INTEGRATED DEVICE TECHNOLOGY INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Check One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)

For the fiscal year ended March 29, 1998
OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission File No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

Delaware 94-2669985
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

2975 Stender Way,
Santa Clara, California 95054
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (408) 727-6116
Securities registered pursuant to Section 12(b) of the Act:
None

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

Common Stock, $.001 par value
5.5% Convertible Subordinated Notes due 2002
(Title of class)

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

Indicate by check mark if disclosure of delinquent 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. ( )

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $929,883,000 as of April 26,
1998, based upon the closing sale price of $13.00 per share on the Nasdaq
National Market for that date. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

There were 81,613,000 shares of the Registrant's Common Stock issued and
outstanding as of April 26, 1998.

DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, and 13 of Part III incorporate information by reference from
the Proxy Statement for the 1998 Annual Meeting of Stockholders to be held on
August 27, 1998.

PART I

All non-historical information contained in the following discussion constitutes
forward looking statements within the meaning of Section 27a of the Securities
Act of 1933, as amended, and Section 21e of the Securities Exchange Act of 1934,
as amended. These statements are not guarantees of future performance and
involve a number of risks and uncertainties, including but not limited to
operating results, new product introductions and sales, including the
WinChip(TM) microprocessor, competitive conditions, capital expenditures and
capital resources, manufacturing capacity utilization, customer demand, customer
inventory levels and protection of intellectual property in the semiconductor
industry. Factors that could cause actual results to differ materially are
included in, but are not limited to, those identified in "Factors Affecting
Future Results." The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof.

ITEM 1. BUSINESS

Integrated Device Technology, Inc. ("IDT" or the "Company") designs, develops,
manufactures and markets a broad range of high-performance semiconductor
products and modules for its key markets. Applications for IDT's products
include: data and telecommunications equipment, such as routers, hubs, switches,
cellular base stations and other devices; personal computers; and shared network
devices, such as workstations, servers, and printers. IDT provides its customers
with a product mix designed to optimize the cost and performance of their
systems which includes communications products, high-speed SRAMs (static random
access memories), high-performance logic products, embedded RISC
microprocessors, x86 microprocessors for personal computer (PC) applications,
and other semiconductor products. IDT fabricates substantially all of its
semiconductor wafers using advanced CMOS (complementary metal oxide silicon)
process technology. In fiscal 1998, to increase the available supply of its
WinChip x86 microprocessor products, IDT contracted with International Business
Machines Corporation ("IBM") for x86 microprocessor wafer manufacturing services
beginning in fiscal 1999.

The Company markets its products on a worldwide basis primarily to OEMs
(original equipment manufacturers) through a variety of channels, including a
direct sales force, distributors and independent sales representatives. The
Company's end-user customers include Alcatel, Ascend Communications, Apple
Computer, Bay Networks, Cabletron, Celestica, Cisco Systems, Compaq Computer,
EchoStar, EMC, Ericsson, Evergreen, FORE Systems, Hewlett-Packard, Italtel, IBM,
Lucent Technologies, Motorola, NEC, Nokia, Siemens, Solectron, 3Com and WebTV.
The Company attempts to differentiate itself from competitors through unique
architecture, enhanced performance, reduced system cost and packaging options.

IDT was incorporated in California in 1980 and reincorporated in Delaware in
1987. The terms "the Company" and "IDT" refer to Integrated Device Technology,
Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

PRODUCTS AND MARKETS

The Company offers over 1,100 products in more than 5,500 product configurations
to its target markets in four primary product families: communications products,
including FIFO (first in first out) memories, multiport memories and network
communication products; SRAM components and modules; logic circuits and
high-performance logic circuits; and microprocessors, both RISC (reduced
instruction set computing), primarily used in embedded control applications, and
x86 for PC applications. During fiscal 1998, these product families accounted
for 37%, 30%, 20% and 13%, respectively, of total revenues of $587.1 million.
The Company markets its products primarily to OEMs in the communications and
desktop and distributed computing markets. IDT's product design efforts are
focused on differentiated components and integration of its components into
single devices, modules or subsystems to meet the needs of its customers.

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Communications Products

The Company's proprietary communications products include FIFO memories,
multi-port memories, and network products that offer high-performance features
that allow communications and networking systems to operate more effectively.
FIFO memories are used as rate buffers to transfer large amounts of data at high
speeds between separate devices or pieces of equipment operating at different
speeds within a system, when the order of the data to be transferred needs to be
controlled. Multi-port memory products are used to speed data transfers and act
as the link between multiple microprocessors or between microprocessors and
peripherals. These products are currently used primarily in peripheral
interface, communications and networking products, including bridges, hubs,
routers and switches. IDT's network products family uses emerging network
technology designed to support faster transmission, higher quality images, audio
and data. The network products family includes segmentation and reassembly,
physical interface and muxing/demuxing devices that are used in networks that
interconnect computers and facilitate data transmission.

IDT is a leading supplier of both synchronous and asynchronous FIFO memories and
has increasingly focused its resources on the design of synchronous FIFO
memories. Synchronous FIFO memories have been gaining greater market acceptance
because they are faster and provide an easier user interface than asynchronous
FIFO memories. IDT's family of 9-bit, 18-bit and 36-bit Sync FIFO memories are
being used in many newer networking products. IDT has added SuperSync(TM) FIFO
memories to the FIFO product family, which add additional features at reduced
cost.

The Company is also a leading supplier of multi-port memory products. IDT's
family of multi-port memories is composed of dual-port asynchronous devices,
four-port products, synchronous dual-port devices and products that combine the
flexibility of a multi-port product with the ease of a FIFO product.

SRAMs

SRAMs are memory circuits used for storage and retrieval of data during a
computer or communication system's operation. SRAMs do not require electrical
refreshment of the memory contents to ensure data integrity, allowing them to
operate at high speeds. SRAMs include substantially more circuitry than DRAMs
(dynamic random access memories), resulting in higher production costs for a
given amount of memory, and generally command higher selling prices than the
equivalent density traditional DRAM products. The market for SRAMs is fragmented
by differing demands for speed, power, density, organization and packaging. As a
result, there are a number of niche markets for SRAMs.

Historically, the Company focused primarily on the cache memory segment of the
SRAM market. Cache memory provides intermediate storage between fast
microprocessors and relatively slow traditional DRAM main memory. Cache memory
operates at the speed of the microprocessor and increases the microprocessor's
efficiency by temporarily storing the most frequently used instructions and
data. The SRAM cache memory market available to IDT has decreased. Some x86
microprocessors, which account for the greatest portion of the microprocessor
market, are being sold in integrated chip modules that include SRAM cache
memory, which IDT does not supply, or are being designed with SRAM cache memory
integrated into the processor itself.

The SRAM products that the Company is currently offering and developing are
geared toward solving memory issues unique to the communications market. In
fiscal 1997, IDT announced the first of a family of Zero Bus Turnaround(TM)
(ZBT(TM)) SRAMs which eliminate wait states between read and write cycles. In
fiscal 1998, IDT introduced SWITCHStAR(TM), which is an integrated network
switching solution based upon memory technology. As capacity becomes more fully
utilized, IDT expects to reduce that portion of its SRAM product mix that is
commodity-like in nature. IDT's new products are being designed to operate at
higher speeds and provide greater levels of product integration.

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To provide SRAM products that meet the varying needs of its customers, IDT uses
CMOS process technology and offers 16K, 64K, 256K, 1 Megabit and 4 Megabit SRAMs
in a number of speed, organization, power and packaging configurations.

Logic Circuits

IDT is a leading manufacturer of high-speed, byte-wide and double-density 16-bit
CMOS logic circuits for high-performance applications. Logic circuits control
data communication between various elements of electronic systems, such as
between a microprocessor and a memory circuit. IDT offers a wide range of logic
circuits products that support bus and backplane interfaces, memory interfaces
and other logic support applications where high-speed and low power are
critical. IDT's logic circuits are used in a broad range of markets.

IDT's 16-bit logic products are available in small, thin packages, enabling
board area to be reduced. These products are designed for applications in which
small size, low power and extra low noise are as important as high speed. IDT
also supplies a series of 8-bit and 16-bit, 3.3-volt logic products and 3.3-volt
to 5-volt translator circuits directed at 3.3-volt systems in the notebook and
laptop computer market.

The Company also offers a family of clock drivers and clock generators. These
devices, placed at critical positions in a system, correct the degradation of
timing that occurs the further the impulses travel from the main system clock.
The Company recently introduced Advanced Low Voltage CMOS (ALVC) and Low Voltage
CMOS (LVC) logic products.

Microprocessors

RISC COMPONENTS. IDT is a licensed manufacturer of MIPS(R) RISC microprocessors.
IDT manufactures both 32-bit and 64-bit microprocessors based on the MIPS
architecture and derivative products for the communications, networking and
multimedia markets.

The Company focuses its RISC microprocessor marketing efforts primarily on the
embedded controller market. Embedded controllers are microprocessors that
control a single device such as a network switch, printer or set-top box. The
Company sells several proprietary 32-bit and 64-bit embedded controllers,
including devices with on-circuit SRAM cache memory and floating point
functions.

The Company's RISC microprocessor products include the RC5000, IDT's first
64-bit superscalar microprocessor, which is available with clock speeds up to
200 MHz and the RC4600(TM) microprocessor, which is capable of clock speeds up
to 200 MHz. The RC5000 and RC4600 are higher performance derivatives of the
64-bit R4000 and R4400 microprocessors developed by MIPS Technologies ("MIPS"),
which was subsequently acquired by Silicon Graphics Inc. ("SGI"). The RC5000 was
developed for SGI by Quantum Effect Design, Inc. ("QED"), an approximately 34%
equity owned affiliate of IDT. Through agreements with SGI, IDT obtained a
license to manufacture and sell the RC5000. The RC4600 was developed for the
Company by QED.

X86 COMPONENTS. The WinChip microprocessor is IDT's first product of a planned
x86 microprocessor product family. The products are compatible with similar
products manufactured and sold by Intel Corporation ("Intel"), Advanced Micro
Devices, Inc. and National Semiconductor Corporation, which recently acquired
Cyrix Corporation. The IDT WinChip microprocessor features a small die size and
low power dissipation, which is achieved by simplifying the architecture and
eliminating or reducing complex logic found in other processors.

The IDT WinChip microprocessor is offered in a 296-pin Ceramic Pin Grid Array
(CPGA), Socket 7-compatible package, which enables PC manufacturers to leverage
the Intel-compatible, established and cost effective Socket 7

- -------------------------------
(TM) SuperSync, WinChip, RC4600, SWITCHStAR, Zero Bus Turnaround, and ZBT are
trademarks of Integrated Device Technology, Inc. All other trademarks are
property of their respective owners.

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motherboard, chipset and BIOS infrastructure. IDT's WinChip microprocessor was
developed to deliver a high level of performance running Windows(R) business
applications in PC configurations typically found at sub-$1,000 price points,
while providing full compatibility for all Windows and x86 software. In fiscal
1998, IDT's WinChip processor was marketed to buyers that purchase systems and
motherboards through distribution and the reseller channel and also through an
OEM which markets processor upgrade kits through PC retail channels.

In fiscal 1998, the IDT WinChip microprocessor was sold with clock speeds of
150MHz, 180MHz, 200MHz and 225MHz. In fiscal 1998, IDT announced its second x86
microprocessor product which is designed to provide enhanced technical
performance and greater clock speeds. IDT manufactures its x86 wafers at
facilities in San Jose, California and Hillsboro, Oregon and has contracted with
IBM for additional capacity to manufacture these products.

Important additional information about IDT's x86 microprocessor products is
included below under "Competition" and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

CUSTOMERS

The Company markets and sells its products on a worldwide basis primarily to
OEMs in the communications and desktop and distributed computing markets.
Customers often purchase products from more than one of the Company's product
families. In fiscal 1998 and 1997, no one OEM customer accounted for 10% or
greater of the Company's revenue. In fiscal 1996, one OEM customer, Apple
Computer Inc., accounted for 12% of the Company's revenue.

The following is an alphabetical listing of current representative end-user
customers of the Company, by market:

COMMUNICATIONS COMPUTING

----------------------------------------------------------------------
Alcatel Lucent Technologies Apple Computer
Ascend Communications Motorola Celestica
Bay Networks Newbridge Compaq Computer
Cabletron NEC EMC
Cisco Systems Nokia Evergreen
EchoStar Siemens Groupe Bull
Ericsson Solectron Hewlett-Packard
FORE Systems 3Com IBM
Italtel WebTV ICL
Seagate

MARKETING AND SALES

IDT markets and sells its products primarily to OEMs through a variety of
channels, including a direct sales force, distributors and independent sales
representatives.

The Company had 65 direct sales personnel in the United States at March 29,
1998. Such personnel are based at the Company's headquarters and in 18 sales
offices in Alabama, California, Colorado, Florida, Illinois, Maryland,
Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon and
Texas, and are primarily responsible for marketing and sales in those areas. IDT
also utilizes three national distributors, Hamilton Hallmark, Wyle Laboratories
and Insight Electronics, Inc., and several regional distributors in the United
States. Hamilton Hallmark accounted for 17%, 14% and 11% of the Company's
revenues in fiscal 1998, 1997 and 1996, respectively. In addition, IDT uses
independent sales representatives, which generally take orders on an agency
basis while the Company ships directly to the customer. The representatives
receive commissions on all products shipped to customers in their geographic
area.

5

In addition, the Company had 39 direct sales personnel and 12 sales offices
located outside of the United States as of March 29, 1998. Sales activities
outside North America are generally conducted by IDT's subsidiaries located in
France, Germany, Hong Kong, Israel, Italy, Korea, Japan, Singapore, Sweden and
the United Kingdom. The Company also has sales offices in Taiwan, Malaysia and
Finland. The Company continues to emphasize its direct marketing efforts to OEMs
in Europe and to United States companies with operations in the Asia/Pacific
area. A significant portion of export sales continues to be made through
international distributors. During fiscal 1998, 1997 and 1996, non-U.S. sales
accounted for 39%, 38% and 40% of total revenues, respectively. Sales outside
the United States are generally denominated in local currencies. Sales and other
financial information for foreign operations is included in Note 13 of Notes to
Consolidated Financial Statements contained elsewhere in this Form 10-K. Export
sales are subject to certain risks, including currency controls and
fluctuations, changes in local economic and political conditions, import and
export control, and changes in tax laws, tariffs and freight rates.

The Company's distributors typically maintain an inventory of a wide variety of
products, including products offered by IDT's competitors, and often handle
small or rush orders. A portion of the Company's sales is made to distributors
under agreements which allow certain rights of return and price protection on
products unsold by the distributors. Related gross profits thereon are deferred
until the products are resold by the distributors.

MANUFACTURING

IDT believes that maintaining its own wafer fabrication capability facilitates
the implementation of advanced process technologies and new higher-performance
product designs, provides the Company with a reliable source of supply of
semiconductors and allows it to be more flexible in shifting production
according to product demand. The Company currently operates sub-micron wafer
fabrication facilities in Hillsboro, Oregon and San Jose and Salinas,
California. The Oregon facility first contributed to revenues beginning in the
second quarter of fiscal 1997. The 192,000 square foot facility contains a
48,000 square foot, class 1 (less than one particle 0.5 micron or greater in
size per cubic foot), eight-inch wafer fabrication line. The San Jose facility
includes a 24,000 square foot, class 1, six-inch wafer fabrication line that was
first placed in production in March 1991. The Salinas facility, first placed in
production in fiscal 1986, includes a 24,000 square foot, class 3 (less than
three particles 0.5 micron or greater in size per cubic foot), six-inch wafer
fabrication line.

Additionally, in fiscal 1998, IDT contracted with IBM for x86 microprocessor
wafer manufacturing services using IBM's CMOS process technology. IDT intends,
during fiscal 1999, to begin to utilize IBM's manufacturing services to also
increase the available volume of WinChip microprocessors.

The Company believes the location of the facility in Oregon reduces the
Company's risk of a natural disaster affecting all of its wafer fabrication
facilities which, excluding the Oregon facility, are all currently located in
Northern California.

In fiscal 1998 and 1997, as a result of current market conditions, the Company's
production volumes at its wafer fabrication facilities did not increase
sufficiently to take full advantage of the additional capacity resulting from
the completion of the Oregon facility, and, as a result, the Company's results
of operations were adversely affected. The WinChip(TM) microprocessor product
family may provide IDT an opportunity to improve utilization of its fabrication
facilities; however, additional spending for capital equipment and set-up time
is required to process substantial volumes of these products. Historically, SRAM
products have been produced at the Oregon facility and the Company is unable to
predict whether demand for industry standard SRAM products or IDT's share of the
available market will improve. Should IDT's production volumes, especially at
its fabrication facilities, remain constant or decline, IDT's results of
operations could continue to be adversely affected. The Company faces a number
of risks in order to accomplish its goals to increase production in its existing
plants, especially the Oregon facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

IDT also operates component assembly and test facilities which aggregate 145,000
square feet in Penang, Malaysia and a 176,000 square-foot facility near Manila,
the Philippines. Substantially all of the Company's test operations and a
significant portion of its assembly operations are performed at its Malaysian
and Philippines facilities. The facility in the Philippines first contributed to
revenue during fiscal 1997. IDT also uses subcontractors, principally in Korea,
the Philippines and Malaysia, to perform certain assembly operations. If IDT
were unable to assemble or test

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products offshore, or if air transportation to these locations were curtailed,
the Company's operations could be materially adversely affected. Additionally,
foreign manufacturing exposes IDT to certain risks generally associated with
doing business abroad, including foreign governmental regulations, currency
controls and fluctuation, changes in local economic and political conditions,
import and export controls, and changes in tax laws, tariffs and freight rates.
In addition to this offshore assembly and test capability, the Company has the
capacity for low-volume, quick-turn assembly in Santa Clara, California as well
as limited test capabilities in Santa Clara, San Jose and Salinas. Assembly and
test of memory modules takes place both domestically and offshore.

