PLX TECHNOLOGY INC - FORM 10-K

Attached files

file	filename
EX-21.1 - PLX TECHNOLOGY, INC. EXHIBIT 21.1 - PLX TECHNOLOGY INC	plx_exhibit21-1.htm
EX-31.1 - PLX TECHNOLOGY, INC. EXHIBIT 31.1 - PLX TECHNOLOGY INC	plx10k2009_exhibit31-1.htm
EX-32.1 - PLX TECHNOLOGY, INC. EXHIBIT 32.1 - PLX TECHNOLOGY INC	plx10k2009_exhibit32-1.htm
EX-32.2 - PLX TECHNOLOGY, INC. EXHIBIT 32.2 - PLX TECHNOLOGY INC	plx10k2009_exhibit32-2.htm
EX-31.2 - PLX TECHNOLOGY, INC. EXHIBIT 31.2 - PLX TECHNOLOGY INC	plx10k2009_exhibit31-2.htm
EX-23.1 - PLX TECHNOLOGY, INC. EXHIBIT 23.1 - PLX TECHNOLOGY INC	plx_exhibit23-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

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

For the fiscal year ended December 31, 2009

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

Commission file number 0-25699

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)

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

Title of Each Class:	Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share	The NASDAQ Stock Market LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X].

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [ ] No [ ]

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

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 "small 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 Act). Yes [ ] No [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant's common stock on June 30, 2009, as reported on The NASDAQ Global Market, was $129,142,345.

The number of shares of common stock outstanding at February 28, 2010 was 37,025,078.

DOCUMENTS INCORPORATED BY REFERENCE

PART III OF THIS REPORT ON FORM 10-K INCORPORATES INFORMATION BY REFERENCE FROM THE REGISTRANT'S PROXY STATEMENT FOR ITS 2010 ANNUAL MEETING OF STOCKHOLDERS - ITEMS 10, 11, 12, 13 AND 14.

PLX Technology, Inc.

INDEX TO

ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED DECEMBER 31, 2009

Part I.		Page
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Part II.
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	21
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	33
Item 9A.	Controls and Procedures	33
Item 9B.	Other Information	34
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	35
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35
Item 13.	Certain Relationships and Related Transactions, and Director Independence	35
Item 14.	Principal Accountant Fees and Services	35
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	36
Signatures		66

PART I

ITEM 1: BUSINESS

Overview

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

Products based on current serial interconnect technology standards such as PCI Express, USB, SATA, 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, PLX has been able to offer differentiated products based on these standards that provide scalability and performance at a low cost.

The company 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 specific system requirements. Our long experience with PCI Express connectivity products enables PLX to deliver reliable devices that operate in non-ideal real-world, system environments.

PLX is building on its broad, general purpose interconnect success, and in particular its success in enterprise storage, by focusing on a rapidly growing vertical market: Consumer/Small Office Home Office (SOHO) storage. On January 2, 2009, PLX completed the acquisition of Oxford Semiconductor, Inc. (Oxford), a leading supplier of semiconductor components for the consumer and SOHO markets. Oxford has 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/SOHO 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.

The PLX growth strategy has several key components:

·	Identify the technology trends and discontinuities that drive high-volume markets and deliver appropriate products to that market before the competition;

·	Deliver comprehensive solutions, including semiconductor devices, the necessary software and development kits to allow rapid time-to-market and worldwide local technical support;

·	Offer added-value features that enable our customers to differentiate their products;

·	Focus on adding value at high volume price points;

PLX is a Delaware corporation established in 1986 with headquarters at 870 W. Maude Avenue, Sunnyvale, California 94085. The telephone number is (408) 774-9060. Additional information about PLX is available on our website at http://www.plxtech.com. Information contained in the website is not part of this report.

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our website, http://www.plxtech.com, as soon as reasonably practicable after the reports have been filed with or furnished to the Securities and Exchange Commission.

Industry Background

The market for industry-standard interconnect has been invigorated by new state-of-the-art serial technologies. Previous parallel technologies, such as PCI, provided basic connectivity, but did not offer the necessary scalability, reliability, cost, and features for complex processing systems. As the subsystems, including the processing engines and end point devices became more powerful, the true bottleneck in the system was not the device and processor speed, but rather how quickly the data could be transferred to and from the different subsystems.

At the same time the cost, complexity, and time-to-market problems of developing robust, high performance interconnect vehicles lead to the development of standards that provide the performance and features necessary for high performance systems, but do so at a cost point that can only be achieved through high volume standard products.

These serial technologies enabled, for the first time, the ability to offer high performance, feature-rich computing solutions using off-the-shelf standards-based building blocks. The building block approach has enabled the designers of these systems to bring their products to market more quickly and with a vastly lower cost of development. In addition, the software base that has built up around these standard solutions allow the system designer to focus on their own added value, rather than recreating the basic plumbing necessary to move the data around.

PLX focuses on connecting together subsystems based on high volume, standard connection points. There are several aspects of this. In one aspect, the company serves a horizontal market need with its general purpose PCI Express and USB devices.

PCI Express is the primary interconnection mechanism inside computing systems today. By remaining software compatible with the previous, ubiquitous parallel technology, the new switched serial PCI Express quickly became the connection of choice for the majority of devices in the industry. Since there is a PCI Express port on almost every system building block, the least costly and highest performance approach for connecting the devices together is through this interconnection pathway. However, to provide appropriate connection between subsystems in complex multi-chip systems, a switch is the most cost-effective approach. The switch is thus a fundamental building block for the system, carrying data to and from the subsystems without impeding the native performance of the underlying devices. For those few end points which do not have native PCI Express connections, PLX also provides bridges to translate the protocol.

The Universal Serial Bus (USB) was designed to replace the expensive, slow, unreliable, and unscalable parallel interconnects of the time, originally to connect PCs with peripherals such as printers and external storage. Its speed has been upgraded continuously since its initial rollout, and USB has become the most popular “box-to-box” interconnect in the industry. USB has become the natural way that users upgrade their system with peripherals, eliminating the need to open the box and add plug-in cards.

PLX has recently added a vertical market capability to its more general-purpose interconnect products. These products address the fast growing consumer/SOHO storage market. The amount of digital data that consumers need to store is increasing exponentially. Trends such as digital photography, digital video, MP3s and the on-line distribution of high-definition movies are driving increased sales of external storage devices in the consumer market. Corresponding with these trends, demand for data-protection features such as redundant array of inexpensive disks (RAID), automatic back-up, and encryption is also growing.

The Direct Attached Storage (DAS) market consists of products that allow the user to upgrade their storage through the USB connection on their PC. These systems can be configured in a variety of ways. The simplest of such systems consist of single drive upgrades to increase capacity, for backup, or to provide security encryption. By adding multiple drives to the connection, the user can make use of standards such as RAID for higher reliability (by mirroring the information on multiple disks) or higher performance (by reading and writing to multiple disks at once). The disks themselves have made the migration to serial technology along with the rest of the interconnect world, and the SATA (Serial ATA) interface is now the fastest growing opportunity for external interconnect devices.

The Network Attached Storage (NAS) solution is well established in the enterprise market but is still in the early stages for the consumer market. This technology adds storage to the system through the network in either a wired or wireless manner. This allows the data to be saved and retrieved from more than one computer and allows the data to be available from network-ready appliances even when the main computer is not available. Along with basic storage, NAS products offer added-value opportunities by combining subsystems as part of the connected device. This can be straightforward combinations such as a home gateway, which combines multiple subsystems in a single box to reduce cost, power, and space. But this concept can be extended to add features within the NAS box that accelerate multimedia applications or provide sophisticated encryption capabilities.

Strategy

PLX provides standards-based, off-the-shelf interconnect solutions to enable high performance, low cost, added-value features and rapid time-to-market. Although the external connections are standard in order to enable high volume markets, the products themselves offer proprietary advantages through innovative technology.

PLX identifies technology trends, and provides products that cater to these trends during the early, high growth phase of the technology market discontinuity. This allows the company to establish itself as the leader and provides a powerful incumbency benefit as the technology becomes mainstream.

