exacerbated by deteriorating financial market conditions and, as a result, the value and liquidity of the investment portfolio could be negatively impacted and lead to impairment. If the current improving economic conditions are not sustained or begin to deteriorate again, or if we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition or results of operations may be materially and adversely affected.

Our Operating Results May Fluctuate Significantly Due To Factors Which Are Not Within Our Control

Our quarterly operating results have fluctuated significantly in the past and are expected to fluctuate significantly in the future based on a number of factors, many of which are not under our control. Our operating expenses, which include product development costs and selling, general and administrative expenses, are relatively fixed in the short-term. If our revenues are lower than we expect because we sell fewer semiconductor devices, delay the release of new products or the announcement of new features, or for other reasons, we may not be able to quickly reduce our spending in response.

Other circumstances that can affect our operating results include:

·	the timing of significant orders, order cancellations and reschedulings;

·	the loss of one or more significant customers;

·	introduction of products and technologies by our competitors;

·	the availability of production capacity at the fabrication facilities that manufacture our products;

·	our significant customers could lose market share that may affect our business;

·	integration of our product functionality into our customers’ products;

·	our ability to develop, introduce and market new products and technologies on a timely basis;

·	unexpected issues that may arise with devices in production;

·	shifts in our product mix toward lower margin products;

·	changes in our pricing policies or those of our competitors or suppliers, including decreases in unit average selling prices of our products;

·	the availability and cost of materials to our suppliers;

·	general macroeconomic conditions; and

·	political climate.

These factors are difficult to forecast, and these or other factors could adversely affect our business. Any shortfall in our revenues would have a direct impact on our business. In addition, fluctuations in our quarterly results could adversely affect the market price of our common stock in a manner unrelated to our long-term operating performance.

The Cyclical Nature Of The Semiconductor Industry May Lead To Significant Variances In The Demand For Our Products

In the past, the semiconductor industry has been characterized by significant downturns and wide fluctuations in supply and demand. Also, during this time, the industry has experienced significant fluctuations in anticipation of changes in general economic conditions. This cyclicality has led to significant variances in product demand and production capacity. It has also accelerated erosion of average selling prices per unit on some of our products. We may experience periodic fluctuations in our future financial results because of industry-wide conditions.

Because A Substantial Portion Of Our Net Sales Is Generated By A Small Number Of Large Customers, If Any Of These Customers Delays Or Reduces Its Orders, Our Net Revenues And Earnings Will Be Harmed

Historically, a relatively small number of customers have accounted for a significant portion of our net revenues in any particular period. See Note 10 of the condensed consolidated financial statements for customer concentrations.

We have no long-term volume purchase commitments from any of our significant customers. We cannot be certain that our current customers will continue to place orders with us, that orders by existing customers will continue at the levels of previous periods or that we will be able to obtain orders from new customers. In addition, some of our customers supply products to end-market purchasers and any of these end-market purchasers could choose to reduce or eliminate orders for our customers' products. This would in turn lower our customers' orders for our products.

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 sales. Due to these factors, the following have in the past and may in the future reduce our net sales or earnings:

·	the reduction, delay or cancellation of orders from one or more of our significant customers;

·	the selection of competing products or in-house design by one or more of our current customers;

·	the loss of one or more of our current customers; or

·	a failure of one or more of our current customers to pay our invoices.

Intense Competition In The Markets In Which We Operate May Reduce The Demand For Or Prices Of Our Products

Competition in the semiconductor industry is intense. If our main target market, the microprocessor-based systems market, continues to grow, the number of competitors may increase significantly. In addition, new semiconductor technology may lead to new products that can perform similar functions as our products. Some of our competitors and other semiconductor companies may develop and introduce products that integrate into a single semiconductor device the functions performed by our semiconductor devices. This would eliminate the need for our products in some applications.

In addition, competition in our markets comes from companies of various sizes, many of which are significantly larger and have greater financial and other resources than we do and thus can better withstand adverse economic or market conditions. Therefore, we cannot assure you that we will be able to compete successfully in the future against existing or new competitors, and increased competition may adversely affect our business. See “Business -- Products,” and “-- Competition” in Part I of Item I of our Form 10-K for the year ended December 31, 2010.