In fiscal 1996, the Company operated its wafer fabrication facilities in Salinas
and San Jose and its assembly operations in Malaysia at approximate installed
equipment capacity.

Considering the capacities of its facilities in Oregon and the Philippines, the
Company believes it is positioned to accommodate growth. In view of current and
anticipated capacity requirements, and to operate its facilities more
efficiently and effectively, IDT anticipates capital expenditures of
approximately $150 million in fiscal 1999, principally in connection with
continued installation of equipment in the Oregon facility, other capacity
improvements and improved information systems.

The Company utilizes proprietary CMOS process technology permitting sub-micron
geometries in its fabrication facilities. The majority of IDT's current products
are manufactured using its proprietary 0.65, 0.5 and 0.35 micron processes and a
number of 0.24-micron test wafers have been processed. The Company continues to
develop its sub-0.25 micron CMOS processes.

Wafer fabrication involves a highly sophisticated, complex process that is
extremely sensitive to contamination. Integrated circuit manufacturing costs are
primarily determined by circuit size because the yield of good circuits per
wafer generally increases as a function of smaller die. Other factors affecting
costs include wafer size, number of process steps, costs and sophistication of
manufacturing equipment, packaging type, process complexity and cleanliness.
IDT's manufacturing process is complex, involving a number of steps including
wafer fabrication, plastic or ceramic packaging, burn-in and final test. The
Company continually makes changes to its manufacturing process to lower costs
and improve yields. From time to time, the Company has experienced manufacturing
problems that have caused delays in shipments or increased costs. Manufacturing
problems at its wafer fabrication, assembly or test facilities could materially
adversely affect the Company's results of operations.

The Company generally has been able to arrange for multiple sources of raw
materials, but the number of vendors capable of delivering certain raw
materials, such as silicon wafers, ultra-pure metals and certain chemicals and
gases is very limited. Some of the Company's packages, while not unique, have
very long lead times and are available from only a few suppliers. From time to
time, vendors have extended lead times or limited supply to the Company due to
capacity constraints. These circumstances could recur and materially adversely
affect IDT's results of operations.

BACKLOG

IDT manufactures and markets both standard products and products with limited or
no second sources. Sales are generally made pursuant to purchase orders, which
are frequently revised to reflect changes in the customer's requirements. The
Company has also entered into master purchase agreements with many of its OEM
customers. These agreements do not require the OEMs to purchase minimum
quantities of the Company's products. Product deliveries are scheduled upon the
Company's receipt of purchase orders under the related OEM agreements.
Generally, these purchase orders and OEM agreements, especially those for
standard products, also allow customers to reschedule delivery dates and cancel
purchase orders without significant penalties. Orders, especially for industry
standard products, are frequently rescheduled, revised or canceled. In addition,
distributor orders are subject to price adjustments both prior to and after
shipment. For these reasons, IDT believes that its backlog, while useful for
scheduling production, is not necessarily a reliable indicator of future
revenues.

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RESEARCH AND DEVELOPMENT

IDT's competitive position has been established, to a large extent, through its
emphasis on the development of proprietary and enhanced-performance, industry
standard products, and the development of advanced CMOS processes. IDT believes
that its focus on continually advancing its process technologies has allowed the
Company to achieve cost reductions in the manufacture of most of its products.
The Company believes that a continued high level of research and development
expenditures is necessary to retain its competitive position. The Company
maintains research and development centers in Northern California; Atlanta,
Georgia; Austin, Texas; and Morrisville, North Carolina. In addition, the new
plant start-up costs associated with the Oregon wafer fabrication facility
significantly impacted research and development expenditures in fiscal 1997.
Research and development expenditures, as a percentage of revenues, were 21%,
28% and 20% in fiscal 1998, 1997 and 1996, respectively.

The Company's product development activities are focused on the design of new
circuits and modules that provide enhanced performance for growing applications.
In the specialty memory products area, IDT's efforts are concentrated on the
development of advanced synchronous FIFO memories and more sophisticated
multi-port memory products for the communications market. The Company continues
its research into applications of Fusion Memory(TM) technology, with the goal of
expanding its specialty memory product offerings. Fusion Memory products use
DRAM technology and function with comparable speed to SRAM-technology based
products. Additionally, the Company continues its efforts to develop a family of
specialty products for the network products market and a family of lower voltage
logic devices for a broad range of applications. In the SRAM family, IDT is
utilizing its memory expertise to develop a family of communications-oriented
memories. The Company is emphasizing the design of RISC microprocessors for
embedded control applications, such as printers, telecommunications switches and
television set-top boxes. IDT continues its efforts to develop x86 processors
and related 3D graphics capability which offer greater performance than its
current products at reduced cost for PC applications. The Company also continues
to refine its CMOS process technology to increase the speed and density of
circuits in order to provide customers with advanced products at competitive
prices. The Company continues to refine its CMOS process technology focusing on
sub-0.3 micron geometry processes, including a sub-0.25 micron process, and
converting the production of many products to newer generation processes.

The Company has an equity interest in QED, a separate corporation. Pursuant to a
development agreement between QED and the Company, QED developed the RC4600
microprocessor for IDT. QED also designed the RC5000 for SGI, and through
agreements with SGI, IDT obtained a license to manufacture and sell the RC5000.
The RC5000 is targeted at 3-D visualization, internetworking and office
automation applications. Except for the RC5000, the Company owns the
intellectual property rights for its RISC products, subject to the payment of
royalties and other fees to QED and SGI. IDT has licensed Toshiba and NKK to
manufacture and market certain of these products. With respect to the RC5000,
SGI owns the intellectual property rights.

COMPETITION

The semiconductor industry is intensely competitive and is characterized by
rapid technological advances, cyclical market patterns, price erosion, evolving
industry standards, occasional shortages of materials, intellectual property
disputes, high capital equipment costs and availability and control of
manufacturing capacity. Many of the Company's competitors have substantially
greater technical, marketing, manufacturing and financial resources than IDT. In
addition, several foreign competitors receive assistance from their governments
in the form of research and development loans and grants and reduced capital
costs, which could give them a competitive advantage. The Company competes in
different product areas, to varying degrees, on the basis of technical
innovation and performance of its products, as well as quality, price and
product availability.

IDT's competitive strategy is to differentiate its products through
high-performance, innovative configurations and proprietary features or to offer
industry standard products with higher speeds or lower power consumption than
its competitors products. Price competition, introductions of new products by
IDT's competitors, delays in product introductions by IDT or other competitive
factors could have a material adverse effect on the Company in the future.

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In the third quarter of fiscal 1998, the Company commenced shipments of the
WinChip microprocessor, IDT's first member of its planned x86 microprocessor
product family. This product represents the Company's first offering to the PC
microprocessor market, which is characterized as a large market dominated by
Intel, with a very limited number of other competitors. Intel has held its
dominant position over all other x86 microprocessor competitors for a
substantial period of time, and has significantly greater financial, technical,
manufacturing and marketing strength than does IDT. Currently, Intel's dominant
market position allows it to set and control x86 microprocessor standards and,
therefore, dictate many aspects of the products which PC manufacturers require
in this market.

IDT's initial x86 microprocessor product is targeted at the low-cost desktop and
mobile product categories of the microprocessor market. Intel also offers
products which are purchased by PC manufacturers in these market categories.
Intel's financial strength and market dominance have enabled it to reduce prices
on its microprocessor products within a short period of time following their
introduction or offer additional performance at low introductory price points,
which reduces the margins and profitability of its competitors. Further, Intel's
marketing resources are far greater than IDT's. Therefore, Intel's pricing and
marketing strategies in the categories of the microprocessor market targeted by
IDT significantly impact IDT's efforts to serve this market and, therefore,
IDT's results of operations.

In order for customers to purchase IDT's x86 microprocessors, IDT's products
must be compatible with other components supplied to PC manufacturers such as
core-logic chip sets, motherboards, basic input/output system (BIOS) software
and others which are manufactured or produced by other companies, including
Intel and companies in which Intel has strategic investments. In addition, these
companies are able to produce chip sets, motherboards, BIOS software and other
components to support each new generation of Intel's microprocessors only to the
extent that Intel makes its related proprietary technology available. Intel has
announced that the new versions of its microprocessor products, including its
commercially released Pentium II products, will be sold only in the form of a
chip module that is not compatible with Socket 7 motherboards currently used
with most x86 microprocessors. Therefore, Intel may cease supporting the Socket
7 motherboard infrastructure as it transitions to its latest generation
microprocessors. Because IDT's processor is designed to be Socket 7 compatible,
and will not work with motherboards designed for Intel's new chip module, should
IDT and other companies serving the x86 microprocessor market not be successful
in offering products which extend the life of the Socket 7 infrastructure, IDT
would be required to expend potentially significant resources to redesign its
microprocessor product offerings. There can be no assurance that the Company
would be successful in such efforts.

In addition to Intel, AMD and National Semiconductor (which recently acquired
Cyrix Corporation) also currently offer commercial quantities of x86
microprocessors for sale. From time to time, intellectual property rights
disputes have arisen between companies competing in the x86 microprocessor
market.

In markets where IDT competes to sell industry standard SRAM components, market
supply and pricing strategies of competitors significantly impact the price the
Company receives for its products. In fiscal 1998 and 1997, a significant
increase in market supply of industry standard SRAM parts was attributable to
IDT's principally foreign competitors shifting additional production capacity to
these parts. The decline in average selling prices for industry standard SRAM
parts in and since fiscal 1997 was, therefore, attributable to increases in
available SRAM supply from competitors such as Samsung, Winbond, UMC, other
Taiwanese and Korean companies as well as U.S.-based and other companies with
Taiwanese and Korean sourced SRAM wafers, and their market pricing strategies,
at a time when market demand slowed as customers reduced the level of
inventories carried.

INTELLECTUAL PROPERTY AND LICENSING

IDT has obtained 120 patents in the United States and 19 abroad and has 187
inventions in various stages of the patent application process. The Company
intends to continue to seek to increase the breadth of its patent portfolio. The
Company also relies on trade secret, copyright and trademark laws to protect its
products. A number of the Company's circuit designs are registered pursuant to
the Semiconductor Chip Protection Act of 1984. This Act gives protection similar
to copyright protection for the patterns which appear on integrated circuits and
prohibits competitors from making photographic copies of such circuits. There
can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, that the rights granted thereunder will
provide

9

competitive advantages to the Company, or that the Company's efforts generally
to protect its intellectual property rights will be successful.

In recent years, there has been a growing trend of companies to resort to
litigation to protect their semiconductor technology from unauthorized use by
others. In the past, the Company has been involved in patent litigation which
adversely affected its operating results. Although the Company has obtained
patent licenses from certain semiconductor manufacturers, the Company does not
have licenses from a number of semiconductor manufacturers who have a broad
portfolio of patents.

IDT has been notified that it may be infringing patents issued to certain
semiconductor manufacturers and other parties, and is currently involved in
several license negotiations. There can be no assurance that additional claims
alleging infringement of intellectual property rights, including infringement of
patents that have been or may be issued in the future, will not be made against
the Company in the future or that licenses, to the extent required, will be
available. Should licenses from any such claimant be unavailable, or not be
available on terms acceptable to the Company, the Company may be required to
discontinue its use of certain processes or the manufacture, use and sale of
certain of its products, to incur significant litigation costs and damages, or
to develop non-infringing technology. If IDT is unable to obtain any necessary
licenses, pass any increased cost of patent licenses on to its customers or
develop non-infringing technology, the Company could be materially adversely
affected. In addition, IDT has received patent licenses from several companies
that expire over time, and the failure to renew or renegotiate certain of these
licenses as they expire or significant increases in amounts payable under these
licenses could have a material adverse effect on the Company.

On May 1, 1992, IDT and AT&T entered into a five-year royalty-free patent
cross-license agreement. As part of this agreement, patent litigation instituted
by AT&T was settled and dismissed. Under the agreement, IDT made a lump sum
payment and issued shares of its Common Stock to AT&T, granted a discount on
future purchases, and gave credit for future purchases of technology on a
nonexclusive basis. In December 1995, the agreement with AT&T was modified to
reflect AT&T's restructure into three legal entities, extend the agreement for
five years beyond the original expiration date and include other agreed-upon
changes. On December 10, 1992, IDT and Texas Instruments Incorporated ("TI")
entered into a five-year patent cross-license agreement, which expired in fiscal
1998. As part of this agreement, patent litigation instituted by TI was
dismissed. Under the agreement, IDT granted to TI a license to certain IDT
technology and products and guaranteed that TI will realize certain revenues
from the licensed technology and products, and IDT will develop certain products
which will be manufactured and sold by both IDT and TI. Lump-sum amounts due at
the end of the license term are reduced by an amount of royalty income
associated with TI's sales of IDT's products.

ENVIRONMENTAL REGULATION

Federal, State and local provisions regulate the discharge and disposal into the
environment of certain materials used in the semiconductor manufacturing
process. The Company's manufacturing and assembly and test facilities are
designed to comply with existing regulations, and the Company believes that its
activities conform to present regulations. The Company has been conducting its
operations with all necessary permits and without material adverse impact
attributable to environmental regulation. However, there can be no assurance
that future additions or changes to environmental regulations will not impose
upon the Company the requirement for significant capital expenditure. Further,
any failure by the Company to control the use of, or to restrict adequately the
discharge of hazardous materials under present or future regulations could
subject it to substantial liability or could cause its manufacturing operations
to be suspended. In addition, IDT could be held financially responsible for
remedial measures if its properties were found to be contaminated whether or not
the Company was responsible for such contamination.

10

EMPLOYEES

At March 29, 1998, IDT and its subsidiaries employed 4,979 people worldwide, of
whom 1,632 were in Malaysia and 995 were in the Philippines. IDT's success
depends in part on its ability to attract and retain qualified personnel, who
are generally in great demand. Since its founding, the Company has implemented
policies enabling its employees to share in IDT's success such as participation
in stock option, stock purchase, profit sharing and special bonus plans for key
contributors. IDT has never had a work stoppage. No employees are represented by
a collective bargaining agreement, and the Company considers its employee
relations to be good.

ITEM 2. PROPERTIES

The Company presently occupies nine major facilities in California, Oregon,
Malaysia and the Philippines:

LOCATION FACILITY USE SQUARE FEET
- --------------------------------- ------------------------------------------------- ----------------------

Salinas Wafer fabrication, SRAM and multiport memory 98,000
operations

Santa Clara Logic operations 62,000

Santa Clara Administration and RISC microprocessor 43,700
operations

Santa Clara Administration and other operations 50,000

Santa Clara Administration 48,300

Penang, Malaysia Assembly and test operations 145,000

San Jose Wafer fabrication, process technology 135,000
development, FIFO and memory subsystems
operations, and research and development

Oregon Wafer fabrication 192,000

Canlubang, the Philippines Assembly and test operations 176,000

Through the second quarter of fiscal 1997, the Company leased its Salinas
facility from Carl E. Berg, a director of the Company, under a lease expiring in
2005. In fiscal 1996, IDT entered into an agreement with Mr. Berg to acquire the
Salinas facility in a transaction structured as a tax free reorganization and
completed the transaction in fiscal 1997. IDT leases its Santa Clara facilities
under leases expiring in 1999 through 2015, including renewal options. The
Oregon facility is subject to a tax ownership operating lease. Additional
information about leased properties is provided in Note 8 of Notes to
Consolidated Financial Statements. The Company owns its Malaysian, Philippines
and San Jose facilities, although the Malaysian facilities are subject to
long-term ground leases, the Company has an interest in but does not own the
Philippines land, and the San Jose facility is subject to a mortgage. IDT leases
offices for its sales force in 18 domestic locations as well as Edinburgh,
Helsinki, Hong Kong, London, Milan, Munich, Paris, Seoul, Singapore, Stockholm,
Taipei, Tel Aviv and Tokyo. IDT also leases offices for its design centers in
Georgia, North Carolina and Texas.

ITEM 3. LEGAL PROCEEDINGS

On July 17, 1997, IDT filed a complaint against Hewlett-Packard Company (HP) in
Santa Clara Superior Court, Case Number CV767581, seeking a declaratory judgment
regarding the validity of IDT's rights to use and sublicense certain advanced
printer technology ("TrueRes") which HP acquired from DP-TEK Development
Company, LLC (DP-TEK), a Kansas limited liability company. On March 3, 1998, IDT
amended its complaint to join DP-TEK and to seek damages from HP. In a related
action, on November 17, 1997, DP-TEK filed a petition for declaratory relief and
damages for breach of contract in an amount of approximately $25 million against
IDT in Kansas. The case was recently removed to federal court, Case Number
97-1541-FGT. DP-TEK alleges that IDT's license to TrueRes technology is no
longer valid, that IDT failed to develop new products with DP-TEK as required

11

by contract, and that DP-TEK sold its technology and assets to HP for
approximately $25 million less than it could have had IDT met its obligations.
Discovery in both cases is not complete. IDT has filed a cross-claim in that
action seeking damages for breach of contract and other misconduct by DP-TEK.
The Company does not believe that this litigation will result in a material
adverse impact on its financial condition or results of operations.