PLX recognized the promise of PCI Express in the early days of the standard, and brought to market leadership switches and bridges in 2004, gaining market share at the key customers necessary for success. The company continues to enjoy market share leadership in the PCI Express interconnect market and continues to invest to maintain or growth this share. This included a broad Gen 2 product line roll out in 2008 followed by early development on Gen 3.

·	The company identified the move from Parallel ATA to Serial ATA (SATA), and gained an early lead in this high growth market with our DAS product line. PLX is developing products to support the move to USB 3.0.

·	PLX has introduced its 3rd generation of NAS products to the consumer market, building on our System-On-A-Chip (SOC) capability and our strong software and firmware strength to offer leadership features to this early market.

The company focuses on offering leadership features to our customers at a high volume price point.

We focus on system level performance in all of our products. Since the interconnect has such a large impact on system performance, we identify those areas that might limit overall latency or throughput and enhance them. This is done through advanced silicon design techniques, and also through innovative software drivers that identify where the overhead is in the system.

·	We provide low power solutions to our customers, since this has become a major differentiator for total system cost and environmental reasons. PLX offers reduced power through technology choices, and through design techniques that modulate power for sections of the device that are not in use.

We offer added-value features that enable customer product differentiation. This includes features such as non-transparency for multiprocessor capability, multiple virtual channels for communications backplanes, integrated DMA for higher performance in control planes, and encryption for storage systems. On our storage products, we can enable customized features and enhance the performance of existing features through firmware.

PLX focuses on providing these capabilities at high volume cost points. We have a full COT (Customer Owned Tooling) capability – where PLX handles all of the design, placement, and layout of the circuits, and we manage the packaging and test pipeline. We deploy our products on mainstream, high volume semiconductor technology process nodes, and use advanced synthesis and layout techniques to provide the best trade-off between features and cost.

PLX provides more than just the semiconductor device. We focus on providing the whole product, and offering support that enables our customers to get to market quickly with a robust high-end product.

·	We supply a hardware Rapid Development Kit (RDK) as part of our standard offering. This allows customers to evaluate our products easily, and enables software development and interoperability testing to begin prior to the customer developing their own hardware.

·	PLX provides simulation models to customers that allow them to develop their own devices and verify that they interoperate with our products prior to getting silicon.

We provide a complete Software Development Kit (SDK) that provides kernel-level drivers, a user-level application programming interface (API), sample code for some of the advanced features, and a state-of-the-art graphical user interface (GUI) that allows customers to easily bring up their system. Support is provided for industry-leading operating systems.

·	In addition to these visible features, our products also include in-chip capabilities that allow rapid debug of complex system problems in order to improve time-to-market. This allows high speed signals to be effectively debugged in the field without adding special instrumentation.

·	We offer worldwide technical support, with local, direct Field Applications Engineers (FAEs) in North America, Europe, and throughout Asia.

The company has also enhanced its overall growth through acquisitions that provide synergy with our overall added-value strategy.

On December 15, 2008, we signed a definitive agreement to acquire all of the outstanding shares of capital stock of Oxford, a privately held fabless provider of industry-leading silicon and software for the SOHO storage markets. The acquisition closed on January 2, 2009.

Established in 1992, Oxford has been providing reliable, high-performance silicon and software solutions to interconnect digital systems, including PCIe, USB, 1394, Ethernet, Serial ATA and external Serial ATA. Oxford’s corporate headquarters were located in Milpitas, California, with most of its employees based in Oxford’s design center in Abingdon, United Kingdom. The rapidly growing consumer and SOHO external storage markets account for the majority of Oxford’s sales. Oxford provides advanced system-on-chip solutions for both direct-attached storage (DAS) and network-attached storage (NAS) external drives. Oxford has a reputation for providing innovative and reliable chip, software and firmware solutions for consumer storage needs and counts leading manufacturers and marketers as customers, including Seagate, Western Digital, LaCie, Hewlett Packard, and Macpower.

We believe that through this acquisition, we have a leadership position in two of the fastest-growing interconnect chip markets – PCI Express-based systems and consumer external storage. Major synergies include common interconnect technologies and design flows, sales, marketing and support systems, and supply chains. Most importantly, we can create innovative products that combine the considerable intellectual property and industry knowledge of Oxford and PLX. The two companies share a customer-focused business philosophy that includes delivering the highest quality products and services, and a culture that rewards innovation and results.

We continue to evaluate our business strategies and may complete additional acquisitions in future periods.

Technology

PLX focuses on providing differentiated products to leadership customers. In order to achieve this, we have developed unique core competencies in the underlying technologies necessary for success.

Semiconductor Design. Our engineers have substantial expertise in designing complex, reliable, high performance products. We utilize state-of-the-art EDA tools and techniques for the entire design pipeline, and have developed proprietary verification mechanisms to ensure robust operation prior to committing to silicon. It is relatively straightforward to get a device to operate in normal, error free environments. It is much more challenging to have that device operative predictably and reliably in environments where errors occur in the system, and where unexpected or complex combinations of transactions occur. PLX has built up an industry-leading suite of tests that ensure such reliable operation in real-world customer systems.

In addition to software-based simulation techniques, we have also invested in a flexible hardware-based emulation platform that enables our designers to run real software on a version of our design prior to committing to silicon. This allows our products to operate in more complex system-level environments, where subtle and undocumented behaviors often exist.

PLX has a dedicated team and the appropriate EDA tools to translate the design into the database that is used to fabricate the device. This physical design capability allows the company to provide a smaller, lower power product, since the engineers who are doing this placement and layout work are part of our staff and work with the design engineers from the start of the project. This capability also allows us to produce a product with higher signal integrity, which enables the device to work in a wider range of noisy environments more predictably.

When we receive our initial sample silicon back from the third-party wafer fabrication facility (fab), we have a dedicated group of engineers to fully validate the product prior to sending it to our broad customer base. As with the pre-silicon verification, this post-silicon phase makes use of our years of product releases to ensure reliable product operation. We have invested in the talent and equipment, and use our extensive proprietary test suites, to fully validate the device. In addition, we have built up a broad interoperability lab, where we exercise the product with a growing number of other components and subsystems to ensure reliable operation in a range of real-world environments.

System-on-a-Chip Expertise. Our storage products are integrated, dedicated computer SOCs. We have the verification, emulation, and integration capability to combine these subsystems on a single piece of silicon through tools and expertise that we have developed through many generations of such devices. In addition to being able to allow basic connectivity between different interconnect standards, we focus on providing higher performance than our competitors by including on-chip acceleration engines, and by understanding how the system level software operates with the hardware in actual systems.

Software Technology. We have invested in a complete software development capability. In order to enable our customers to get to market quickly, PLX provides device drivers that support our products for the most popular operating system platforms, as well as API libraries that allow programmers to quickly make use of our products. In order to ensure that our products provide the highest performance possible, we have developed the tools and expertise to understand where the software bottlenecks occur in real-world systems, and our device drivers make use of this knowledge to increase the performance of targeted applications such as multimedia data transfer across a network.

Our products have proprietary hardware features that allow complex problems to be solved in the field without special instrumentation, and performance monitoring hardware that makes visible important system performance metrics. We include software as part of our normal release that takes these hardware features and allows them to be easily deployed through a modern GUI interface. We also enable the programmer to view and change the registers in our device quickly and easy – and even access an on-line databook explanation of the register directly - with our industry-leading PLXMon application.

Our storage products are complex computer systems, with an on-chip processors and special purpose building blocks. We develop our own firmware for these systems that orchestrate the operation of the subsystems to provide high performance and reliable operation under often chaotic external environments. Our firmware allows PLX to enable features for specific applications without needing to create new silicon, and it gives the company an opportunity to improve performance in existing systems as the needs of the system change.

Products

Our products consist of interconnect semiconductor products, fully supported by the software and hardware kits that enable our customers to get to market quickly with robust, differentiated products.