Our Independent Manufacturers May Not Be Able To Meet Our Manufacturing Requirements

We do not manufacture any of our semiconductor devices. Therefore, we are referred to in the semiconductor industry as a “fabless” producer of semiconductors. Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers located in China, Japan, Korea, Malaysia, Singapore and Taiwan, that can produce semiconductors which meet our needs. However, as the semiconductor industry continues to progress towards smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the semiconductor industry and our status as a fabless semiconductor company, we could encounter fabrication-related problems that may affect the availability of our semiconductor devices, delay our shipments or may increase our costs.

Only a small number of our semiconductor devices are currently manufactured by more than one supplier. We place our orders on a purchase order basis and do not have a long term purchase agreement with any of our existing suppliers. In the event that the supplier of a semiconductor device was unable or unwilling to continue to manufacture our products in the required volume, we would have to identify and qualify a substitute supplier. Introducing new products or transferring existing products to a new third party manufacturer or process may result in unforeseen device specification and operating problems. These problems may affect product shipments and may be costly to correct. Silicon fabrication capacity may also change, or the costs per silicon wafer may increase. Manufacturing-related problems may have a material adverse effect on our business.

Lower Demand For Our Customers’ Products Will Result In Lower Demand For Our Products

Demand for our products depends in large part on the development and expansion of the high-performance microprocessor-based systems markets including networking and telecommunications, enterprise and consumer storage, imaging and industrial applications. The size and rate of growth of these microprocessor-based systems markets may in the future fluctuate significantly based on numerous factors. These factors include the adoption of alternative technologies, capital spending levels and general economic conditions. Demand for products that incorporate high-performance microprocessor-based systems may not grow.

Our Lengthy Sales Cycle Can Result In Uncertainty And Delays With Regard To Our Expected Revenues

Our customers typically perform numerous tests and extensively evaluate our products before incorporating them into their systems. The time required for test, evaluation and design of our products into a customer’s equipment can range from six to twelve months or more. It can take an additional six to twelve months or more before a customer commences volume shipments of equipment that incorporates our products. Because of this lengthy sales cycle, we may experience a delay between the time when we increase expenses for research and development and sales and marketing efforts and the time when we generate higher revenues, if any, from these expenditures.

In addition, the delays inherent in our lengthy sales cycle raise additional risks of customer decisions to cancel or change product plans. When we achieve a design win, there can be no assurance that the customer will ultimately ship products incorporating our products. Our business could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release products incorporating our products.

Failure To Have Our Products Designed Into The Products Of Electronic Equipment Manufacturers Will Result In Reduced Sales

Our future success depends on electronic equipment manufacturers that design our semiconductor devices into their systems. We must anticipate market trends and the price, performance and functionality requirements of current and potential future electronic equipment manufacturers and must successfully develop and manufacture products that meet these requirements. In addition, we must meet the timing requirements of these electronic equipment manufacturers and must make products available to them in sufficient quantities. These electronic equipment manufacturers could develop products that provide the same or similar functionality as one or more of our products and render these products obsolete in their applications.

We do not have purchase agreements with our customers that contain minimum purchase requirements. Instead, electronic equipment manufacturers purchase our products pursuant to short-term purchase orders that may be canceled without charge. We believe that in order to obtain broad penetration in the markets for our products, we must maintain and cultivate relationships, directly or through our distributors, with electronic equipment manufacturers that are leaders in the embedded systems markets. Accordingly, we will incur significant expenditures in order to build relationships with electronic equipment manufacturers prior to volume sales of new products. If we fail to develop relationships with additional electronic equipment manufacturers to have our products designed into new microprocessor-based systems or to develop sufficient new products to replace products that have become obsolete, our business would be materially adversely affected.

Defects In Our Products Could Increase Our Costs And Delay Our Product Shipments

Our products are complex. While we test our products, these products may still have errors, defects or bugs that we find only after commercial production has begun. We have experienced errors, defects and bugs in the past in connection with new products.