From time to time, the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings that the Company believes will have, individually
or in the aggregate, a material adverse effect on the Company's financial
condition or results of operations.

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

No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended March 29, 1998.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, and their respective ages as of April 26,
1998, are as follows:

Name Age Position
- ----------------------------- ------- ------------------------------------------------------------

D. John Carey 61 Chairman of the Board
Leonard C. Perham 55 President & Chief Executive Officer
Raymond J. Farnham 50 Executive Vice President
Jerry Taylor 49 Executive Vice President, Manufacturing and Memory Products
Glenn Henry 55 Senior Vice President, President of Centaur Technology
Brian Boisseree 40 Vice President, Treasurer
David Cote 43 Vice President, Marketing
Michael Hunter 46 Vice President, Worldwide Manufacturing
Alan F. Krock 37 Vice President and Chief Financial Officer
Daniel L. Lewis 49 Vice President, Sales
Chuen-Der Lien 42 Vice President, Chief Technical Officer
Jack Menache 54 Vice President, General Counsel and Secretary

Mr. Carey was elected to the Board of Directors in 1980 and has been Chairman of
the Board since 1982. He served as Chief Executive Officer from 1982 until his
resignation in April 1991 and was President from 1982 until 1986. Mr. Carey was
a founder of Advanced Micro Devices in 1969 and was an executive officer there
until 1978.

Mr. Perham joined IDT in 1983 as Vice President and General Manager, SRAM
Division. In 1986, Mr. Perham was appointed President and Chief Operating
Officer and a director of the Company. In 1991, Mr. Perham was elected Chief
Executive Officer. Prior to joining IDT, Mr. Perham held executive positions at
Optical Information Systems Incorporated and Zilog Inc.

Mr. Farnham joined IDT in July 1996 as Executive Vice President. Previously, Mr.
Farnham spent 21 years at National Semiconductor and last served as President of
the company's communications and computing group

12

through May, 1993. Mr. Farnham also served as President and Chief Executive
Officer of OPTi, Inc. from March, 1994 through February 1995 before joining IDT.

Mr. Taylor joined the Company as Vice President, Manufacturing and Memory
Products in June 1996, and was elected Executive Vice President, Manufacturing
and Memory Products, in January 1998. Prior to joining the Company, Mr. Taylor
held engineering positions at Mostek, Fairchild Semiconductor, Benchmarq
Microelectronics, Plano ISD and Lattice Semiconductor. Mr. Taylor was with
Benchmarq Microelectronics from 1987 to 1992, with Plano ISD from October 1993
through April 1995 and with Lattice Semiconductor from April 1995 through June
1996.

Mr. Henry joined IDT in March 1995 as President of Centaur Technology, IDT's x86
microprocessor design subsidiary. Mr. Henry was elected Senior Vice President in
January 1998. Prior to joining IDT, Mr. Henry was a vice president at Dell
Computer Corporation.

Mr. Boisseree joined IDT in February 1996 as Treasurer and was elected Vice
President, Treasurer in 1998. Prior to joining IDT, Mr Boisseree served in
management positions at Tandem Computer Corporation.

Mr. Cote joined IDT in April 1997 as Vice President, Marketing. Prior to joining
IDT, he was Vice President of Marketing with Meridian Data from June 1996
through December 1996 and Zeitnet, Inc. from January 1995 through June 1996. Mr.
Cote was also previously with Synoptics, Inc. from April 1991 through December
1994 where he achieved the level of Director of Marketing.

Mr. Hunter was promoted to Vice President, Worldwide Manufacturing in February
1998. Previously he was Vice President, California Silicon Manufacturing, and
has been with IDT since January 1996. Prior to coming to IDT, Mr. Hunter was
Vice President of Fabrication Operations at Chartered Semiconductor from July
1994 through January 1996 and achieved Executive Vice President level at Fujitsu
Persona while with that company from October 1989 through June 1994.

Mr. Krock joined IDT in February 1996 as Corporate Controller and was elected a
Vice President in July 1997. In January 1998 he was elected Vice President,
Chief Financial Officer. Prior to joining IDT, Mr. Krock was Corporate
Controller at Rohm Corporation and held management positions at Price
Waterhouse.

Mr. Lewis joined IDT in 1984 as Eastern Area Sales Manager. In June 1991, he was
elected Vice President, Sales. Prior to joining IDT, Mr. Lewis held management
positions at Avatar Technologies, Inc., Data General and Zilog. Effective May 8,
1998, Mr. Lewis resigned as an executive officer.

Dr. Lien joined IDT in 1987 and was elected Vice President, Technology
Development in 1992 and was elected Vice President, Chief Technical Officer in
April 1996. Prior to joining the Company, he held engineering positions at
Digital Equipment Corporation and AMD.

Mr. Menache joined IDT as Vice President, General Counsel and Secretary in 1989.
In 1989 until joining IDT, he was General Counsel of Berg & Berg Developers.
From 1986 to 1989, he was Vice President, General Counsel and Secretary of The
Wollongong Group Inc.

13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol IDTI. The following table sets forth the high and low last reported
sales prices for the Common Stock as reported by the Nasdaq National Market
during the fiscal quarters indicated:

High Low
------------------------------------------------------------
Fiscal 1998
First Quarter $15.00 $ 9.69
Second Quarter 14.13 10.19
Third Quarter 13.56 9.13
Fourth Quarter 16.13 9.19

Fiscal 1997
First Quarter 15.50 10.13
Second Quarter 11.00 7.38
Third Quarter 14.25 7.75
Fourth Quarter 14.06 9.38

As of April 26, 1998, there were approximately 1,190 record holders of the
Common Stock.

The Company intends to retain any future earnings for use in its business and,
accordingly, does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future.

14

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below are qualified in their entirety by reference to, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K.

STATEMENTS OF OPERATIONS DATA

Fiscal Year Ended
----------------------------------------------------------
In thousands, except per share amounts March 29, March 30, March 31, April 2, April 3,
1998 1997 1996 1995 1994
----------------------------------------------------------

Revenues $ 587,136 $ 537,213 $ 679,497 $ 422,190 $ 330,462

Asset impairment and other -- 45,223 -- -- --

Research and development expenses 121,449 151,420 133,317 78,376 64,237

Income (loss) before extraordinary item 8,247 (42,272) 118,249 78,302 40,165

Net income (loss) 8,247 (42,272) 120,170 78,302 40,165

Basic earnings per share:
Income (loss) before extraordinary item 0.10 (0.54) 1.54 1.12 0.66

Net (loss) income 0.10 (0.54) 1.56 1.12 0.66

Diluted earnings per share:
Income (loss) before extraordinary item 0.10 (0.54) 1.42 1.05 0.61

Net income (loss) 0.10 (0.54) 1.44 1.05 0.61

Shares used in computing net income
(loss) per share:

Basic 80,359 78,454 77,026 69,684 60,832

Diluted 84,022 78,454 87,753 74,765 66,232

BALANCE SHEET AND OTHER DATA

------------------------------------------------------------------------
In thousands, except employee data March 29, March 30, March 31, April 2, April 3,
1998 1997 1996 1995 1994
------------------------------------------------------------------------
Total assets $968,955 $903,584 $939,434 $561,975 $349,571

Long-term obligations,
excluding current portion 56,640 52,622 36,682 36,595 37,462

Convertible subordinated notes,
net of issuance costs 183,756 183,157 182,558 -- --

Stockholders' equity 546,391 524,238 549,727 414,531 224,367

Number of employees 4,979 4,236 3,828 2,965 2,615

15

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

The following table sets forth certain amounts, as a percentage of revenues,
from the Company's consolidated statements of operations for the three fiscal
years ended March 29, 1998, March 30, 1997 and March 31, 1996.

Fiscal Year Ended
-------------------------
March 29, March 30, March 31,
1998 1997 1996
----- ----- -----

Revenues 100.0% 100.0% 100.0%
Cost of revenues 62.0 60.6 43.2
Asset impairment and other -- 8.4 --
----- ----- -----

Gross profit 38.0 31.0 56.8
Operating expenses:
Research and development 20.7 28.2 19.6
Selling, general and administrative 15.1 15.0 13.1
----- ----- -----

Total operating expenses 35.8 43.2 32.7
----- ----- -----
Operating income (loss) 2.2 (12.2) 24.1
Interest expense (2.4) (2.2) (1.4)
Interest income and other, net 2.2 2.9 2.9
----- ----- -----
Income (loss) before income taxes 2.0 (11.5) 25.6
Provision (benefit) for income taxes 0.6 (3.7) 8.2

Income (loss) before extraordinary item 1.4 (7.8) 17.4
----- ----- -----
Extraordinary item:
Gain from early extinguishment of debt, net of taxes -- -- 0.3
----- ----- -----

Net income (loss) 1.4% (7.8)% 17.7%
===== ===== =====

In the information that follows, all references are to the Company's fiscal
years ended March 29, 1998, March 30, 1997 and March 31, 1996, unless otherwise
indicated. These fiscal year financial results may not be indicative of the
financial results of future periods. All non-historical information contained in
the following discussion constitutes forward looking statements within the
meaning of Section 27a of the Securities Act of 1933, as amended, and Section
21e of the Securities Exchange Act of 1934, as amended. These statements are not
guarantees of future performance and involve a number of risks and
uncertainties, including but not limited to operating results, new product
introductions and sales, including the IDT WinChip(TM) microprocessor,
competitive conditions, capital expenditures and capital resources,
manufacturing capacity utilization, customer demand, customer inventory levels
and protection of intellectual property in the semiconductor industry. Factors
that could cause actual results to differ materially are included in, but are
not limited to, those identified in "Factors Affecting Future Results." The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof.

OVERVIEW

Fiscal 1998 can be characterized as a year of continuing transition for IDT.
During fiscal 1998, revenue increased 9.3% to $587.1 million, compared to $537.2
million during the immediately prior fiscal year. Revenue increased across all
IDT product lines, reflecting greater total unit shipments at a lower overall
average selling price per unit. IDT recorded net income of $8.2 million in
fiscal 1998, compared to a net loss of $42.3 million in the prior fiscal year.
Improved profitability in fiscal 1998 reflects: higher revenue; the absence of a
charge for asset impairment (recorded in fiscal 1997); and IDT's relatively
fixed base of manufacturing expenses, which are allocated between cost of
revenues and process research and development expenditures based upon activities
performed.

16

In fiscal 1998, the Company continued product and market diversification
programs begun several years ago, while transitioning away from dependence upon
the commodity semiconductor memory markets it historically served. IDT is
focused on producing value-added products such as its communications products,
x86 and embedded RISC microprocessors, high-speed static random access memories
(SRAMs) and modules, and high-performance logic products. In both fiscal 1998
and 1997, during the period of transition, IDT's financial results were
adversely impacted by several factors. These included industry-wide excess
commodity semiconductor memory capacity, resultant inability to fully utilize
capacity at the Company's wafer fabrication plants and low selling prices for
industry-standard semiconductor products. Also in these years, in connection
with product enhancements and transitions, included as operating expenses are
significant research and development (R&D) and other expenditures related to:
developing new process technologies; introducing enhanced products in existing
markets; funding new product development; and start-up costs incurred in markets
traditionally not served by the Company, especially x86 microprocessors for PC
applications.

During fiscal 1998, sales of IDT WinChip x86 microprocessors did not represent a
major portion of IDT's total revenue. The size of the x86 marketplace represents
a significant opportunity to IDT, and the Company plans to grow its WinChip
business. The Company also believes that costs associated with this product
family will continue to increase in future quarters as the Company continues to
execute its product introduction strategy. Because the Company is in the early
stages of developing its x86 microprocessor business, it does not have
significant experience in manufacturing, marketing and selling large quantities
of these products. Risks associated with IDT's WinChip initiative and other
aspects of the Company's business are included in the discussion which follows.

On June 2, 1998, the Company announced that it expects that as a result of
product transitions, general economic conditions in the semiconductor industry,
and other conditions described in this section, that revenues for the first
quarter (June) of fiscal 1999 will decline approximately ten percent compared
with the same period in fiscal 1998. This revenue shortfall would result in a
first-quarter pre-tax loss from operations of approximately $15 million. In
addition, first quarter results are expected to include a non-recurring charge
relating primarily to excess SRAM manufacturing capacity, certain technology
matters, as well as other miscellaneous items. Based upon current information,
the Company estimates the amount of the pre-tax charge will approximate $25 to
$45 million, greater than half of which is expected to be non-cash. The Company
believes that some improvement in operating financial performance may occur in
the second quarter. However, because of current limited order visibility, and
the seasonal weakness which typically characterizes the September quarter, the
outlook for the second quarter remains uncertain.

RESULTS OF OPERATIONS

REVENUES. As noted above, total fiscal 1998 revenues increased 9.3% to $587.1
million from $537.2 million in fiscal 1997. The Company began its production
ramp of WinChip x86 microprocessors, recording sales of approximately $7
million, primarily during the last quarter of fiscal 1998. Fiscal 1996 revenues
were $679.5 million, reflecting higher selling prices of commodity SRAM
components in that period, primarily because of strong demand for secondary
cache in the PC market. Subsequently, throughout fiscal 1998 and fiscal 1997,
commodity SRAM prices fell 80% or more below the highest prices realized for
comparable products in fiscal 1996. In fiscal 1998, total units shipped
increased 47.9% over fiscal 1997 quantities, which were up 15.7% when compared
to fiscal 1996. During these periods, the average selling price per unit
realized by IDT declined significantly, again primarily due to lower commodity
semiconductor memory prices.

Looking forward, the Company believes that the proportion of its total sales
which are represented by new products, including the WinChip x86 microprocessor,
will increase. The WinChip microprocessor is IDT's first product of a planned
x86 microprocessor product family. The products shipped are compatible with
similar products manufactured and sold by Intel Corp. ("Intel"), Advanced Micro
Devices, Inc. ("AMD") and National Semiconductor Corp. ("National
Semiconductor") (which recently acquired Cyrix Corp.). Other new or enhanced
products announced in fiscal 1998 include: Zero Bus Turnaround(TM) (ZBT(TM))
memory, an advanced SRAM architecture that significantly improves performance of
communications applications requiring frequent switches between reads and
writes; SWITCHStAR(TM) products, which provide a memory and controller based
network switching solution, and other communications memory products; RISC
embedded control products; and logic products. The Company is taking steps to
increase the available supply of its WinChip and other new products;

17

however, there are risks, described below, that the Company will not be
successful in its efforts to do so, or that market demand or prices will change.

In the future, the Company believes that the proportion of its total sales
represented by commodity SRAM memory products will decrease. With respect to
commodity SRAM supply, demand and prices, IDT is uncertain as to whether these
market factors for commodity products will change, primarily because the Company
cannot anticipate how its competitors will react to current low market prices
for SRAM components, or economic issues currently impacting the Asian
semiconductor market.

Information on risks associated with the expansion of IDT's product families and
market prices of semiconductor products is included below in "Factors Affecting
Future Results," including "Risks Associated with Expansion of Product Families
- - x86 Microprocessors."

GROSS PROFIT. Gross profit in fiscal 1998 increased $56.5 million over fiscal
1997 to $222.8 million. Gross profit in fiscal 1996 was $385.8 million. As a
percentage of revenue (gross margin), gross margin improved to 38% in fiscal
1998, compared to 31% in fiscal 1997. Gross margin in fiscal 1996 was 57%. In
fiscal 1997, the Company recorded asset impairment charges of $45.2 million
which were specifically identified in the Company's Statements of Operations as
reducing gross profit. Additionally, the Company recorded $9.7 million in
charges which relate to the write-off of certain technology investments and
other miscellaneous items, which have been classified in the Company's
Consolidated Statements of Operations in accordance with the nature of the
charge, including cost of revenues. The $45.2 million charge related principally
to recording reserves against the carrying value of manufacturing assets,
including the Company's oldest wafer fabrication plant in Salinas, California,
and other items. Excluding the $45.2 million charge for asset impairment and
other reserves in fiscal 1997, gross profit in fiscal 1997 was 39.4%.

The increase in gross profit in fiscal 1998 compared to fiscal 1997 was
primarily attributable to the absence of the charge for asset impairment
described above recorded in fiscal 1997. Higher gross profit and gross margin in
fiscal 1996 reflects the benefit associated with higher SRAM prices in that
period, which were up to 80% higher than prices realized for comparable products
in fiscal 1998 and 1997.

Costs associated with the eight-inch wafer fabrication facility in Hillsboro,
Oregon adversely impacted gross margins for both fiscal 1998 and 1997, as these
costs were not fully absorbed by additional revenues. In fiscal 1999, in an
effort to achieve more efficient and effective capacity utilization and increase
IDT's available supply of WinChip microprocessors, the volumes of production and
the level of expense associated with the Oregon fabrication facility is expected
to increase. The anticipated increase in expense is mostly associated with the
installation of new equipment. In fiscal 1998, and in future years, the
percentage of these costs recorded as cost of revenues, versus process
engineering research and development, has and may continue to change based upon
production volumes and activities performed. Additionally, in fiscal 1998, IDT
contracted with International Business Machines Corp. ("IBM") for x86
microprocessor wafer manufacturing services using IBM's CMOS process technology.
IDT intends, during fiscal 1999, to begin to utilize IBM's manufacturing
services to increase the available volume of WinChip microprocessors.