PCI Express Switches. Since PCI Express is a point-to-point serial interconnect standard, it requires a switch to connect a single PCI Express port from a processor or chipset to multiple end-points. Examples of applications include fan-out in servers and storage systems, dual graphics in gaming and workstation systems, control planes in networking and communications systems and backplanes in embedded and industrial equipment. PLX switches allow aggregation of multi-channel Gigabit Ethernet, Fibre Channel, graphics and SAS cards to the host. PLX switch products are offered in various configurations as requirements vary from one application to the next. PCI Express switches have become a basic building block in systems being designed today using this standard. PLX started with the Gen 1 family of PCI Express at 2.5 Gigabits per second in 2004, followed by Gen 2 products in late 2007, where the data rate has doubled to 5.0 Gigabits per second. We are in development of Gen 3 PCI Express supporting 8.0 Gigabits per second.

PCI Express Bridges. PCI Express Bridges enable conventional PCI products (32-bit/33 MHz, 32-bit/66 MHz and even 64-bit/133 MHz PCI-X) to be upgraded for use in new PCI Express systems. This allows users to quickly bring a new product to market. Applications using these bridge devices include servers, storage host bus adapters, graphics, TV tuners and security systems. The reverse bridging feature also allows users to bridge backwards allowing the latest PCI Express based powerful CPUs/Graphics processors to still service and support the legacy PCI and PCI-X market. We also offer bridges that translate PCI Express to general purpose serial and parallel ports.

Direct Attached Storage (DAS). DAS devices are System-on-a-Chip (SOC) products that allow external storage to be easily connected to a PC through either a USB, 1394, or external Serial ATA connection. PLX products offer the widest range of connection possibilities, and the most complete feature set, including single, dual, and quad hard disk connection, RAID, and encryption. The PLX devices have industry leading performance across all interfaces.

Network Attached Storage (NAS). NAS products provide storage that attaches to a Local Area Network (LAN). PLX NAS products are aimed at the consumer/SOHO market, and are SOC devices that combine Ethernet, USB, PCI Express and SATA ports with other standard interfaces necessary to complete a state-of-the-art network appliance. PLX products include a PCI interface to easily create complete subsystems, a DDR DRAM interface, and on-chip capabilities such as TCP off-load, RAID, and encryption. These basic building blocks are enabled with high performance firmware that runs on a powerful, low power ARM processor.

PCI Bridges. PLX offers a range of general purpose bridges that translate and extend the PCI bus. These products offer a bridge between the PCI and a variety of other serial and parallel general purpose interfaces. Our PCI-to-PCI bridges are chips that increase the number of peripheral devices that can be included in a microprocessor-based system. PLX’s bridge product line spans the entire PCI range, from 32-bit 33MHz through 64-bit 66MHz, and includes 133MHz PCI-X devices.

USB Interface Chips. USB interface chips are used by computer peripherals to connect to a PC through an external cabled connection. The current mainstream version of this spec, called USB 2.0, can be found today on devices like multi-function printers, DVD camcorders, portable media players, portable navigation systems, digital cameras, PDAs and hard disks. Our USB interface chips offer connection to both PCI or to a generic interface, providing a simple connection that offers high performance. We are in development of products using USB 3.0 which offers 5.0 Gigabit per second transfers.

Customers

We supply our products to the leading companies in the server, enterprise and consumer storage, communications, pc peripheral, consumer and embedded markets, and more than 1,000 electronic equipment manufacturers incorporate our semiconductor devices in their systems. Since the products that we design and sell have innovative features, and since there is normally a software impact to the vendor choice, the customer design team typically selects the sole-source hardware and software components early in the design cycle. Generally, the system will incorporate these same components throughout its product life because changes require an expensive re-engineering effort. Therefore, when our products are designed into a system, they are likely to be used in that system throughout its production life.

Competition

Competition in the semiconductor industry is intense. If our target markets continue to grow, the number of competitors may increase significantly. In addition, new semiconductor technologies may lead to new products that can perform similar functions as our products.

We believe that the principal factors of competition in our business include functionality, product performance, price, product innovation, availability of development tools, customer service and reliability. We believe that we compete favorably with respect to each of these factors. We differentiate our products from those of our competitors by incorporating innovative features that allow our customers to build systems based on industry standards that provide more features, and higher performance. Furthermore, in general, our software and hardware development tools are more comprehensive than competing solutions.

Competition in the various markets we serve comes from companies of different sizes, many of which are significantly larger and have greater financial and other resources. Our principal products compete with standard products from companies such as ASMedia, Cavium, Cortina, Cypress Semiconductor, Genesys Logic, Gennum, IDT, Initio, Intel, JMicron, LucidPoint, Marvell, MosChip, NEC, Pericom Semiconductor, NXP Semiconductor, Renesas, Symwave, and Texas Instruments.

In addition, two alternative devices can perform some or all of the functions of our devices. The first is the Application Specific Integrated Circuit, or ASIC. With the ASIC approach, a customer creates a custom semiconductor device for a particular application. Because the customer buys the ASIC directly from the semiconductor foundry, this approach may lead to lower unit production costs. However, this approach entails a large initial time and resource investment in developing the custom device. The second alternative device is the Field Programmable Gate Array, or FPGA. The FPGA is a semiconductor device whose logic function can be programmed by the system manufacturer. This requires less design effort and time than the ASIC approach. However, because of the additional circuitry required to enable the device to be programmed, this approach typically entails higher unit production costs which can be prohibitive compared to ASICs or standard semiconductor devices. Nevertheless, FPGA prices have decreased steadily and in many cases are competitive with prices for standard semiconductor devices. Accordingly, we also experience competition from leading ASIC suppliers, including Fujitsu, IBM, LSI Logic, NEC, and Toshiba as well as from FPGA suppliers, including Actel, Altera, Atmel, Lattice, QuickLogic and Xilinx. Many of these competitors are large companies that have significantly greater financial, technical, marketing and other resources than PLX.

Sales, Marketing and Technical Support

Our sales and marketing strategy is to achieve design wins at leading systems-companies in high-growth market segments. We market and sell our products in the United States through a combination of direct regional sales managers, a network of independent manufacturers' representatives and distributors.

Outside the United States, we have engaged a team of manufacturers' representatives, stocking representatives and distributors to sell and market our products. Our international network includes representatives in Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Korea, Norway, People's Republic of China, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, The Netherlands and the United Kingdom. We maintain a sales liaison office in the United Kingdom to service customers in Europe and the Middle East. We also maintain sales liaison offices in Korea, Taiwan, and China to service customers in Korea, Southeast Asia and The People's Republic of China. Finally, we maintain a sales liaison office in Japan to service customers in Japan.

Sales in North America represented 18%, 31% and 29%, of net revenues for 2009, 2008 and 2007, respectively. All worldwide sales to date have been denominated in U.S. dollars. We have one operating segment, the sale of semiconductor devices. Additional segment reporting information is included in Note 14 to the consolidated financial statements in this form 10-K.

Net revenues through distributors accounted for approximately 89%, 80% and 77% of our net revenues for 2009, 2008 and 2007, respectively. Revenues related to sales through distributors are expected to continue to account for a large portion of our total revenues. See "Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results - A Large Portion of Our Revenues Is Derived from Sales to Third-Party Distributors Who May Terminate Their Relationships with Us at Any Time" in this Form 10-K.

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:

	Years Ended December 31,
	2009			2008			2007

Excelpoint Systems Pte Ltd		25	%		29	%		18	%
Promate Electronics Co., Ltd		15	%		-			*	%
Answer Technology, Inc.		12	%		13	%		10	%
Avnet, Inc.		12	%		12	%		*	%
Metatech		-			-			17	%

* Less than 10%

Technical support to customers provided under warranty is provided through field and factory applications engineers, technical marketing personnel and, if necessary, product design engineers. Local field support is provided in person, email, Internet or by telephone. We also use our website to provide product documentation and technical support information. We believe that providing customers with comprehensive product support is critical to remaining competitive in the markets we serve. In addition, our close contact with customer design engineers provides valuable input into existing product enhancements and next generation product specifications.

Research and Development

Our future success will depend to a large extent on our ability to rapidly develop and introduce new products and enhancements to our existing products that meet emerging industry standards and satisfy changing customer requirements. We have made and expect to continue to make substantial investments in research and development and to participate in the development of new and existing industry standards.