Our customers may not purchase our products if the products have reliability, quality or compatibility problems. This delay in acceptance could make it more difficult to retain our existing customers and to attract new customers. Moreover, product errors, defects or bugs could result in additional development costs, diversion of technical and other resources from our other development efforts, claims by our customers or others against us, or the loss of credibility with our current and prospective customers. In the past, the additional time required to correct defects has caused delays in product shipments and resulted in lower revenues. We may have to spend significant amounts of capital and resources to address and fix problems in new products.

We must continuously develop our products using new process technology with smaller geometries to remain competitive on a cost and performance basis. Migrating to new technologies is a challenging task requiring new design skills, methods and tools and is difficult to achieve.

Failure Of Our Products To Gain Market Acceptance Would Adversely Affect Our Financial Condition

We believe that our growth prospects depend upon our ability to gain customer acceptance of our products and technology. Market acceptance of products depends upon numerous factors, including compatibility with other products, adoption of relevant interconnect standards, perceived advantages over competing products and the level of customer service available to support such products. There can be no assurance that growth in sales of new products will continue or that we will be successful in obtaining broad market acceptance of our products and technology.

We expect to spend a significant amount of time and resources to develop new products and refine existing products. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of any new products. Our ability to commercially introduce and successfully market any new products is subject to a wide variety of challenges during this development cycle, including start-up bugs, design defects and other matters that could delay introduction of these products to the marketplace. In addition, since our customers are not obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be cancelled. As a result, if we do not achieve market acceptance of new products, we may not be able to realize sufficient sales of our products in order to recoup research and development expenditures. The failure of any of our new products to achieve market acceptance would harm our business, financial condition, results of operation and cash flows.

A Large Portion Of Our Revenues Is Derived From Sales To Third-Party Distributors Who May Terminate Their Relationships With Us At Any Time

We depend on distributors to sell a significant portion of our products. For the nine months ended September 30, 2011 and 2010, sales through distributors accounted for approximately 87% and 94%, respectively, of our net revenues. Some of our distributors also market and sell competing products. Distributors may terminate their relationships with us at any time. Our future performance will depend in part on our ability to attract additional distributors that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. We may lose one or more of our current distributors or may not be able to recruit additional or replacement distributors. The loss of one or more of our major distributors could have a material adverse effect on our business, as we may not be successful in servicing our customers directly or through manufacturers’ representatives.

The Demand For Our Products Depends Upon Our Ability To Support Evolving Industry Standards

A majority of our revenues are derived from sales of products, which rely on the PCI Express, PCI, PCI-X, Serial ATA, Ethernet, 1394 and USB standards. If markets move away from these standards and begin using new standards, we may not be able to successfully design and manufacture new products that use these new standards. There is also the risk that new products we develop in response to new standards may not be accepted in the market. In addition, these standards are continuously evolving, and we may not be able to modify our products to address new specifications. Any of these events would have a material adverse effect on our business.

We Must Make Significant Research And Development Expenditures Prior To Generating Revenues From Products

To establish market acceptance of a new semiconductor device, we must dedicate significant resources to research and development, production and sales and marketing. We incur substantial costs in developing, manufacturing and selling a new product, which often significantly precede meaningful revenues from the sale of this product. Consequently, new products can require significant time and investment to achieve profitability. Investors should understand that our efforts to introduce new semiconductor devices or other products or services may not be successful or profitable. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive.

We record as expenses the costs related to the development of new semiconductor devices and other products as these expenses are incurred. As a result, our profitability from quarter to quarter and from year to year may be adversely affected by the number and timing of our new product launches in any period and the level of acceptance gained by these products.

We Could Lose Key Personnel Due To Competitive Market Conditions And Attrition

Our success depends to a significant extent upon our senior management and key technical and sales personnel. The loss of one or more of these employees could have a material adverse effect on our business. We do not have employment contracts with any of our executive officers.

Our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, and managerial personnel. Competition for such personnel in the semiconductor industry is intense, and we may not be able to retain our key personnel or to attract, assimilate or retain other highly qualified personnel in the future. In addition, we may lose key personnel due to attrition, including health, family and other reasons. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our business could be materially adversely affected.