IDT's Oregon facility provides the Company with significant additional available
production capacity, but, to date, as a result of current market conditions for
commodity semiconductor memory products, the Company's production volumes at its
wafer fabrication facilities have not increased sufficiently to take full
advantage of the additional capacity. The WinChip microprocessor product family
provides IDT with the opportunity to improve utilization of its fabrication
facilities; however, additional spending for capital equipment and set up time
is required to process substantial volumes of these products. Historically, SRAM
products have been produced at the Oregon facility and the Company is unable to
predict whether demand for industry standard SRAM products or IDT's share of the
available market will improve. Should IDT's production volumes, especially at
its fabrication facilities, remain constant or decline and should the Company be
unable to otherwise decrease costs-per-unit sold, the Company's gross profit
could continue to be adversely impacted. Further, if prices on industry-standard
SRAM products do not improve or the Company is not able to manufacture and sell
other products at comparable or better margins, and if a greater percentage of
the Oregon facility's operating costs are allocated to cost of goods sold based
on activities performed, then gross margin may not improve, or may decrease.

18

RESEARCH AND DEVELOPMENT. R&D expenses decreased in absolute spending and as a
percentage of revenues for fiscal 1998 when compared to fiscal 1997. R&D
expenses for fiscal 1998 were $121.4 million, a decrease of $30.0 million
compared to fiscal 1997. As a percentage of revenues, R&D expenses were 20.7% in
fiscal 1998, a decrease of 7.5 percentage points compared to fiscal 1997. For
fiscal 1996, R&D expense was $133.3 million, or 19.6% of revenues.

The Company's policy is not to capitalize pre-operating costs associated with
new manufacturing facilities, and in fiscal 1997 and 1996, significant facility
start-up and staffing expenses were incurred at the new eight-inch wafer
fabrication facility in Oregon. The increase in R&D expense in fiscal 1997 and
1996 is principally attributable to process engineering research costs of
approximately $32.7 million and $18.5 million, respectively, incurred at the
Oregon wafer fabrication plant. In fiscal 1998, a greater proportion of
manufacturing facility costs, including those related to the Oregon fabrication
plant, were classified as cost of goods sold, rather than process engineering
R&D, based on the nature of activities performed. Further, in fiscal 1998, the
level of spending on process R&D at the Oregon facility was generally consistent
with the level of R&D spending at IDT's other fabrication facilities. In fiscal
1996, substantially all Oregon plant expenses were charged to R&D expense.

IDT believes that high levels of R&D investment are required to support its
strategy of providing products to its customers that are not readily available
from its competitors. However, there can be no assurance that additional
research and development investment will result in new product offerings, that
any new offerings can be manufactured at gross margins comparable to or greater
than the Company's current products, or that any new offerings will achieve
market acceptance.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (SG&A)
expenses increased 9.5% or $7.7 million in fiscal 1998 to $88.5 million,
compared to fiscal 1997. In fiscal 1997, SG&A decreased 9% to $80.8 million from
$88.8 million in fiscal 1996. However, as a percentage of revenue, SG&A was
essentially unchanged in fiscal 1998 from fiscal 1997. SG&A expenses as a
percentage of revenues were 13.1% in fiscal 1996. The fiscal 1998 increase and
1997 decrease in absolute dollars were primarily attributable to variable
selling expenses associated with the year-over-year revenue changes, and changes
in employee profit sharing and management bonuses which vary in relation to
profitability. In addition, SG&A expenses in fiscal 1998 include initial
marketing costs associated with the WinChip microprocessor, and SG&A expenses
for both fiscal 1998 and 1997 include expenses associated with initiatives to
implement enterprise-wide management information systems. Relative to fiscal
1996, SG&A expenses in fiscal 1998 and 1997 increased as a percentage of sales
due primarily to lower levels of revenues earned in fiscal 1998 and 1997 when
compared to revenues earned in fiscal 1996. In fiscal year 1999, IDT anticipates
that it will increase sales and marketing related costs for the WinChip
microprocessor to develop the target marketplace that it seeks to serve. Also in
fiscal 1999, IDT plans to continue its installation of enterprise-wide
management information systems. Therefore, the Company anticipates that SG&A
expenses measured in absolute dollars will increase.

INTEREST EXPENSE. Interest expense was $14.1 million in fiscal 1998 compared
with $12.0 million in fiscal 1997 and $9.3 million in fiscal 1996. Interest
expense is primarily associated with the 5.5% Convertible Subordinated Notes,
due in 2002 (the "Notes") and $21.0 million of secured equipment financing
agreements completed September 1996. The increase in interest expense for fiscal
1998 over fiscal 1997 is primarily attributable to the cessation of capitalizing
interest in the second quarter of fiscal 1997 in connection with the
construction of the fabrication plant in Oregon. Additionally, interest expense
for fiscal 1998 includes a full year of interest related to secured equipment
financing agreements, which were not completed until the end of the second
quarter of fiscal 1997.

INTEREST INCOME AND OTHER, NET. Interest income and other, net, decreased $3.1
million to $12.7 million in fiscal 1998. In fiscal 1997, interest income and
other amounted to $15.8 million compared to $19.4 million for fiscal 1996. Also
included in interest income and other, net, is the Company's share of net
earnings or losses of unconsolidated affiliates. In fiscal 1998, IDT's share of
net losses realized on affiliate investments increased by $4.4 million over
fiscal 1997, reducing the overall net balance. In fiscal 1997, interest income
decreased primarily as a result of the Company liquidating short-term
investments to pay for significant capital expenditures in fiscal 1997. Also
included in interest income and other for fiscal 1997 is a loss in the amount of
$2.0 million related to the write-off of an equity investment. Management
anticipates that average short-term investment balances will decline

19

in fiscal 1999, associated with payments for significant capital expenditures
causing the interest income component of interest income and other, net to
decrease in absolute dollars when compared to fiscal 1998.

TAXES. The effective tax rates for fiscal 1998, 1997 and 1996 of 28%, (32%) and
32%, respectively, differed from the U.S. statutory rate of 35% primarily due to
earnings from foreign subsidiaries, considered permanently invested, being taxed
at lower average rates than the U.S. statutory rate; changes in valuation
allowances for deferred tax assets; and the utilization of certain tax credits.
Historically, income taxes in state jurisdictions have not been significant due
to available tax credits. The Company has consumed substantially all of the tax
benefits associated with its Malaysian subsidiary; however, IDT is currently
enjoying tax benefits in the Philippines associated with incentives for
establishing a manufacturing subsidiary there. See Note 12 of Notes to
Consolidated Financial Statements.

STOCK-BASED COMPENSATION PLANS. The Company accounts for its stock option plans
and its employee stock purchase plan in accordance with provisions of the
Accounting Principles Board's Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." In 1995, the Financial Accounting Standards Board released
the Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation." SFAS No. 123 provides an alternative
to APB 25 and was effective for IDT's 1997 fiscal year. As permitted by SFAS No.
123, the Company continues to account for its stock plans in accordance with APB
25. See Note 10 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

At March 29, 1998, the Company's principal sources of liquidity were cash, cash
equivalents and short-term investments which aggregated approximately $220.6
million, as compared to $190.9 million at March 30, 1997. The Company generated
$195.6 million of cash from operations in fiscal 1998, up from $41.8 million
during fiscal 1997. Cash provided by operating activities primarily reflected
net income adjusted for the add back of depreciation and amortization, non-cash
charges for asset impairment and other and changes to working capital. Increased
depreciation and amortization charges in fiscal 1998 were associated with new
facilities, improvements to existing facilities and new equipment. Significant
changes in operating assets and liabilities resulted from the timing of
collection of accounts receivable, timing of payments for accounts payable,
accrued payroll and bonus, and receipt of cash for income tax refunds
receivable.

During fiscal 1998, the Company's net cash used in investing activities was
$211.3 million with $164.2 million used for capital equipment and property and
plant improvements. Cash used for the purchase of short-term investments, net of
sales of short-term investments, was $38.2 million. In addition, at March 29,
1998, the Company had $57.1 million of restricted securities pledged as
collateral under a Tax Ownership Operating Lease entered into in January 1995
related to the construction of the eight-inch wafer fabrication facility in
Oregon.

The Company's total fiscal 1998 capital expenditures were approximately $164.2
million. Fiscal 1998 capital additions were principally in connection with
continued installation of equipment in the Oregon fabrication facility plus
continued capital expenditures for manufacturing equipment at the Philippines
assembly and test plant and other capacity improvements.

In September 1996, the Company completed secured equipment financing agreements
which total approximately $21.0 million for equipment purchased for the Oregon
fabrication facility. The borrowing arrangements fully amortize over the 60
month terms of the loans. Additionally, in September 1996 and December 1996, the
Company completed equipment sale and lease back arrangements with several
leasing companies. Equipment purchased by the Company for the Oregon fabrication
facility with a net book value of $52.6 million was sold to the leasing
companies and leased back for use at the Oregon facility under leases classified
as operating leases.

The Company's foreign subsidiaries have lines of credit for working capital
financing aggregating approximately $3.5 million with various banks in the
respective countries in which they operate. At March 29, 1998, bank guarantees
in the amount of $324,000 were outstanding.

In fiscal 1996, the Company completed the sale of $201.3 million of the 5.5%
Convertible Subordinated Notes, netting $196.7 million in proceeds. The Notes
are convertible into shares of common stock at $28.625 per share.

20

During fiscal 1996, the Company completed the repurchase of approximately $15.0
million of the Notes at a price of approximately $790 per bond. The Company does
not anticipate making additional repurchases of debt in fiscal 1999.

In view of current and anticipated capacity requirements, IDT anticipates
capital expenditures of approximately $150 million in fiscal 1999, principally
in connection with continued installation of equipment in the Oregon facility,
the Philippines plant and other capacity improvements. The Company intends to
finance such capital expenditure through a combination of use of its existing
cash, investments and borrowings under various lease and equipment financing
arrangements.

The Company's ability to invest to satisfy its capacity requirements is in part
dependent on the Company's ability to generate cash from operations. Cash flow
from operations depends significantly on the average selling prices of the
Company's products, variable cost per unit and other industry conditions which
the Company cannot predict. Future declines in selling prices for
industry-standard SRAM products or other products manufactured by the Company,
which cannot be otherwise offset, will adversely impact the Company's ability to
generate funds from operations. If the Company is not able to generate
sufficient funds from operations or other sources to fund its capacity and R&D
requirements, the Company's results from operations, cash flows and financial
condition will be adversely impacted.

The Company believes that existing cash and cash equivalents, cash flow from
operations and credit facilities available to the Company will be sufficient to
meet its working capital, mandatory debt repayment and anticipated capital
expenditure requirements for the next 12 months. While the Company is reviewing
all operations with respect to cost savings opportunities, there can be no
assurance that the Company will not be required to seek other financing sooner
or that such financing, if required, will be available on terms satisfactory to
the Company. If the Company is required to seek other financing sooner, the
unavailability of financing on terms satisfactory to IDT could have a material
adverse effect on the Company.

FACTORS AFFECTING FUTURE RESULTS

The Company's results of operations and financial condition are subject to the
following risk factors:

FLUCTUATIONS IN OPERATING RESULTS. IDT's operating results have been, and in the
future may be, subject to fluctuations due to a wide variety of factors
including the timing of or delays in new product and process technology
announcements and introductions by the Company or its competitors; competitive
pricing pressures, particularly in the SRAM commodity semiconductor memory
market; fluctuations in manufacturing yields; changes in the mix of product
sold; availability and costs of raw materials; the cyclical nature of the
semiconductor industry; industry-wide wafer processing capacity; economic
conditions in various geographic areas; and costs associated with other events,
such as underutilization or expansion of production capacity, intellectual
property disputes, or other litigation. Additionally, many of the preceding
factors also impact the recoverability of the cost of manufacturing and other
assets, and as business conditions change, future writedowns or abandonment of
these assets may occur. Further, there can be no assurance that the Company will
be able to compete successfully in the future against existing or potential
competitors or that the Company's operating results will not be adversely
affected by increased competition.

CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY. The semiconductor industry is highly
cyclical. Early in fiscal 1996, markets for some of the Company's SRAMs were
characterized by excess demand relative to supply and the resulting favorable
pricing. During the later part of fiscal 1996, however, a number of companies,
principally foreign, shifted manufacturing capacity to commodity SRAMs, causing
rapid adjustments to supply and consequently impacting market prices. The
resulting significant downward trend in prices in an extremely short period
negatively affected SRAM gross margins, and adversely affected the Company's
operating results which historically have been dependent on SRAM revenues. In
fiscal 1998, SRAM average selling prices and ASPs of other product lines
continued to decline compared to fiscal 1997, although not as dramatically as
the pace at which they declined between fiscal 1997 and fiscal 1996. Market
conditions characterized by excess supply of SRAMs relative to demand and
resultant pricing declines have occurred in the past and may occur in the
future. Although some competitors have recently made adjustments to the rate at
which they will implement capacity expansion

21

programs, the Company is unable to accurately estimate the amount of worldwide
production capacity dedicated to industry-standard commodity SRAM products which
it produces. A material increase in industry-wide production capacity, shift in
industry capacity toward products competitive with the Company's products,
reduced demand, or other factors could result in material declines in product
pricing and could especially adversely affect that portion of the Company's
operating results derived from the sale of industry-standard products. The
Company seeks to manage costs, but there can be no assurance that these efforts
will be sufficient to sustain profitability.

The Company ships a substantial portion of its products in the last month of a
quarter. If anticipated shipments in any quarter do not occur, the Company's
operating results for that quarter could be adversely affected. In addition, a
substantial percentage of the Company's products, which include SRAM products,
are incorporated into computer and computer-related products, which have
historically been characterized by significant fluctuations in demand. Demand
for certain of the Company's products is dependent upon growth in the
communications market. Any slowdown in the computer and related peripherals or
communications markets could adversely affect the Company's operating results.

In order to achieve more full and effective use of the facilities, the Company
continues to install new equipment at all of its fabrication and assembly and
test facilities. Additional planned production capacity and yield improvements
by the Company's competitors could dramatically increase the worldwide supply of
products which compete with the Company's products and could, if customer demand
does not absorb increased product quantities, create further downward pressure
on pricing.

RISKS ASSOCIATED WITH EXPANSION OF PRODUCT FAMILIES - X86 MICROPROCESSORS. The
Company commenced shipments of the WinChip microprocessor, IDT's first member of
its x86 microprocessor product family in the third quarter of fiscal 1998. This
product represents the Company's first offering to the PC microprocessor market,
which is characterized as a large market dominated by Intel, with a very limited
number of other competitors. IDT's success in competing in this market, and
therefore the financial results associated with selling products to this market,
are subject, but not limited to, the following significant risks and
uncertainties:

Competition. Intel holds a dominant position in the market for PC
microprocessors. Intel has held its dominant position over all other x86
microprocessor competitors for a substantial period of time, and has
significantly greater financial, technical, manufacturing and marketing strength
than IDT does. Currently, Intel's dominant market position allows it to set and
control x86 microprocessor standards and, therefore, dictate many aspects of the
products that PC manufacturers require in this market.

In addition, IDT's initial x86 microprocessor product is targeted at the low
cost desktop and mobile product categories of the microprocessor market. Intel
also offers products which are purchased by PC manufacturers in these market
categories. Intel's financial strength and market dominance have enabled it to
reduce prices on its microprocessor products within a short period of time
following their introduction, which reduces the margins and profitability of its
competitors. Further, Intel's marketing resources are far greater than IDT's.
Therefore, Intel's pricing and marketing strategies in the categories of the
microprocessor market targeted by IDT significantly impact IDT's efforts to
serve this market and, therefore, IDT's results of operations.

In order for customers to purchase IDT's x86 microprocessors, IDT's products
must be compatible with other components supplied to PC manufacturers such as
core-logic chip sets, motherboards, basic input/output system (BIOS) software
and others which are manufactured or produced by other companies, including
Intel and companies in which Intel has strategic investments. In addition, these
companies are able to produce chip sets, motherboards, BIOS software and other
components to support each new generation of Intel's microprocessors only to the
extent that Intel makes its related proprietary technology available. Intel has
announced that the new versions of its microprocessor product will be sold only
in the form of a chip module that is not compatible with "Socket 7" motherboards
currently used with most x86 microprocessors. Therefore, Intel may cease
supporting the Socket 7 motherboard infrastructure as it transitions to its
latest generation microprocessors. Because IDT's processor is designed to be
Socket 7 compatible, and will not work with motherboards designed for Intel's
new chip module, should IDT and other companies serving the x86 microprocessor
market not be successful in offering products which extend the life of the
Socket 7 infrastructure, IDT would be required to expend potentially significant
resources to redesign its microprocessor product offerings. There can be no
assurance that the Company would be successful in such efforts.

22

In addition to Intel, AMD and National Semiconductor's Cyrix subsidiary also
currently offer commercial quantities of x86 microprocessors for sale. From time
to time, intellectual property rights disputes have arisen between companies
competing in the x86 microprocessor markets (See Intellectual Property Risks
discussion below).