The majority of our engineers are involved in semiconductor device development, with the remaining engineers working on software and reference design hardware. Before development of a new product commences, our marketing managers work closely with research and development engineers and customers to develop a comprehensive requirements specification. In addition, our marketing managers and engineers review the applicable industry standards and incorporate desired changes into the new product specification. After the product is designed and commercially available, our engineers continue to work with various customers on specific design issues to understand emerging requirements that may be incorporated into future product generations or product upgrades.

Our research and development expenditures totaled $31.4 million, $27.1 million and $24.4 million in 2009, 2008 and 2007, respectively. Research and development expenses consist primarily of tape-out related costs at our independent foundries, salaries and related costs, including share-based compensation and expenses for outside engineering consultants. We perform our research and development activities at our headquarters in Sunnyvale, California and in Abingdon, United Kingdom. We periodically seek to hire additional skilled development engineers who are currently in short supply. Our business could be adversely affected if we encounter delays in hiring additional engineers. See "Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results - We Could Lose Key Personnel Due to Competitive Market Conditions and Attrition" in this Form 10-K.

Our future performance depends on a number of factors, including our ability to identify emerging technology trends in our target markets, define and develop competitive new products in a timely manner, enhance existing products to differentiate them from those of competitors and bring products to market at competitive prices. The technical innovations and product development required for us to remain competitive are inherently complex and require long development cycles. We typically must incur substantial research and development costs before the technical feasibility and commercial viability of a product can be ascertained. We must also continue to make significant investments in research and development in order to continually enhance the performance and functionality of our products to keep pace with competitive products and customer demands for improved performance. Revenues from future products or product enhancements may not be sufficient to recover the development costs associated with these products or enhancements. The failure to successfully develop new products on a timely basis could have a material adverse effect on our business.

Manufacturing

We have adopted a "fabless" semiconductor manufacturing model and outsource all of our semiconductor manufacturing, assembly and testing. This approach allows us to focus our resources on the design, development and marketing of products and significantly reduces our capital requirements. Currently, our products are primarily being fabricated, assembled or tested by AMD, Advanced Semiconductor Engineering, Ardentec, Faraday, Fujitsu, FST, MagnaChip, NEC, Open-Silicon, Samsung, Seiko-Epson Semiconductor, STATS ChipPAC Ltd., Taiwan Semiconductor Manufacturing Corporation, UMC and United Test and Assembly Center Ltd.. These manufacturers assemble and test our products based on the design and test specifications we have provided. A small number of our products are currently manufactured by more than one supplier, and we expect a substantial amount of our products to be single-source manufactured for the foreseeable future. We must place orders two to four months in advance of expected delivery of finished goods. We maintain inventory levels based on current lead times from foundries plus safety stock to account for unanticipated interruption in supply and fluctuations in demand. Our inventory comprises a large portion of our working capital. As a result, we have limited ability to react to fluctuations in demand for our products which could cause us to have an excess or a shortage of inventory of a particular product and reduced product revenues.

In the event of a loss of, or a decision by us to change, a key supplier or foundry, qualifying a new supplier or foundry and commencing volume production would likely involve delay and expenses, resulting in lost revenues, reduced operating margins and possible detriment to customer relationships. Since we place our orders on a purchase order basis and do not have a long-term volume purchase agreement with any of our existing suppliers, any of these suppliers may allocate capacity to the production of other products while reducing deliveries to us on short notice. While we believe we currently have good relationships with our foundries and adequate capacity to support our current sales levels, there can be no assurance that adequate foundry capacity will be available in the future on acceptable terms, if at all. See "Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results - Our Independent Manufacturers May Not Be Able To Meet Our Manufacturing Requirements" in this Form 10-K.

Our semiconductor devices are currently fabricated using a range of semiconductor manufacturing processes. We must continuously develop our devices using more advanced processes to remain competitive on a cost and performance basis. Migrating to new technologies is a challenging task requiring new design skills, methods and tools. We believe that the transition of our products to smaller geometries will be important for us to remain competitive. Our business could be materially adversely affected if any transition to new processes is delayed or inefficiently implemented. See " Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results - Defects in Our Products Could Increase Our Costs and Delay Our Product Shipments" in this Form 10-K.

Intellectual Property

Our future success and competitive position depend upon our ability to obtain and maintain the proprietary technology used in our principal products. Most of our current products include implementations of the PCI, PCI Express, Serial ATA, Ethernet, 1394 and USB industry standards, which are available to other companies. We hold 26 patents on switching, interconnect and storage technologies that will expire at various dates beginning in 2014 through 2028. In the future, we plan to seek patent protection when we believe it is necessary.

Our existing or future patents may be invalidated, circumvented, challenged or licensed to others. The rights granted 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 this protection. We cannot be sure that steps taken by us to protect our technology will prevent misappropriation of our technology.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions. This often results in significant, often protracted and expensive litigation. There is no intellectual property litigation currently pending against us. However, we may from time to time receive notifications of claims that we may be infringing patents or other intellectual property rights owned by other third parties. If it is necessary or desirable, we may seek licenses under these third party patents or intellectual property rights. However, we cannot be sure that licenses will be offered or that the terms of any offered licenses will be acceptable to us.

The failure to obtain a license from a third party for technology used by us could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the technology. Litigation could result in significant expenses to us, adversely affect sales of the challenged product or technology and divert the efforts of our technical and management personnel, whether or not the litigation is determined in our favor. In the event of an adverse result in any litigation, we could be required to pay substantial damages, cease the manufacture, use, sale or importation of infringing products, expend significant resources to develop or acquire non-infringing technology, and discontinue the use of processes requiring the infringing technology or obtain licenses to the infringing technology. In addition, we may not be successful in developing or acquiring the necessary licenses 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. See "Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results - Our Limited Ability to Protect Our Intellectual Property and Proprietary Rights Could Adversely Affect Our Competitive Position" in this Form 10-K.

Employees

As of December 31, 2009, we employed a total of 197 full-time employees, including 106 engaged in research and development, 60 engaged in sales and marketing, 3 engaged in manufacturing operations and 28 engaged in general administration activities. We also from time to time employ part-time employees and hire contractors. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our employee relations are good.

Backlog

PLX's backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. This results from expected changes in product delivery schedules and cancellation of product orders. In addition, PLX's sales will often reflect orders shipped in the same quarter that they are received.

ITEM 1A: RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

If a company’s operating results are below the expectation of public market analysts or investors, then the market price of its common stock could decline. Many factors that can affect a company’s quarterly and annual results are difficult to control or predict. Factors which can affect the operating results of a semiconductor company such as PLX are described below.

Risks and uncertainties that could cause actual results to differ materially from those described herein include the following:

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 in the second half of 2009, however, the outlook for 2010 remains uncertain. 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 and deteriorate further, 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, 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. We may experience periodic fluctuations in our future financial results because of industry-wide conditions.

Because A Substantial Portion Of Our Net Revenues Are 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 5 of the 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 revenues. Due to these factors, the following have in the past and may in the future reduce our net revenues 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 “Item 1, Business - Competition” and “-Products” in this Form 10-K.

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. Sales through distributors accounted for approximately 89%, 80% and 77% of our net revenues in 2009, 2008 and 2007, respectively. 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. While there is currently no intellectual property litigation pending against us, litigation could result in significant expenses to us and adversely affect sales of the challenged product or technology. This litigation could also divert the efforts of our technical and management personnel, whether or not the litigation is determined in our favor. In addition, 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.

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 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 no or limited 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 84%, 77% and 71% of our net revenues in 2009, 2008 and 2007, respectively. Sales outside of the United States may fluctuate in future periods and may continue 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 Unites 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, Amortizable Intangible Assets Or Other Long Lived Asset 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. As a result of the goodwill impairment testing in the fourth quarter of 2008 we fully impaired the goodwill and remaining intangible assets associated with the Sebring, HiNT Corporation and NetChip Technology, Inc. acquisitions for a total of $35.5 million. During this review we also recorded an impairment charge of $18.8 million due to the decline in the value of our Sunnyvale headquarters building. In the fourth quarter of 2009, we tested the goodwill acquired in 2009 through the acquisition of Oxford and determined there was no impairment. We may record additional goodwill and other intangible assets related to the acquisition of Oxford and 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 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

We own one facility in Sunnyvale, California, which has approximately 53,000 square feet. This facility comprises our headquarters and includes our research and development, sales and marketing and administration departments. Internationally, we lease sales offices in China, Japan, Korea, Taiwan and the United Kingdom. These leases comprise approximately 22,400 square feet and have terms expiring in or prior to June 2015. We believe that our current facilities will be adequate through 2010.