The Successful Marketing And Sales Of Our Products Depend Upon Our Third Party Relationships, Which Are Not Supported By Written Agreements

When marketing and selling our semiconductor devices, we believe we enjoy a competitive advantage based on the availability of development tools offered by third parties. These development tools are used principally for the design of other parts of the microprocessor-based system but also work with our products. We will lose this advantage if these third party tool vendors cease to provide these tools for existing products or do not offer them for our future products. This event could have a material adverse effect on our business. We have no written agreements with these third parties, and these parties could choose to stop providing these tools at any time.

Our Limited Ability To Protect Our Intellectual Property And Proprietary Rights Could Adversely Affect Our Competitive Position

Our future success and competitive position depend upon our ability to obtain and maintain proprietary technology used in our principal products. Currently, we have limited protection of our intellectual property in the form of patents and rely instead on trade secret protection. Our existing or future patents may be invalidated, circumvented, challenged or licensed to others. The rights granted there under may not provide competitive advantages to us. In addition, our future patent applications may not be issued with the scope of the claims sought by us, if at all. Furthermore, others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned or licensed by us. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in foreign countries where we may need protection. We cannot be sure that steps taken by us to protect our technology will prevent misappropriation of the technology.

We may from time to time receive notifications of claims that we may be infringing patents or other intellectual property rights owned by third parties.

On May 17, 2011, Internet Machines filed a third lawsuit entitled Internet Machines LLC v. Avnet, Inc., et al., again in the United States District Court for the Eastern District of Texas, Tyler Division. The third lawsuit has been served on PLX and alleges that PLX infringes a fourth patent held by Internet Machines. This lawsuit also accuses a new group of defendants of infringing each of Internet Machines's patents at issue in the first two lawsuits filed, as well as the fourth patent asserted against PLX in this third suit. The complaint in the lawsuit seeks unspecified compensatory damages, treble damages and attorneys' fees, as well as injunctive relief against further infringement of Internet Machines's patents. On September 27, 2011, we filed our answer to the live complaint and asserted counterclaims, seeking declaratory judgments of non-infringement and invalidity of the patents-in-suit. All parties have appeared, but the Court has not set this matter for a scheduling conference.

During the course of the above mentioned litigation as well as any other future intellectual property litigations, we will incur costs associated with defending or prosecuting these matters. These litigations could also divert the efforts of our technical and management personnel, whether or not they are determined in our favor. In addition, if it is determined in such a litigation that we have infringed the intellectual property rights of others, we may not be able to develop or acquire non-infringing technology or procure licenses to the infringing technology under reasonable terms. This could require expenditures by us of substantial time and other resources. Any of these developments would have a material adverse effect on our business.

The Delay Or Failure Of The 10G Ethernet Over Copper Market Acceptance Would Adversely Affect Our Financial Condition

We expect to invest a significant amount of time and resources in the development of products for the 10G Ethernet over copper technology. These expenditures are made well in advance of revenues derived from these products. Although we anticipate solid demand for products for the 10G Ethernet over copper technology, market acceptance of the technology, and products for it, depends upon numerous factors, including compatibility with other products, adoption of relevant interconnect standards, perceived advantages over competing products and the level of customer service available to support such products. LAN on Motherboard (“LOM”) integrated circuits made by others are critical components to building out the 10G Ethernet over copper market and the development of this market has been slower than anticipated. While we have seen progress in this market, the continued delay or failure of the adoption of this technology would have a material adverse effect on our business. There can be no assurance that there will be market acceptance of this technology or our products for it and the delay or failure in achieving such acceptance would have a material adverse effect on our business. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive.

Acquisitions Could Adversely Affect Our Financial Condition And Could Expose Us To Unanticipated Liabilities

As part of our business strategy, we expect to continue to review acquisition prospects that would complement our existing product offerings, improve market coverage or enhance our technological capabilities. Potential future acquisitions could result in any or all of the following:

·	potentially dilutive issuances of equity securities;

·	large acquisition-related write-offs;

·	potential patent and trademark infringement claims against the acquired company;

·	the incurrence of debt and contingent liabilities or amortization expenses related to other intangible assets;

·	difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies;

·	the incurrence of additional operating losses and expenses of potential companies we may acquire;

·	possible delay or failure to achieve expected synergies;

·	diversion of management’s attention from other business concerns;

·	risks of entering geographic and business markets in which we have limited or no prior experience; and

·	potential loss of key employees.