Manufacturing. The pace at which IDT is able to enter its target market category
for x86 microprocessors depends, in part, on how quickly it is able to ramp
production of its microprocessor products in its wafer fabrication and assembly
and test facilities. Before fiscal 1998, the Company had not previously
manufactured x86 microprocessors and has processed only limited quantities of
x86 microprocessors to date. Therefore, as production volumes of x86
microprocessors increase, the Company may encounter unexpected production
problems or delays as a result of, among other things, changes required to
process technologies, product design limitations, installation of equipment, and
development of programs and methodologies which test overall product quality. If
IDT is unable to ramp production of its x86 microprocessor successfully, the
Company's operating results would be adversely affected.

As described above, in fiscal 1998, IDT contracted with IBM for x86
microprocessor wafer manufacturing services using IBM's CMOS process technology.
IDT intends, during its fiscal 1999, to begin to utilize IBM's manufacturing
services to increase the available volume of WinChip microprocessors. The terms
and conditions of the IBM manufacturing services agreement require IDT to
forecast in advance production quantities that it will purchase and, once
production quantities are ordered, the contract limits IDT's ability to change
desired quantities of IBM manufactured products. Products purchased under the
IBM manufacturing services agreement must meet certain agreed to acceptance
criteria. However, these acceptance criteria do not include the number of usable
WinChip processors per wafer nor the speed at which they will operate. Should
IDT not accurately forecast the demand for IBM manufactured WinChip products, or
should the number of good WinChip processors per IBM manufactured wafer and the
speed at which they operate not meet or exceed these and other characteristics
of IDT manufactured products, IDT's results of operations will be adversely
impacted.

Compatibility With Software and Performance Certifications. For its current
product offering, IDT has obtained certifications from Microsoft Corp. and other
appropriate certifications from recognized testing organizations. Failure to
obtain and maintain such certifications for future microprocessor products could
substantially impair the Company's ability to market and sell its future x86
products.

PC Market. Because IDT's target market for its x86 microprocessor product is
initially limited to certain segments of the PC industry, the growth and
acceptance of the product is closely tied to trends in and growth of the PC
industry. The Company believes that PC manufacturers will continue their trend
towards accepting and using microprocessor products manufactured by companies
other than Intel and that generally the market for PCs and related components
will continue to grow. However, should these industry trends and growth patterns
not occur or IDT not be able to produce products which meet customers needs, for
whatever reason, IDT's ability to sell x86 microprocessor products would be
impaired.

Rights of Others. In exchange for payments towards product development costs,
IDT licensed the right to make, use and sell the WinChip C6(TM) microprocessor
to a third party. Further, the license with the third party limits the number of
additional licenses that IDT may grant. Thus, the Company may face competition
from the third party in the future and may be limited in its ability to license
the part to others.

Future Products. IDT's ability to bring future x86 products to market depends on
several primary factors including the following three:

First, it must be able to finance such future development. Second, to compete
with Intel and other competitors in the market for future generation x86
microprocessors, IDT must be able to design and develop the microprocessors
themselves, and must ensure they can be used in PC platforms, including
motherboards, designed to support future Intel or other microprocessors. Third,
a failure, for whatever reason, of the designers and producers of motherboards,
chip sets and other system components to support IDT's x86 microprocessor
offerings, including Socket 7 compatibility, would limit IDT's ability to sell
products to the PC market.

RISKS ASSOCIATED WITH PLANNED EXPANSION; MANUFACTURING RISKS. Historically, the
Company has utilized subcontractors for the majority of its incremental assembly
requirements, typically at higher costs than its own Malaysian and Philippines
assembly and test operations. The Company expects to continue utilizing
subcontractors

23

extensively to supplement its own production volume capacity. Due to production
lead times, any failure by the Company to adequately forecast the mix of product
demand could adversely affect the Company's sales and operating results. The
Company is increasing the production capacity of its Oregon facility to
manufacture IDT WinChip products. This capacity expansion program in Oregon
faces a number of substantial risks including, but not limited to, equipment
delays or shortages, power interruptions or failures, and manufacturing start-up
or process problems. From time to time, the Company has experienced production
difficulties that have caused delivery delays and quality problems. There can be
no assurance that the Company will not experience manufacturing problems and
product delivery delays in the future as a result of, among other things,
changes to its process technologies, and ramping production and installing new
equipment at its facilities, including the facility in Oregon. Further, the
Company's older wafer fabrication facilities are located relatively near each
other in Northern California. If the Company were unable to use these
facilities, as a result of a natural disaster or otherwise, the Company's
operations would be materially adversely affected until the Company was able to
obtain other production capability. In fiscal 1997, in response to reduced
protection offered at economically justifiable rates by the Company's insurance
carrier, the Company eliminated earthquake insurance coverage on all facilities.

The Company's capacity additions have resulted in a significant increase in
fixed and variable operating expenses which may not be fully offset by
additional revenues for some time. Historically, the Company has expensed the
operating expenses associated with bringing a new fabrication facility to
commercial production status as R&D in the period such expenses were incurred.
However, as commercial production at a new fabrication facility commences, the
operating costs are classified as cost of revenues, and the Company begins to
recognize depreciation expense relating to the facility. Accordingly, as the
Oregon fabrication facility now contributes to revenues, the Company recognizes
substantial operating expenses associated with the facility as cost of revenues,
which has reduced gross margins. As commercial production continues in fiscal
1999, the Company anticipates incurring substantial additional operating costs
and depreciation expenses relating to this facility. Accordingly, if revenue
levels do not increase sufficiently to offset these additional expense levels,
or if the Company is unable to achieve gross margins from products produced at
the Oregon facility that are comparable to the Company's current products, the
Company's future results of operations could be adversely impacted.

DEPENDENCE ON NEW PRODUCTS. New products and process technology costs associated
with the Oregon wafer fabrication facility will continue to require significant
R&D expenditures. However, there can be no assurance that the Company will be
able to develop and introduce new products in a timely manner, that new products
will gain market acceptance or that new process technologies can be successfully
implemented. If the Company is unable to develop new products in a timely
manner, and to sell them at gross margins comparable to the Company's current
products, the future results of operations could be adversely impacted.

DEPENDENCE ON LIMITED SUPPLIERS. The Company's manufacturing operations depend
upon obtaining adequate raw materials on a timely basis. The number of vendors
of certain raw materials, such as silicon wafers, ultra-pure metals and certain
chemicals and gases, is very limited. In addition, certain packages used by the
Company require long lead times and are available from only a few suppliers.
From time to time, vendors have extended lead times or limited supply to the
Company due to capacity constraints. The Company's results of operations would
be adversely affected if it were unable to obtain adequate supplies of raw
materials in a timely manner or if there were significant increases in the costs
of raw materials.

IDT has been significantly dependent on the design capabilities of Quantum
Effect Design, Inc. ("QED"), an equity affiliate, for the design and development
of derivatives of 64-bit MIPS(R) RISC-based microprocessors. Currently there are
no development contracts in effect between QED and IDT, and the Company is now
designing and developing derivatives of MIPS RISC-based microprocessors
in-house. As with all new products, there is significant risk that the Company
will not do so successfully. See "Business -- Products and Markets" and "--
Research and Development."

CAPITAL NEEDS. The semiconductor industry is extremely capital intensive. To
remain competitive, the Company must continue to invest in advanced
manufacturing and test equipment. In fiscal 1999, the Company expects to expend
approximately $150 million in capital expenditures, and anticipates significant
continuing capital expenditures, especially in connection with the introduction
of products for the WinChip microprocessor family, in the next several years.
There can be no assurance that the Company will not be required to seek
financing to satisfy its cash and capital needs or that such financing will be
available on terms satisfactory to the Company. If such

24

financing is required and if such financing is not available on terms
satisfactory to the Company, its operations could be materially adversely
affected.

INTELLECTUAL PROPERTY RISKS. The semiconductor industry is characterized by
vigorous protection and pursuit of intellectual property rights, which have
resulted in significant and often protracted and expensive litigation. In recent
years, there has been a growing trend by companies to resort to litigation to
protect their semiconductor technology from unauthorized use by others. The
Company in the past has been involved in patent litigation, which adversely
affected its operating results. Although the Company has obtained patent
licenses from certain semiconductor manufacturers, the Company does not have
licenses from a number of semiconductor manufacturers who have a broad portfolio
of patents. The Company has been notified that it may be infringing on patents
issued to certain semiconductor manufacturers and other parties and is currently
involved in several license negotiations. There can be no assurance that
additional claims alleging infringement of intellectual property rights will not
be asserted in the future. The intellectual property claims that have been made
or that may be asserted against the Company could require that the Company
discontinue the use of certain processes or cease the manufacture, use and sale
of infringing products, to incur significant litigation costs and damages and to
develop non-infringing technology. There can be no assurance that the Company
would be able to obtain such licenses on acceptable terms or to develop
non-infringing technology. Further, the failure to renew or renegotiate existing
licenses, or significant increases in amounts payable under the current or
future contracts, or the inability to obtain a license, could have a material
adverse effect on the Company.

RISKS OF INTERNATIONAL OPERATIONS. A substantial percentage of the Company's
revenues are derived from non-U.S. sales. In addition, the Company's offshore
assembly and test operations incur payroll, facilities and other expenses in
local currencies. Accordingly, movements in foreign currency exchange rates,
such as those seen recently in the Far East, can impact both pricing and demand
for the Company's products as well as its cost of goods sold. The Company's
offshore operations and export sales are also subject to risks associated with
foreign operations, including political instability, currency controls and
fluctuations, changes in local economic conditions and import and export
controls, as well as changes in tax laws, tariffs and freight rates. Contract
pricing for raw materials used in the fabrication and assembly processes, as
well as for subcontract assembly services, can be impacted by currency exchange
rate fluctuations.

ENVIRONMENTAL RISKS. The Company is subject to a variety of regulations related
to hazardous materials used in its manufacturing process. Any failure by the
Company to control the use of, or to restrict adequately the discharge of,
hazardous materials under present or future regulations could subject it to
substantial liability or could cause its manufacturing operations to be
suspended.

VOLATILITY OF COMMON STOCK AND NOTES PRICES. The Company's Common Stock and
Notes have experienced substantial price volatility and such volatility may
occur in the future, particularly as a result of quarter-to-quarter variations
in the actual or anticipated financial results of the Company, the companies in
the semiconductor industry or in the markets served by the Company, or
announcements by the Company or its competitors regarding new product
introductions. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies' stock in particular. These factors may adversely affect the price of
the Common Stock and the Notes.

IMPACT OF YEAR 2000 ON THE COMPANY'S OPERATIONS. The Company utilizes numerous
software programs throughout its operations which include dates and make
date-sensitive calculations based on two-digit fields which are assumed to begin
with the year 1900. Software programs written based on this assumption are
vulnerable, as the year 2000 approaches, to miscalculations and other
operational errors which may be significant to their overall effectiveness. In
addition, the Company relies upon products and information from critical
suppliers, large customers and other outside parties, in the normal course of
business, whose software programs are also subject to the same problem. Should
miscalculations or other operational errors occur as a result of the Year 2000
issue, the Company or the parties on which it depends may be unable to produce
reliable information or process routine transactions. Furthermore, in the worse
case, the Company or the parties on which it depends may, for an extended period
of time, be incapable of conducting critical business activities, which include
but are not limited to, manufacturing and shipping products, invoicing customers
and paying vendors.

25

The Company is assessing the extent to which Year 2000 issues may be
incorporated into certain products which it sells to its customers. The Company
has also initiated communications with its critical suppliers, large customers
and other outside parties in an effort to identify and mitigate Year 2000
matters originating from dependent third parties which may adversely affect the
Company.

Based on the Company's continuing assessment, IDT needs to replace or materially
modify many of its software applications, including those critical to the
Company's normal operations, in order to both avoid significant Year 2000 issues
and meet the Company's business requirements. The Company will continue to
execute its existing plans to upgrade or replace software. While Year 2000
compliance is an important software feature which the Company considers when
purchasing software, the system upgrades and replacements purchased by the
Company also contain important functional improvements which are necessary for
IDT to be competitive as a multinational semiconductor manufacturing company. By
the year 2000, over a five-year period, the Company will have replaced
substantially all of its enterprise wide systems. The Company has not allocated
a portion of the total project cost to the Year 2000 issue. IDT does not believe
the incremental project cost associated with Year 2000 compliance to be
material, as this feature is included with software purchased by the Company to
satisfy its business needs.

During the process of replacing, upgrading and reprogramming internal software
programs, the Company has formed, and continues to form, internal and external
teams who are devoted to upgrading, replacing or modifying IDT's existing
programs, including those which are not Year 2000 compliant. These teams also
test the results of their work to ensure effectiveness. There can be no
assurance, that all critical Year 2000 problems have or will be identified or
that the Company will be able to procure all of the resources necessary to
replace all critical Year 2000-deficient software applications on a timely
basis. There can also be no assurance that the critical Year 2000-deficient
software programs of the parties on which the Company depends will be converted
on a timely basis or not converted to systems which are incompatible with the
Company's systems.

26

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS

Consolidated Financial Statements included in Item 8:

Report of Independent Accountants

Consolidated Balance Sheets at March 29, 1998 and March 30, 1997

Consolidated Statements of Operations for each of the three fiscal
years in the period ended March 29, 1998

Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended March 29, 1998

Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended March 29, 1998

Notes to Consolidated Financial Statements

Financial Statement Schedule II - Valuation and Qualifying Accounts

All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements or notes thereto.

27

- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Integrated Device Technology, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Integrated Device Technology, Inc. and its subsidiaries at March 29, 1998 and
March 30, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended March 29, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
San Jose, California
April 17, 1998

28

INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

March 29, March 30,
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 146,114 $ 155,149
Short-term investments 74,481 35,747
Accounts receivable, net of allowance
for returns and doubtful accounts
of $11,110 and $7,351 68,840 77,600
Inventories, net 60,737 47,618
Deferred tax assets 52,252 44,493
Income tax refund receivable 7,309 34,055
Prepayments and other current assets 14,870 19,148
--------- ---------
Total current assets 424,603 413,810

Property, plant and equipment, net 475,440 424,217
Other assets 68,912 65,557
--------- ---------
Total assets $ 968,955 $ 903,584
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57,572 $ 44,875
Accrued compensation and related expenses 15,853 15,612
Deferred income on shipments to distributors 51,835 42,084
Other accrued liabilities 28,724 25,022
Current portion of long-term obligations 5,097 6,049
--------- ---------
Total current liabilities 159,081 133,642

Convertible subordinated notes,
net of issuance costs 183,756 183,157
--------- ---------
Long-term obligations 56,640 52,622
--------- ---------
Deferred tax liabilities 23,087 9,925
--------- ---------

Commitments and contingencies (Notes 8 and 9)

Stockholders' equity:
Preferred stock; $.001 par value:
10,000,000 shares authorized;
no shares issued -- --
Common stock; $.001 par value: 200,000,000
shares authorized; 81,367,847 and
79,654,104 shares issued and outstanding 81 80
Additional paid-in capital 318,542 304,840
Retained earnings 228,964 220,717
Cumulative translation adjustment (1,196) (886)
Unrealized loss on available-for-sale
securities, net -- (513)
--------- ---------
Total stockholders' equity 546,391 524,238
--------- ---------
Total liabilities and stockholders' equity $ 968,955 $ 903,584
========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

29

INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Fiscal Year Ended
--------------------------------------------------------
March 29, 1998 March 30, 1997 March 31, 1996
-------------- -------------- --------------

Revenues $ 587,136 $ 537,213 $ 679,497

Cost of revenues 364,291 325,668 293,695
Asset impairment and other -- 45,223 --
--------- --------- ---------
Gross profit 222,845 166,322 385,802
--------- --------- ---------

Operating expenses:
Research and development 121,449 151,420 133,317
Selling, general and administrative 88,528 80,812 88,752
--------- --------- ---------
Total operating expenses 209,977 232,232 222,069
--------- --------- ---------
Operating income (loss) 12,868 (65,910) 163,733

Interest expense (14,088) (12,018) (9,269)

Interest income and other, net 12,674 15,764 19,432
--------- --------- ---------
Income (loss) before income taxes 11,454 (62,164) 173,896

Provision (benefit) for income taxes 3,207 (19,892) 55,647
--------- --------- ---------
Income (loss) before extraordinary item 8,247 (42,272) 118,249

Extraordinary item:
Gain from early extinguishment of debt (net
of tax provision of $904) -- -- 1,921
--------- --------- ---------
Net income (loss) $ 8,247 $ (42,272) $ 120,170
========= ========= =========

Basic net income (loss) per share:
Income (loss) before extraordinary item $ 0.10 $ (0.54) $ 1.54
Net income (loss) 0.10 (0.54) 1.56

Diluted net income (loss) per share:
Income (loss) before extraordinary item $ 0.10 $ (0.54) $ 1.42
Net income (loss) 0.10 (0.54) 1.44

Weighted average shares:
Basic 80,359 78,454 77,026
Diluted 84,022 78,454 87,753

The accompanying notes are an integral part of these consolidated financial
statements.