ITEM 3: LEGAL PROCEEDINGS

None.

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Market and has been quoted on The NASDAQ Global Market under the symbol "PLXT" since its initial public offering on April 5, 1999. The following table sets forth, for the periods indicated, the range of quarterly high and low sales price for our common stock as reported on The NASDAQ Global Market:

2009	High		Low
First Quarter	$	2.79	$	1.45
Second Quarter		4.40		2.21
Third Quarter		4.12		2.88
Fourth Quarter		3.73		2.99

2008	High		Low
First Quarter	$	9.56	$	5.76
Second Quarter		9.40		6.32
Third Quarter		7.65		4.50
Fourth Quarter		5.07		1.51

As of February 28, 2010, there were approximately 139 holders of record of our common stock and as of that date, the last reported sales price of our common stock was $4.54.

We have never paid cash dividends on our common stock. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Any future declaration and payment of dividends will be subject to the discretion of our Board of Directors, will be subject to applicable law and will depend upon our results of operations, earnings, financial condition, contractual limitations, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.

Securities Authorized For Issuance Under Equity Compensation Plans

This information is incorporated herein by reference to the Company's Proxy Statement for the 2009 Annual Meeting of Stockholders under the heading "Equity Compensation Plan Information."

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In September 2002, our Board of Directors authorized the repurchase of up to 2,000,000 shares of common stock. In July 2008, our Board of Directors authorized an additional 2,000,000 shares under the repurchase program. At the discretion of the management, we can repurchase the shares from time to time in the open market or in privately negotiated transactions. Approximately 774,000 shares were repurchased for approximately $1.9 million in cash in 2002 and 2003. We did not repurchase any additional shares from January 1, 2004 through December 31, 2007. In 2008, we repurchased 956,000 shares for approximately $6.5 million. We did not purchase any additional shares in 2009. As of December 31, 2009, under the Board’s repurchase authorization, we had the capacity to repurchase an additional 2,269,000 shares.

Performance Graph

	Cumulative Total Return
		12/04	12/05	12/06	12/07	12/08	12/09
PLX Technology, Inc.		100.00	82.69	125.38	89.42	16.54	31.06
Russell 2000		100.00	104.55	123.76	121.82	80.66	102.58
Philadelphia Semiconductor		100.00	115.78	106.63	115.13	64.57	102.97

The graph and other information furnished under the above caption "Performance Graph" in this Part II, Item 5 of this Form 10-K shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.

ITEM 6: SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K.

	Years Ended December 31,
	2009 (1)			2008 (2)			2007			2006 (4)		2005
	in thousands, except per share data
Consolidated Statement of Operations Data:
Net Revenues	$	82,832		$	81,068		$	81,734		$	81,425	$	54,615
Gross Profit		46,932			48,282			49,525			47,630		35,002
Operating Income (Loss)		(15,490	)		(57,947	)		(643	)		1,715		(2,306	)
Net Income (Loss)		(18,802	)		(56,530	)		1,174			3,006		(1,748	)
Basic Net Income (Loss) Per Share	$	(0.53	)	$	(2.00	)	$	0.04		$	0.11	$	(0.06	)
Shares Used to Compute Basic Per Share Amounts		35,653			28,203			28,724			28,177		27,198
Diluted Net Income (Loss) Per Share	$	(0.53	)	$	(2.00	)	$	0.04		$	0.10	$	(0.06	)
Shares Used to Compute Diluted Per Share Amounts		35,653			28,203			29,156			28,925		27,198

	Years Ended December 31,
	2009		2008 (3)		2007		2006		2005
	in thousands
Consolidated Balance Sheet Data:
Cash and Cash Equivalents	$	11,299	$	6,865	$	19,175	$	32,804	$	21,028
Working Capital		49,945		49,153		50,153		49,031		36,994
Total Assets		84,020		77,260		135,800		127,948		117,911
Total Long Term Capital Lease Obligations		1,098		-		-		-		-
Total Stockholders' Equity	$	71,999	$	69,203	$	127,892	$	120,926	$	107,489

(1)	Results of operations for 2009 include acquisition and related restructuring expenses of $2.9 million and a loss of $3.8 million on the fair value remeasurement of the contingently convertible note payable associated with the acquisition of Oxford in January 2009.

(2)	Results of operations for 2008 include impairment charges of $54.3 million and acquisition related fees of $0.8 million associated with the acquisition of Oxford in January 2009.

(3)	Total assets and stockholders’ equity for 2008 reflect impairment charges of $54.3 million.

(4)	Results of operations for 2006 include an increase in revenues and cost of revenues of $2.8 million and $0.9 million, respectively, as a result from a change in accounting for revenues from distributors.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this Report on Form 10-K that are not purely historical are forward-looking statements, including, without limitation, statements regarding our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

Forward-looking statements include, without limitation, the statements regarding the following:

·	the growing demand for standards-based components such as our semiconductor devices that connect systems together;

·	our objective to expand our advantages in data transfer technology;

·	our expectation that we will support new I/O standards where appropriate;

·	the statements regarding our objective to continue to expand our market position as a developer and supplier of I/O connectivity solutions for high performance systems;

·	our plan to target those applications where we believe we can attain a leadership position;

·	our plan to seek to integrate additional I/O-related functions into our semiconductor devices;

·	our belief that our understanding of I/O technology trends and market requirements allows us to bring to market more quickly new products that support the latest I/O technology;

·	that we continue to integrate more functionality in our semiconductor devices and continue to enhance and expand our software development kits;

·	our belief with respect to the principal factors of competition in the business;

·	our belief that we compete favorably with respect to each of those factors;

·	our expectation that revenues related to sales through distributors will continue to account for a large portion of total revenues;

·	our belief that providing customers with comprehensive product support is critical to remaining competitive in the markets we serve;

·	our belief that our close contact with customer design engineers provides valuable input into existing product enhancements and next generation product specifications;

·	our expectation that we will periodically seek to hire additional development engineers;

·	our expectation that we will continue to make significant investments in research and development in order to continually enhance the performance and functionality of our products to keep pace with competitive products and customer demands for improved performance;

·	our belief that we must continuously develop our devices using more advanced processes to remain competitive on a cost and performance basis;

·	our belief that the transition of our products to smaller geometries will be important for us to remain competitive;

·	our plan to seek patent protection when necessary;

·	our belief that our current facility will be adequate through 2010;

·	our intention to retain earnings for use in our business and not to pay any cash dividend in the foreseeable future;

·	our belief that our long-term success will depend on our ability to introduce new products;

·	our belief that we may be required to carry higher levels of inventory because of the difficulty in predicting future levels of sales and profitability;

·	our expectation that selling, general and administrative and research and development expenses in absolute dollars will increase in future periods; and

·	our belief that our existing resources, together with cash expected to be generated from our operations, will be sufficient to meet our capital requirements for at least the next twelve months.

All forward-looking statements included in this document are subject to additional risks and uncertainties further discussed under "Item 1A: Risk Factors - Factors That May Affect Future Operating Results" and are based on information available to us on the date hereof. We assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those included in such forward-looking statements. The factors that could cause our actual results to differ from those included in such forward-looking statements are set forth under the heading "Item 1A: Risk Factors - Factors That May Affect Future Operating Results," as well as those disclosed from time to time in our reports on Forms 10-Q and 8-K and our Annual Reports to Stockholders.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report.