Because We Sell Our Products To Customers Outside Of The United States And Because Our Products Are Incorporated With Products Of Others That Are Sold Outside Of The United States We Face Foreign Business, Political And Economic Risks

Sales outside of the United States accounted for approximately 82% of our revenues for the nine months ended September 30, 2011. In 2010 and 2009, sales outside of the United States accounted for approximately 82% and 84% of our revenues, respectively. Sales outside of the United States may fluctuate in future periods and are expected to account for a large portion of our revenues. In addition, equipment manufacturers who incorporate our products into their products sell their products outside of the United States, thereby exposing us indirectly to foreign risks. Further, most of our semiconductor products are manufactured outside of the United States. Accordingly, we are subject to international risks, including:

·	difficulties in managing distributors;

·	difficulties in staffing and managing foreign subsidiary and branch operations;

·	political and economic instability;

·	foreign currency exchange fluctuations;

·	difficulties in accounts receivable collections;

·	potentially adverse tax consequences;

·	timing and availability of export licenses;

·	changes in regulatory requirements, tariffs and other barriers;

·	difficulties in obtaining governmental approvals for telecommunications and other products; and

·	the burden of complying with complex foreign laws and treaties.

Because sales of our products have been denominated to date exclusively in United States dollars, increases in the value of the United States dollar will increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, which could lead to a reduction in sales and profitability in that country.

We May Be Required To Record A Significant Charge To Earnings If Our Goodwill Or Amortizable Intangible Assets Become Impaired

Under generally accepted accounting principles, we review our amortizable intangible and long lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment annually during the fourth quarter and between annual tests in certain circumstances. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill, amortizable intangible assets or other long lived assets may not be recoverable, include a persistent decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We have recorded goodwill and other intangible assets related to the acquisitions of Oxford and Teranetics, and may do so in connection with any potential future acquisitions. We may be required to record a significant charge in our financial statements during the period in which any additional impairment of our goodwill, amortizable intangible assets or other long lived assets is determined, which would adversely impact our results of operations.

Our Principal Stockholders Have Significant Voting Power And May Take Actions That May Not Be In The Best Interests Of Our Other Stockholders

Our executive officers, directors and other principal stockholders, in the aggregate, beneficially own a substantial amount of our outstanding common stock. Although these stockholders do not have majority control, they currently have, and likely will continue to have, significant influence with respect to the election of our directors and approval or disapproval of our significant corporate actions. This influence over our affairs might be adverse to the interests of other stockholders. In addition, the voting power of these stockholders could have the effect of delaying or preventing a change in control of PLX.

The Anti-Takeover Provisions In Our Certificate of Incorporation Could Adversely Affect The Rights Of The Holders Of Our Common Stock

Anti-takeover provisions of Delaware law and our Certificate of Incorporation may make a change in control of PLX more difficult, even if a change in control would be beneficial to the stockholders. These provisions may allow the Board of Directors to prevent changes in the management and control of PLX.

As part of our anti-takeover devices, our Board of Directors has the ability to determine the terms of preferred stock and issue preferred stock without the approval of the holders of the common stock. Our Certificate of Incorporation allows the issuance of up to 5,000,000 shares of preferred stock. There are no shares of preferred stock outstanding. However, because the rights and preferences of any series of preferred stock may be set by the Board of Directors in its sole discretion without approval of the holders of the common stock, the rights and preferences of this preferred stock may be superior to those of the common stock. Accordingly, the rights of the holders of common stock may be adversely affected. Consistent with Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.

ITEM 6. EXHIBITS

Exhibit Number		Description

10.1		Loan and Security Agreement dated September 30, 2011 by and among PLX Technology, Inc. and Silicon Valley Bank.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PLX TECHNOLOGY, INC.

Date: November 4, 2011

By /s/ Arthur O. Whipple

Arthur O. Whipple

Chief Financial Officer

(Principal Financial Officer and duly authorized signatory)

EXHIBIT INDEX

Exhibit Number		Description

10.1		Loan and Security Agreement dated September 30, 2011 by and among PLX Technology, Inc. and Silicon Valley Bank.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Finanical Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

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