30

INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Fiscal Year Ended
--------------------------------------------------
March 29, 1998 March 30, 1997 March 31, 1996
-------------- -------------- --------------

OPERATING ACTIVITIES
Net income (loss) $ 8,247 $ (42,272) $ 120,170
Adjustments:
Depreciation and amortization 114,136 102,897 53,782
Asset impairment and other -- 45,223 --
Gain from early extinguishment of debt -- -- (1,921)
Changes in assets and liabilities:
Accounts receivable, net 8,760 7,425 (11,920)
Inventories, net (13,119) (1,618) (9,171)
Net deferred tax assets (7,759) (5,223) (7,719)
Income tax refund receivable 26,746 (34,055) --
Other assets 9,226 1,718 (12,514)
Accounts payable 12,697 (31,295) 39,651
Accrued compensation and related expense 241 (13,625) 6,348
Deferred income on shipments to distributors 9,751 10,759 8,977
Income taxes payable and deferred tax liabilities 16,457 (5,747) 12,004
Other accrued liabilities 10,233 7,624 3,228
--------- --------- ---------
Net cash provided by operating activities 195,616 41,811 200,915
--------- --------- ---------

INVESTING ACTIVITIES
Purchases of property, plant and equipment (164,206) (192,747) (287,878)
Proceeds from sale of property, plant and equipment 367 54,196 387
Purchases of short-term investments (45,975) (22,639) (215,097)
Proceeds from sales of short-term investments 7,754 90,323 200,618
Purchases of equity investments (9,224) (6,960) --
Proceeds from sales (purchases) of investments
collateralizing facility lease -- 10,662 (57,333)
--------- --------- ---------
Net cash used for investing activities (211,284) (67,165) (359,303)
--------- --------- ---------

FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 12,468 7,615 6,608
Proceeds from issuance of convertible subordinated notes,
net of issuance costs -- -- 196,721
Proceeds from secured equipment financing -- 20,959 --
Payments on capital leases and other debt (5,835) (5,299) (17,924)
--------- --------- ---------
Net cash provided by financing activities 6,633 23,275 185,405
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (9,035) (2,079) 27,017

Cash and cash equivalents at beginning of period 155,149 157,228 130,211
--------- --------- ---------
Cash and cash equivalents at end of period $ 146,114 $ 155,149 $ 157,228
========= ========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 12,748 $ 12,266 $ 7,457
Income taxes paid, net of refunds (32,584) 11,285 54,616

The accompanying notes are an integral part of these consolidated financial
statements.

31

INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

Common Stock Unrealized
----------------------- Gain (Loss)
Additional Cumulative On Total
Paid-In Retained Translation Securities, Stockholders'
Shares Amount Capital Earnings Adjustment Net Equity
------------ -------- ------------- ------------ ------------- -------------- ---------------

Balance, April 2, 1995 76,209,268 $ 76 $ 271,580 $ 142,819 $ 56 $ -- $ 414,531

Issuance of common stock 1,287,565 1 6,607 -- -- -- 6,608
Tax benefits of stock option
transactions -- -- 8,877 -- -- -- 8,877
Translation adjustment -- -- -- -- (561) -- (561)
Unrealized gain on
available-for-sale securities,
net -- -- -- -- -- 102 102
Net income -- -- -- 120,170 -- -- 120,170
------------ -------- ------------- ------------ ------------- -------------- ---------------

Balance, March 31, 1996 77,496,833 77 287,064 262,989 (505) 102 549,727
Issuance of common stock 2,157,271 3 16,121 -- -- -- 16,124
Tax benefits of stock option
transactions -- -- 1,655 -- -- -- 1,655
Translation adjustment -- -- -- -- (381) -- (381)
Changes in unrealized loss on
available-for-sale securities, (615)
net -- -- -- -- -- (615)
Net loss -- -- -- (42,272) -- -- (42,272)
------------ -------- ----------- ------------ ------------- -------------- ---------------

Balance, March 30, 1997 79,654,104 80 304,840 220,717 (886) (513) 524,238
Issuance of common stock 1,713,743 1 12,467 -- -- -- 12,468
Tax benefits of stock option
transactions -- -- 1,235 -- -- -- 1,235
Translation adjustment -- -- -- -- (310) -- (310)
Changes in unrealized loss on
available-for-sale securities,
net -- -- -- -- -- 513 513
Net income -- -- -- 8,247 -- -- 8,247
------------ -------- ----------- ------------ ------------- -------------- ---------------

Balance, March 29, 1998
81,367,847 $ 81 $318,542 $ 228,964 $ (1,196) $ -- $ 546,391
============ ======== =========== ============ ============= ============== ===============

The accompanying notes are an integral part of these consolidated financial
statements.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary Of Significant Accounting Policies

THE COMPANY. Integrated Device Technology, Inc. ("IDT" or the "Company")
designs, develops, manufactures and markets a broad range of high-performance
semiconductor products and modules for its key markets: data communications and
telecommunications equipment, such as routers, hubs, switches, cellular base
stations and other devices; personal computers; and shared network devices, such
as workstations, servers and printers.

FISCAL YEAR. The Company's fiscal year ends on the Sunday nearest March 31.
Fiscal 1998, 1997 and 1996 each included 52 weeks. The fiscal year-end of
certain of the Company's foreign subsidiaries is March 31, and the results of
their operations as of their fiscal year end have been combined with the
Company's. Transactions during the intervening periods in 1998 and 1997 were not
significant.

CONSOLIDATION. The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents are highly
liquid investments with original maturities of three months or less at the time
of acquisition or with guaranteed on-demand buy-back provisions.
Short-term investments are valued at amortized cost, which approximates market.

The Company's short-term investments are classified as available-for-sale at
March 29, 1998 and March 30, 1997. Investment securities classified as
available-for-sale are measured at market value, and net unrealized gains or
losses are recorded as a separate component of stockholders' equity until
realized. Any gains or losses on sales of investments are computed based upon
specific identification. For the periods ended March 29, 1998 and March 30,
1997, realized gains and losses on available-for-sale investments were not
material. Management determines the appropriate classification of debt and
equity securities at the time of purchase and reevaluates the classification at
each reporting date.

INVENTORIES. Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at
cost. Depreciation is computed using the straight-line method over estimated
useful lives of the assets, which generally range from three to five years.
Leasehold improvements and leasehold interests are amortized over the shorter of
the estimated useful lives of the assets or the remaining term of the lease.
Accelerated methods of depreciation are used for tax computations.

ACCOUNTING FOR LONG-LIVED ASSETS. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-lived Assets," the Company reviews long-lived assets held and used by the
Company for impairment whenever events or changes in circumstances indicate that
the net book value of an asset will not be recovered through expected future
cash flows (undiscounted and before interest) from use of the asset. The amount
of impairment loss is measured as the difference between the net book value of
the assets and the estimated fair value of the related assets. In the third
quarter of fiscal 1997, the Company determined that changes in circumstances had
given rise to such an impairment (See Note 4).

REVENUE RECOGNITION. Revenues from product sales are generally recognized upon
shipment, and a reserve is provided for estimated returns and discounts. A
portion of the Company's sales are made to distributors under agreements which
allow certain rights of return and price protection on products unsold by the
distributors. Related gross profits thereon are deferred until the products are
resold by the distributors.

INCOME TAXES. The Company accounts for income tax in accordance with SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 is an asset
and liability approach which requires that the expected future tax consequences
of temporary differences between book and tax bases of assets and liabilities be
recognized as deferred tax assets and liabilities. No provision for U.S. income
taxes is provided on unremitted earnings of foreign subsidiaries, to the extent
such earnings are deemed to be permanently reinvested.

33

NET INCOME (LOSS) PER SHARE. In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
"Earnings Per Share," and other related Interpretations and is effective for the
periods ended after December 15, 1997. Under SFAS No. 128, all prior-period
earnings per share amounts have been restated. Basic earnings per share is based
upon weighted-average common shares outstanding. Diluted earnings per share is
computed using the weighted-average common shares outstanding plus any
potentially dilutive securities. Dilutive securities include stock options,
warrants and restricted stock using the treasury stock method, and convertible
debt and convertible preferred stock using the if converted method.

Following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the periods presented below:

Fiscal Year Ended
--------------------------------------------
March 29, March 30, March 31,
(In thousands except per share amounts) 1998 1997 1996
--------------------------------------------

Basic:

Net income (loss) (numerator) $ 8,247 $(42,272) $ 120,170
============================================
Weighted average shares outstanding (denominator) 80,359 78,454 77,026
============================================
Net income (loss) per share $ .10 $ (.54) $ 1.56
============================================

Diluted:

Net income (loss) $ 8,247 $(42,272) $ 120,170
Add:
Convertible subordinated notes interest and expenses -- -- 6,596
--------------------------------------------

Adjusted net income (loss) (numerator) $ 8,247 $(42,272) $ 126,766
============================================
Weighted average shares outstanding 80,359 78,454 77,026
Net effect of dilutive stock options 3,663 -- 4,871
Conversion of convertible subordinated notes -- -- 5,856
--------------------------------------------
Total shares (denominator) 84,022 78,454 87,753
============================================
Net income (loss) per share $ .10 $ (.54) $ 1.44
============================================

Options to purchase approximately 1.6 million, 15.0 million and 1.0 million
shares were outstanding at fiscal year-ends 1998, 1997 and 1996, respectively,
but have been excluded from the computation because they were antidilutive.

TRANSLATION OF FOREIGN CURRENCIES. Accounts denominated in foreign currencies
have been translated in accordance with SFAS No. 52, "Foreign Currency
Translation." The functional currency for the Company's sales operations is the
applicable local currency, with the exception of the Hong Kong sales subsidiary
whose functional currency is the U.S. dollar. For subsidiaries whose functional
currency is the local currency, gains and losses resulting from translation of
these foreign currency financial statements into U.S. dollars are accumulated in
a separate component of stockholders' equity. For the Malaysian and Philippines
manufacturing subsidiaries and the Hong Kong sales subsidiary, where the
functional currency is the U.S. dollar, gains and losses resulting from the
process of remeasuring foreign currency financial statements into U.S. dollars
are included in income. The effect of foreign currency exchange rate
fluctuations have not been material.

FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS. Fair values of cash, cash
equivalents and short-term investments approximate cost due to the short period
of time until maturity. Fair values of long-term investments,

34

long-term debt and currency forward contracts are based on quoted market prices
or pricing models using current market rates.

CONCENTRATION OF CREDIT RISK. The Company markets high-speed integrated circuits
to OEMs and distributors primarily in the United States, Europe and the Far
East. The Company performs on-going credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary and generally does not require collateral. Management believes that
risk of significant loss is significantly reduced due to the diversity of its
products, customers and geographic sales areas. The Company maintains a
provision for potential credit losses and write-offs of accounts receivable
which were insignificant in each of the three years ended March 29, 1998.

One distributor's receivable balance represented 17% and 15% of total accounts
receivable at March 29, 1998 and March 30, 1997, respectively. If the financial
condition and operations of this distributor deteriorate below critical levels,
the Company's operating results could be adversely affected.

STOCK-BASED COMPENSATION PLANS. The Company accounts for its stock option plans
and its employee stock purchase plan in accordance with provisions of the
Accounting Principles Board's Opinion No. 25, "Accounting for Stock Issued to
Employees." In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), the Company provides additional pro forma
disclosures in Note 10.

USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, although
such differences are not expected to be material to the financial statements.

STOCK DIVIDEND AND RECLASSIFICATIONS. In September 1996, the Company completed a
two-for-one stock split of its common stock in the form of a 100% stock
dividend. Historical share and per share amounts have been restated to reflect
the stock dividend.

Certain reclassifications have been made to prior-year balances, none of which
affected the Company's financial position or results of operations, to present
the financial statements on a consistent basis.

NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and displaying comprehensive income within the financial
statements. This Statement requires the Company to report additional information
on comprehensive income to supplement the reporting of income. SFAS No. 130 is
effective for both interim and annual periods beginning after December 15, 1997.
Comparative financial statements provided for earlier periods are required to be
reclassified so that comprehensive income is displayed in a comparative format
for all periods presented. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), establishes standards for
reporting information about operating segments in annual and interim financial
statements. This Statement also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. The Company will adopt SFAS No. 130 for the first quarter of fiscal 1999.
The Company will also adopt SFAS No. 131 in fiscal 1999. The Company believes
that these statements will require additional disclosure but will not have a
material effect on the Company's financial position or results of operations.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance
for determining whether computer software is in fact for internal use, and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company has not yet determined the
impact, if any, of adopting SOP 98-1, which will be effective for IDT's fiscal
2000 financial statements.

PRODUCTS AND MARKETS. The Company operates in predominantly one industry segment
(See Note 13) within the semiconductor industry. Significant technological
changes in the industry could adversely affect operating results. The
semiconductor industry is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production over capacity and accelerated erosion of average selling
prices. Therefore, the average selling price the Company receives for industry
standard products is

35

dependent upon industry-wide demand and capacity, and such prices have
historically been subject to rapid change. While the Company considers industry
technological change and industry wide demand and capacity in estimating
necessary allowances, such estimates could change in the future.

MATERIALS. The Company's manufacturing operations depend upon obtaining adequate
raw materials. The number of vendors of certain raw materials, such as silicon
wafers, ultra-pure metals and certain chemicals and gases, is very limited. The
Company's results of operations would be adversely affected if it were unable to
obtain adequate supplies of raw materials in a timely manner or if there were
significant increases in the costs of raw materials.

Note 2 - Balance Sheet Components

INVENTORIES, NET

March 29, 1998 March 30, 1997
-------------- --------------
(in thousands)
Raw materials $ 6,647 $ 4,800
Work-in-process 40,276 22,893
Finished goods 13,814 19,925
--------- ---------
$ 60,737 $ 47,618
========= =========

PROPERTY, PLANT AND EQUIPMENT

March 29, 1998 March 30, 1997
-------------- --------------
(in thousands)
Land $ 24,385 $ 12,885
Machinery and equipment 780,555 653,903
Building and leasehold improvements 102,151 91,845
Construction-in-progress 3,166 3,013
--------- ---------
910,257 761,646
Less accumulated depreciation and
amortization (434,817) (337,429)
--------- ---------
$ 475,440 $ 424,217
========= =========

In fiscal 1998, the Company capitalized no interest expense ($1.8 million in
fiscal 1997) in connection with the construction of the Hillsboro, Oregon plant.

36

AVAILABLE-FOR-SALE SECURITIES

March 29, 1998 March 30, 1997
-------------- --------------
(in thousands)
U.S. government agency securities $ 26,628 $ 25,553
State and local government securities 55,289 30,723
Corporate securities 102,347 111,281
Others 35,705 19,642
--------- ---------
Total debt and equity securities 219,969 187,199
Less cash equivalents (145,488) (151,452)
--------- ---------
Short-term investments $ 74,481 $ 35,747
========= =========

Short-term investments of $56.2 million mature in less than one year and $18.3
million have maturities between one and four years.

Note 3 -- Other Assets--Intangibles

During fiscal 1993, IDT entered into various royalty-free patent cross-license
agreements. The patent licenses granted to IDT under these agreements were
recorded at their cost of approximately $8.2 million and amortized on a
straight-line basis over five years. The amortization relating to patent
licenses was $867,000 in fiscal 1998 and $1.7 million in each of fiscal 1997 and
1996. At March 29, 1998, these assets had been fully amortized.

Note 4 -- Impairment of Long-Lived Assets

In fiscal 1997, the Company recorded charges related to the impairment of
certain older manufacturing assets and other adjustments of $45.2 million. These
adjustments related primarily to the carrying value of manufacturing assets,
including the Company's oldest wafer fabrication plant in Salinas, California.
As a result of significant changes in the semiconductor industry, such as the
rapid erosion of SRAM average selling prices, and the Company's emphasis on
communications-oriented products, the Company has accelerated the use of more
advanced manufacturing processes to produce its products. The use of these more
advanced processes and available information on future demand for the Company's
products indicated that the carrying value of these selected older manufacturing
assets was not fully recoverable. The fair value of manufacturing assets was
based principally upon third-party estimates of fair values.

Separately, the Company recorded charges of approximately $9.7 million relating
to the write-down of certain technology investments and other miscellaneous
items in fiscal 1997.

37

Note 5 - Long-Term Debt and Lease Obligations

The Company leases certain equipment under long-term leases or finances
purchases of equipment under bank financing agreements. Leased assets and assets
pledged under financing agreements which are included under property, plant and
equipment are as follows:

March 29, 1998 March 30, 1997
-------------- --------------
(in thousands)

Machinery and equipment $ 30,012 $ 30,755
Less accumulated depreciation
and amortization
(16,509) (11,952)
-------- --------
$ 13,503 $ 18,803
======== ========

The capital lease agreements and equipment financings are collateralized by the
related leased equipment.

Future minimum payments under capital leases and equipment financing agreements,
at varying interest rates (8.7-8.8%) are as follows:

(in thousands)
Fiscal Year
1999 $ 5,370
2000 5,154
2001 5,154
2002 2,783
2003 and thereafter -
--------------------------
Total minimum payments 18,461
Less interest (2,525)
--------------------------
Present value of net minimum payments 15,936
Less current portion (4,193)
--------------------------
$ 11,743
==========================

38

Long-term debt consisted of the following:

March 29, 1998 March 30, 1997
-------------- --------------
(in thousands)
Mortgage payable bearing interest
at 9.625% due in monthly installments
of $142 including interest through
April 1, 2005, secured by related property
and improvements $ 8,730 $ 9,551
Less current portion (904) (821)
======= =======
$ 7,826 $ 8,730
======= =======

The fair value of the mortgage payable, based on current rates and time to
maturity, was $9.3 million at March 29, 1998. Principal payments required in the
next five years and beyond are as follows (in thousands): $904 (1999), $995
(2000), $1,095 (2001), $1,205 (2002) and $4,531 (2003 and beyond).