Overview

PLX was founded in 1986, and between 1994 and 2002 we focused on development of I/O interface semiconductors and related software and development tools that are used in systems incorporating the PCI standard. In 1994 and 1995, a significant portion of our revenues were derived from the sale of semiconductor devices that perform similar functions as our current products, except they were based on a variety of industry standards. Our revenues between 1996 and 2007 were derived predominantly from the sale of semiconductor devices based on the PCI standard to a large number of customers in a variety of applications including servers, networking and telecommunications, enterprise storage, imaging, industrial and other embedded applications as well as in related adapter cards. In 2002, we shifted the majority of our development efforts to PCI Express. In September 2004, we began shipping products based on the PCI Express standard for next-generation systems. Between 2004 and 2007, an industry-wide adoption of the PCI Express standard took place. PCI Express went from being one of many new protocols in the market to becoming the interconnect of choice and a basic building block of systems. Being a market leader in PCI Express, our line of PCI Express switches and bridges followed suit and also gained a lot of traction in the market. PCI Express was so well accepted that a follow-on was called for. In December of 2006, PCI Express Rev 2.0 (commonly referred to as “PCIe Gen 2”) was released. The Gen 2 protocol doubled the bandwidth supported by PCI Express Gen 1 (from 2.5 Gigabits per second to 5.0 Gigabits per second) and incorporated a number of other protocol enhancements. In September 2007, we announced the addition of the Gen 2 switches to our PCI Express product family and began shipping in January 2008. We are in development of Gen 3 PCI Express supporting 8.0 Gigabits per second.

We utilize a “fabless” semiconductor business model whereby we purchase wafers and packaged and tested semiconductor devices from independent manufacturing foundries. This approach 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 and 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.

Our gross margins have fluctuated in the past and are expected to fluctuate in the future due to changes in product and customer mix, provisions and recoveries of excess or obsolete inventory, the position of our products in their respective life cycles, and specific product manufacturing costs.

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 requests 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 introduce new products. While new products typically generate little or no revenues 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 “Item 1A, Risk Factors - Certain Factors That May Affect Future Operating Results -- Our Lengthy Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected Revenues” in this Form 10-K.

On December 15, 2008 we signed a definitive agreement to acquire all of the outstanding shares of capital stock of Oxford, a privately held fabless provider of industry-leading silicon and software for the consumer and small office/home office (SOHO) storage markets. The acquisition closed on January 2, 2009. Additional information about the acquisition is set forth in Note 7 to the consolidated financial statements.

Results of Operations

Comparison of Years Ended December 31, 2009, 2008 and 2007

Net Revenues. Net revenues consist of product revenues generated principally by sales of our semiconductor devices.

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

	Years Ended December 31,
	2009			2008			2007
PCI Express products	$	31,819		$	38,052		$	28,449
As a percentage of revenues		38.4	%		46.9	%		34.8	%
Storage products	$	19,007		$	-		$	-
As a percentage of revenues		23.0	%		-			-
Connectivity products	$	32,006		$	43,016		$	53,285
As a percentage of revenues		38.6	%		53.1	%		65.2	%

Net revenues for the year ended December 31, 2009 were $82.8 million, an increase of $1.8 million or 2.2% from $81.1 million in 2008. The increase in 2009 net revenues was due to revenues generated from the Storage and Connectivity products acquired as part of the Oxford acquisition, largely offset by lower sales of our PCI Express and Connectivity product as a result of a decline in enterprise and consumer spending, which resulted from the weakened global economy and economic uncertainty.

Net revenues for the year ended December 31, 2008 were $81.1 million, a decrease of $0.6 million or 0.8% from $81.7 million in 2007. The decrease in 2008 net revenues was due primarily to decreased sales of our Connectivity products due to customer migration to PCI Express, end of life of customers’ products and general demand fluctuations, partially offset by increased sales of our PCI Express products as a result of an increase of customers in volume production.

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:

	Years Ended December 31,
	2009			2008			2007

Excelpoint Systems Pte Ltd		25	%		29	%		18	%
Promate Electronics Co., Ltd		15	%		-			*	%
Answer Technology, Inc.		12	%		13	%		10	%
Avnet, Inc.		12	%		12	%		*	%
Metatech		-			-			17	%

* Less than 10%

We continue to generate significant revenues from Asia. For the twelve months ended December 31, 2009, 2008 and 2007, approximately 72%, 56% and 60%, respectively, of net revenues were generated from Asia.

In the fourth quarter of 2008, we experienced a broad decrease in order rates across most product lines, markets and end customers. We have seen improved market conditions in the second half of 2009 and in the first two months of 2010. Future demand for our products is uncertain and is highly dependent on general macroeconomic 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 primarily includes the cost of (1) purchasing semiconductor devices 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.

	Years Ended December 31,
	2009			2008			2007
	in thousands
Gross profit	$	46,932		$	48,282		$	49,525
Gross margin		56.7	%		59.6	%		60.6	%

Gross profit for the year ended December 31, 2009 decreased by 2.8%, or $1.4 million compared to 2008. The decrease in absolute dollars and as a percentage was primarily due to the lower margins of the Storage products acquired in the Oxford acquisition as well as overall product mix.

Gross profit for the year ended December 31, 2008 decreased by 2.5%, or $1.2 million compared to 2007. The decrease in absolute dollars and as a percentage was primarily due to decreased Connectivity product shipments and increased product shipments and customer mix of our PCI Express products, which have lower margins relative to our Connectivity products.

Future gross margin is highly dependent on the product and customer mix, provisions and sales of excess or obsolete 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, software licenses, and expenses for outside engineering consultants included in R&D expenses.

	Years Ended December 31,
	2009			2008			2007
	in thousands
R&D expenses	$	31,387		$	27,091		$	24,373
As a percentage of revenues		37.9	%		33.4	%		29.8	%

R&D expenses increased by $4.3 million, or 15.9% in the year ended December 31, 2009 compared to 2008. The increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increases in R&D spending on compensation and benefit expenses of $2.2 million, engineering tools of $1.8 million and office lease expenses of $0.6 million associated with the acquisition of Oxford, partially offset by decreases in consulting expenses of $0.8 million due to the timing of projects taped-out and cost control efforts.

R&D expenses increased by $2.7 million, or 11.2% in the year ended December 31, 2008 compared to 2007. The increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increases in R&D spending on engineering tools of $1.5 million and consulting fees of $1.2 million associated with new product designs.

We believe continued spending on research and development to develop new products is critical to our success. In addition, we expect to increase research and development expenses in future periods as we increase new product designs in lower geometries.

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

	Years Ended December 31,
	2009			2008			2007
	in thousands
SG&A expenses	$	24,719		$	23,368		$	24,516
As a percentage of revenues		29.8	%		28.8	%		30.0	%

SG&A expenses increased by $1.4 million or 5.8% in the year ended December 31, 2009 compared to 2008. The increase in SG&A in absolute dollars and as a percentage of revenue was primarily due to increases in compensation and benefit expenses of $0.7 million as a result of the redundancies associated with the acquisition of Oxford in the first quarter of 2009, accounting and consulting fees of $0.4 million as a result of the integration of Oxford and software licenses of $0.3 million.

SG&A expenses decreased by $1.1 million or 4.7% in the year ended December 31, 2008 compared to 2007. The decrease in SG&A in absolute dollars and as a percentage of revenue was primarily due to decreases in share-based compensation expenses of $0.8 million and commission expenses to manufacturer’s representatives of $0.4 million due to lower commission rates.

Acquisition and Restructuring Related Costs.

	Years Ended December 31,
	2009		2008		2007
	in thousands
Deal costs	$	439	$	756	$	-
Severance costs		2,112		-		-
Asset impairment		38		-		-
Lease commitment accrual		311		-		-
	$	2,900	$	756	$	-

In 2009 and 2008 we recorded $2.9 million and $0.8 million, respectively, in acquisition related costs associated with the January 2, 2009 acquisition of Oxford. Deal costs related primarily to outside legal and accounting costs. Severance costs were the result of layoffs due to the redundancy issue that arose as a result of the acquisition and the downsizing of our Singapore R&D facility. In addition, we assumed a building lease in Milpitas, California which was vacated upon the acquisition. As a result, we took a lease commitment charge on the operating lease in the first quarter of 2009. See Note 8 of the consolidated financial statements for additional information.

Amortization of Purchased Intangible Assets. Amortization of acquired intangible assets consists of amortization expense related to developed core technology, tradename and customer base acquired in the Oxford acquisition in January 2009 and the developed core technology acquired in the HiNT Corporation acquisition in May 2003 and NetChip Technology, Inc. acquisition in May 2004.

	Years Ended December 31,
	2009			2008			2007
	in thousands
Amortization of purchased intangible assets	$	3,416		$	742		$	1,279
As a percentage of revenues		4.1	%		0.9	%		1.6	%

Amortization of acquired intangible increased by $2.7 million or 360.4% in the year ended December 31, 2009 compared to 2008. The 2008 amortization expense related to intangibles acquired in our prior acquisitions of HiNT and NetChip. In December 2008 we determined that these assets were impaired and the remaining carrying value of $0.8 million was written off. The amortization expense in 2009 relates to the developed core technology, tradename and customer base acquired through the acquisition of Oxford. See Note 7 to our consolidated financial statements for additional information.

Amortization of purchased intangible assets decreased by $0.5 million or 42.0% in the year ended December 31, 2008 compared to 2007. The decrease was due to customer base acquired as a result of the NetChip Technology, Inc. acquisition in May 2004 becoming fully amortized in 2007 and the developed core technology acquired as a result of the HiNT Corporation acquisition in May 2003 becoming fully amortized in May 2008.

Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets. During the fourth quarter of 2008, we assessed goodwill and long lived assets for impairment as we observed that there were indicators of impairment. The notable indicators were a sustained decline in our market capitalization below book value, depressed market conditions, deteriorating industry trends and a significant downward revision of our forecasts. These market conditions continuously change and it is difficult to project how long an economic downturn may last. Our goodwill and intangible assets were primarily established in purchase accounting at the completion of the Sebring, HiNT Corporation and NetChip Technology, Inc acquisitions in 2000, 2003 and 2004, respectively.

The projected discounted cash flows for our single reporting unit were based on discrete five-year financial forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated using terminal value calculations. The terminal value represents the value of our single reporting unit at the end of the discrete forecast period. These forecasts represent the best estimate that our management had at the time and were believed to be reasonable. The annual sales growth rates ranged from 5% to 7% during the discrete forecast period and the future cash flows and terminal value were discounted to present value using a discount rate of 22%. The terminal value was based on the application of an 8.0x multiple to forecasted 2013 earnings before interest, taxes, depreciation and amortization expense (EBITDA). The discount rate was based on an analysis of the weighted average cost of capital of our single reporting unit. The EBITDA multiple used in the terminal value calculation was based upon EBITDA multiples paid in comparative merger and acquisition transactions and a review of trading multiples for similar public companies and considered the growth prospects and profitability for our single reporting unit at the end of the discrete forecast period.

Prior to our goodwill impairment testing, we also assessed the fair value of our long-lived assets, including our corporate headquarters building and amortizable intangible assets. For the corporate headquarters building, we used the sales comparison approach and the income capitalization approach, each equally weighted, to arrive at a fair value estimate. We determined that the carrying value of the property was not recoverable and exceeded its fair value, and we recorded an impairment charge of $18.8 million. For the amortizable intangible assets, which included acquired technology, we estimated a negligible fair value using a relief from royalty method and recorded an impairment charge of $0.8 million related to all of the remaining net book value of this acquired technology.

As part of the goodwill impairment test for the fourth quarter of 2008, we determined that step two of the impairment analysis was required because the estimated carrying value of our net assets, subsequent to the impairment of long-lived assets noted above, exceeded its estimated fair value. The second step of the goodwill impairment test compared the implied fair value of the goodwill with the carrying amount of that goodwill. When the carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The determination of the amount of the impairment required that the fair values of our assets and liabilities be determined as if the Company had been acquired in a hypothetical business combination with a purchase price equal to the fair value of the reporting unit as of December 31, 2008. As a result of this analysis, we recorded an impairment charge of $34.7 million related to all of the recorded goodwill.

In the fourth quarter of 2009, we tested the goodwill acquired in the Oxford acquisition in January 2009 and determined there was no impairment.

Interest Income, Interest Expense and Other, Net.

	Years Ended December 31,
	2009			2008		2007
	in thousands
Interest Income	$	622		$	1,521	$	2,385
Interest Expense		(450	)		-		-
Other Income		164			22		9
	$	336		$	1,543	$	2,394

Interest income reflects interest earned on average cash, cash equivalents and short-term and long-term investment balances. Interest income decreased by $0.9 million or 59.1% in the year ended December 31, 2009 compared to 2008. The decrease was due to lower cash and investment balances and decreased interest rates.

Interest income decreased to $1.5 million in 2008 from $2.4 million for 2007. The decrease was due to lower cash and investment balances as a result of the stock repurchases and decreased interest rates.

Interest expense for the year ended December 31, 2009 of $0.5 million primarily consisted of interest recorded on the $14.2 million note associated with the acquisition of Oxford. This note was converted to 3.4 million shares of common stock of PLX on May 22, 2009. In addition, there was interest recorded on our capital lease obligations. We did not record interest expense for the same period in 2008 or 2007.

Other income includes foreign currency transaction gains and losses and other miscellaneous transactions. Other income for the year ended December 31, 2009 included a $0.1 million loss due to the liquidation of our subsidiary in the United Kingdom as a result of the acquisition of Oxford and its subsidiary in the United Kingdom. Other income may fluctuate significantly.

Loss on Fair Value Remeasurement of Contingently Convertible Note Payable. As a part of the consideration for the Oxford acquisition, we recorded a liability for the contingent consideration due which was recorded at fair value as of the acquisition date. We are required to remeasure the liability to fair value until the contingency is resolved and record the change in fair value in earnings. The fair value of the note payable was based on 3.4 million shares with a stock price of $1.82, or $6.2 million. As of March 31, 2009, the closing stock price was $2.17, or $7.4 million. The loss on the fair value of the note remeasurement is the increase in fair value of the liability of $1.2 million, which was recorded in the first quarter of 2009. As of May 22, 2009, the date of conversion of the note into shares of common stock of PLX, the closing stock price was $2.95, or $10.0 million. The loss on the fair value of the note of $2.7 million was recorded in the second quarter of 2009. See Note 7 of the consolidated financial statements for additional information on the contingent consideration arrangement.

Provision for Income Taxes. Income tax benefit for the period ended December 31, 2009 was $0.2 million on a pretax loss of $19.0 million, compared to a provision of $0.1 million on a pretax loss of $56.4 million and a provision of $0.6 million on a pretax profit of $1.8 million for the periods ended December 31, 2008 and 2007, respectively. Our 2009 benefit differs from the benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to the recording of a valuation allowance for the deferred tax asset partially offset by a benefit of research and development tax credits. Our 2008 provision differs from the benefit derived by applying the applicable U.S. federal statutory rate to the loss from operations due to non deductible goodwill impairment and the recording of a valuation allowance for the deferred tax asset partially offset by a benefit of research and development tax credits. Our 2007 income tax expenses differs from the expense derived by applying the applicable U.S. federal statutory rate to the income from operations primarily due to the recording of a valuation allowance for the deferred tax asset partially offset by a $0.1 million tax benefit from the release of tax reserves following the expiration of certain state statute of limitations and the benefit of research and development tax credits. See Note 12 of the consolidated financial statements for reconciliation of statutory tax rates.

Liquidity and Capital Resources

In summary, our cash flows were (in thousands):

	Years Ended December 31,
	2009			2008			2007
Net cash provided by (used in) operating activities	$	(8,410	)	$	7,625		$	5,777
Net cash provided by (used in) investing activities		14,446			(14,246	)		(20,665	)
Net cash used in financing activities		(1,566	)		(5,646	)		(1,301	)
Effect of exchange rate fluctuations on cash and cash equivalents		(36	)		(43	)		(42	)

We invest cash not needed for current operations 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 December 31, 2009 cash, cash equivalents, short and long-term marketable securities were $40.0 million, a decrease of $7.1 million from $47.1 million at December 31, 2008, and a decrease of $6.6 million from $46.6 million at December 31, 2007.