Note 6 -- 5.5% Convertible Subordinated Notes

In May 1995, the Company issued $201.3 million of 5.5% Convertible Subordinated
Notes ("Notes"), due in 2002. The Notes are subordinated to all existing and
future senior debt and are convertible into shares of the Company's common stock
at a conversion rate of $28.625 per share and are redeemable at the option of
the Company in whole or in part at any time on or after June 2, 1998 at 102.75%
initially and thereafter at prices declining to 100% at maturity plus accrued
interest. Each holder of these Notes has the right, subject to certain
conditions and restrictions, to require the Company to offer to repurchase all
outstanding Notes, in whole or in part, owned by such holder, at specified
repurchase prices plus accrued interest upon the occurrence of certain events
and in certain circumstances. The costs incurred in connection with the offering
($4.6 million) have been netted against the Notes balance in the consolidated
balance sheet and are being amortized over the seven-year term of the Notes
using the straight-line method which approximates the effective interest method.
Interest on the Notes is payable semi-annually on June 1 and December 1
commencing December 1, 1995. Based upon quoted market prices, the fair value of
the Notes was approximately $166.7 million at March 29, 1998.

During fiscal 1996, the Company retired $15 million of the Notes at a cost of
approximately $12 million resulting in an extraordinary gain. The gain, net of
tax and deferred issue costs, was recorded as an extraordinary item. The per
share amount of the gain on early retirement of debt, net of related income tax
effect, was $0.02 in fiscal 1996 on both a basic and diluted basis.

Note 7 - Lines of Credit

The Company's Malaysian subsidiary has a secured facility for the issuance of
bank guarantees up to approximately $2.0 million with a local bank. The Company
can use this facility until it is cancelled by either party. At March 29, 1998,
bank guarantees in the amount of $324,000 were outstanding.

In fiscal 1998, the Company's Japanese subsidiary had a secured revolving line
of credit that allowed borrowings of up to approximately $1.5 million. The line
of credit automatically extends until the Company requests termination. As of
March 29, 1998, no amounts were outstanding under this line of credit. The
borrowing rate for this line of credit is the local bank's short-term prime rate
existing at the borrowing date. At March 29, 1998, this short-term borrowing
rate was 1.63%.

39

The Company also has foreign exchange facilities used for hedging arrangements
with several banks that allow the Company to enter into foreign exchange
contracts of up to $85 million, of which $59.9 million was available at March
29, 1998.

Note 8 -- Commitments

LEASE COMMITMENTS. The Company leases most of its administrative and some
manufacturing facilities under operating lease agreements which expire at
various dates through fiscal 2004. Through the second quarter of fiscal 1997,
one facility was leased from a stockholder and director. The Company recorded
rental expense for the facility leased from the stockholder and director of
$517,000 and $1,058,000 in fiscal 1997 and 1996, respectively. In fiscal 1996,
the Company entered into an agreement to acquire this facility for $8.5 million
in a transaction structured as a tax-free reorganization and completed the
transaction in the third quarter of fiscal 1997, by issuing 782,445 unregistered
shares of the Company's Common Stock at $10.875 per share.

In fiscal 1995, the Company entered into a five-year $60 million (revised to $64
million in fiscal 1996) Tax Ownership Operating Lease transaction to lease the
wafer fabrication facility in Oregon. This lease requires monthly payments which
vary based on the London Interbank Offered Rate (LIBOR) plus 0.3% (6.3% at March
29, 1998). The aggregate minimum rent commitment under this lease which began in
January 1996 is approximately $4.1 million per year at the current LIBOR rate
plus 0.3%. This lease also provides the Company with the option of either
acquiring the building at its original cost or arranging for the building to be
acquired at the end of the respective lease term. The Company's obligations
under the lease are secured by a trust deed on the building and collateralized
by cash and/or investments (restricted securities) at 89.25% of the lessor's
construction costs. Restricted securities, included in other non-current assets,
collateralizing this lease were $57.1 million at both March 29, 1998 and March
30, 1997. The Company is also contingently liable under a first-loss clause for
up to 85% of the construction costs of the building, or $54.4 million. In
addition, the Company must maintain compliance with certain financial covenants.

In fiscal 1997, the Company completed several sale and leaseback transactions
with various leasing companies. The sale and leaseback transactions generated
financing proceeds of $53.0 million. The aggregate minimum rent commitments
under these leases were approximately $9.6 million per year. Under these leasing
arrangements, equipment purchased for the Oregon fabrication facility with a net
book value at the time of the sale and leaseback transaction of $52.6 million
was sold to the leasing companies and leased back for use at the Oregon facility
under leases classified as operating leases.

As of March 29, 1998, the aggregate future minimum rent commitments under all
operating leases, including the Oregon facility, were as follows:

(in thousands)
Fiscal Year
1999 $ 17,641
2000 16,227
2001 12,180
2002 11,339
2003 11,472
2004 and thereafter 6,433
--------------------------
$ 75,292
==========================

Rent expense for the years ended March 29, 1998, March 30, 1997 and March 31,
1996 totaled approximately $7.6 million, $7.8 million and $4.6 million,
respectively.

40

As of March 29, 1998, one secured standby letter of credit was outstanding in
the amount of $8.4 million. This letter of credit is required for international
purchases and expires on June 1, 1998.

As of March 29, 1998, the Company had commitments of approximately $86.6 million
for equipment purchases.

Note 9 - Litigation

From time to time, the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings that the Company believes will have, individually
or in the aggregate, a material adverse effect on the Company's financial
condition or results of operations.

During the normal course of business, the Company is notified of claims that it
may be infringing on patents issued to other parties and is currently involved
in license negotiations. Should the Company elect to enter into license
agreements with other parties or should the other parties resort to litigation,
the Company may be obligated in the future to make payments or to otherwise
compensate these third parties.

Note 10 - Stockholders' Equity

STOCK-BASED COMPENSATION PLANS. At March 29, 1998, the Company had four
stock-based compensation plans which are described below. The Company applies
APB Opinion No. 25 and related Interpretations in accounting for these plans.

STOCK OPTION PLANS. Shares of common stock reserved for issuance under the
Company's stock option plans include 13,500,000 shares under the 1994 Employee
Stock Option Plan, as amended, 2,500,000 shares under the 1997 Employee Stock
Option Plan, and 108,000 shares under the 1994 Director Stock Option Plan. At
March 29, 1998, a total of 5,017,000 options were available but unissued under
these plans. Also outstanding and exerciseable at March 29, 1998 were options
initially granted under previous stock option plans which have not been
cancelled or exercised.

Under the plans, options are issued with an exercise price equal to the market
price of the Company's common stock on the date of grant, and the maximum option
term is 10 years. Plan participants typically receive an initial grant that
vests in annual and/or monthly increments over four years. Thereafter,
participants often receive a smaller annual grant which historically vests 4
years from the date of grant.

Following is a summary of the Company's stock option activity and related
weighted average exercise prices for each category:

Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------- ------------------------------ ---------------------------
Shares Price Shares Price Shares Price
-------------- ------------- -------------- --------------- -------------- ------------

(shares in thousands)
Beginning options
outstanding 15,000 $ 8.09 14,021 $ 7.42 10,938 $ 6.64
Granted 5,156 11.16 3,556 10.90 10,907 14.30
Exercised (1,242) 6.31 (815) 3.49 (1,034) 2.86
Canceled (1,724) 10.48 (1,762) 10.56 (6,790) 17.92
-------------- ------------- -------------- --------------- -------------- ------------
Ending options outstanding 17,190 $ 8.90 15,000 $ 8.09 14,021 $ 7.42

Ending options exerciseable 7,564 $ 6.40 6,335 $ 5.16 4,120 $ 3.03

41

In January 1996, employees and officers holding options to purchase 6,752,351
shares of the Company's common stock were offered the opportunity to cancel
options in exchange for grants of new options, with certain restrictions and
limitations, at the then current market price. Under the terms of the program,
6,090,334 shares were exchanged and are reflected in the grant and cancellation
activity for fiscal 1996.

Under SFAS No. 123, the Company is required to estimate the fair value of each
option on the date of grant. Accepted option valuation models, such as the
Black-Scholes and Binomial models, were developed in order to value freely
traded options under ideal market conditions. The Company's stock option awards
differ significantly since they always have vesting restrictions and generally
are not transferable. Models such as Black-Scholes also require highly
subjective assumptions, including expected time until exercise and future stock
price volatility. The calculated fair value of an option on the grant date is
highly sensitive to changes in these subjective assumptions.

The Company has applied the Black-Scholes model to estimate the grant-date fair
value of stock option grants in fiscal 1998, 1997 and 1996, based upon the
following weighted-average assumptions: expected volatility of 60.0 to 62.5%,
expected time-to-exercise of 1.5 to 2.0 years from vest date, risk-free interest
rates of 5.1 to 6.7% and a dividend yield of 0%. The weighted-average fair value
per stock option granted in fiscal 1998, 1997 and 1996, as defined by SFAS No.
123, was $6.29, $6.21 and $6.63, respectively.

Following is summary information about stock options outstanding at March 29,
1998 (shares in thousands):

Options Outstanding Options Exerciseable
-------------------------------------------------- ---------------------------------
Weighted Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Life Average Exerciseable Average
Exercise Prices (in years) Exercise Price Exercise Price
- ------------------------------ --------------- ------------------ ---------------- ---------------- ----------------

$ 1.63 - $ 1.88 2,154 3.4 $ 1.83 2,154 $ 1.83
2.06 - 6.00 1,139 4.8 3.75 1,134 3.74
6.19 - 9.13 2,230 5.2 8.05 1,311 7.34
9.44 - 9.88 4,725 3.4 9.86 2,285 9.87
10.00 - 11.94 4,722 5.8 10.64 452 10.74
12.38 - 14.00 1,469 5.1 12.86 146 13.25
14.06 - 15.81 715 5.5 14.56 77 14.59
18.03 - 32.75 36 7.2 26.27 5 25.63

EMPLOYEE STOCK PURCHASE PLAN. The Company is authorized to issue up to 5,050,000
shares of its common stock under its amended and restated 1984 Employee Stock
Purchase Plan. All domestic employees are eligible to participate. The purchase
price of the stock is 85% of the lower of the closing price at the beginning or
at the end of each offering period (typically fiscal quarters). Eligible
employees can have up to 10% of base earnings withheld to purchase the Company's
common stock under the Plan.

42

Following is a summary of activity under the Employee Stock Purchase Plan:

Fiscal 1998 Fiscal 1997 Fiscal 1996
-------------------- --------------------- -------------------
(shares in thousands)

Number of shares issued 470 560 246
Average issuance price $9.81 $8.52 $14.32
Number of shares available at year-end 584 54 614

Under SFAS No. 123, the Company must estimate the fair value of employees'
purchase rights under the Employee Stock Purchase Plan ("ESPP rights"). Valuing
ESPP rights involves the use of option valuation models which are incapable of
addressing transferability and vesting restrictions inherent in the Company's
Employee Stock Purchase Plan. Estimating the value of ESPP rights requires that
the Company make highly subjective assumptions about future events, such as
stock price volatility, and the resulting estimates are quite sensitive to
changes in these assumptions.

The Company has estimated the fair value of ESPP rights using the Black-Scholes
option valuation model with the following weighted-average assumptions: an
expected life equal to the offering period (typically one fiscal quarter);
expected volatility of 60.0 to 62.5%; risk-free interest rate of 5.1 to 5.9% and
a dividend yield of 0%. The weighted-average fair value per ESPP right granted
in fiscal 1998, 1997 and 1996, as defined by SFAS No.
123, was $4.09, $3.84 and $5.02, respectively.

PRO FORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE. Following is a pro
forma calculation of the amounts to which the Company's net income (loss) and
income (loss) per share would have been reduced, had the Company recorded
compensation costs based on the estimated grant-date fair value, as defined by
SFAS No. 123, of awards granted under its Stock Option Plans and Employee Stock
Purchase Plan. The pro forma amounts include compensation costs related to
fiscal 1998, 1997 and 1996 stock option grants only. In future years, the annual
compensation expense will increase relative to the fair value of stock options
granted in those future years.

(in thousands, except per share Fiscal 1998 Fiscal 1997 Fiscal 1996
amounts)
---------------------- ---------------------- ----------------------

Pro forma net income (loss):
Basic $ (7,455) $ (61,585) $ 109,317
Diluted (7,455) (61,585) 115,913

Pro forma net income (loss) per share:
Basic $ (0.09) $ (0.78) $ 1.42
Diluted (0.09) (0.78) 1.25

STOCKHOLDER RIGHTS PLAN. The Company has a Stockholder Rights Plan. During
fiscal 1992, under the plan, the Company declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock.
Each Right entitles the holder, under certain circumstances, to purchase Common
Stock of the Company with a value of twice the exercise price of the Right. In
addition, the Board of Directors may, under certain circumstances, cause each
Right to be exchanged for one share of Common Stock or substitute consideration.
The Rights are redeemable by the Company and expire in December 1998.

43

Note 11 - Employee Benefits Plans

The Company has a Profit Sharing Plan which is available to all employees who
have at least six months of service. Under this plan, all eligible employees
receive profit sharing contributions of 7% of pre-tax earnings in cash, and an
additional 1% of pre-tax earnings is divided equally among all domestic
employees and contributed to the Company's 401(k) plan. Administrative expenses
are netted against the Profit Sharing Plan contribution. The cash contributions
for the years ended March 29, 1998 and March 31, 1996 for this plan were
$910,000 and $14.1 million respectively. There was no cash contribution to this
plan for the year ended March 30, 1997.

The Company pays an annual cash bonus to certain executive officers and other
key employees based on the pre-tax earnings of the Company and the employee's
individual performance. In fiscal 1998, the amount accrued under the bonus plan
was 6% of operating income. In fiscal 1996, the amount accrued under the plan
was 6% of operating income less a factor for the percent change in the Company's
income tax provision rate over the prior year. The performance bonus recorded
for the years ended March 29, 1998 and March 31, 1996 for this plan was $774,000
and $9.1 million respectively. There was no performance bonus recorded for the
year ended March 30, 1997.

Note 12 - Income Taxes

The components of income before provision (benefit) for income taxes were as
follows:

(in thousands) March 29, 1998 March 30, 1997 March 31, 1996
------------------------ ----------------------- ----------------------

United States $ (7,010) $ (75,138) $ 161,209
Foreign 18,464 12,974 12,687
------------------------ ----------------------- ----------------------
$ 11,454 $ (62,164) $ 173,896
======================== ======================= ======================

The provision (benefit) for income taxes consisted of the following:

(in thousands) March 29, 1998 March 30, 1997 March 31, 1996
------------------------ ----------------------- ----------------------

Current:
United States $ (4,712) $ (15,262) $ 63,829
State -- (13) 1,517
Foreign 2,516 606 2,293
------------------------ ----------------------- ----------------------
(2,196) (14,669) 67,639
------------------------ ----------------------- ----------------------
Deferred:
United States 5,423 (9,357) (11,340)
State -- 4,134 (652)
Foreign (20) -- --
------------------------ ----------------------- ----------------------
5,403 (5,223) (11,992)
------------------------ ----------------------- ----------------------
Provision (benefit) for income taxes $ 3,207 $ (19,892) $ 55,647
======================== ======================= ======================

44

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities were as follows:

(in thousands) March 29, 1998 March 30, 1997
-------------------------------- -------------------------------

Deferred tax assets:
Deferred income on shipments to distributors $ 20,336 $ 16,510
Non-deductible accruals and reserves 25,991 27,676
Capitalized inventory and other expenses 4,197 7,687
Other 3,164 (1,597)
Net operating loss & credit carryforwards 13,509 6,320
-------------------------------- -------------------------------
Gross deferred tax assets 67,197 56,596
-------------------------------- -------------------------------

Deferred tax liabilities:
Depreciation and amortization (23,087) (11,564)
-------------------------------- -------------------------------
Valuation allowance (14,945) (10,464)
-------------------------------- -------------------------------
Net deferred tax assets $ 29,165 $ 34,568
================================ ===============================

At the end of fiscal 1998 and 1997, management provided a valuation allowance
for deferred tax assets for which it is more likely than not that such assets
will not be realized. The valuation allowance is primarily attributable to state
deferred tax assets net of state deferred tax liabilities.

The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. statutory income tax rate of 35% to income before the
provision (benefit) for income taxes as follows:

(in thousands) March 29, 1998 March 30, 1997 March 31, 1996
------------------------ ----------------------- ----------------------

Provision (benefit) at U.S. statutory rate $ 4,009 $ (21,758) $ 60,864
Earnings of foreign subsidiaries
considered permanently reinvested, less
foreign taxes (1,943) (2,580) (2,327)
General business credits (1,820) (1,840) (1,994)
Tax exempt interest -- (1,264) (1,982)
State tax, net of federal benefit -- (6,342) 865
Valuation allowance -- 10,464 --
Net operating loss carryback limitation
5,094 -- --
Other (2,133) 3,428 221
------------------------ ----------------------- ----------------------
Provision (benefit) for income taxes $ 3,207 $ (19,892) $ 55,647
======================== ======================= ======================

The Company provided foreign income taxes with respect to its Malaysian
manufacturing subsidiary for the first time in fiscal 1998. The Company utilized
government tax depreciation grants to reduce its Malaysian tax rate below the
28% statutory rate for fiscal 1998. Under existing Malaysian law, the Company
has certain available carried forward tax benefits and expects that these
benefits will be available in future periods to reduce its local tax
obligations.

45

The Company's manufacturing subsidiary in the Philippines operates under a tax
holiday which expires in November 2000. The Company has applied for a two-year
extension of the holiday.

The Company's intention is to permanently reinvest its earnings in all of its
foreign subsidiaries. Accordingly, U.S. taxes have not been provided on
approximately $63.4 million of unremitted earnings. Upon distribution of those
earnings in the form of dividends or otherwise, the Company will be subject to
both U.S. income taxes and various foreign country withholding taxes.

Examination by the IRS of the Company's income tax returns for the fiscal years
1995 and 1996 began in fiscal 1997. Management believes that the ultimate
resolution of these examinations will not have any material adverse impact on
the Company's financial condition or results of operations.

46

Note 13 - Industry Segment, Foreign Operations And Significant Customers

IDT operates predominantly in one industry segment (See Note 1). The Company
offers products in four product categories: communications products, SRAM
components and modules, logic circuits and microprocessors. Sales through a
national distributor accounted for 17%, 14% and 11% of net revenues for fiscal
1998, 1997 and 1996, respectively. Additionally, one OEM customer accounted for
12% of net revenues in fiscal 1996.

Major operations outside the United States include manufacturing facilities in
Malaysia and the Philippines and sales subsidiaries in Japan, the Pacific Rim
and throughout Europe. At March 29, 1998 and March 30, 1997, total liabilities
for operations outside of the United States were $54.0 million and $70.8
million, respectively.

The following is a summary of IDT's foreign operations by geographic areas for
fiscal 1998, 1997 and 1996:

Transfers
Sales To Between
In thousands Unaffiliated Geographic Operating Identifiable
Customers Areas Net Revenues Income (Loss) Assets
- ---------------------------------------------------------------------------------------------------------------------
Fiscal year ended March 29, 1998

United States $ 358,373 $ 130,867 $ 489,240 $ 8,412 $ 644,434
Europe 113,914 -- 113,914 18,353 81,740
Japan 55,477 -- 55,477 630 12,181
Asia-Pacific 59,372 80,604 139,976 18,342 112,048
Elimination -- (211,471) (211,471) 1,439 (148,403)
Corporate -- -- -- (34,308) 266,955
---------------- --------------- --------------- --------------- ---------------

Consolidated $ 587,136 $ -- $ 587,136 $ 12,868 $ 968,955
================ =============== =============== =============== ===============

Fiscal year ended March 30, 1997
United States $ 330,578 $ 130,014 $ 460,592 $ (61,512) $ 624,306
Europe 93,167 -- 93,167 12,949 64,687
Japan 73,385 -- 73,385 1,040 15,216
Asia-Pacific 40,083 72,029 112,112 12,448 109,130
Elimination -- (202,043) (202,043) 151 (137,790)
Corporate -- -- -- (30,986) 228,035
---------------- --------------- --------------- --------------- ---------------

Consolidated $ 537,213 $ -- $ 537,213 $ (65,910) $ 903,584
================ =============== =============== =============== ===============

Fiscal year ended March 31, 1996
United States $ 404,994 $ 150,769 $ 555,763 $ 149,206 $ 574,287
Europe 144,154 -- 144,154 39,274 28,478
Japan 72,530 -- 72,530 3,405 21,482
Asia-Pacific 57,819 46,870 104,689 8,466 72,703
Elimination -- (197,639) (197,639) 89 (42,633)
Corporate -- -- -- (36,707) 285,117
---------------- --------------- --------------- --------------- ---------------

Consolidated $ 679,497 $ -- $ 679,497 $ 163,733 $ 939,434
================ =============== =============== =============== ===============

47

Note 14 - Related Party Transactions

The Company holds an equity interest of approximately 34% in Quantum Effect
Design Inc. ("QED"). A stockholder and director of the Company also holds an
equity interest of approximately 3% in QED. The Company paid royalty expenses of
$3.2 million and $2.6 million to QED in fiscal 1998 and 1997, respectively.

The Company holds an equity interest of approximately 36% (87% on an as
converted basis) in Clear Logic, Inc. , a corporation founded by a former IDT
executive officer. The Company increased its investment by $12.1 million in
fiscal 1998.

During fiscal 1998, a director of IDT acted as an uncompensated agent on behalf
of a subsidiary of the Company in acquiring parcels of land for future corporate
development.

Note 15 - Derivative Financial Instruments

The Company has foreign subsidiaries which operate and sell or manufacture the
Company's products in various global markets. As a result, the Company is
exposed to changes in foreign currency exchange rates. The Company primarily
utilizes forward exchange contracts to hedge against the short-term impact of
foreign currency fluctuations on certain assets or liabilities denominated in
foreign currencies. The total amount of these contracts is offset by the
underlying assets or liabilities denominated in foreign currencies. The gains or
losses on these contracts are included in income as the exchange rates change.
Management believes that these forward contracts do not subject the Company to
undue risk due to foreign exchange movements because gains and losses on these
contracts are offset by losses and gains on the underlying asset and
transactions being hedged. Forward exchange contracts related to firm purchase
commitments are considered identifiable hedges and realized and unrealized gains
and losses are deferred until settlement of the underlying commitments. At March
29, 1998 and March 30, 1997, deferred gains and losses were not material.

Foreign exchange hedge positions, which include buy and sell positions generally
with maturities of less than three months, were as follows:

March 29, 1998 March 30, 1997
------------------- -------------------
(in thousands of U.S. dollars) Buy Sell Buy Sell
------- ------- ------- -------
Japanese Yen $ 410 $ 8,320 $ -- $13,802
British Pound Sterling -- 280 945 4,054
Malaysian Ringgits 4,120 2,056 5,440 2,861
Netherlands Guilders 9,114 -- -- --
Philippines Pesos -- 718 -- --
Singapore Dollars 129 -- -- --
------- ------- ------- -------
$13,773 $11,374 $ 6,385 $20,717
======= ======= ======= =======

The Company is exposed to credit-related losses if counterparties to financial
instruments fail to perform their obligations. However, the Company does not
expect any counterparties, which presently have high credit ratings, to fail to
meet their obligations. The Company controls credit risk through credit
approvals, limits and monitoring procedures including the use of high credit
quality counterparties.

48

SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)

Fiscal Year Ended March 29, 1998
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------

Revenues $ 148,873 $ 143,807 $ 144,235 $ 150,221
Asset impairment and other -- -- -- --
Gross profit 56,336 55,164 55,042 56,303
Net income 1,891 2,601 2,381 1,374
Basic earnings per share:
Net income 0.02 0.03 0.03 0.02
Diluted earnings per share:
Net income 0.02 0.03 0.03 0.02

Fiscal Year Ended March 30, 1997
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------

Revenues $ 142,539 $ 120,485 $ 130,992 $ 143,197
Asset impairment and other -- -- 45,223 --
Gross profit 70,923 38,194 2,146 55,059
Net income (loss) 8,869 (10,334) (42,918) 2,111
Basic earnings per share:
Net income (loss) 0.11 (0.13) (0.55) 0.03
Diluted earnings per share:
Net income (loss) 0.11 (0.13) (0.55) 0.03

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

Not applicable.

49

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item with respect to the Company's Directors is
incorporated herein by reference from the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the fiscal year
ended March 29, 1998, and the information required by this item with respect to
the Company's executive officers is incorporated herein by reference from the
section entitled "Executive Officers of the Registrant" in Part I, Item 4A of
this Report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference from
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference from
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference from
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

50

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The following consolidated financial statements are included in
Item 8:

- Consolidated Balance Sheets at March 29, 1998 and March 30, 1997
- Consolidated Statements of Operations for each of the three
fiscal years in the period ended March 29, 1998
- Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended March 29, 1998
- Consolidated Statements of Stockholders' Equity for each of the
three fiscal years in the period ended March 29, 1998
- Notes to Consolidated Financial Statements

(a) 2. Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted since the required information is
not present in amounts sufficient to require submission of the
schedules, or because the required information is included in the
financial statements or notes thereto.

(a) 3. Listing of Exhibits

Exhibit No. Description

Page

2.1* Agreement and Plan of Reorganization dated as of October 1, 1996, by
and among the Company, Integrated Device Technology Salinas Corp. and
Baccarat Silicon, Inc. (previously filed as Exhibit 2.1 to the
Quarterly Report on Form 10-Q for the Fiscal Quarter Ended December 29,
1996).

2.2* Agreement of Merger dated as of October 1, 1996, by and among the
Company, Integrated Device Technology Salinas Corp. and Baccarat
Silicon, Inc. (previously filed as Exhibit 2.2 to the Quarterly Report
on Form 10-Q for the Fiscal Quarter Ended December 29, 1996).

3.1* Restated Certificate of Incorporation (previously filed as Exhibit 3A
to Registration Statement on Form 8-B dated September 23, 1987).

3.2* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 3(a) to the Registration Statement on Form
8 dated March 28, 1989).

3.3* Certificate of Amendment of Restated Certificate of Incorporation
(previously filed as Exhibit 4.3 to the Registration Statement on Form
S-8 (File Number 33-63133) filed on October 2, 1995).

3.4* Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (previously filed as Exhibit 3(a) to the
Registration Statement on Form 8 dated March 28, 1989).

3.5* Bylaws dated January 25, 1993 (previously filed as Exhibit 3.4 to
Annual Report on Form 10-K for the Fiscal Year Ended March 28, 1993).

4.1* Amended and Restated Rights Agreement dated as of February 27, 1992,
between the Company and The First National Bank of Boston (previously
filed as Exhibit 4.1 to Current Report on Form 8-K dated February 27,
1992).

51

4.2* Amendment dated September 29, 1995 to the Rights Agreement (previously
filed as Exhibit 4.2 to Amendment No. 2 to the Registration Statement
on Form 8-A filed October 19, 1995).

4.3* Form of Indenture between the Company and The First National Bank of
Boston, as Trustee, including Form of Notes (previously filed as
Exhibit 4.6 to the S-3 Registration Statement (File number 33-59443).

10.1* Assignment of Lease dated October 30, 1985 between the Company and
Synertek Inc. relating to 2975 Stender Way, Santa Clara, California
(previously filed as Exhibit 10.4 to Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1990).

10.2* Assignment of Lease dated October 30, 1985 between the Company and
Synertek Inc. relating to 3001 Stender Way, Santa Clara, California
(previously filed as Exhibit 10.5 to Annual Report on Form 10-K for
Fiscal Year Ended April 1, 1990).

10.3* Lease dated October 23, 1989 between Integrated Device Technology
International Inc. and RREEF USA FUND - III relating to 2972 Stender
Way, Santa Clara, California (previously filed as Exhibit 10.6 to
Annual Report on Form 10-K for the Fiscal Year Ended April 1, 1990).

10.4* First Deed of Trust and Assignment of Rents, Security Agreement and
Fixture Filing dated March 28, 1990 between the Company and Santa Clara
Land Title Company for the benefit of The Variable Annuity Life
Insurance Company relating to 2670 Seeley Avenue, San Jose, California
(previously filed as Exhibit 10.7 to Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1990).

10.5* Amended and Restated 1984 Employee Stock Purchase Plan (previously
filed as Exhibit 10.16 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).**

10.6* 1994 Stock Option Plan, as amended through April 25, 1996 (previously
filed as Exhibit 4.5 to the Registration Statement on Form S-8 (File
Number 333-15871) filed on November 8, 1996).**

10.7* 1994 Directors Stock Option Plan and related documents (previously
filed as Exhibit 10.18 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).**

10.8* Form of Indemnification Agreement between the Company and its directors
and officers (previously filed as Exhibit 10.68 to Annual Report on
Form 10-K for the Fiscal Year Ended April 2, 1989).**

10.9* Manufacturing, Marketing and Purchase Agreement between the Company and
MIPS Computer Systems, Inc. dated January 16, 1988 (previously filed as
Exhibit to Annual Report on Form 10-K for the Fiscal Year Ended March
29, 1992) (Confidential Treatment Granted).

10.10* Preferred Stock Purchase Agreement dated January 14, 1992 among the
Company, Berg & Berg Enterprises, Inc. and Quantum Effect Design, Inc.
(previously filed as Exhibit 10.13 to Annual Report on Form 10-K for
the Fiscal Year Ended March 29, 1992).

10.11* Patent License Agreement between the Company and American Telephone and
Telegraph Company ("AT&T") dated May 1, 1992 (previously filed as
Exhibit 19.1 to Quarterly Report on Form 10-Q for the Quarter Ended
June 28, 1992) (Confidential Treatment Granted).

10.12* Patent License Agreement dated September 22, 1992 between the Company
and Motorola, Inc. (previously filed as Exhibit 19.1 to Quarterly
Report on Form 10-Q for the Quarter Ended September 27, 1992)
(Confidential Treatment Granted).

10.13* Agreement between the Company and Texas Instruments Incorporated
effective December 10, 1992, including all related exhibits, among
others, the Patent Cross-License Agreement and the OEM Purchase
Agreement (previously filed as Exhibit 19.1 to Quarterly Report on Form
10-Q for the Quarter Ended December 27, 1992) (Confidential Treatment
Granted).

10.14* Series A Preferred Stock Purchase Agreement dated July 16,1992 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.12 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).

52

10.15* Series B Preferred Stock Purchase Agreement dated March 1994 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.13 to the Quarter Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).

10.16* Series C Preferred Stock Purchase Agreement dated June 13,1994 among
Monolithic System Technology, Inc. and certain purchasers (previously
filed as Exhibit 10.14 to the Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 2, 1994).

10.17* Domestic Distributor Agreement between the Company and Wyle
Laboratories, Inc. Electronic Marketing Group dated as of April 15,
1994 (previously filed as Exhibit 10.15 to the Quarterly Report on Form
10-Q for the Fiscal Quarter Ended October 2, 1994).

10.18* Promissory Note dated April 28, 1995 between L. Robert Phillips and the
Company and related document (previously filed as Exhibit 10.20 to the
Annual report on Form 10-K for the Fiscal Year Ended April 2, 1995).**

10.19* Sublease of the Land and Lease of the Improvement by and between
Sumitomo Bank Leasing and Finance, Inc. and the Company dated January
27, 1995 and related agreements thereto (previously filed as Exhibit
10.21 to the Annual Report on Form 10-K for the Fiscal Year Ended April
2, 1995).

10.20* 1995 Executive Performance Plan (previously filed as Exhibit 10.22 to
the Quarterly Report on Form 10-Q for the Fiscal Quarter Ended October
1, 1995).**

10.21* Letter amending Patent License Agreement between the Company and AT&T
dated December 4, 1995 (previously filed as Exhibit 10.23 to the Annual
Report on Form 10-K for the Fiscal Year Ended March 31, 1996)
(Confidential Treatment Granted).

10.22* Lease dated July 1995 between Integrated Device Technology, Inc. and
American National Insurance Company relating to 3250 Olcott Street,
Santa Clara, California (previously filed as Exhibit 10.25 to the
Annual Report for the Fiscal Year Ended March 31, 1996).

10.23* Registration Rights Agreement dated as of October 1, 1996 among the
Company, Carl E. Berg and Mary Ann Berg (previously filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q for the Fiscal Quarter Ended
December 29, 1996).

10.24 1997 Stock Option Plan.

10.25 Custom Sales Agreement between the Company and International Business
Machines Corporation effective January 19, 1998. (Portions have been
omitted and filed separately with the Commission in reliance on Rule
24b-2 and the Registrant's request for confidential treatment).

21.1 Subsidiaries of the Company.

23.1 Consent of Price Waterhouse LLP.

27.1 Financial Data Schedule.

27.2 Restated Financial Data Schedule.

27.3 Restated Financial Data Schedule.

27.4 Restated Financial Data Schedule.

* These exhibits were previously filed with the Commission as indicated
and are incorporated herein by reference.

** These exhibits are management contracts or compensatory plans or
arrangements required to be filed pursuant to Item 14 (c) of Form 10-K.

(b) Reports on Form 8-K

Not applicable.

53

SIGNATURES

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

INTEGRATED DEVICE TECHNOLOGY, INC.
Registrant

June 2, 1998 By: /s/ Leonard C. Perham
-----------------------------------
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

Signature Title Date

/s/ D. John Carey Chairman of the Board June 2, 1998
-----------------------

/s/ Leonard C. Perham Chief Executive Officer and Director June 2, 1998
----------------------- (Principal Executive Officer)

/s/ Alan F. Krock Vice President, Chief Financial Officer June 2, 1998
----------------------- (Principal Financial and Accounting Officer)

/s/ Carl E. Berg Director June 2, 1998
-----------------------

/s/ John C. Bolger Director June 2, 1998
-----------------------

/s/ Federico Faggin Director June 2, 1998
-----------------------

54

SCHEDULE II

INTEGRATED DEVICE TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS

Balance at Additions Charged
Beginning of to Cost and Recoveries and Balance at End
Period Expenses Write-offs of Period
(in thousands)
Allowance for returns and doubtful
accounts

Year ended March 31, 1996 $ 3,830 $ 808 $ (58) $ 4,580
Year ended March 30, 1997 4,580 2,464 307 7,351
Year ended March 29, 1998 7,351 3,849 (90) 11,110

55