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, changes in pre-acquisition deferred tax balances, other non-cash items and the effect of changes in working capital and other activities. Cash used in operating activities in 2009 of $8.4 million consisted primarily of a net loss of $18.8 million adjusted for non-cash items of $13.4 million and an increase in accounts receivable of $1.9 million due to higher sales in the fourth quarter of 2009 compared to the same period of 2008 and a decrease in accrued compensation of $1.8 million, partially offset by a decrease in other current assets of $2.3 million due to the amortization and decreased purchases of software and IP licenses. Cash provided by operating activities in 2008 of $7.6 million consisted primarily of a net loss of $56.5 million adjusted for non-cash items of $60.9 million and a decrease in accounts receivable of $4.8 million due to lower sales in the fourth quarter of 2008 compared to the same period of 2007, partially offset by increases in other current assets and other assets of $1.2 million due to an increase in software and IP licenses and inventory of $0.5 million. Cash provided by operating activities in 2007 of $5.8 million consisted primarily of net income of $1.2 million adjusted for non-cash items of $8.7 million and an increase in accounts payable of $1.5 million due to timing of vendor payments, partially offset by increases in other assets of $3.2 million due to an increase in software and IP licenses and $2.0 million in accounts receivable due to timing of customer payments and higher sales in the fourth quarter of 2007 compared to the fourth quarter of 2006.

Cash provided by investing activities in 2009 of $14.4 million was primarily due to sales and maturities of investments (net of purchases of investments) of $11.2 million and cash acquired through the acquisition of Oxford of $4.4 million, partially offset by capital expenditures of $1.2 million primarily to provide infrastructure for new product designs. Cash used in investing activities in 2008 of $14.2 million was primarily due to purchases of marketable securities (net of sales and maturities of investments) of $12.4 million and capital expenditures of $1.8 million. Cash used in investing activities in 2007 of $20.7 million was primarily due to purchases of marketable securities (net of sales and maturities of investments) of $17.6 million and capital expenditures of $3.1 million. Capital expenditures have been generally comprised of purchases of engineering equipment, computer hardware, software, server equipment and furniture and fixtures.

Cash used in financing activities in 2009 of $1.6 million was due to the payments made to employees associated with the tender offer of $0.9 million and on capital lease obligations of $0.7 million. Cash used in financing activities in 2008 of $5.6 million was due to common stock repurchases of $6.5 million partially offset by proceeds from the exercise of stock options of $0.9 million. Cash provided by financing activities in 2007 of $1.3 million were due to proceeds from the exercise of stock options.

The negative effect of exchange rates on cash and cash equivalents during 2009, 2008 and 2007 was due to the weakening of the U.S. dollar against other foreign currencies.

As of December 31, 2009, 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	$	2,681	$	573	$	1,432	$	676
Capital leases - IP		2,175		825		1,350		-
Software licenses		4,193		2,238		1,955		-
Inventory purchase commitments		7,687		7,687		-		-
Total cash obligations	$	16,736	$	11,323	$	4,737	$	676

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 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. Given the current economic and credit conditions, 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.

See Note 13 to our consolidated financial statements for additional information on our contractual obligations and commercial commitments.

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 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. For additional information see Note 1 to the consolidated financial statements. 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 has occurred, the fee is fixed or determinable and collection is reasonably assured.

Revenue from product sales to customers 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.

We offer pricing protection to two distributors whereby we support 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 current stock rotation requests and past experience, which has historically been insignificant, to determine the ending sales reserve required for this program. In addition, we have arrangements with a small number of customers offering a rebate program on various products. We record rebates as a reduction of revenue when the rebate is in the form of cash consideration or a reduction to accounts receivable. Reserves are reduced directly from revenue and recorded as a reduction to accounts receivable.

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 forecast. 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 collectability of our accounts receivable based on length of time the receivables are past due. Generally, our customers have between thirty days 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 collectability of amounts due from such customers could have a material affect on our results of operations in the period in which such changes or events occur. Historically, our write-offs have been insignificant. However, due to the current economic conditions, our customers may encounter liquidity issues leading to additional bad debt expense.

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 in certain circumstances. In 2008, we determined that our carrying value exceeded fair value, indicating that goodwill was potentially impaired. As a result, we initiated the second step of the goodwill impairment test which involves calculating the implied fair value of goodwill by allocating the fair value of the Company to all of our assets and liabilities other than goodwill and comparing it to the carrying amount of goodwill. We determined that there was no implied fair value of goodwill and recorded an impairment charge of $34.7 million in 2008. In the fourth quarter of 2009, we tested the goodwill acquired in the acquisition of Oxford in 2009 and determined there was no impairment.

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. Also see Note 6 to the consolidated financial statements. During 2008, as a result of the goodwill impairment testing, we had to evaluate our other long-lived assets for impairment. We purchased our headquarters building in 2000. It is ideal for our operations and have no plans to relocate or sell the building. However, due to the decline in the value of commercial property, the building was appraised for $18.8 million less than its carrying value, which was recorded as an impairment charge in 2008.

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 December 31, 2009, we carried a valuation allowance for the entire deferred tax asset as a result of uncertainties regarding the realization of the asset balance (see Note 12 to the consolidated financial statements). The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. As of December 31, 2009, a valuation allowance continues to be recorded for the deferred tax assets based on management’s assessment that realization of deferred tax assets is uncertain due to the history of losses, the variability of operating results and the inability to conclude that it is more likely than not that sufficient taxable income would be generated in future periods to realize those deferred tax assets. 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 significantly increase income in the period such determination is made.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) revised the accounting guidance related to business combinations. This guidance establishes principles and requirements intending to improve the relevance, representational faithfulness and comparability of information that a reporting entity provides in its financial reports about a business combination and its effects. This guidance became effective for fiscal years beginning after December 15, 2008. The adoption this guidance on January 1, 2009 changed our accounting treatment for business combinations. Among other things, acquisition related costs are required to be expensed as incurred. On January 2, 2009 we completed the acquisition of Oxford and as a result, we expensed acquisition related costs of $0.8 million and $0.4 million in 2008 and 2009, respectively.

In April 2008, the FASB issued new accounting guidance related to the determination of the useful life of intangible assets. This guidance amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets and adds certain disclosures for an entity’s accounting policy of the treatment of the costs, period of extension, and total costs incurred. This guidance must be applied prospectively to intangible assets acquired after January 1, 2009. The adoption of this guidance did not have a material impact on our financial position or results of operations.

In April 2009, the FASB issued three related sets of accounting guidance intended to enhance disclosures regarding fair value measurements and impairments of securities. This guidance sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include intent and ability of the holder as an indicator in the determination of whether an other-than-temporary exists and interim disclosure requirements for the fair value of financial instruments. These sets of accounting guidance became effective June 15, 2009. The adoption of this guidance did not have a material impact on our on our financial position or results of operations.

In June 2009, the FASB issued the FASB Accounting Standards Codification (ASC). The ASC has become the authoritative source of generally accepted accounting principles in the United States. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws are also sources of authoritative GAAP for SEC registrants. ASC became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the ASC did not have a material impact on our on our financial position or results of operations.

In January 2010, the FASB issued new guidance related to fair value disclosures. This amended guidance require disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. We do not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

ITEM 7A: 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 approximately $32.3 million at December 31, 2009. 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 $1,000 decrease (less than 1%) in the fair value of the Company's available-for-sale securities. At December 31, 2009 and 2008, we had an unrealized gain on our investments of approximately $28,000 and $0.3 million, respectively.

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 $2.2 million as of December 31, 2009.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in the financial statements and schedule set forth in Item 15 (a) of this Form 10-K.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A: CONTROLS AND PROCEDURES

Controls and Procedures

(a)	Evaluation of disclosure controls and procedures.

Based on their evaluation as of December 31, 2009, 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 (the “Exchange Act”)) were effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and instructions for Form 10-K 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 year that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2009, our internal control over financial reporting is effective based on these criteria.

Our independent registered public accounting firm, BDO Seidman, LLP, which audited the financial statements in this Annual Report on Form 10-K, independently assessed the effectiveness of the company’s internal control over financial reporting. BDO Seidman, LLP has issued an attestation report, included in Part IV, Item 15(a) of this report.

ITEM 9B: OTHER INFORMATION

None.

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE