UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2010~~2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-50534

ATHEROS COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0485570
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1700 Technology Drive, San Jose, CA 95110-1383

(Address of principal executive offices, Zip Code)

(408) 773-5200

(Registrant’s telephone number, including area code)

5480 Great America Parkway, Santa Clara, CA 95054

(Former name, former address and former fiscal year, if changed since the last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

As of ~~October~~April 2025, ~~2010~~2011, 7173,~~583~~835,~~392~~193 shares of Common Stock, par value $0.0005, were issued and outstanding.

Table of Contents

ATHEROS COMMUNICATIONS, INC.

INDEX TO

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2010~~2011

		Page
~~PART I – FINANCIAL INFORMATION~~	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1918
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2826
Item 4.	Controls and Procedures		2927
~~PART II – OTHER INFORMATION~~	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		3028
Item 1A.	Risk Factors		3028
Item 6.	Exhibits		3029
Signatures			3230

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

ATHEROS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	September 30,2010			December 31,2009
	March 31,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	~~109~~153,~~770~~461		$	~~148~~130,~~376~~721
Short-term marketable securities		~~365~~403,~~242~~038			~~253~~385,~~859~~080
Accounts receivable, net		~~109~~108,~~640~~036			58103,~~012~~145
Inventory		95,~~477~~536			7095,~~396~~736
Prepaid expenses, deferred income taxes and other current assets		2723,~~289~~512			2620,~~985~~088
Total current assets		~~707~~783,~~418~~583			~~557~~734,~~628~~770
Property and equipment, net		2221,~~132~~084			1422,~~955~~103
Long-term investments		1312,~~935~~677			1512,~~523~~835
Goodwill		221,961			~~188~~221,~~877~~961
Acquired intangible assets, net		~~164~~143,~~020~~643			~~135~~153,~~352~~370
Deferred income taxes and other assets		79,~~147~~705			39,~~014~~805
Total assets	$	1,~~136~~192,~~613~~653		$	~~915~~1,~~349~~154,844
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6642,~~752~~412		$	5951,~~866~~768
Accrued and other current liabilities		~~118~~109,~~684~~391			81118,~~202~~465
Total current liabilities		~~185~~151,~~436~~803			~~141~~170,~~068~~233
Deferred income taxes and other long-term liabilities		5790,~~275~~651			4289,~~421~~852
Commitments and contingencies
Stockholders’ equity:
Common stock		~~749~~808,~~431~~390			~~663~~773,~~474~~914
Accumulated other comprehensive income		364			1,869
Accumulated other comprehensive loss		(135	)		(45	)
Retained earnings		~~144~~141,~~107~~944			66120,~~517~~890
Total stockholders’ equity		~~893~~950,~~902~~199			~~731~~894,~~860~~759
Total liabilities and stockholders’ equity	$	1,~~136~~192,~~613~~653		$	~~915~~1,~~349~~154,844

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

ATHEROS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended
	2010			2009			2010			2009
	March 31,
Net revenue	$	247,086		$	156,641		$	700,010		$	356,790
	2011			2010
Operating costs and expenses:
Net revenue	$	245,349		$	214,705
Cost of goods sold		124,600			81,047			355,707			186,072
Operating costs and expenses:
Research and development		49,587			32,619			139,016			92,144
Cost of goods sold		127,202			111,315
Sales and marketing		22,864			14,872			65,572			42,593
Research and development		53,554			42,970
General and administrative		10,842			8,178			31,036			20,980
Sales and marketing		27,162			20,653
Amortization of acquired intangible assets		8,851			2,580			26,232			8,350
General and administrative		11,678			9,508
Acquisition-related charges		797			977			1,580			977
Amortization of acquired intangible assets		9,727			9,115
Total operating costs and expenses		217,541			140,273			619,143			351,116
Acquisition-related charges		2,561			466
Income from operations		29,545			16,368			80,867			5,674
Total operating costs and expenses		231,884			194,027
Interest income, net		1,010			1,351			3,295			4,585
Income from operations		13,465			20,678
Realized gain (impairment) of long-term investments, net		—			(874	)		258			(2,011	)
Interest and other income, net		670			1,341
Income before income taxes		30,555			16,845			84,420			8,248
Change in contingent earn-out liability		7,780			—
Income tax benefit (provision)		(2,439	)		21,731			(6,830	)		22,526
Income before income taxes		21,915			22,019
Net income	$	28,116		$	38,576		$	77,590		$	30,774
Provision for income taxes		(861	)		(2,280	)
Basic net income per share	$	0.40		$	0.62		$	1.11		$	0.50
Net income	$	21,054		$	19,739
Shares used in computing basic net income per share		71,158			62,111			70,117			61,485
Basic net income per share	$	0.29		$	0.29
Diluted net income per share	$	0.39		$	0.60		$	1.07		$	0.49
Shares used in computing basic net income per share		73,249			68,791
Shares used in computing diluted net income per share		72,737			64,215			72,500			63,162
Diluted net income per share	$	0.28		$	0.27
Shares used in computing diluted net income per share		76,032			71,813

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

ATHEROS COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended
	2010			2009
	March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7721,~~590~~054		$	3019,~~774~~739
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		62,~~328~~379			51,~~264~~787
Stock-based compensation		4217,~~712~~671			3013,~~296~~030
Impairment of long-term investments		~~370~~87			~~2,011~~370
Amortization of acquired intangible assets and other		2810,~~931~~196			811,~~350~~749
Deferred income taxes		5,741			(23,429	)
Change in contingent earn-out liability		(7,780	)		—
Tax benefit from employee stock-based awards		77			614
Deferred income taxes		448			1,688
Excess tax benefit from employee stock-based awards		(58	)		(586	)
Tax benefit from employee stock-based awards		—			305
Excess tax benefit from employee stock-based awards		—			(286	)
Change in assets and liabilities:
Accounts receivable		(504,~~757~~891	)		(211,~~951~~806	)
Inventory		(~~25,050~~269	)		26(12,~~635~~623	)
Prepaid expenses and other assets		(~~132~~3,710	)		(43,~~765~~269	)
Accounts payable		6(8,~~544~~607	)		81,~~121~~187
Accrued and other current liabilities		20,967			(836	)
Accrued and other liabilities		(269	)		(3,525	)
Net cash provided by operating activities		~~113~~26,~~263~~309			7918,~~498~~346
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired		(70,627	)		—
Purchase of property and equipment, net		(2,324	)		(610	)
Purchase of property and equipment, net		(10,857	)		(2,192	)
Purchase of marketable securities		(144,231	)		(107,663	)
Purchase of marketable securities		(391,109	)		(145,729	)
Maturities and sales of marketable securities		126,181			47,383
Maturities and sales of marketable securities		279,096			65,708
Net cash used in investing activities		(20,374	)		(60,890	)
Other investment activity		(1,598	)		541
Net cash used in investing activities		(195,095	)		(81,672	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		4316,~~168~~805			922,~~745~~809
Excess tax benefits from employee stock-based awards		58—			~~586~~286
Net cash provided by financing activities		4316,~~226~~805			1023,~~331~~095
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		~~(38~~22,~~606~~740	)		8(19,~~157~~449	)
CASH AND CASH EQUIVALENTS, Beginning of period		~~148~~130,~~376~~721			~~114~~148,~~530~~376
CASH AND CASH EQUIVALENTS, End of period	$	~~109~~153,~~770~~461		$	~~122~~128,~~687~~927

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

ATHEROS COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

Organization— Atheros Communications, Inc. (the “Company”), was incorporated in May 1998 in the state of Delaware and commenced operations in December 1998. The Company is a developer of semiconductor system solutions for communications products.

Basis of Presentation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) related to interim financial statements based on applicable Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. This information reflects all adjustments, which are, in the opinion of the Company, of a normal and recurring nature and necessary to present fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The December 31, ~~2009~~2010 balance sheet was derived from the audited financial statements as of that date. All significant intercompany transactions and balances have been eliminated. The Company reclassified certain amounts reported in the previous period to conform to the current period presentation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, ~~2009~~2010 included in its Annual Report on Form 10-K, as filed on February 1211, ~~2010~~2011 with the SEC (the “Annual Report”). The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 are not necessarily indicative of the results to be expected for any future periods.

2. Significant Accounting Policies

The Company’s significant accounting policies are disclosed in its audited consolidated financial statements for the year ended December 31, ~~2009~~2010 included in the Annual Report.

Product Warranty— – Components of the accrual for warranty costs during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 consisted of the following (in thousands):

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2010			2009
	2011			2010
Beginning balance	$	23,~~605~~143		$	12,~~433~~605
Additions related to current period sales		~~4,192~~773			2,~~795~~007
Warranty costs incurred in the current period		(~~1,257~~367	)		(~~1,607~~317	)
Adjustments to accruals related to prior period sales		(21,~~013~~612	)		(~~634~~833	)
Ending balance	$	31,~~527~~937		$	13,~~987~~462

Recent Accounting Pronouncements— – With the exception of those stated below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, as compared to the recent accounting pronouncements described in the Annual Report that are of material significance, or have potential material significance, to the Company.

Effective ~~April~~January 1, ~~2009~~2010, the Company adopted the ~~Financial~~ Financial Accounting Standards Board’s (“FASB’s”) updated guidance related to ~~subsequent~~fair ~~events~~value measurements and disclosures, which ~~establishes~~requires ~~general~~a ~~standards~~reporting entity to disclose separately the amounts of ~~accounting~~significant ~~for~~transfers in and ~~disclosure~~out of ~~events~~Level ~~that~~1 ~~occur~~and Level ~~after~~2 fair value measurements and to describe the ~~balance~~reasons ~~sheet~~for ~~date~~the ~~but~~transfers. ~~before financial~~In ~~statements~~addition, ~~are~~in ~~issued~~the reconciliation for fair value measurements using significant unobservable inputs, or ~~are~~Level ~~available~~3, toa bereporting ~~issued~~entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance ~~initially~~also ~~required~~requires ~~the~~that ~~disclosure~~an ofentity ~~the~~should ~~date~~provide ~~through~~fair ~~which~~value anmeasurement ~~entity~~disclosures ~~has~~for ~~evaluated~~each ~~subsequent~~class ~~events~~of assets and liabilities and disclosures about the ~~basis~~valuation ~~for~~techniques ~~that~~and ~~date~~inputs –used ~~that~~to ~~is,~~measure ~~whether~~fair ~~that date~~value ~~represents~~for ~~the~~both ~~date~~recurring ~~the~~and ~~financial~~non-recurring ~~statements~~fair ~~were~~value ~~issued~~measurements orfor ~~were~~Level ~~available~~2 toand beLevel ~~issued~~3 fair value measurements. ~~However,~~ inThe ~~February~~guidance ~~2010,~~became ~~the~~effective ~~FASB~~for ~~amended~~interim or ~~the~~annual ~~guidance~~financial toreporting ~~remove~~periods ~~the~~beginning ~~requirement~~after toDecember 15, ~~disclose~~2009, except for the ~~date~~disclosures ~~through~~about ~~which~~purchases, ~~subsequent~~sales, ~~events~~issuances ~~were evaluated.~~and ~~Adoption~~settlements ofin the ~~updated~~roll ~~guidance~~forward ~~did~~activity ~~not~~in ~~have~~Level a3 ~~material~~fair ~~impact~~value onmeasurements, ~~the~~which ~~Company’s~~became ~~consolidated~~effective ~~results~~for fiscal ofyears ~~operations~~beginning orafter ~~financial~~December 15, ~~condition.~~

Effective January 1, 2010, the Company adopted the FASB’s updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements

~~ATHEROS~~ 2010 ~~COMMUNICATIONS~~and for interim periods within those fiscal years. Therefore, ~~INC~~the Company adopted the guidance with respect to the roll forward activity in Level 3 fair value measurements on January 1, 2011. The Company has updated its disclosures to comply with the updated guidance; however, adoption of the updated guidance did not have an impact on the Company’s consolidated results of operations or financial condition.

~~NOTES~~In TOApril ~~CONDENSED~~2010, ~~CONSOLIDATED~~the ~~FINANCIAL~~FASB ~~STATEMENTS—(Continued)~~updated its guidance related to the milestone method of revenue recognition. The update provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance became effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. Therefore, the Company adopted the updated guidance on January 1, 2011, however adoption did not have an impact on its consolidated results of operations or financial condition.

~~(Unaudited)~~In December 2010, the FASB updated its guidance related to when to perform step two of the goodwill impairment test for reporting units with zero or negative carrying amounts. The updated guidance requires that for any reporting unit with a zero or negative carrying amount, and entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The updated guidance became effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Therefore, the Company adopted the updated guidance on January 1, 2011, however adoption did not have a material impact on its consolidated results of operations or financial condition.

~~using~~In ~~significant~~December ~~unobservable inputs~~2010, orthe ~~Level~~FASB 3,updated aits ~~reporting~~guidance related ~~entity~~to ~~should~~disclosure ~~disclose~~of ~~separately~~supplementary ~~information~~pro ~~about~~forma ~~purchases,~~information ~~sales,~~for ~~issuances~~business ~~and settlements (that is, on a gross basis rather than one net number)~~combinations. The updated guidance ~~also~~ requires that anif ~~entity~~comparative ~~should~~financial ~~provide~~statements ~~fair~~are ~~value~~presented, ~~measurement~~the ~~disclosures~~pro ~~for~~forma ~~each~~revenue ~~class~~and earnings of ~~assets~~the ~~and~~combined ~~liabilities~~entity ~~and~~for ~~disclosures about~~ the comparable ~~valuation~~prior ~~techniques~~reporting ~~and~~period ~~inputs~~should ~~used~~be toreported ~~measure~~as ~~fair~~though ~~value for~~the ~~both~~acquisition ~~recurring~~date ~~and~~for ~~non-recurring~~all ~~fair~~business ~~value~~combinations ~~measurements~~that ~~for~~occurred ~~Level~~during 2the ~~and~~current ~~Level~~year 3had ~~fair~~been ~~value~~as ~~measurements.~~of ~~The~~the ~~guidance~~beginning isof ~~effective~~the ~~for~~comparable ~~interim~~prior or annual ~~financial~~ reporting ~~periods~~period ~~beginning~~only. ~~after~~The ~~December 15, 2009, except for the~~updated ~~disclosures~~guidance ~~about~~is ~~purchases,~~effective ~~sales,~~prospectively ~~issuances~~for ~~and~~business ~~settlements~~combinations infor which the ~~roll~~acquisition ~~forward~~date ~~activity~~is inon ~~Level~~or 3after ~~fair~~the ~~value~~beginning ~~measurements,~~of ~~which~~the ~~are~~first ~~effective~~annual ~~for~~reporting ~~fiscal~~period ~~years~~ beginning on or after December 15, 2010, ~~and~~with ~~for~~early ~~interim~~adoption ~~periods within those fiscal years~~permitted. Therefore, the Company ~~has not yet~~ adopted the updated guidance ~~with~~on ~~respect~~January 1, to2011, ~~the~~however ~~roll~~adoption ~~forward~~did ~~activity~~not inhave ~~Level~~a 3material ~~fair~~impact ~~value~~on ~~measurements.~~its ~~The~~consolidated ~~Company~~results ~~has~~of operations or financial condition as the updated ~~its~~guidance only affects disclosures related to ~~comply~~business combinations ~~with~~entered ~~the~~into ~~updated~~on ~~guidance;~~or ~~however~~after January 1, ~~adoption~~2011, ofand the ~~updated~~ ~~guidance~~Company did not ~~have~~enter aninto ~~impact~~any onbusiness ~~the~~combinations ~~Company’s~~during ~~consolidated~~the ~~results~~three ofmonths ~~operations~~ended orMarch 31, ~~financial condition~~2011.

In April 2010, the FASB updated its guidance related to the milestone method of revenue recognition. The update provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance became effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. The Company has not yet adopted the updated guidance and does not expect adoption to have a material impact on the Company’s consolidated results of operations or financial condition.

3. Business Combinations

Opulan Technologies Corporation

On August 31, 2010, the Company acquired 100% of the outstanding shares of Opulan Technologies Corporation (“Opulan”), a privately held Shanghai, China-based fabless semiconductor company that designs and sells broadband access integrated circuits (“ICs”). As a result of this acquisition, the Company ~~expects~~has toenhanced ~~enhance~~ its technology portfolio to include Opulan’s Passive Optical Networking (“PON”) and broadband multiplexing (“MUX”) solutions to ~~expand~~enable ~~the Company’s~~ platform solutions for its networking customers and further expand its research and ~~development~~ development capabilities in Asia.

~~Opulan’s~~As ~~results~~part of ~~operations~~the ~~and~~consideration ~~estimated~~transferred ~~fair~~at ~~value~~the time of ~~assets~~the ~~acquired~~acquisition ~~and~~of Opulan, the Company may be ~~liabilities~~required ~~assumed~~to ~~were~~pay ~~included~~up to $24,417,000 in cash to the ~~Company’s~~former ~~consolidated~~shareholders ~~financial~~of ~~statements~~Opulan ~~beginning~~as earnout consideration based upon the achievement of specified revenue and employee retention targets over the twelve month period from September 1, 2010 through August 31, ~~2010~~2011. The fair value of the contingent consideration was determined using a probability weighted-average analysis based on specific revenue and ~~operating~~employee ~~results~~retention ~~contributed~~projections byat ~~Opulan~~the ~~during~~time of the ~~three~~acquisition ~~months~~in ~~ended~~August ~~September 30,~~ 2010. ~~were~~As ~~not~~of ~~material.~~the ~~Acquisition~~acquisition ~~costs~~date, ~~related~~the toCompany determined that the ~~merger~~fair value of ~~Opulan~~the contingent consideration was $10,011,000. However, as of March 31, 2011 the Company determined that the fair value of the contingent consideration was $~~659~~2,231,000 and therefore, the Company reduced its expected contingent obligation by $~~883~~7,780,000. ~~were~~The ~~expensed~~Company aswill ~~incurred~~continue into assess the ~~Condensed~~probability ~~Consolidated~~of ~~Statement~~achievement of ~~Operations~~the inperformance ~~the~~targets ~~three~~at ~~and~~the ~~nine~~end ~~months~~of ~~ended~~each ~~September 30~~reporting period, ~~2010~~which may further impact the fair value of the contingent consideration. Consistent with the accounting for contingent consideration in a business combination, ~~respectively~~the change in the fair value is reflected in the Company’s statement of operations.

Acquisition consideration

Under the terms of the merger agreement, the Company paid an aggregate of $71,739,000 in cash ($70,627,000 net of cash acquired). Of the consideration payable to Opulan, $7,196,000 has been placed into escrow pursuant to the terms of the merger agreement. Additionally, the Company may be required to pay up to $24,417,000 in cash to the former shareholders of Opulan as earn-out consideration based upon the achievement of specified revenue and employee retention targets over the twelve month period from September 1, 2010 through August 31, 2011. The fair value of the earn-out consideration at the acquisition date and September 30, 2010 was $10,011,000. The Company will assess the probability of achievement of the performance targets at the end of each reporting period, which may impact the fair value of the contingent consideration.

~~ATHEROS~~The ~~COMMUNICATIONS~~results of operations of Opulan have been included in the Company’s consolidated statements of operations since the completion of the Opulan acquisition on August 31, ~~INC~~2010. For the three months ended March 31, 2010 the following table reflects the unaudited pro forma consolidated results of operations had the Opulan acquisition taken place at the beginning of 2010 (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	March 31, 2010
Net revenue	$	218,306
Net income	$	15,584

~~(Unaudited)~~These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Opulan to reflect the additional cost of goods sold and amortization that would have been charged assuming the fair value adjustments to inventory and intangible assets had been applied from January 1, 2010, together with the consequential tax effects.

Recognized amounts of identifiable assets acquired and liabilities assumed

The Company accounted for the transaction using the acquisition method, and accordingly, the consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. The Company’s allocation of the total purchase price is summarized below (in thousands):

Acquisition Consideration Allocation
Net tangible assets acquired	$	2,920
Deferred tax liabilities		(9,119	)
Amortizable intangible assets:
Developed technology		18,761
Customer relationships		18,469
Trade name		175
In–process research and development		17,495
Goodwill		33,084
Total acquisition consideration allocation	$	81,785

Identifiable intangible assets

Fair values for developed technology, customer relationships, trade name and in-process research and development (“IPR&D”) were determined based on the income approach and multi-period excess earnings method. The following table presents certain information on the acquired identifiable intangible assets:

Intangible Assets	DiscountRateUsed			EstimatedUsefulLives
Developed technology		37.4	%		3 years
Customer relationships		38.6	%		4 years
Trade name		37.0	%		1 years
In–process research and development		38.5	%		—

The fair value of the acquired IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The amounts allocated to IPR&D will not be expensed until completion of the related projects, as it was determined that the underlying projects had not reached technological feasibility at the date of acquisition. The amounts allocated to IPR&D represent the Company’s in-process PON and MUX projects. Upon completion of development for each project, the acquired IPR&D will be amortized over its useful life.

Goodwill

Goodwill represents the excess of the estimated acquisition consideration over the fair value of the underlying net tangible and intangible assets. The Company’s primary reasons for the Opulan acquisition were to accelerate its entrance into the PON and MUX markets, to reduce the time to develop new technologies and to provide more complete home networking solutions by offering a wireless networking, Ethernet and powerline combined platform for its customers. The acquisition also enhanced the Company’s engineering resources through the addition of Opulan’s research and development team. These significant factors were the basis for the recognition of goodwill. The goodwill is not expected to be deductible for tax purposes.

Intellon Corporation

On December 15, 2009, the Company acquired 100% of the outstanding shares of Intellon Corporation (“Intellon”), a publicly-traded Orlando, Florida-based fabless semiconductor company that designs and sells ICs for high-speed communications over existing electrical wiring. As a result of this acquisition, the Company has enhanced its technology portfolio to include Intellon’s Powerline Communications (“PLC”) solutions for home networking, home entertainment, broadband-over-powerline access, Ethernet-over-Coax and smart grid management applications. The results of operations of Intellon have been included in the Company’s consolidated statements of operations since the completion of the Intellon acquisition on December 15, 2009.

Pro forma financial information

The results of operations of Intellon and Opulan have been included in the Company’s consolidated statements of operations since the completion of the Intellon acquisition on December 15, 2009 and the completion of the Opulan acquisition on August 31, 2010, respectively. For the three and nine months ended September 30, 2009 the following table reflects the unaudited pro forma

ATHEROS COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

consolidated results of operations had the Intellon and Opulan acquisitions taken place at the beginning of 2009, and for the three and nine months ended September 30, 2010 the following table reflects the unaudited pro forma consolidated results of operations had the Opulan acquisition had taken place at the beginning of 2010 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net revenue	$	248,098	$	178,729	$	708,568	$	414,553
Net income (loss)	$	23,827	$	31,586	$	67,075	$	(8,670	)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Intellon and Opulan to reflect the additional cost of goods sold and amortization that would have been charged assuming the fair value adjustments to inventory and intangible assets had been applied from January 1, 2009, together with the consequential tax effects.

4. Financial Instruments

The following table represents the fair value hierarchy of the Company’s financial instruments ~~measured at fair value~~ as of ~~September~~March 3031, 2011 and December 31, 2010 (in thousands):

	Fair Value Measurements as of September 30, 2010
	Fair Value Measurements as of March 31, 2011
	Total		Level 1		Level 2		Level 3
Money market funds	$	4873,~~496~~918	$	4873,~~496~~918	$	—	$	—
U.S. government securities		172,615		9,030		163,585		—
U.S. government debt securities		124,282		15,138		109,144		—
Corporate bonds and notes		~~182~~253,~~107~~776		—		~~182~~253,~~107~~776		—
Commercial paper		2439,~~410~~476		—		2439,~~410~~476		—
Auction-rate securities		4,435		—		—		4,435
Auction-rate securities and other		3,177		—		—		3,177
Total	$	~~432~~494,~~063~~629	$	5789,~~526~~056	$	~~370~~402,~~102~~396	$	43,~~435~~177


	Fair Value Measurements as of December 31, 2010
	Total		Level 1		Level 2		Level 3
Money market funds	$	53,321	$	53,321	$	—	$	—
U.S. government debt securities		152,600		—		152,600		—
Corporate bonds and notes		215,136		—		215,136		—
Commercial paper		17,344		—		17,344		—
Auction-rate securities		3,335		—		—		3,335

Total	$	441,736	$	53,321	$	385,080	$	3,335

The Company’s Level 1 assets consist of financial instruments for which quoted market prices for identical instruments are available in active markets.

The Company’s Level 2 asset values were based on either the last trade of the security, broker or dealer quotes or the pricing of a similar security.

The Company’s Level 3 assets consist primarily of long-term auction-rate securities representing the Company’s interest in insurance capital notes, issued by special purpose entities sponsored by insurance companies; such securities were rated AAA and AA at the date of purchase. The investment bank that organized the auctions for these securities filed for bankruptcy during the three months ended September 30, 2008, and since such time, no auctions have occurred. The Company will not be able to liquidate any of its remaining auction-rate securities until a buyer is found for these instruments or the securities are redeemed. The Company used a discounted cash flow model to value these investments.

~~In October 2010~~Additionally, the Company ~~sold certain of these auction-rate securities. Therefore, at September 30, 2010 the Company~~ has ~~valued these recently sold securities using the sales price, which approximates fair value. For all other auction-rate securities the Company used~~ a ~~discounted~~ ~~cash flow model to value the investments. The assumptions used in preparing the discounted cash flow model include recovery rate in the event of a default~~$9, ~~liquidity risk premium~~500,000 probability of earning maximum interest rate to maturity, probability of passing an auction at some point in the future, probability of default, estimates for interest rates and timing of cash flows. The Company has determined that, for its auctioncost-~~rate~~based ~~securities, an other-than-temporary-impairment (“OTTI”) has occurred and the Company intends to sell these~~ investment ~~securities prior to any potential recovery. The Company recorded no material OTTI in the three months ended September 30~~, ~~2010. The Company recorded $370,000 of OTTI and $628,000 in realized gains on~~ the ~~sale~~cost of ~~certain~~which ~~auction~~approximates ~~rate~~fair ~~securities in the nine months ended September 30, 2010~~value. In the three and nine months ended September 30, 2009, the Company recorded OTTI charges for these securities of $874,000 and $2,011,000, respectively. To date, all OTTI losses on the Company’s long-term investments have been recorded in earnings. Additionally, the Company has $9,500,000 in cost-based investments.

~~ATHEROS~~The ~~COMMUNICATIONS~~following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the three months ended March 31, ~~INC.~~2011 and 2010 (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Auction Rate Securities Three Months Ended March 31,
	2011			2010
Beginning balance	$	3,335		$	13,523
Total gains (losses) - realized/unrealized
Included in earnings		(87	)		(370	)
Included in other comprehensive income		(71	)		(765	)
Purchases, issuances, sales and settlements
Purchases		—			—
Issuances		—			—
Sales		—			(1,489	)
Settlements		—			—
Transfers in and/or out of Level 3		—			—

Ending balance	$	3,177		$	10,899

Total losses for the period included in earnings relating to assets still held at end of period	$	(87	)	$	(370	)

(Unaudited)

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets during the three and nine month periods ended September 30, 2010 (in thousands):

	Level 3 Financial Assets
	Three Months EndedSeptember 30, 2010			Nine Months EndedSeptember 30, 2010
Beginning Balance	$	5,000		$	13,523
Total gains (losses) - realized/unrealized
Included in earnings		—			258
Included in accumulated other comprehensive income		(204	)		(1,854	)
Purchases, issuances and settlements		(361	)		(7,492	)
Transfers in and/or out of Level 3		—			—
Balance, September 30, 2010	$	4,435			4,435
Total losses for the period included in earnings relating to assets still held at September 30, 2010	$	(26	)	$	(26	)

Short-term marketable securities consist of (in thousands):

	September 30, 2010
	March 31, 2011
	AmortizedCost			GrossUnrealizedHoldingGains			GrossUnrealizedHoldingLosses			Fair Value
Money market funds	$	4873,~~496~~918		$	—		$	—		$	4873,~~496~~918
U.S. government securities		172,431			194			(10	)		172,615
U.S. government debt securities		124,274			68			(60	)		124,282
Corporate bonds and notes		~~181~~253,~~692~~499			~~542~~460			(~~127~~183	)		~~182~~253,~~107~~776
Commercial paper		2439,~~409~~471			15			—			2439,~~410~~476
Total		~~427~~491,~~028~~162			~~737~~533			(~~137~~243	)		~~427~~491,~~628~~452
Less: Amounts included in cash and cash equivalents		(6288,~~387~~412	)		—(2	)		1—			(6288,~~386~~414	)
	$	~~364~~402,~~641~~750		$	~~737~~531		$	(~~136~~243	)	$	~~365~~403,~~242~~038
	December 31, 2009
	December 31, 2010
	AmortizedCost			GrossUnrealizedHoldingGains			GrossUnrealizedHoldingLosses			Fair Value
Money market funds	$	9153,~~625~~321		$	—		$	—		$	9153,~~625~~321
U.S. government securities		139,972			456			(138	)		140,290
U.S. government debt securities		152,572			100			(72	)		152,600
Corporate bonds and notes		~~112~~214,~~972~~784			~~861~~469			(10117	)		~~113~~215,~~823~~136
Commercial paper		2117,~~992~~344			—			(2—	)		2117,~~990~~344
Total		~~366~~438,~~561~~021			~~1,317~~569			(~~150~~189	)		~~367~~438,~~728~~401
Less: Amounts included in cash and cash equivalents		(~~113~~53,~~871~~321	)		(3—	)		5—			(~~113~~53,~~869~~321	)
	$	~~252~~384,~~690~~700		$	~~1,314~~569		$	(~~145~~189	)	$	~~253~~385,~~859~~080

109

~~ATHEROS~~The ~~COMMUNICATIONS~~contractual maturities of available-for-sale debt securities at March 31, ~~INC.~~2011 are presented in the following table (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Amortized Cost		Fair Value
Due in one year or less	$	79,724	$	79,735
Due between one and two years		323,026		323,303

	$	402,750	$	403,038

(Unaudited)

The contractual maturities of available-for-sale debt securities at September 30, 2010 are presented in the following table (in thousands):

	AmortizedCost		FairValue
Due in one year or less	$	217,274	$	217,593
Due between one and two years		147,367		147,649
	$	364,641	$	365,242

5. Inventory

Inventory consists of (in thousands):

	September 30,2010		December 31,2009
	March 31,2011		December 31,2010
Finished goods	$	4945,~~181~~597	$	3747,~~164~~068
Work-in-process		2940,~~921~~526		1839,~~166~~867
Raw materials		169,~~375~~413		158,~~066~~801
Total	$	95,~~477~~536	$	7095,~~396~~736

6. Goodwill and Acquired Intangible Assets

~~The~~During ~~following~~the ~~table~~three ~~presents~~months ~~the~~ended ~~changes~~March 31, in2011, ~~the~~there ~~carrying~~were ~~amount~~no ofchanges ~~goodwill~~to ~~(in~~the ~~thousands):~~Company’s goodwill balance.

Balance at December 31, 2009	$	188,877
Additions		33,084
Balance at September 30, 2010	$	221,961

The carrying amounts of the acquired amortizable intangible assets as of March 31, 2011 are as follows (in thousands):

During the three and nine months ended September 30, 2010, goodwill increased by $33,084,000 due to the acquisition of Opulan (see Note 3).


	Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Developed technology	$	163,573	$	(64,668	)	$	98,905
Customer relationships		41,767		(10,771	)		30,996
Trade name		175		(102	)		73
IPR&D		13,669		—			13,669

Total	$	219,184	$	(75,541	)	$	143,643

The ~~carrying~~Company ~~amounts~~acquired IPR&D of $17,495,000 through its acquisition of Opulan in August 2010. The fair value of the ~~acquired~~IPR&D ~~amortizable~~was ~~intangible~~determined ~~assets~~through asestimates and valuation techniques based on the terms and details of the acquisition. The amounts allocated to IPR&D will not be expensed until completion of the related projects, as it was ~~September 30~~determined that the underlying projects had not reached technological feasibility at the date of acquisition. At the time of the acquisition, the IPR&D represented the Company’s next generation MUX and PON projects. The MUX project represents the next generation carrier access aggregation device. The next generation PON projects will provide higher throughput over fiber networks. During the fourth quarter of 2010, ~~are~~one of the related PON projects was completed and the Company began amortizing the IPR&D as ~~follows~~developed ~~(in~~technology ~~thousands):~~when technological feasibility had been established. At March 31, 2011, the remaining PON projects and the MUX project were over 90% complete and the Company expects the projects to be completed during 2011. The estimated remaining costs to complete all projects are not material.

	GrossCarryingValue		AccumulatedAmortization			NetCarryingAmount
Developed technology	$	159,747	$	(48,287	)	$	111,460
Customer relationships		41,767		(6,901	)		34,866
Covenant not-to-compete		1,327		(1,288	)		39
Trade name		175		(15	)		160
Backlog		2,428		(2,428	)		—
IPR&D		17,495		—			17,495
Total	$	222,939	$	(58,919	)	$	164,020

The Company acquired IPR&D of $17,495,000 through its acquisition of Opulan in August 2010. The fair value of the IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The amounts allocated to IPR&D will not be expensed until completion of the related projects, as it was determined that the underlying projects had not reached technological feasibility at the date of acquisition. At the time of the acquisition, the IPR&D represented the Company’s next generation MUX and PON projects. The MUX project represents the next generation carrier access aggregation device. The next generation PON projects will provide higher throughput over fiber networks. At September 30, 2010 the MUX project was approximately 91% complete with an estimated 4 months remaining until completion. At September 30, 2010, the PON projects were over 90% complete and the Company expects the projects to be completed during the fourth quarter of 2010. The estimated remaining costs to complete all projects were not material.

In addition, the Company acquired IPR&D of $7,706,000 in its acquisition of Intellon in December 2009. The fair value of the IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The related project was completed during the three months ended June 30, 2010, and the Company began amortizing the IPR&D as developed technology when technological feasibility had been established. The project represents the Company’s next-generation PLC chip which includes enhanced throughput functionality enabling faster and increased data processing.

~~ATHEROS~~Amortization ~~COMMUNICATIONS~~expense for intangible assets was $9,727,000 ~~INC~~and $9,115,000 for the three months ended March 31, 2011 and 2010, respectively. At March 31, 2011 estimated amortization expense for the remainder of fiscal 2011 and years thereafter are as follows (in thousands, excluding IPR&D from the Opulan acquisition):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Estimated Amortization Expense
2011 (remainder)	$	29,006
2012		36,453
2013		34,014
2014		25,700
2015		2,640
Thereafter		2,161

Total	$	129,974

The carrying amounts of the acquired intangible assets as of December 31, 2010 were as follows (~~Unaudited~~in thousands):

Amortization expense for intangible assets for the three and nine months ended September 30, 2010 was $8,851,000 and $26,232,000, respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2009 was $2,580,000 and $8,350,000, respectively. At September 30, 2010 estimated amortization expense for the remainder of fiscal 2010 and years thereafter are as follows (in thousands, excluding IPR&D from the Opulan acquisition):


	Gross					Net
	Carrying		Accumulated			Carrying
	Value		Amortization			Amount
Developed technology	$	163,573	$	(56,919	)	$	106,654
Customer relationships		41,767		(8,836	)		32,931
Covenant not-to-compete		1,327		(1,327	)		—
Trade name		175		(59	)		116
Backlog		2,428		(2,428	)		—
IPR&D		13,669		—			13,669

Total	$	222,939	$	(69,569	)	$	153,370

	EstimatedAmortizationExpense
2010 (remainder)	$	10,398
2011		37,391
2012		35,178
2013		33,057
2014		25,700
Thereafter		4,801
Total	$	146,525

The carrying amounts of the acquired intangible assets as of December 31, 2009 are as follows (in thousands):

	GrossCarrying Value		AccumulatedAmortization			NetCarryingAmount
Developed technology	$	133,280	$	(26,879	)	$	106,401
Customer relationships		23,298		(4,175	)		19,123
Covenant not-to-compete		1,327		(1,111	)		216
Backlog		2,428		(522	)		1,906
IPR&D		7,706		—			7,706
Total	$	168,039	$	(32,687	)	$	135,352

7. Accrued Liabilities

Accrued liabilities consist of (in thousands):

	September 30,2010		December 31,2009
	March 31,		December 31,
Accrued customer incentives	$	50,762	$	37,426
	2011		2010
Accrued compensation and benefits		29,564		24,090
Accrued customer incentives	$	48,031	$	44,365
Acquisition-related contingent consideration		10,011		—
Accrued compensation and benefits		24,872		31,774
Other liabilities		28,347		19,686
Acquisition-related contingent consideration		2,231		10,011
Total	$	118,684	$	81,202
Other liabilities		34,257		32,315
Total	$	109,391	$	118,465

8. Standby Letters of Credit

As of ~~September~~March 3031, ~~2010~~2011, the Company had standby letters of credit outstanding totaling $1,~~479~~349,000 to secure operating leases for equipment. These standby letters of credit are secured by ~~certificates~~ certificates of deposit, which are classified in the Company’s balance sheet as other assets.

9. Commitments and Contingencies

The Company is involved in various legal actions. The Company would record a charge equal to at least the minimum estimated liability for a loss contingency if information available prior to issuance of financial statements indicated that it is probable that an asset had been impaired or a liability had been incurred as of the date of the financial statements and the loss can be reasonably estimated. Actual liabilities in any such disputes or litigation may be materially different from the Company’s estimates, which could result in the need to record additional charges in future periods. ~~The~~ ~~Company has not recorded a material contingent liability or impairment of an asset due to existing litigations.~~

1211

ATHEROS COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Wi-LAN Inc. v. Acer, Inc. et al. & Wi-LAN Inc. v. Westell Technologies, Inc. et al.

On October 31, 2007, Wi-LAN Inc. filed two complaints against the Company and thirteen of its direct and indirect customers in the U.S. District Court for the Eastern District of Texas, Marshall Division. In the complaint, Wi-LAN alleges that certain of the Company’s products infringe U.S. patent numbers 5,282,222 and RE37,802. Wi-LAN seeks unspecified damages and other relief. The Company believes that it has meritorious defenses to such allegations and intends to defend these lawsuits vigorously. The Company has answered the complaints, denying all allegations and asserting affirmative defenses. The Company has also asserted counterclaims requesting declaratory judgment for non-infringement and invalidity. On December 10, 2008, in response to Wi-LAN’s threat to add U.S. Patent number 6,549,759, (“ the ‘759 Patent”), assigned to Wi-LAN, to the current lawsuits, the Company and Broadcom Corporation filed a complaint for declaratory judgment against Wi-LAN Inc. in the U.S. District Court for Northern District of California, requesting that court to declare, among other things, that the ‘759 Patent is invalid, unenforceable and that the Company does not infringe any valid claims of the ‘759 Patent. This declaratory judgment action was combined with the earlier lawsuits in the Eastern District of Texas. ~~While~~All ~~the~~claims ~~Company~~and ~~believes~~counterclaims itwere ~~has~~dismissed ~~meritorious~~with ~~defenses~~prejudice ~~against~~on ~~Wi-LAN’s claim and threat~~February 7, ~~there can be no assurance that the Company will be successful in such defense~~2011.

Wi-LAN Inc. v. Acer, Inc. et al.

On April 7, 2010, Wi-LAN Inc. also filed a complaint against the Company and 27 other defendants in the U.S. District Court for the Eastern District of Texas, Marshall Division. In the complaint, Wi-LAN Inc. alleges that certain of the Company’s products infringe U.S. Patent Number 5,515,369. ~~Wi-LAN~~All ~~Inc.~~claims ~~seeks unspecified damages~~ and ~~other~~counterclaims ~~relief. The~~were ~~Company believes~~dismissed ~~that~~with itprejudice ~~has~~on ~~meritorious defenses to such allegations and intends to defend these lawsuits vigorously. The Company has answered the complaints~~February 28, ~~denying all allegations and asserting affirmative defenses~~2011. ~~The Company has also asserted counterclaims requesting declaratory judgment for non-infringement and invalidity.~~

Atheros Communications, Inc. v. Lehman Brothers, Inc.

On January 30, 2009, the Company filed a Proof of Claim in the U.S. Bankruptcy Court for the Southern District of New York against Lehman Brothers, Inc. seeking compensatory damages incurred in connection with Lehman Brothers’ investment of the Company’s cash in auction-rate securities and resulting losses of income and liquidity, as well as punitive damages. On the same day and for related reasons, the Company filed a Customer Claim against Lehman Brothers with the federal Securities Investor Protection Corporation. There can be no assurance that the Company will obtain compensation for the Company’s claims.

PACid Group, LLC v. Apple Inc. et al.

On March 30, 2009, PACid Group, LLC (“PACid”) filed a complaint against the Company and 18 other defendants in the U.S. District Court for the Eastern District of Texas, Tyler Division. In the complaint, PACid alleges that certain of the Company’s products infringe U.S. Patent Numbers 5,963,646 and 6,049,612 which relate to generation of encryption keys and methods of protecting information files using such keys. PACid seeks unspecified damages and other relief. All claims and counterclaims were dismissed with prejudice on October 5, 2010.

Broadcom Corporation et al. v. Commonwealth Scientific and Industrial Research Organisation

On November 10, 2009, the Company and Broadcom filed a complaint for declaratory judgment against Commonwealth Scientific and Industrial Research Organisation, (“CSIRO”), in the U.S. District Court for the Eastern District of Texas, Tyler Division, requesting the court to declare, among other things, that U.S. patent number 5,487,069, (“the ‘069 Patent”), assigned to CSIRO is invalid, unenforceable and that the Company does not infringe any valid claims of the ‘069 Patent. There can be no assurance that the Company will be successful in seeking declaratory relief from CSIRO’s threat.

Lonestar Inventions, LP. V. Atheros Communications, Inc et al.

On February 4, 2010, Lonestar Inventions, LP filed a complaint against the Company in the U.S. District Court for the Eastern District of Texas, Tyler Division. In the complaint, Lonestar Inventions alleges that one of the Company’s products infringes U.S. Patent Number 5,208,725. Lonestar Inventions seeks unspecified damages and other relief. The parties have agreed to settle the claims for an amount that is immaterial to the Company’s operations and financial position. All claims and counterclaims were dismissed with prejudice on August 19, 2010.

ATHEROS COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

U.S. Ethernet Innovations, LLC v. Acer, Inc. et al.

On October 9, 2009, U.S. Ethernet Innovations, LLC filed a complaint against a number of the Company’s customers. In its infringement contentions, U.S. Ethernet alleges that the Company’s customers’ products incorporating the Company’s products infringe U.S. Patent Number 5,299,313 (“the ‘313 Patent”). On May 28, 2010, the Company filed a Motion to Intervene in the Eastern District of Texas, Tyler Division. The court granted the motion on June 1, 2010, thereby admitting the Company into the lawsuit as a party in interest. In the Company’s complaint, the Company requested the court to declare, among other things, that the ‘313 Patent is invalid, unenforceable and that the Company does not infringe any valid claims of the ‘313 Patent. The case was transferred to the Northern District of California on August 19, 2010. There can be no assurance that the Company will be successful in seeking declaratory relief.

~~Keranos,~~Broadcom ~~LLC~~Corporation et al. v. ~~Analog~~Commonwealth ~~Devices,~~Scientific ~~Inc.~~and etIndustrial ~~al.~~Research Organisation

On ~~June~~November 2310, ~~2010~~2009, ~~Keranos,~~the ~~LLC~~Company and Broadcom filed a complaint for declaratory judgment against ~~the~~Commonwealth ~~Company~~Scientific and Industrial ~~numerous~~Research ~~other~~Organisation, ~~entities~~(“CSIRO”), in the U.S. District Court for the Eastern District of Texas, ~~Marshall~~Tyler Division~~. In its infringement contentions~~, ~~Keranos~~requesting ~~alleges~~the ~~that~~court ~~certain~~to ofdeclare, ~~the~~among ~~Company’s~~other ~~products~~things, ~~infringe~~that U.S. ~~Patent~~patent ~~Numbers~~number 45,~~795~~487,~~719~~069,(“the 4‘069 Patent”),~~868,629,~~ ~~and~~assigned ~~5,042,009.~~to ~~Keranos~~CSIRO ~~seeks~~is ~~unspecified~~invalid, ~~damages~~unenforceable and ~~other~~that ~~relief. While~~ the Company ~~has~~does ~~undertaken~~not aninfringe ~~analysis~~any valid claims of the ~~patents,~~ it‘069 ~~has~~Patent. ~~not~~There ~~yet~~can ~~answered~~be no assurance that the ~~complaint~~Company will be successful in seeking declaratory relief from CSIRO’s threat.

~~Indemnifications~~MOSAID Technologies Incorporated v. Dell, Inc. et al.

~~Pursuant~~On toMarch 16, ~~its~~2011, ~~Restated~~MOSAID ~~Certificate~~Technologies ofIncorporated ~~Incorporation,~~filed ~~the~~a ~~Company~~complaint ~~has~~against ~~entered~~the ~~into~~Company ~~indemnification~~and ~~agreements~~32 ~~with~~other ~~its~~entities ~~directors~~in ~~and executive~~the ~~officers~~U.S. ~~These~~District ~~agreements~~Court ~~require~~for the ~~Company~~Eastern toDistrict ~~indemnify~~of ~~these~~Texas, ~~individuals~~Marshall toDivision. ~~the~~In ~~fullest~~its infringement ~~extent~~contentions, ~~permitted~~MOSAID ~~under~~alleges ~~Delaware~~that ~~law~~certain ~~against~~of ~~liabilities~~the ~~that~~Company’s ~~may~~products ~~arise~~infringe byU.S. ~~reason~~Patent ofNumbers ~~their~~5,131,006, ~~service~~5,151,920, to5,422,887, ~~the~~5,706,428, ~~Company~~5,563,786 and to6,992,972. ~~advance~~MOSAID ~~expenses~~seeks ~~incurred as~~unspecified adamages ~~result~~and ofother ~~any~~relief. ~~proceeding~~The ~~against~~Company believes ~~them~~that asit has meritorious defenses to ~~which~~such ~~they~~allegations ~~could~~and beit ~~indemnified~~intends to defend vigorously. ~~The~~While the Company has not ~~incurred~~yet ~~any~~answered ~~material~~the ~~costs~~complaint, init ~~connection~~has ~~with~~undertaken ~~these~~a ~~indemnification~~study ~~agreements~~of ~~through~~the ~~September 30, 2010~~patents.

~~Under~~Azure ~~the indemnification provisions of the Company’s standard software license agreements and standard terms and conditions of semiconductor sales~~Networks, ~~the~~LLC ~~Company agrees, subject to restrictions~~ and ~~after certain conditions are met to defend the customer/licensee against third~~Tri-~~party~~County ~~claims~~Excelsior ~~asserting~~Foundation ~~infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the customer/licensee~~v. ~~Through~~CSR ~~September 30,~~PLC ~~2010,~~et the Company has received a number of claims from its customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by the Company’s productsal. The Company has not incurred any material costs in connection with these indemnification claims through September 30, 2010. In addition, certain of the Company’s customers and other third parties have been involved in patent infringement litigation and in April 2009 agreed to settle certain of these claims. The Company has been asked by certain of these customers and other third parties and is likely to be asked by others to indemnify them for all or a portion of the losses they incur in connection with this litigation, including damages, legal expenses and settlement payments. At this time the Company is unable to determine if or when the Company would be required to make any payments under these indemnification obligations or the amount of such payments. However, the amounts of any such payments could be significant.

~~Operating~~On ~~Lease~~March 22, 2011, Azure Networks LLC and Tri-County Excelsior Foundation filed a complaint against the Company and eight other entities in the U.S. District Court for the Eastern District of Texas, Tyler Division. In its infringement contentions, Azure alleges that certain of the Company’s products infringe U.S. Patent Number 7,756,129. Azure seeks unspecified damages and other relief. While the Company has not yet answered the complaint, it has undertaken a study of the patent.

In12 April 2010, the Company entered into an agreement to lease office space in San Jose, California for the Company’s corporate headquarters. The lease term is from August 1, 2010 through July 31, 2017. The premises consist of approximately 185,000 rentable square feet of space. The lease has been categorized as an operating lease, and the Company expects to incur approximately $16,261,000 in rent expense over the term of the lease. The Company recorded $463,000 and $808,000 of rent expense related to the Company’s corporate headquarters during the three and nine months ended September 30, 2010. At September 30, 2010 estimated rent expense related to the Company’s corporate headquarters for the remainder of fiscal 2010 and years thereafter is as follows (in thousands):

	Estimated Rent Expense
2010 (remainder)	$	485
2011		1,939
2012		1,939
2013		2,388
2014		2,428
Thereafter		6,274
Total	$	15,453

~~ATHEROS~~Indemnifications ~~COMMUNICATIONS, INC.~~

~~NOTES~~Pursuant TOto ~~CONDENSED~~its ~~CONSOLIDATED~~Restated ~~FINANCIAL~~Certificate ~~STATEMENTS—(Continued)~~of Incorporation, the Company has entered into indemnification agreements with its directors and executive officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company has not incurred any material costs in connection with these indemnification agreements through March 31, 2011.

~~(Unaudited)~~Under the indemnification provisions of the Company’s standard software license agreements and standard terms and conditions of semiconductor sales, the Company agrees, subject to restrictions and after certain conditions are met to defend the customer/licensee against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the customer/licensee. Through March 31, 2011, the Company has received a number of claims from its customers and other third parties for indemnification under such agreements with respect to alleged infringement of third-party intellectual property rights by the Company’s products. The Company has not incurred any material costs in connection with these indemnification claims through March 31, 2011. In addition, certain of the Company’s customers and other third parties have been involved in patent infringement litigation and in April 2009 agreed to settle certain of these claims. The Company has been asked by certain of these customers and other third parties and is likely to be asked by others to indemnify them for all or a portion of the losses they incur in connection with this litigation, including damages, legal expenses and settlement payments. At this time the Company is unable to determine if or when the Company would be required to make any payments under these indemnification obligations or the amount of such payments. However, the amounts of any such payments could be significant.

10. Stock-Based Compensation

Stock-Based Compensation Plans

The Company’s 1998 Stock Incentive Plan, 2004 Stock Incentive Plan, 2009 Inducement Grant Incentive Plan and 2004 Employee Stock Purchase Plan (the “ESPP”) are described in the Annual Report.

The fair value of the Company’s stock-based awards to employees was estimated using the following weighted-average assumptions for the grants made in the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010:

Option Plan Shares	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			2010			2009
	March 31,
Estimated life (in years)		5.3			5.4			5.3			5.3
Option Plan Shares	2011			2010
Expected volatility		49.9	%		50.6	%		49.5	%		58.7	%
Estimated life (in years)		5.1			5.3
Risk-free interest rate		1.8	%		2.5	%		2.5	%		1.6	%
Expected volatility		27.9	%		47.1	%
Expected dividends		—			—			—			—
Risk-free interest rate		2.0	%		2.7	%
Weighted average grant-date fair value	$	12.24		$	12.45		$	15.56		$	8.45
Expected dividends		—			—
ESPP Plan Shares	Three Months Ended September 30,						Nine Months EndedSeptember 30,
Weighted average grant-date fair value	$	12.70		$	15.64
	2010			2009			2010			2009
Estimated life (in years)		0.5			0.5			0.5			0.5
Expected volatility		46.4	%		56.9	%		46.4	%		56.9	%
Risk-free interest rate		0.2	%		0.3	%		0.2	%		0.3	%
Expected dividends		—			—			—			—
Weighted average grant-date fair value	$	7.49		$	5.62		$	7.49		$	5.62

During the three months ended March 31, 2011 and 2010 there were no purchases under the ESPP.

Stock-based Compensation Expense

The following table shows total stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the ~~three and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 (in thousands):

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	Three Months Ended
	2010		2009		2010		2009
	March 31,
Cost of sales	$	308	$	178	$	839	$	537
	2011		2010
Research and development		7,279		5,040		21,164		14,804
Cost of sales	$	333		216
Sales and marketing		4,701		3,206		13,386		9,440
Research and development		8,071		6,599
General and administrative		2,668		1,981		7,323		5,515
Sales and marketing		6,116		4,067
	$	14,956	$	10,405	$	42,712	$	30,296
General and administrative		3,151		2,148
	$	17,671	$	13,030

Management has estimated expected forfeitures and is recognizing compensation costs only for the stock-based awards expected to vest.

At13 September 30, 2010, the total compensation cost related to unvested stock-based awards granted to employees under the Company’s stock incentive plans but not yet recognized was approximately $109,316,000, net of estimated forfeitures. This cost will be amortized on a graded vesting basis for awards granted prior to January 1, 2006, and on a straight-line basis for awards granted after December 31, 2005, except for performance-based awards which are amortized on a graded vesting basis, over a weighted-average period of approximately 2.7 years and will be adjusted for subsequent changes in estimated forfeitures or achievability of established milestones. Future option grants will increase the amount of compensation expense to be recorded in these periods.

~~ATHEROS~~At ~~COMMUNICATIONS~~March 31, ~~INC~~2011, the total compensation cost related to unvested stock-based awards granted to employees under the Company’s stock incentive plans but not yet recognized was approximately $178,543,000, net of estimated forfeitures. This cost will be amortized on a straight-line basis, except for performance-based awards which are amortized on a graded vesting basis, over a weighted-average period of approximately 2.7 years and will be adjusted for subsequent changes in estimated forfeitures or achievability of established milestones. Future option and restricted stock unit (“RSU”) grants will increase the amount of compensation expense to be recorded in these periods.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Stock Options and Restricted Stock Units Activity

The following is a summary of option activity for the Company’s stock incentive plans for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 (in thousands, except per share amounts):

	Number ofShares			WeightedAverageExercisePrice		Weighted Average Remaining ContractualLife (Years)		AggregateIntrinsicValue
	Numberof Shares			WeightedAverageExercisePrice		WeightedAverageRemainingContractualLife (Years)		AggregateIntrinsicValue
Outstanding at January 1, 2010		8,841		$	18.39
Outstanding at January 1, 2011		7,526		$	22.56
Granted		~~1,486~~20			3344.1638
Exercised		(~~2,429~~962	)		1520.3379
Forfeitures and cancellations		(~~277~~29	)		3025.3007
Outstanding at September 30, 2010		7,621		$	21.81		5.93	$	50,283
Outstanding at March 31, 2011		6,555		$	22.87		5.88	$	142,821
Exercisable at September 30, 2010		4,580		$	18.06		4.84	$	42,310
Exercisable at March 31, 2011		3,922		$	19.11		4.75	$	100,209

As of ~~September~~March 3031, ~~2010~~2011, 76,~~150~~182,000 shares are vested and expected to vest. These shares had a weighted average exercise price of $2122.3342, a weighted average remaining contractual life of 5.7975 years and an aggregate intrinsic value of $49137,~~327~~457,000.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the 56,~~774~~545,000 options that were in-the-money at ~~September~~March 3031, ~~2010~~2011. During the three ~~and nine~~ months ended ~~September~~March 3031, 2011 and 2010, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $522,~~636~~849,000 and $4827,~~683~~457,000, respectively, determined as of the date of option exercise. ~~During the three and nine months ended September 30, 2009, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $7,235,000 and $9,614,000, respectively.~~ As of ~~September~~March 3031, ~~2010~~2011, the Company had 3,~~033~~835,000 authorized shares available for future issuance under all of its stock incentive plans.

The following table summarizes the Company’s ~~restricted~~RSU ~~stock unit~~ activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 (in thousands, except per share amounts):

	Numberof Shares			WeightedAverageGrant DateFair Value
Nonvested stock at January 1, 2010		3,172		$	24.55
Nonvested stock at January 1, 2011		3,275		$	26.61
Granted		12,~~312~~300			3444.0370
Vested		(~~1,064~~464	)		3044.4166
Forfeited		(~~145~~34	)		2432.1124
Nonvested stock at September 30, 2010		3,275		$	26.46
Nonvested stock at March 31, 2011		5,077		$	33.12

The Company has granted restricted stock units whereby vesting is contingent upon the Company’s achievement of certain financial targets and service requirements.

The intrinsic value of restricted stock units vested was $1020,~~614~~719,000 and $615,~~027~~392,000 in the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. The ~~intrinsic value of restricted stock units vested was $32,897,000 and $11,306,000 in the nine months ended September 30, 2010 and 2009, respectively. The~~ total intrinsic value of all outstanding restricted stock units was $86226,~~292~~752,000 and $77142,~~196~~788,000 as of ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively.

~~11.~~14 ~~Income Taxes~~

As of December 31, 2009, the Company had approximately $42,193,000 of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. The Company has elected to include interest and penalties as a component of tax expense. The Company recorded an increase of its unrecognized tax benefits of $2,336,000 and $3,183,000 for the three and nine months ended September 30, 2010, respectively. During the quarter ended September 30, 2010, the Company reclassified approximately $4,469,000 of non-current income tax payable to non-current deferred income tax liability upon expiration of certain tax statutes. The amounts relate to US taxes previously provided by the Company on its non-US income, such income is not expected to be repatriated in the current year.

The Company recorded a tax provision of $2,439,000 and $6,830,000 for the three and nine months ended September 30, 2010, respectively. In August 2009, the Company settled a foreign tax liability related to a prior acquisition, resulting in a one-time benefit of $21,706,000. The Company’s estimated 2010 effective tax rate differs from the U.S. statutory rate primarily due to profits

earned in jurisdictions where the tax rate is lower than the U.S. tax rate, the benefit of state research and development income tax credits and certain discrete benefits received from transactions related to employee stock incentive and stock purchase plans.

~~ATHEROS~~11. ~~COMMUNICATIONS,~~Income ~~INC.~~Taxes

~~NOTES~~As TOof ~~CONDENSED~~December 31, ~~CONSOLIDATED~~2010, ~~FINANCIAL~~the ~~STATEMENTS—(Continued)~~Company had approximately $44,228,000 of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. The Company has elected to include interest and penalties as a component of tax expense. The Company recorded an increase of its unrecognized tax benefits of $510,000 for the three months ended March 31, 2011. Within the next twelve months, the Company could recognize approximately $16,500,000 of existing unrecognized tax benefits as a result of the lapse of statutes of limitation, the impact of which is not expected to be material to the Company’s results of operations.

~~(Unaudited)~~The Company recorded a tax provision of $861,000 for the three months ended March 31, 2011. The Company’s estimated 2011 effective tax rate differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate and the benefit of the federal research and development income tax credit.

The Internal Revenue Service (“IRS”) has concluded its audit of the Company’s federal income tax return for the year ended December 31, 2006. The audit resulted in no change to the Company’s Condensed Consolidated Financial Statements.

12. Net Income Per Share

Net income per share is calculated as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended
	2010		2009		2010		2009
	March 31,
Numerator:
	2011		2010
Net income	$	28,116	$	38,576	$	77,590	$	30,774
Numerator:
Denominator:
Net income	$	21,054	$	19,739
Weighted average basic shares outstanding		71,158		62,111		70,117		61,485
Denominator:
Effect of dilutive securities		1,579		2,104		2,383		1,677
Weighted average basic shares outstanding		73,249		68,791
Weighted average diluted shares outstanding		72,737		64,215		72,500		63,162
Effect of dilutive securities		2,783		3,022
Basic net income per share	$	0.40	$	0.62	$	1.11	$	0.50
Weighted average diluted shares outstanding		76,032		71,813
Diluted net income per share	$	0.39	$	0.60	$	1.07	$	0.49
Basic net income per share	$	0.29	$	0.29
Diluted net income per share	$	0.28	$	0.27

The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be antidilutive to net income per share amounts. The common stock equivalents related to options to purchase 3683,~~707,~~000 and 31,~~203~~092,000 shares of the Company’s common stock were excluded from the net income per share calculation in the three months ended ~~September~~March 3031, ~~2010~~2011 and 2009, respectively, as their effect would have been antidilutive. The common stock equivalents related to options to purchase 1,844,000 and 3,694,000 shares of the Company’s common stock were excluded from the net income per share calculation in the nine months ended September 30, 2010 ~~and 2009~~, respectively, as their effect would have been antidilutive.

13. Comprehensive Income

The components of comprehensive income are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended
	2010			2009			2010			2009
	March 31,
Net income	$	28,116		$	38,576		$	77,590		$	30,774
	2011			2010
Other comprehensive income:
Net income	$	21,054		$	19,739
Unrealized gain (loss) on investments, net of tax		587			60			(1,505	)		1,536
Other comprehensive income:
Total comprehensive income	$	28,703		$	38,636		$	76,085		$	32,310
Unrealized loss on investments, net of tax		(90	)		(1,082	)
Total comprehensive income	$	20,964		$	18,657

14. Segment Information, Operations by Geographic Area and Significant Customers

The Company ~~currently~~has ~~operates in~~ one ~~reportable~~operating segment, the design and marketing of semiconductors for the communications industry. The Company’s Chief Operating Decision Maker is the Chief Executive Officer.

~~Information~~15 ~~regarding net revenue by target market is as follows (in thousands):~~

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2010		2009		2010		2009
Networking	$	124,787	$	60,061	$	364,450	$	154,770
Personal Computers		57,702		63,012		199,990		133,943
Consumer		64,597		33,568		135,570		68,077
Net revenue	$	247,086	$	156,641	$	700,010	$	356,790

~~ATHEROS~~Information ~~COMMUNICATIONS,~~regarding ~~INC.~~net revenue by target market is as follows (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Three Months Ended March 31,
	2011		2010
Networking	$	124,234	$	110,306
Consumer		81,612		29,465
Computing		39,503		74,934

Net revenue	$	245,349	$	214,705

(Unaudited)

Geographic Information

Net revenue consists of sales to customers in the following countries:

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2010			2009			2010			2009
	2011			2010
Taiwan		31	%		36	%		29	%		36	%
China		27	%		25	%
China		25			22			27			22
Hong Kong		25			15
Hong Kong		17			12			16			13
Taiwan		24			30
Japan		11			1611			11			15
United States		21			35			3			2
Other		1412			1114			14			12
Total		100	%		100	%		~~100~~	%		~~100~~	%

Significant Customers

~~Customer A accounted for 17% and 15% of the Company’s net revenue during the three and nine months ended September 30, 2010, respectively.~~ During the three months ended ~~September~~March 3031, ~~2009~~2011, Customer A and Customer B accounted for 1816% and 1410% of the Company’s net revenue, respectively. During the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010, Customer A ~~and Customer B~~ accounted for 1813% ~~and 12%~~ of the Company’s net revenue~~, respectively~~. The Company has major concentrations of sales to a relatively small number of original design ~~manufacturer~~manufacturers ~~customers~~ which sell to a diversified base of end customers.

Customer A accounted for 2225% and 1523% of the Company’s accounts receivable balance as of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~ 2010, respectively.

1815. Merger Agreement with QUALCOMM Incorporated

On January 5, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, QUALCOMM Incorporated, a Delaware corporation (“QUALCOMM”) and T Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of QUALCOMM (“Sub”) pursuant to which Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of QUALCOMM (the “Merger”).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) each share of the Company’s common stock, $0.0005 par value per share, issued and outstanding immediately prior to the Effective Time (other than (i) shares owned by QUALCOMM, Sub or the Company and (ii) shares in respect of which appraisal rights have been properly exercised) will be canceled and will be automatically converted into the right to receive $45.00 in cash, without interest. In connection with the Merger, each outstanding option to purchase the Company’s common stock will be automatically converted into an option to purchase QUALCOMM common stock, par value $0.0001 per share, at a conversion ratio equal to a fraction having a numerator equal to $45.00 and having a denominator equal to the average closing price of QUALCOMM’s common stock as reported on the NASDAQ for the 20 trading days immediately preceding the Effective Time (the “Exchange Ratio”). In addition, each outstanding restricted stock unit award for the Company’s common stock will be automatically converted into a restricted stock unit award for QUALCOMM common stock at a conversion rate equal to the Exchange Ratio.

The Company and QUALCOMM have made customary representations and warranties in the Merger Agreement. Completion of the Merger is subject to customary closing conditions, including, but not limited to, (i) the receipt of certain foreign regulatory approvals, (ii) the absence of any order or injunction prohibiting the consummation of the Merger and (iii) truth and correctness of each party’s representations and warranties at closing. Each party is permitted to terminate the Merger Agreement under certain circumstances as set forth in the Merger Agreement.

At the special meeting of stockholders, held on March 18, 2011, the Company’s stockholders approved the Merger. However, the merger remains subject to customary closing conditions, including but not limited to the receipt of foreign regulatory approvals.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this quarterly report. This report on Form 10-Q contains forward-looking statements, including, but not limited to, statements about ~~the expected benefits of~~ our ~~acquisition~~anticipated ofmerger ~~Opulan Technologies~~with ~~Corporation~~QUALCOMM, ~~or Opulan, statements about~~ our strategic opportunities, the ~~expected decrease in our revenues in the fourth quarter of 2010, the~~ general conditions in the semiconductor industry, our expectations regarding the benefits and features of our products, our competitive position, the markets for our products, our average selling prices, our customer base and concentration, our revenue and sources of revenue, our sales and revenue to customers in Asia, sales by original design manufacturers through to original equipment manufacturers outside Asia, anticipated impact of the natural disaster in Japan, estimated customer incentives, our estimated expenses, amortization of acquired intangible assets, cost of goods sold, projected completion of our ~~and~~ passive optical networking, or PON, and broadband multiplexing, or MUX, products, acquisition-related charges, our effective tax rate, our anticipated cash needs, our anticipated capital expenditures and capital requirements, the adequacy of our capital resources, our needs for additional financing, the estimated market risk of our investments and foreign currency exchange risk, our auction-rate securities, our legal proceedings and our disclosure controls and procedures. These statements may be identified by such terms as “anticipate,” “will,” “expect,” “may,” “might,” “intend,” “could,” “can,” or the negative of those terms or similar expressions intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to complete the proposed merger with QUALCOMM, the factors affecting our quarterly results, our ability to manage our growth, successful integration of recent acquisitions, our ability to sustain or increase profitability, demand for our chipsets, our reliance on third party foundries, the effect of declines in average selling prices for our products, our ability to compete in new and existing markets, acceptance of our new products, general economic conditions, and other risks discussed in Part II, Item 1, Legal Proceedings and 1A, Risk Factors, in this report. These forward-looking statements represent our estimates and assumptions only as of the date of this report. Unless required by law, we undertake no responsibility to update these forward-looking statements.

Overview

We are a global leader in innovative technologies for wireless and wired communications products that are used by a broad base of customers, including manufacturers of ~~personal~~networking ~~computers~~equipment, ~~or PCs,~~computing ~~networking~~devices ~~equipment~~ and consumer electronics devices. We combine our wireless and wired systems and software expertise with our high-performance radio frequency, ~~or RF,~~ mixed signal and digital semiconductor design skills to provide highly integrated chipsets that are manufactured on low-cost, standard complementary metal-oxide semiconductor, or CMOS, processes. Our ability to design radios using standard CMOS processes provides us with increased manufacturing flexibility and, we believe, a competitive advantage. Our product portfolio includes solutions for Wireless Local Area Network, or WLAN, Mobile WLAN, Ethernet, Bluetooth, Global Positioning System, or GPS, ~~and~~ Powerline Communications, or PLC, PON and MUX.

19An element of our business strategy involves the acquisition of businesses, assets, products or technologies that allow us to reduce the time required to develop new technologies and products and bring them to market, incorporate enhanced functionality into and complement our existing product offerings, augment our engineering workforce, and enhance our technological capabilities. We plan to evaluate additional strategic opportunities as they arise, including acquisitions and other business combination transactions, strategic partnerships and the purchase or sale of assets. The accompanying condensed consolidated financial statements include the results of operations of the acquired companies commencing on their respective acquisition dates.

On August 31, 2010, we acquired 100% of the outstanding shares of Opulan Technologies Corporation, or Opulan, a privately held Shanghai, China-based fabless semiconductor company that designs and sells integrated circuits for broadband access solutions. As a result of this acquisition, we have enhanced our technology portfolio by adding Opulan’s PON and MUX solutions while expanding our research and development capabilities in Asia. Opulan’s results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning August 31, 2010. The accompanying condensed consolidated financial statements include the results of operations of Opulan commencing on its acquisition date. See Note 3 of Notes to Condensed Consolidated Financial Statements for information related to the Opulan acquisition.

On January 5, 2011, we entered into an Agreement and Plan of Merger, or the Merger Agreement, by and among us, QUALCOMM Incorporated, a Delaware corporation, or QUALCOMM, and T Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of QUALCOMM, or Sub, pursuant to which Sub will merge with and into Atheros, with Atheros continuing as the surviving corporation and a wholly owned subsidiary of QUALCOMM. At the Effective Time of the Merger each share of our common stock, $0.0005 par value per share, issued and outstanding immediately prior to the Effective Time will be automatically converted into the right to receive $45.00 in cash, without interest. See Note 15 of Notes to Condensed Consolidated Financial Statements for information related to this acquisition. At the special meeting of stockholders, held on March 18, 2011, our stockholders approved the Merger. However, the Merger remains subject to customary closing conditions, including but not limited to the receipt of foreign regulatory approvals.

AnThe ~~element~~semiconductor industry in which we operate is highly cyclical and has, from time to time, experienced significant downturns, often connected with, or in anticipation of, ~~our~~maturing product cycles of both semiconductor companies’ and their customers’ products and declines in general economic conditions. The industry ~~business~~experienced ~~strategy~~a ~~involves~~significant downturn during the ~~acquisition~~recent ofglobal ~~businesses~~recession. These downturns are frequently characterized by decreases in product demand, ~~assets~~excess customer inventories, ~~products~~and oraccelerated ~~technologies~~erosion ~~that~~of ~~allow~~prices. usThese tofactors ~~reduce~~could cause substantial fluctuations in the ~~time~~revenue ~~required~~and toresults ~~develop~~of ~~new~~our ~~technologies~~operations as evidenced by the 29% and ~~products~~11% sequential decreases in our revenue during the fourth quarter of 2008 and ~~bring~~the ~~them~~first toquarter ~~market~~of 2009, ~~incorporate~~respectively. ~~enhanced~~In ~~functionality~~addition, ~~into~~during ~~and~~these downturns some ~~complement~~competitors ~~our~~may ~~existing~~become ~~product~~more ~~offerings~~aggressive in their pricing practices, ~~augment~~which would adversely impact our ~~engineering~~profitability. ~~workforce~~Any downturns in the semiconductor industry may be severe and prolonged, and ~~enhance~~any failure of the industry or communications markets to fully recover from downturns could negatively impact the revenue, business, financial condition and our ~~technological~~results ~~capabilities~~of operations. WeThe ~~plan~~semiconductor industry also periodically experiences increased demand and production capacity constraints, which have and may affect our ability to ~~continue~~ship sufficient products to ~~evaluate~~meet ~~strategic~~our ~~opportunities~~customers’ aspurchase ~~they~~requests. ~~arise~~In addition, ~~including~~because ~~acquisitions~~many of our suppliers are located in regions where weather and ~~other~~earthquake-related ~~business~~risks ~~combination transactions~~are significant, ~~strategic~~natural ~~partnerships~~disasters, such ~~and~~as the ~~purchase~~recent orearthquake ~~sale~~in Japan, could negatively affect our ability to deliver finished goods to our customers. Accordingly, our operating results may vary significantly as a result of ~~assets~~the general conditions in the semiconductor industry, which could cause large fluctuations in our stock price. ~~The~~Although ~~accompanying~~we ~~consolidated~~experienced ~~financial~~sequential ~~statements~~revenue ~~include~~growth during each of the ~~results~~six preceding quarters ended September 30, 2010 and in the first quarter of ~~operations~~2011, revenue in the fourth quarter of 2010 decreased as compared to the ~~acquired~~third ~~companies~~quarter ~~commencing~~of on2010 ~~their~~and ~~respective~~we ~~acquisition~~may ~~dates~~experience future revenue declines.

~~On August~~Revenue. ~~31,~~Our ~~2010,~~revenue weis ~~acquired~~derived ~~100%~~primarily offrom the ~~outstanding~~sale ~~shares~~ of ~~Opulan,~~wired aand ~~privately~~wireless ~~held~~communication ~~Shanghai,~~chipsets. ~~China-based~~Our ~~fabless~~sales have ~~semiconductor~~historically ~~company~~been ~~that~~made ~~designs~~on ~~and~~the ~~sells~~basis ~~integrated~~of ~~circuits~~purchase orders rather than long-term agreements. Original equipment manufacturers, or ~~ICs~~OEMs, ~~for~~utilize ~~broadband~~our ~~access~~chipsets in developing their wireless and wired system solutions. Assuch aas ~~result~~access ofpoints, ~~this~~routers, switches, ~~acquisition~~personal computers, wehandsets, ~~have~~e-book ~~enhanced~~readers, ~~our~~hand-held ~~technology~~and ~~portfolio~~console tovideo ~~include~~game ~~Opulan’s~~devices, ~~PON~~televisions, set-top boxes, powerline adapters and ~~MUX~~personal navigation devices, ~~solutions~~or PNDs. InSome ~~addition,~~OEMs wepurchase chipsets directly from us and manufacture ~~expanded~~their ~~our~~products. ~~research~~Other OEMs utilize original design manufacturers, or ODMs, to design and ~~development~~build ~~capabilities~~subsystem inproducts ~~Asia.~~that ~~Opulan~~the OEM then purchases from the ODM and incorporates into the OEM’s ~~results~~system ofsolution. ~~operations~~Accordingly, ~~and~~we ~~estimated~~ship ~~fair~~our ~~value~~products either directly to the OEM or to the ODM based on the requirements of ~~assets~~each ~~acquired~~OEM. Purchase orders are received from an OEM or an ODM and ~~liabilities~~we ~~assumed~~generally ~~were~~recognize ~~included~~revenue inbased ~~our~~on ~~condensed~~the ~~consolidated~~shipment ~~financial~~of ~~statements~~chipsets ~~beginning~~to this customer. A single ODM usually provides our ~~August 31,~~chipsets ~~2010~~to numerous OEMs. ~~The~~However, ~~revenue~~we ~~and~~attempt ~~operating~~to ~~results~~maintain ~~contributed~~a byclose ~~Opulan~~relationship ~~during~~with the ~~three~~target ~~months~~OEM ~~ended~~to ~~September 30~~monitor end-market demand. Due to the use of ODMs, ~~2010~~our ~~were~~direct ~~not~~customer ~~material~~base is relatively concentrated, although we believe that the number of total OEMs who purchase our chipsets through ODMs is broader. We anticipate that we may continue to experience changes in our ODM customer base as our end customers change ODMs for a variety of reasons while still using our chipsets.

OnWe ~~December 15,~~provide ~~2009,~~customer weincentives ~~acquired~~to ~~100%~~some of ~~the~~our ~~outstanding~~direct ~~shares~~and ofindirect ~~Intellon~~customers. ~~Corporation,~~These orobligations ~~Intellon,~~are estimated and recorded as a ~~publicly-traded~~reduction of ~~Orlando,~~revenue ~~Florida-based~~when ~~fabless~~we ~~semiconductor~~ship ~~company~~product ~~that~~to ~~designs~~the ~~and~~customers ~~sells ICs~~based ~~for~~on ~~high-speed~~approved ~~communications~~quotes ~~over~~provided ~~existing~~to ~~electrical~~the ~~wiring~~customer. ~~Through~~Estimating ~~this~~incentive ~~acquisition,~~amounts requires that we ~~have~~make ~~enhanced~~judgments regarding the amount of committed incentives that will be submitted by our ~~technology~~customers ~~portfolio~~and paid by us. These estimates are adjusted on a quarterly basis to ~~include~~reflect ~~Intellon’s~~actual ~~PLC~~sales ~~solutions~~data ~~for~~submitted ~~home~~by ~~networking,~~customers. ~~home~~These ~~entertainment,~~adjustments ~~broadband-over-powerline~~may ~~access, Ethernet-over-Coax~~have ~~and~~the ~~smart~~effect ~~grid~~of ~~management~~significantly ~~applications~~increasing or decreasing net revenue in particular periods.

~~The~~During semiconductor industry in which we operate is highly cyclical and has, from time to time, experienced significant downturns, often connected with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products and declines in general economic conditions. The industry experienced a significant downturn during the ~~recent~~three ~~global~~months ~~recession.~~ended ~~These downturns are frequently characterized by decreases in product demand~~March 31, ~~excess customer inventories~~2011, ~~and~~Customer ~~accelerated~~A ~~erosion of prices. These factors could cause substantial fluctuations in the revenue~~ and ~~results~~Customer ofB ~~our~~accounted ~~operations~~for ~~as evidenced by the 29~~16% and 1110% ~~sequential~~of ~~decreases in~~ our ~~revenue~~net ~~during the fourth quarter of 2008 and the first quarter of 2009~~revenue, respectively. ~~In addition, during these~~ ~~downturns~~During ~~some~~the ~~competitors~~three ~~may~~months ~~become~~ended ~~more~~March 31, ~~aggressive in their pricing practices~~2010, ~~which~~Customer ~~would~~A ~~adversely~~accounted ~~impact~~for ~~our~~13% ~~profitability. Any downturns in the semiconductor industry may be severe and prolonged, and any failure~~ of ~~the industry or communications markets to fully recover from downturns could negatively impact the revenue, business, financial condition and~~ our ~~results~~net ~~of operations~~revenue. ~~The~~We ~~semiconductor~~expect ~~industry also periodically experiences increased demand and production capacity constraints, which have and may affect our ability~~ to ~~ship~~continue ~~sufficient products~~ to meet our customers’ purchase requests. Accordingly, our operating results may vary significantly as a result of the general conditions in the semiconductor industry, which could cause large fluctuations in our stock price. Although we have ~~experienced~~major ~~sequential~~concentrations ~~revenue growth during each~~ of ~~the~~sales ~~six~~to ~~preceding~~a ~~quarters~~relatively ~~ended~~small ~~September 30,~~number ~~2010, we expect revenue in the fourth quarter~~ of ~~2010~~ODM toand ~~decrease~~OEM ~~as compared to the third quarter of 2010~~customers.

~~Revenue. Our~~Substantially ~~revenue~~all ~~is derived primarily from the sale~~ of ~~wired~~our ~~and wireless communication chipsets. Our~~ sales ~~have~~are ~~historically~~to ~~been~~customers ~~made~~outside on the ~~basis~~United ofStates ~~purchase~~and ~~orders rather than long-term agreements~~Canada. ~~Original~~Sales ~~equipment~~to ~~manufacturers,~~customers ~~or OEMs, utilize our chipsets~~ in ~~developing~~Asia ~~their~~accounted ~~wireless and~~for ~~wired~~88% ~~system solutions such as access points, routers, switches, embedded laptop clients, handsets, e-book readers, hand-held~~ and 83% ~~console~~of ~~video~~net ~~game~~revenue ~~devices,~~in ~~televisions,~~the ~~set-top~~three ~~boxes,~~months ~~powerline~~ended ~~adapters and personal navigation devices~~March 31, ~~or PNDs.~~2011 ~~Some OEMs purchase chipsets directly from us~~ and ~~manufacture their products. Other OEMs utilize original design manufacturers~~2010, ~~or ODMs, to design and build subsystem products that the OEM then purchases from the ODM and incorporates into the OEM’s system solution~~respectively. ~~Accordingly,~~Because wemany ~~ship~~of our ~~products either directly to the OEM or to the~~ ODM ~~based~~customers ~~on the requirements of each OEM. Purchase orders~~ are ~~received~~located ~~from~~in anAsia, ~~OEM or an ODM and~~ we ~~generally~~anticipate ~~recognize~~that ~~revenue~~a ~~based~~majority ~~on the shipment~~ of ~~chipsets to this customer. A single ODM usually provides~~ our ~~chipsets~~revenue towill ~~numerous~~continue ~~OEMs. However, we attempt~~ to ~~maintain~~come afrom ~~close~~sales ~~relationship with the target OEM~~ to ~~monitor~~customers ~~end-market~~in ~~demand~~that region. ~~Due~~Although toa ~~the~~large ~~use~~percentage of ~~ODMs,~~ our ~~direct~~sales ~~customer~~are ~~base~~made ~~is relatively~~to ~~concentrated,~~customers ~~although~~in Asia, we believe that ~~the~~a significant number of ~~total~~the ~~OEMs~~systems ~~who~~designed ~~purchase~~by ~~our~~these ~~chipsets~~customers ~~through~~are ~~ODMs~~then issold ~~broader.~~through ~~We anticipate that we may continue~~ to ~~experience~~OEMs ~~changes~~outside inof ~~our~~Asia. ~~ODM~~All ~~customer~~of ~~base as~~ our ~~end~~sales ~~customers~~are ~~change~~denominated ~~ODMs~~in ~~for a~~United ~~variety~~States ~~of reasons while still using our chipsets~~dollars.

WeCost ~~provide~~of ~~customer~~Goods ~~incentives~~Sold. Cost of goods sold relates primarily to ~~some~~the purchase of ~~our~~silicon ~~direct~~wafers, ~~and indirect~~costs ~~customers.~~associated ~~These~~with ~~obligations~~assembly, ~~are~~test ~~estimated~~ and ~~recorded~~inbound asand aoutbound ~~reduction~~shipping of ~~revenue~~our ~~when~~chipsets, wefluctuations ~~ship~~in ~~product~~the toprice ~~the~~of ~~customers~~raw ~~based~~materials onsuch ~~approved~~as ~~quotes~~gold ~~provided~~and tocopper used in the ~~customer.~~manufacturing ~~Estimating~~of ~~incentive~~our ~~amounts~~chips, ~~requires~~costs ~~that~~of wepersonnel, ~~make~~materials ~~judgments~~and ~~regarding~~occupancy ~~the~~associated with ~~percentage~~manufacturing ofsupport ~~committed~~and ~~incentives~~quality ~~that~~assurance, ~~will~~royalty becosts, ~~submitted~~intellectual byproperty ~~our~~licenses ~~customers~~ and ~~the~~write ~~value~~downs ofto ~~the~~state ~~incentives~~inventory at the ~~time~~lower of ~~redemption.~~cost ~~These~~or ~~estimates~~market ~~are~~caused ~~adjusted~~by onproduct aobsolescence, ~~quarterly~~transitions ~~basis~~from older to ~~reflect~~newer ~~actual~~products ~~sales~~or ~~data~~significant declines ~~submitted~~in bydemand. ~~customers~~Additionally, our cost of goods sold includes accruals for estimated warranty obligations, which we record when revenue is recognized. ~~These~~Estimated warranty obligations are adjusted each period to reflect actual warranty experience. ~~adjustments~~Because ~~may~~we do not have long-term, fixed supply agreements, our wafer, assembly and test costs are subject to changes based on the ~~effect~~cyclical ofdemand ~~significantly~~for ~~increasing~~semiconductors. orIn ~~decreasing~~addition, ~~net~~after ~~revenue~~we inpurchase ~~particular~~wafers ~~periods~~from foundries, we also typically bear the yield risk related to manufacturing these wafers into finished goods.

Customer A accounted for 17% and 15% of our net revenue during the three and nine months ended September 30, 2010, respectively. During the three months ended September 30, 2009, Customer A and Customer B accounted for 18% and 14% of our net revenue, respectively. During the nine months ended September 30, 2009, Customer A and Customer B accounted for 18% and 12% of our net revenue, respectively. We expect to continue to have major concentrations of sales to a relatively small number of ODM and direct OEM customers.

Substantially all of our sales are to customers outside the United States and Canada. Sales to customers in Asia accounted for 84% and 88% of net revenue in the nine months ended September 30, 2010 and 2009, respectively. Because many of our ODM customers are located in Asia, we anticipate that a majority of our revenue will continue to come from sales to customers in that region. Although a large percentage of our sales are made to customers in Asia, we believe that a significant number of the systems designed by these customers are then sold through to OEMs outside of Asia. All of our sales are denominated in United States dollars.

Cost of Goods Sold. Cost of goods sold relates primarily to the purchase of silicon wafers, costs associated with assembly, test and inbound and outbound shipping of our chipsets, fluctuations in the price of raw materials such as gold and copper used in the manufacturing of our chips, costs of personnel, materials and occupancy associated with manufacturing support and quality assurance, royalty costs and write downs to state inventory at the lower of cost or market caused by product obsolescence, transitions from older to newer products or significant declines in demand. Additionally, our cost of goods sold includes accruals for estimated warranty obligations, which we record when revenue is recognized. Estimated warranty obligations are adjusted each period to reflect actual warranty experience. Because we do not have long-term, fixed supply agreements, our wafer, assembly and test costs are subject to changes based on the cyclical demand for semiconductors. In addition, after we purchase wafers from foundries, we also typically bear the yield risk related to manufacturing these wafers into finished goods.

Research and Development. Research and development expense relates primarily to compensation and associated costs related to research and development employees and contractors, mask and reticle costs, prototype wafers, software and computer-aided design software licenses, intellectual property license costs, reference design development costs, development testing and evaluation costs, regulatory testing costs, testing equipment, depreciation expense and allocated occupancy costs. Research and development costs are expensed as incurred.

Sales and Marketing. Sales and marketing expense relates primarily to compensation and associated costs for marketing and sales personnel, sales commissions to independent sales representatives, public relations, promotional and other marketing expenses, expenses for travel, trade shows, depreciation and amortization and allocated occupancy costs.

General and Administrative. General and administrative expense relates primarily to compensation and associated costs for general and administrative personnel, legal and other professional fees, charges related to allowance for doubtful accounts, depreciation and amortization and allocated occupancy costs.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets relates to acquired identified intangible assets, which are amortized on a straight-line basis over the estimated economic lives of three to five years for purchased technology, two to seven years for customer relationships, ~~two to four years for covenants-not-to-compete~~ and one year for trade names.

Acquisition-Related Charges. Acquisition-related charges include expenses incurred in connection with our ~~acquisition~~merger and acquisition activities including severance costs related to employees terminated post acquisition and legal and filing fees.

Interest and Other Income, ~~and Expense~~net. Interest and other income consists of interest earned on cash and cash equivalents and investment balances and realized gains or losses from the sale of marketable securities, as well as realized gains, net of other-than temporary impairment, or OTTI, charges on our long-term investments.

~~Realized~~Change ~~Gain~~in ~~(Impairment)~~Contingent ~~of Long~~Earn-~~Term Investments,~~out ~~net~~Liability. ~~Impairment~~Change ofin ~~long-term~~contingent ~~investments relates primarily to the other~~earn-~~than-temporary,~~out ~~non-operating~~liability ~~write~~consists ~~down~~ of ~~the~~a ~~carrying~~gain ~~value~~resulting offrom remeasuring our ~~investments~~contingent inconsideration ~~auction-rate~~liability ~~securities;~~related ~~these~~to ~~auction-rate~~the ~~securities~~acquisition ~~were~~of ~~rated~~Opulan ~~AAA~~in ~~and~~August ~~AA at the date of purchase~~2010. ~~The~~As ~~liquidity~~part ~~and fair value~~ of ~~these~~our ~~securities~~acquisition ~~has been negatively impacted by the failure~~ of ~~these~~Opulan, ~~markets~~we ~~and~~may ~~the~~be ~~exposure~~required to ofpay ~~these~~cash ~~securities~~ to the ~~financial~~former ~~condition~~shareholders of ~~bond~~Opulan ~~insurance~~as ~~companies.~~earnout ~~The~~consideration ~~investment~~based ~~bank~~upon ~~that organized~~ the ~~auctions~~achievement ~~for~~of ~~these~~specified ~~securities~~revenue ~~filed~~and ~~for~~employee ~~bankruptcy~~retention ~~during~~targets over the ~~three~~twelve ~~months~~month ~~ended~~period from September 301, ~~2008,~~2010 ~~and~~through ~~since such time~~August 31, no2011. The fair ~~auctions~~value ~~have~~of ~~occurred.~~the Incontingent ~~October~~consideration ~~2010,~~was wedetermined ~~sold~~using ~~certain~~a ofprobability ~~our auction~~weighted-~~rate~~average ~~securities.~~analysis ~~Therefore,~~based ~~at September 30,~~on ~~2010~~specific werevenue ~~have~~and ~~valued~~employee ~~these~~retention ~~securities~~projections ~~using~~at the ~~sales~~time ~~price,~~of ~~which~~the ~~approximates~~acquisition ~~fair~~in ~~value~~August 2010. ~~For~~We ~~all~~will ~~other~~continue ~~auction-rate securities we used a discounted cash flow model~~ to ~~value~~assess the probability ~~investments.~~of Toachievement ~~date,~~of wethe ~~have~~performance ~~determined~~targets ~~that,~~at ~~for our~~the ~~auction-rate~~end ~~securities,~~of ~~other-than-temporary-impairment,~~each orreporting ~~OTTI~~period, ~~has~~which ~~occurred~~may ~~and~~further weimpact ~~intend~~the tofair ~~sell~~value ~~these~~of ~~investment~~the ~~securities~~contingent ~~prior~~consideration. toConsistent ~~recovery~~with ~~and~~the ~~therefore,~~accounting wefor ~~have~~contingent ~~recorded~~consideration ~~OTTI~~in ~~charges as~~ a ~~reduction to earnings. Realized gains of~~business ~~long-term~~combination, ~~investments~~the ~~represent~~change ~~gains~~in ~~from~~ the ~~sales~~fair ofvalue ~~our~~is ~~investments~~reflected in ~~auction-rate~~our ~~securities~~statement of operations.

Provision for Income Taxes. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years. U.S. income tax has not been provided on earnings of our non-U.S. subsidiaries to the extent that such earnings are considered to be indefinitely reinvested.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and the results of operations are based on our financial statements which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2009~~2010, as filed on February 1211, ~~2010~~2011 with the SEC, or the Annual Report, and there have been no material changes.

Results of Operations

The following table shows the percentage relationships of the listed items from our condensed consolidated statements of operations, as a percentage of net revenue for the periods indicated.

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			2010			2009
	March 31,
Consolidated Statements of Operations Data:
	2011			2010
Net revenue		100	%		100	%		100	%		100	%
Consolidated Statements of Operations Data:
Operating costs and expenses:
Net revenue		100	%		100	%
Cost of goods sold		50			52			51			52
Operating costs and expenses:
Research and development		20			21			20			26
Cost of goods sold		52			52
Sales and marketing		9			9			9			12
Research and development		22			20
General and administrative		5			5			4			6
Sales and marketing		11			10
Amortization of acquired intangible assets		4			1			4			2
General and administrative		4			4
Acquisition-related charges		—			1			—			—
Amortization of acquired intangible assets		4			4
Total operating costs and expenses		88			89			88			98
Acquisition-related charges		1			—
Income from operations		12			11			12			2
Total operating costs and expenses		94			90
Interest income, net		—			1			—			1
Income from operations		6			10
Realized gain (impairment) of long-term investments, net		—			(1	)		—			—
Interest and other income, net		—			—
Income tax benefit (provision)		(1	)		14			(1	)		6
Change in contingent earn-out liability		3			—
Net income		11	%		25	%		11	%		9	%
Provision for income taxes		—			(1	)
Net income		9	%		9	%

Comparison of Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010

(tables presented in thousands, except percentage amounts)

Net Revenue

	Three Months EndedSeptember 30,							Nine Months EndedSeptember 30,
	Three Months Ended
	2010		2009		%Change			2010		2009		%Change
	March 31,
Networking	$	124,787	$	60,061		108	%	$	364,450	$	154,770		135	%
	2011		2010		% Change
PC OEM		57,702		63,012		(8	)%		199,990		133,943		49	%
Networking	$	124,234	$	110,306		13	%
Consumer		6481,~~597~~612		3329,~~568~~465		92177	%		~~135,570~~		~~68,077~~		99	%
Net revenue	$	247,086	$	156,641		58	%	$	700,010	$	356,790		96	%
Computing		39,503		74,934		(47	)%
Net revenue	$	245,349	$	214,705		14	%

~~During~~The increase in revenue in our Networking channel during the ~~nine~~three months ended ~~September~~March 3031, 2011 ~~2009,~~compared with the ~~semiconductor~~three ~~industry~~months ~~experienced~~ended ~~a significant~~March 31, ~~downturn.~~2010 ~~The~~resulted ~~increased~~primarily ~~revenue~~from inincreased ~~each~~demand offor our ~~channels~~802.11n ~~during~~wireless networking products, due to the ~~nine~~further ~~months~~adoption ~~ended~~of ~~September 30,~~these ~~2010~~products ~~compared~~with toour ~~2009~~retail, ~~was~~enterprise ~~significantly~~and ~~impacted~~carrier bycustomers, ~~these~~and increased ~~unfavorable~~demand ~~industry~~for ~~conditions~~our inEthernet ~~the~~and ~~first~~PLC ~~nine~~products, ~~months~~as well as sales of ~~2009~~our PON and ~~the recovery~~MUX solutions introduced through our acquisition of ~~demand~~Opulan in August 2010. WeThese ~~expect~~increases were partially offset by decreased demand for our ~~revenue~~802.11g toand ~~decrease~~802.11ag products and a decline in ~~the~~average ~~fourth~~selling ~~quarter~~prices offor ~~2010~~our ~~compared~~802.11n ~~with~~wireless networking products during the ~~third~~three ~~quarter~~months ofended March 31, 2011 as compared with 2010.

The increase in revenue in our ~~Networking~~Consumer channel during the three months ended ~~September~~March 3031, ~~2010~~2011 compared with ~~2009~~the ~~resulted~~three ~~primarily~~months ~~from~~ended ~~increased demand for our 802.11n wireless networking products and our Ethernet solutions~~March 31, ~~resulting~~2010 resulted from ~~further~~increased ~~adoption~~shipments of ~~these products with~~ our ~~retail, carrier and enterprise customers, and sales of PLC products introduced through our acquisition of Intellon in December 2009. These increases were partially offset by decreased demand for our~~ 802.11g and 802.~~11ag products and a decline in average selling prices for our 802.~~11n wireless networking products ~~during~~in ~~the~~e-book ~~three months ended September 30~~readers, ~~2010~~mobile asphone ~~compared~~devices ~~with~~and ~~2009~~televisions.

22The decrease in revenue in our Computing channel during the three months ended March 31, 2011 compared with the three months ended March 31, 2010 resulted primarily from decreased demand for our 802.11n, 802.11g and 802.11ag wireless networking products and our Ethernet solutions. In addition, we experienced increased competition during the last six months of 2010 and the first 3 months of 2011 which adversely affected our revenue. Also, our 802.11n and Ethernet chipsets experienced decreases in average selling prices during the three months ended March 31, 2011 as compared with 2010.

~~The~~We ~~increase~~expect in revenue in ~~our Networking channel during~~ the ~~nine~~second ~~months~~quarter ~~ended~~of ~~September 30,~~2011 ~~2010~~to increase compared with ~~2009~~the ~~resulted~~first ~~primarily from increased demand for our 802.11n, 802.11ag and 802.11g wireless networking products, our Ethernet solutions, resulting~~quarter ~~from further adoption~~ of ~~these~~2011 ~~products~~based ~~with~~on ~~our~~increased ~~retail,~~product ~~carrier~~demand ~~and~~in ~~enterprise~~each ~~customers, and sales~~ of ~~PLC~~our ~~products~~channels. ~~These~~However, ~~increases~~overall ~~were~~revenue ~~partially~~and ~~offset~~anticipated bychannel aor ~~decline~~product inmix ~~average~~may ~~selling~~differ ~~prices~~from ~~for~~ our ~~802.11n~~current ~~wireless networking products during the nine months ended September 30, 2010 as compared with 2009~~expectations.

The decrease in revenue in our PC OEM channel during the three months ended September 30, 2010 compared with 2009 resulted primarily from decreased demand for our 802.11g wireless networking products and our Ethernet solutions, partially offset by increased demand for our 802.11n solutions. In addition, we experienced increased competition and the overall industry experienced a slowdown in PC-related sales during the third quarter of 2010 which adversely affected our revenue. Additionally, our 802.11g, 802.11n and Ethernet chipsets have all experienced decreases in average selling prices during the three months ended September 30, 2010 as compared with 2009.

The increase in revenue in our PC OEM channel during the nine months ended September 30, 2010 compared with 2009 resulted primarily from increased demand for our 802.11n wireless networking products and our Ethernet solutions, partially offset by decreased demand for our 802.11g solutions. Additionally, our 802.11g, 802.11n and Ethernet chipsets have all experienced decreases in average selling prices during the nine months ended September 30, 2010 as compared with 2009.

The increase in revenue in our Consumer channel during the three and nine months ended September 30, 2010 compared with 2009 resulted from increased shipments of our 802.11g and 801.11n wireless networking products in e-book readers, mobile phone devices and televisions.

Cost of Goods Sold

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
Cost of goods sold	$	124,600		$	81,047			54	%	$	355,707		$	186,072			91	%
	2011			2010			%Change
% of net revenue		50	%		52	%					51	%		52	%
Cost of goods sold	$	127,202		$	111,315			14	%
% of net revenue		52	%		52	%

Costs of goods sold as a percentage of revenue ~~decreased~~remained relatively flat during the three ~~and nine~~ months ~~ended~~ ~~September~~ended March 3031, ~~2010~~2011 compared with the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, primarily due to ~~sales~~a ofshift ~~newly introduced cost-effective products including those acquired~~ in ~~our~~product ~~acquisition~~mix oftoward ~~Intellon~~lower inmargin ~~December 2009~~products, asoffset ~~well~~by as declines in product costs related to supply chain efficiencies. We expect our cost of goods sold as a percentage of revenue to ~~increase~~decrease in the ~~fourth~~second quarter of ~~2010~~2011 compared with the ~~third~~first quarter of ~~2010~~2011.

Research and Development

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
Research and development	$	49,587		$	32,619			52	%	$	139,016		$	92,144			51	%
	2011			2010			%Change
% of net revenue		20	%		21	%					20	%		26	%
Research and development	$	53,554		$	42,970			25	%
% of net revenue		22	%		20	%

The increase in research and development expenses of $1710.06 million during the three months ended ~~September~~March 3031, ~~2010~~2011 compared with the three months ended ~~September~~March 3031, ~~2009~~2010, was primarily due to additional compensation-related costs of $98.31 million, partly attributable to a 5334% increase in the number of employees engaged in research ~~and~~ and development activities, due in part to our ~~Intellon~~Opulan acquisition in ~~December~~August ~~2009~~2010. Of the increase in compensation related costs, $21.25 million was due to an increase in stock-based compensation. Software expense increased by $1.3 million during the three months ended September 30, 2010 as compared to the same period in the prior year due to additional software amortization from an increase in licensed design tools to support our growing global engineering workforce. We anticipate that research and development expenses will increase in the ~~fourth~~second quarter of ~~2010~~2011 compared with the ~~third~~first quarter of ~~2010~~2011.

The increase in research and development expenses of $46.9 million during the nine months ended September 30, 2010 compared with the nine months ended September 30, 2009, was primarily due to additional compensation-related costs of $28.8 million, partly attributable to a 53% increase in the number of employees engaged in research and development activities, due in part to our Intellon acquisition in December 2009. Of the increase in compensation related costs, $6.4 million was due to an increase in

stock-based compensation. In addition, increased tapeout-related activity resulted in an increase of $4.2 million in expenses during the nine months ended September 30, 2010 as compared to the same period in the prior year. Software expense increased by $3.5 million during the nine months ended September 30, 2010 as compared to the same period in the prior year due to additional software amortization from an increase in licensed design tools to support our growing global engineering workforce.

Sales and Marketing

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
Sales and marketing	$	22,864		$	14,872			54	%	$	65,572		$	42,593			54	%
	2011			2010			%Change
% of net revenue		9	%		9	%					9	%		12	%
Sales and marketing	$	27,162		$	20,653			32	%
% of net revenue		11	%		10	%

The increase in sales and marketing expenses of $86.05 million during the three months ended ~~September~~March 3031, 2010 compared with the three months ended ~~September~~March 3031, ~~2009~~2010, was primarily due to additional compensation-related costs of $5.16 million, partly attributable to a 5840% increase in the number of employees engaged in sales and ~~marketing~~ marketing activities we hired to support our growth. Of the increase in compensation-related costs, $12.50 million was due to stock-based compensation. We anticipate that sales and marketing expenses will ~~decrease~~increase in the ~~fourth~~second quarter of ~~2010~~ 2011 compared with the first ~~third~~ quarter of ~~2010~~2011.

~~The~~22 increase in sales and marketing expenses of $23.0 million during the nine months ended September 30, 2010 compared with the nine months ended September 30, 2009, was primarily due to additional compensation-related costs of $15.3 million, partly attributable to a 58% increase in the number of employees engaged in sales and marketing activities we hired to support our growth. Of the increase in compensation-related costs, $3.9 million was due to stock-based compensation. In addition, travel expenses increased $2.2 million during the nine months ended September 30, 2010 compared with the nine months ended September 30, 2009 due to additional customer sales and related support activity, which was a result of an overall increase in revenue.

General and Administrative

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
General and administrative	$	10,842		$	8,178			33	%	$	31,036		$	20,980			48	%
	2011			2010			%Change
% of net revenue		5	%		5	%					4	%		6	%
General and administrative	$	11,678		$	9,508			23	%
% of net revenue		4	%		4	%

General and administrative expenses increased $2.72 million during the three months ended ~~September~~March 3031, 2010 compared with the three months ended ~~September~~March 3031, ~~2009~~2010, primarily due to ~~additional compensation-related costs, and~~ increased professional fees ~~resulting~~consisting ~~from~~primarily of increased legal fees of $1.3 Wemillion and additional compensation-related costs of $1.0 million. We expect that general and administrative expenses will ~~decrease~~increase in the ~~fourth~~second quarter of ~~2010~~2011 compared with the ~~third~~first quarter of ~~2010~~2011.

General and administrative expenses increased $10.1 million during the nine months ended September 30, 2010 compared with the nine months ended September 30, 2009, primarily due to additional compensation-related costs of $4.6 million, partially attributable to a 34% increase in the number of employees engaged in general and administrative activities. Of the increase in compensation-related expenses, $1.8 million was due to the increase in stock-based compensation. In addition, professional fees increased $2.0 million during the nine months ended September 30, 2010 compared with the nine months ended September 30, 2009 due to increased legal fees.

Amortization of Acquired Intangible Assets

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
Amortization of acquired intangible assets	$	8,851		$	2,580			243	%	$	26,232		$	8,350			214	%
	2011			2010			%Change
% of net revenue		4	%		1	%					4	%		2	%
Amortization of acquired
intangible assets	$	9,727		$	9,115			7	%
% of net revenue		4	%		4	%

24Amortization of acquired intangible assets increased by $612,000 during the three months ended March 31, 2011 compared to the three months ended March 31, 2010, primarily due to amortization of additional intangible assets acquired as a result of our Opulan acquisition in August 2010, partially offset by certain intangible assets related to prior acquisitions that became fully amortized during 2010. We amortize acquisition-related identified intangibles on a straight-line basis over their estimated economic lives of three to five years for purchased technology, two to seven years for customer relationships, and one year for trade names. We expect that amortization of our acquired intangible assets will remain flat in the second quarter of 2011 compared to the first quarter of 2011.

~~Table~~We acquired IPR&D of ~~Contents~~$17.5 million through our acquisition of Opulan in August 2010. The fair value of the IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The amounts allocated to IPR&D will not be expensed until completion of the related projects, as it was determined that the underlying projects had not reached technological feasibility at the date of acquisition. At the time of the acquisition, the IPR&D represented our next generation MUX and PON projects. The MUX project represents the next generation carrier access aggregation device. The next generation PON projects will provide higher throughput over fiber networks. During the fourth quarter of 2010, one of the related PON projects was completed and we began amortizing the IPR&D as developed technology when technological feasibility had been established. At March 31, 2011, the remaining PON projects and the MUX project were over 90% complete and we expect the projects to be completed during 2011. The estimated remaining costs to complete all projects are not material.

Amortization of acquired intangible assets increased by $6.3 million and $17.9 million during the three and nine months ended September 30, 2010, respectively, compared to the three and nine months ended September 30, 2009, due to amortization of additional intangible assets acquired as a result of our Intellon acquisition in December 2009 and to a lesser extent, the Opulan acquisition in August 2010. We amortize acquisition-related identified intangibles on a straight-line basis over their estimated economic lives of three to five years for purchased technology, two to seven years for customer relationships, two to four years for covenants-not-to-compete, and one year for trade names. We expect that amortization of our acquired intangible assets will increase in the fourth quarter of 2010 compared to the third quarter of 2010.

We acquired in-process research and development, or IPR&D, of $17.5 million through our acquisition of Opulan in August 2010. The fair value of the IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The amounts allocated to IPR&D will not be expensed until completion of the related projects, as it was determined that the underlying projects had not reached technological feasibility at the date of acquisition. At the time of the acquisition, the IPR&D represented our next generation MUX and PON projects. The MUX project represents the next generation carrier access aggregation device. The next generation PON projects will provide higher throughput over fiber networks. At September 30, 2010 the MUX project was approximately 91% complete with an estimated 4 months remaining until completion. At September 30, 2010, the PON projects were over 90% complete and we expect the projects to be completed during the fourth quarter of 2010. The estimated remaining costs to complete all projects were not material.

In addition, we acquired IPR&D of $7.7 million in our acquisition of Intellon in December 2009. The fair value of the IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. The related project was completed during the three months ended June 30, 2010, and we began amortizing the IPR&D as developed technology given technological feasibility had been established. The project represents our next-generation PLC chip which includes enhanced throughput functionality enabling faster and increased data processing.

Acquisition-Related Charges

We recognized a total of $~~797,000 and $1~~2.6 million of acquisition-related charges during the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2010,~~2011 ~~respectively,~~ in connection with our acquisitions, consisting primarily of legal costs ~~incurred~~and professional fees in connection with the pending acquisition of ~~Opulan~~Atheros inby ~~August~~QUALCOMM. We recognized a total of $466,000 of acquisition-related charges during the three months ended March 31, 2010 ~~and~~in connection with our acquisition of Intellon Corporation, or Intellon, in December 2009, ~~including~~consisting ~~legal~~primarily ~~costs~~of legal and severance costs related to employees of Intellon terminated post acquisition. We expect acquisition-related charges to ~~decrease~~increase in the ~~fourth~~second quarter of ~~2010~~2011 as compared to the ~~third~~first quarter of ~~2010~~2011 due to the expected closing of our acquisition by QUALCOMM.

~~Interest~~23 ~~Income, Net~~

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	2010			2009			%Change			2010			2009			%Change
Interest income, net	$	1,010		$	1,351			(25	)%	$	3,295		$	4,585			(28	)%
% of net revenue		—	%		1	%					—	%		1	%

During the three and nine months ended September 30, 2010, interest income decreased 25% and 28%, respectively, compared with the three and nine months ended September 30, 2009 due primarily to lower interest rates on our cash, cash equivalents, marketable securities and long-term investments. These decreases were partially offset by a 24% increase in our ending cash, cash equivalents and marketable securities balances as of September 30, 2010 compared to September 30, 2009 resulting primarily from cash flow from operations, the exercise of employee stock options and purchases of our common stock pursuant to our employee stock purchase plan, partly offset by net cash paid for the Intellon and Opulan acquisitions as well as expenditures for property and equipment

Realized Gain (Impairment) of Long-Term Investments, net

Our long-term investments include auction-rate securities and we have determined that certain of our auction-rate securities were other-than-temporarily impaired, or OTTI. We recorded no material OTTI in the three months ended September 30, 2010. We recorded $370,000 of OTTI and $628,000 in realized gains on the sale of certain auction rate securities in the nine months ended September 30, 2010. During the three and nine months ended September 30, 2009, we recorded impairment charges of $874,000 and $2.0 million, respectively, to reduce the carrying value of certain of these auction-rate securities. We intend to sell the remaining securities. See the discussion at “Liquidity and Capital Resources” in Part I Item 2, “Quantitative and Qualitative Disclosures About Market Risk” in Part II Item 3, as well as Note 4 to the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for more detailed information on our investments in auction-rate securities and this impairment charge. The estimated fair value of these securities could decrease or increase significantly in the future based on market conditions and we may be required to record additional losses for impairment if we determine there are further declines in fair value.

~~Benefit/(Provision)~~Interest ~~for~~and Other Income, ~~Taxes~~Net

	Three Months EndedSeptember 30,									Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009			%Change			2010			2009			%Change
	March 31,
Income tax benefit (provision)	$	(2,439	)	$	21,731			(111	)%	$	(6,830	)	$	22,526			(130	)%
	2011			2010			%Change
% of net revenue		(1	)%		14	%					(1	)%		6	%
Interest and other income, net	$	670		$	1,341			(50	)%
% of net revenue		—	%		—	%

~~The~~During ~~provision for income taxes for~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011, interest and ~~the benefit~~other ~~for~~ income ~~taxes~~decreased ~~for~~50% compared with the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2009 were derived using our estimated annual effective tax rate for~~ 2010 ~~and~~due ~~2009, respectively. Our estimated annual 2010 effective tax rate differs from the U.S. statutory rate~~ primarily ~~due~~ to ~~profits earned in jurisdictions where the tax rate is~~ lower ~~than~~interest ~~the~~rates ~~U.S.~~on ~~tax~~our ~~rate~~cash, ~~from~~cash ~~the~~equivalents, ~~benefit~~marketable ofsecurities ~~state~~and ~~research~~long-term ~~and~~investments. ~~development~~These ~~tax~~decreases ~~credits~~were ~~and~~partially ~~due~~offset toby ~~certain~~a ~~discrete~~25% ~~benefits~~increase ~~received~~in ~~from~~our ~~transactions~~ending ~~related~~cash, tocash ~~employee~~equivalents ~~stock incentive~~ and ~~stock~~marketable ~~purchase~~securities ~~plans~~balances ~~during~~as ~~the first nine months~~ of ~~2010.~~March 31, ~~During~~2011 ~~the~~compared ~~three~~to ~~months ended September~~March 3031, ~~2009~~2010, wedue ~~recognized~~primarily afrom ~~one-time~~cash ~~tax~~flow ~~benefit~~from ofoperations ~~$21.7~~and ~~million as a result of~~ the ~~settlement~~exercise of aemployee ~~foreign tax~~stock ~~liability~~options, ~~resulting~~partly ~~from~~offset aby ~~prior~~net ~~acquisition.~~cash ~~Our~~paid ~~effective~~for ~~tax rate may change during~~ the Opulan ~~remainder~~acquisition ofas ~~2010~~well ifas ~~operating~~expenditures ~~results~~for ~~differ~~property ~~significantly~~and ~~from current projections~~equipment.

Change in Contingent Earn-out Liability

Change in contingent earn-out liability consists of a gain resulting from remeasuring our contingent consideration liability related the acquisition of Opulan in August 2010. As part of our acquisition of Opulan, we may be required to pay up to $24.4 million in cash to the former shareholders of Opulan as earnout consideration based upon the achievement of specified revenue and employee retention targets over the twelve month period from September 1, 2010 through August 31, 2011. The fair value of the contingent consideration was determined using a probability weighted-average analysis based on specific revenue and employee retention projections at the time of the acquisition in August 2010. As of the acquisition date, we determined that the fair value of the contingent consideration was $10.0 million. However, as of March 31, 2011, we determined that the fair value of the contingent consideration was $2.2 million and therefore, we reduced the expected contingent obligation by $7.8 million. We will continue to assess the probability of achievement of the performance targets at the end of each reporting period, which may further impact the fair value of the contingent consideration. Consistent with the accounting for contingent consideration in a business combination, the change in the fair value is reflected in our statement of operations.

Provision for Income Taxes


	Three Months Ended
	March 31,
	2011			2010			% Change
Provision for income taxes	$	861		$	2,280			(62	)%
% of net revenue		—	%		1	%

The net provision for income taxes for the three months ended March 31, 2011, was $861,000, compared to a provision for income taxes of $2.3 million for the three months ended March 31, 2010. The provision for income taxes was derived using our estimated annual effective tax rate for 2011 and 2010, respectively. Our estimated annual 2011 effective tax rate differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate and from the benefit of federal research and development tax credits.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal source of liquidity is cash provided by operations and proceeds from sale of common stock to our employees under employee stock compensation arrangements. Cash, cash equivalents and short-term marketable securities increased from $~~402~~515.28 million at December 31, ~~2009~~2010 to $~~475~~556.05 million at ~~September~~March 3031, ~~2010~~2011.

Consolidated Cash Flow Data

	Nine Months EndedSeptember 30,
	Three Months Ended
	2010			2009
	March 31,
	2011			2009
	(in thousands)
Net cash provided by (used in):
Operating activities	$	~~113~~26,~~263~~309		$	7918,~~498~~346
Investing activities		(~~195~~20,~~095~~374	)		(8160,~~672~~890	)
Financing activities		4316,~~226~~805			1023,~~331~~095
Net increase (decrease) in cash and cash equivalents	$	~~(38~~22,~~606~~740	)	$	8(19,~~157~~449	)

Operating Activities

For the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, cash flow provided by operations of $~~113~~26.3 million resulted primarily from our net income of $7721.61 million and the following additional reasons:

• Our net income included stock-based compensation, amortization of acquired intangible assets, depreciation, a change in our contingent earn-out liability and other non-cash charges. These non-cash charges ~~totaled~~totalled $8423.10 million.

• We invested $4817.47 million in working capital for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011.

Working capital is comprised of accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued and other current liabilities. Accounts receivable increased by $504.89 million in the first ~~nine~~three months of ~~2010~~2011, reflecting the timing of chipset sales and customer payments. ~~Inventory~~Prepaid expenses and other current assets increased $253.17 million indue primarily ~~the~~to ~~first~~increased ~~nine~~employee ~~months~~contributions ~~of 2010 due~~ to ~~the~~ ~~timing~~our ofemployee ~~inventory~~stock ~~shipments~~purchase ~~and receipts~~plan. Accounts payable and accrued and other ~~current~~ liabilities ~~increased~~decreased by $278.59 million in the first ~~nine~~three months of ~~2010~~2011, primarily due to the timing of inventory receipts, payments to our vendors, ~~and~~ additions to customer incentive balances and a payout of annual variable compensation to our employees.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010, cash flow provided by operations of $7918.53 million resulted primarily from our net income of $3019.87 million and the following additional reasons:

• Our net income included ~~non-cash charges in the form of~~ stock-based compensation, anamortization ~~impairment~~ of ~~the~~acquired ~~fair~~intangible ~~value of our long-term investments~~assets, ~~taxes and~~ depreciation and ~~amortization~~other ofnon-cash ~~acquired intangible assets~~charges. These non-cash charges totaled $2228.56 million.

• ~~Our~~We ~~working~~invested ~~capital provided cash of~~ $2630.20 million ~~during~~in working capital for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 primarily due to growth in inventory and receivables resulting from growth in our business.

26Working capital is comprised of accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued and other current liabilities. Accounts receivable increased by $11.8 million in the first quarter of 2010, reflecting the timing of chipset sales and customer payments. Inventory increased $12.6 million in the first quarter of 2010 due to the timing of inventory shipments and receipts. Prepaid expenses and other assets increased by $3.3 million due primarily to increased employee contributions to our employee stock purchase plan. Accounts payable and accrued and other liabilities decreased by $2.3 million in the first quarter of 2010, primarily due to the timing of inventory received and payments to our vendors.

Working capital is comprised of accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued and other current liabilities. Accounts receivable increased by $3.0 million in the nine months of 2009, due primarily to growth in our revenues. Inventory decreased $26.6 million in the first nine months of 2009 due to our efforts to reduce overall inventory levels and an increase in customer demand for our products. Prepaid expenses and other current assets increased by $4.8 million in the first nine months of 2009 due primarily to increased employee contributions to our employee stock purchase plan. Accounts payable and accrued and other current liabilities increased by $7.3 million in the first nine months of 2009, primarily due to the timing of inventory received and vendor payments.

Investing Activities

Net cash used in investing activities of $20.4 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 was primarily due to the ~~$70.6 million net cash~~purchase ~~paid for the acquisition~~ of ~~Opulan and the purchase of~~ marketable securities, net of proceeds from maturities, of $~~112~~18.0 1 million. Net cash used in investing activities of $60.9 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 was primarily due to the purchase of marketable securities, net of proceeds from maturities, of $8060.03 million. Our investments are in money market funds, U.S. government notes and bonds, corporate notes and bonds, commercial paper, auction-rate securities and other cost-based investments.

We purchased $102.93 million and $~~2.2~~610,000 ~~million~~ of property and equipment in the ~~nine~~three months ended ~~September~~ March 3031, ~~2010~~2011 and ~~2009~~2010, respectively. ~~The increase in property and equipment additions during the nine months ended September 30, 2010 was primarily related to expenditures incurred for our new headquarters in San Jose, California.~~

Financing Activities

Net cash provided by financing activities consisted primarily of proceeds from stock option exercises ~~and purchases~~ of ~~our common stock pursuant to our employee stock purchase plan of~~ $4316.28 million and $922.78 million in the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively.

Liquidity

We expect to experience an increase in our operating costs and expenses in absolute dollars for the foreseeable future in order to execute our business strategy. As a result, we anticipate that operating costs and expenses, as well as planned capital expenditures, will constitute a material use of our cash resources.

We believe that our existing cash, cash equivalents and short-term marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, the continuing market acceptance of our products and the expenditures associated with possible future acquisitions or other business combination transactions.

Contractual Obligations and Off-Balance Sheet Arrangements

Information regarding our contractual obligations is provided in the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” section of our Annual Report. We recorded $~~2.3~~620,000 ~~million and $3.2 million~~ of additional liability due to unrecognized tax benefits in the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011, ~~respectively,~~ and to date we have recorded a total of $3531.14 million of unrecognized tax benefits as of ~~September~~March 3031, ~~2010~~2011. ~~During~~Within the ~~quarter~~next ~~ended~~twelve ~~September 30~~months, ~~2010,~~ we ~~reclassified~~could ~~approximately~~recognize approximately $416.5 million of ~~non-current~~our ~~income~~existing unrecognized tax ~~payable~~benefits toas ~~non-current deferred~~a ~~income~~result ~~tax~~of ~~liability~~the ~~upon~~lapse ~~expiration~~ of ~~certain tax~~ statutes. ~~The~~of ~~amounts~~limitations, ~~relate~~the toimpact USof ~~taxes~~which ~~previously provided by us on our non-US income, such income~~ is not expected to be ~~repatriated~~material into ~~the~~our ~~current~~results ~~year~~of operations.

27As of March 31, 2011, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

In April 2010, we entered into an agreement to lease office space in San Jose, California for our corporate headquarters. The lease term is from August 1, 2010 through July 31, 2017. The premises consist of approximately 185,000 rentable square feet of space. The lease has been categorized as an operating lease, and we expect to incur approximately $16.3 million in rent expense over the term of the lease. We recorded $463,000 and $808,000 of rent expense related to our corporate headquarters during the three and nine months ended September 30, 2010. At September 30, 2010 estimated rent expense related to our corporate headquarters for the remainder of fiscal 2010 and years thereafter is as follows (in thousands):

	Estimated Rent Expense
2010 (remainder)	$	485
2011		1,939
2012		1,939
2013		2,388
2014		2,428
Thereafter		6,274
Total	$	15,453

As of September 30, 2010, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2 to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The primary objectives of our investment activities are, in order of importance, to preserve principal, provide liquidity and maximize income without significantly increasing risk. As of ~~September~~March 3031, ~~2010~~ 2011, our investments were primarily in money market funds, corporate notes, corporate bonds, commercial paper, U.S. government securities and to a lesser extent, auction-rate securities and other cost-based investments. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds and government and non-government debt securities. Our long-term investments include auction-rate securities, which have been classified as long-term due to the lack of a liquid market for these securities. The risk associated with fluctuating interest rates is limited to our investment portfolio and we believe that a 10% change in interest rates will not have a significant impact on the fair value of our portfolio or on our interest income.

~~Long-term~~Currently, ~~investments~~our ~~include~~direct ~~our~~exposure ~~long-term auction-~~to foreign exchange rate ~~securities~~fluctuations ~~representing~~for ~~our~~revenues ~~interest~~and incost ~~insurance~~of ~~capital~~goods ~~notes,~~sold is ~~issued~~not bymaterial. ~~special~~Our ~~purpose~~sales ~~entities~~agreements ~~sponsored~~generally byprovide ~~insurance~~for ~~companies;~~pricing ~~such~~and ~~securities~~payment ~~were~~in ~~rated~~U.S. ~~AAA~~dollars and, AAtherefore, atare ~~the~~not ~~date~~subject ofto ~~purchase~~exchange rate fluctuations. ~~The~~Similarly, ~~investment~~the ~~bank~~majority ~~that~~of ~~organized~~our ~~the auctions~~purchases ~~for~~related ~~these~~to ~~securities~~cost ~~filed~~of ~~for~~goods ~~bankruptcy~~sold ~~during~~are ~~the~~denominated ~~three~~and paid ~~months~~in ~~ended~~U.S. ~~September 30~~dollars and, ~~2008~~therefore, ~~and~~are ~~since~~not ~~such~~subject ~~time,~~to noexchange ~~auctions~~rate ~~have occurred~~fluctuations. WeThe ~~will~~risk ~~not~~associated bewith ~~able~~fluctuating tocurrency ~~liquidate~~exchange ~~any~~rates ofis generally limited to our ~~remaining~~operating ~~auction-rate~~costs ~~securities~~and ~~until~~expenses aand ~~buyer~~capital isexpenditures denominated in ~~found~~currencies ~~for~~other ~~these~~than ~~instruments~~the U.S. dollar as over 50% of our employees are located outside of the U.S. Increases or decreases in the ~~securities~~value ~~are~~of ~~redeemed~~the U.S. Atdollar ~~September 30,~~relative ~~2010~~to other currencies could make our products more or less expensive, wewhich ~~held~~could ~~auction-rate~~have an ~~securities~~impact ~~with~~on our business. Future fluctuations in currency exchange rates could have a ~~fair~~material ~~value~~impact ofon ~~$4.4~~our ~~million~~business.

In October 2010, we sold certain of these auction-rate securities. Therefore, at September 30, 2010 we have valued these recently sold securities using the sales price, which approximates fair value. For all other auction-rate securities we used a discounted cash flow model to value the investments. The assumptions used in preparing the discounted cash flow model include recovery rate in the event of a default, liquidity risk premium, probability of earning maximum interest rate to maturity, probability of passing an auction at some point in the future, probability of default, estimates for interest rates and timing of cash flows. We have determined that, for our auction-rate securities, OTTI has occurred and we intend to sell these investment securities prior to any potential recovery. We recorded no material OTTI in the three months ended September 30, 2010. We recorded $370,000 of OTTI and $628,000 in realized gains on the sale of certain auction rate securities in the nine months ended September 30, 2010. In the three and nine months ended September 30, 2009, we recorded OTTI charges for these securities of $874,000 and $2.0 million, respectively. To date, all OTTI losses on our long-term investments have been recorded in earnings.

Currently, our direct exposure to foreign exchange rate fluctuations for revenues and cost of goods sold is not material. Our sales agreements generally provide for pricing and payment in U.S. dollars and, therefore, are not subject to exchange rate fluctuations. Similarly, the majority of our purchases related to cost of goods sold, are denominated and paid in U.S. dollars and, therefore, are not subject to exchange rate fluctuations. The risk associated with fluctuating currency exchange rates is generally

limited to our operating expenses and capital expenditures denominated in currencies other than the U.S. dollar as over 50% of our employees are located outside of the U.S. Increases or decreases in the value of the U.S. dollar relative to other currencies could make our products more or less expensive, which could have an impact on our business. Future fluctuations in currency exchange rates could have a material impact on our business.

We do not currently engage in foreign currency hedging transactions, nor do we believe that we currently have material exposure to foreign currency exchange rate risk.

As of March 31, 2011, we had standby letters of credit outstanding totaling $1.3 million to secure operating leases for equipment. These standby letters of credit are secured by certificates of deposit.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet the reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in internal control over financial reporting. There were no changes in internal control over financial reporting during the quarter ended ~~September~~March 3031, ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2927

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Please see Part I, Item 1, Note 9 of the Notes to Condensed Consolidated Financial Statements for a discussion of our legal proceedings. For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Item 1A of our Annual Report.

Item 1A. Risk Factors

This Report contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risk factors set forth below and the risk factors set forth in our Annual Report, and this Report should be read in conjunction with such risk factors. The risks and uncertainties described in the Annual Report are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs and have material adverse effects on Atheros, our business, financial condition and results of operations could be seriously harmed.

~~Item~~The 6failure to complete the proposed merger with QUALCOMM could adversely affect our business. ~~Exhibits~~

ExhibitNumber	Description
2.1	Agreement and Plan of Merger, dated as of July 19, 2010, by and among Atheros Technology Ltd., a Bermuda company, Opulan Technologies Corp., an exempted Cayman Islands company, Orbit Acquisition Corp., an exempted Cayman Islands company, and Darren Huang, as the Securityholder Representative. The following exhibits to the Agreement and Plan of Merger have been omitted. The Registrant will furnish copies of the omitted exhibits to the Commission upon request.
		Exhibit A	Form of Merger Documents
		Exhibit B	Form of Merger Sub Governing Documents
		Exhibit C	Earnout Agreement
		Exhibit D	Retention Bonuses
		Exhibit E	Form of Escrow Agreement
		Exhibit F	Form of Letter of Transmittal of Stock Certificates
		Exhibit G	Form of Voting Agreement
		Exhibit H	Form of Acquirer Closing Certificate
		Exhibit I	Form of Company Closing Certificate
		Exhibit J	Form of Company Secretary’s Certificate
		Exhibit K	Form of Company Shareholder Joinder and Release Agreement
		Exhibit L	Form of Optionholder Joinder and Release Agreement
		Exhibit M	Form of Opinions from Company Counsel
		Exhibit N	Form of Non-Competition Agreement
		Exhibit O	Form of Employment Agreements
10.1 10.2	Offer Letter, dated April 9, 2010, by and between the Registrant and Daniel Rabinovitsj. Severance and Change in Control Agreement, dated June 10, 2010, by and between the Registrant and Daniel Rabinovitsj.
10.3 10.4	Offer Letter, dated June 16, 2010, by and between the Registrant and Richard Hegberg. Severance and Change in Control Agreement, dated October 12, 2010, by and between the Registrant and Richard Hegberg.
31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

On January 5, 2011, we entered into the Merger Agreement with QUALCOMM, pursuant to which a wholly owned subsidiary of QUALCOMM will merge with and into us, and we will continue as the surviving corporation and become a wholly owned subsidiary of QUALCOMM, or the Merger. The Merger is subject to customary closing conditions, including but not limited to the receipt of foreign regulatory approvals. There is no assurance that the Merger with QUALCOMM will occur. If the proposed Merger is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances defined in the Merger Agreement, we may be required to pay a termination fee of up to $103.7 million. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community and could adversely impact our relationship with our customers or suppliers. Finally, the pending Merger could result in disruptions to our business, and any such disruptions could continue or accelerate in the event the Merger is not consummated. There can be no assurance that our business, these relationships or our financial condition would not be adversely affected, as compared to the condition prior to the announcement of the Merger, as a result of the announcement or if the Merger is not consummated. While we currently expect the transaction to close in the second quarter of 2011 and we have received shareholder approval, we cannot provide assurance that the transaction will be ultimately consummated.

30Our headquarters are located in California, and we have sales offices throughout Asia, and research and development facilities in California, Florida, India, Taiwan and China. Our third-party foundries and subcontractors are concentrated in Asia and elsewhere in the Pacific Rim and Israel. These areas are subject to significant weather and in some locations, earthquake-related risks. Any disruption to the operations of these offices, foundries and subcontractors resulting from typhoons, hurricanes, earthquakes or other natural disasters could cause significant delays in the development, production, shipment and sales of our products. For example, during the first quarter of 2011, Japan experienced severe earthquakes and a tsunami which could cause disruptions in our supply chain and adversely impact our ability, and the ability of our partners, to deliver finished goods to customers.

Taiwan Semiconductor Manufacturing Corporation, Semiconductor Manufacturing International Corporation, GlobalFoundries Inc., United Microelectronics Corporation, Silterra Malaysia Sdn. Bhd., and other foundries we may use in the future, which manufacture our chipsets, and subcontractors which perform substantially all of our assembly and testing, are located in Asia. Tower Semiconductor Ltd., which also manufactures our chipsets, is located in Israel. In addition, our headquarters are located in Northern California, and we have sales offices in Japan, Taiwan, Hong Kong, China and elsewhere in Asia, research and development facilities in Southern California, Florida, India, Taiwan and China and administrative offices in Macao. These areas are subject to hurricanes or typhoons, and the risk of an earthquake or an earthquake-related disaster such as a tsunami in the Pacific Rim region, the Indian Ocean region, or the Middle East, is significant due to the proximity of major earthquake fault lines. For example, in March 2011, Japan experienced several major earthquakes and a tsunami. These events have affected Japan’s infrastructure, caused power outages and disrupted business activities. Though our facilities in Japan suffered only nominal facility damages, our supply chain and customers are dependent on certain Japanese suppliers. While we typically carry additional inventory to meet the fluctuating demands of our customers, any delays in product delivery from Japanese suppliers may have an adverse effect on our ability to deliver our products to our customers, which could negatively impact our future financial results. Similarly, major earthquakes in Taiwan in the past have disrupted the facilities of several of these third-party contractors, as well as other providers of these services, and impaired their production capacity. In addition, a tsunami in December 2004 caused widespread destruction and disruption of business in India and throughout the Indian Ocean coastal region. The occurrence of additional earthquakes or other

ExhibitNumber		Description
32.1(1)		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS(2)		XBRL Instance Document
101.SCH(2)		XBRL Taxonomy Extension Schema Document
101.CAL(2)		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB(2)		XBRL Taxonomy Extension Label Linkbase Document
101.PRE(2)		XBRL Taxonomy Extension Presentation Linkbase Document

natural disasters could result in the disruption of our foundry, assembly and test capacity or research and development efforts, or our ability to market and sell our products. We may not be able to obtain alternate capacity on favorable terms, if at all and our research and development efforts could be slowed.

Item 6. Exhibits


Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated as of January 5, 2011, by and among the Registrant, QUALCOMM Incorporated, a Delaware corporation, and T Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of QUALCOMM (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2011, and incorporated herein by reference).

10.1		Offer Letter, dated December 7, 2010, by and between the Registrant and Dennis Kish.

10.2		Severance and Change in Control Agreement, dated December 7, 2010, by and between the Registrant and Dennis Kish.

31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.1(1)		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.2(1)		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS(2)		XBRL Instance Document

101.SCH(2)		XBRL Taxonomy Extension Schema Document

101.CAL(2)		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB(2)		XBRL Taxonomy Extension Label Linkbase Document

101.PRE(2)		XBRL Taxonomy Extension Presentation Linkbase Document

(1)

The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

(2)

Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

3129

SIGNATURES

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

Date: ~~October~~April 2529, ~~2010~~2011

ATHEROS COMMUNICATIONS, INC. /Ss/ ~~CRAIG~~Craig H. ~~BARRATT~~Barratt Craig H. Barratt President and Chief Executive Officer (Principal executive officer) /Ss/ ~~JACK~~Jack R. ~~LAZAR~~Lazar Jack R. Lazar Chief Financial Officer, Senior Vice President of Corporate Development, and Secretary (Duly authorized officer and principal financial officer) ~~/S/ DAVID D. TORRE David D. Torre Vice President and Chief Accounting Officer (Duly authorized officer and principal accounting officer)~~

32/s/ David D. Torre David D. Torre Vice President and Chief Accounting Officer (Duly authorized officer and principal accounting officer)

Exhibit Index

ExhibitNumber	Description
Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated as of ~~July~~January 195, ~~2010~~2011, by and among ~~Atheros~~the ~~Technology Ltd.~~Registrant, aQUALCOMM ~~Bermuda company~~Incorporated, ~~Opulan~~a ~~Technologies~~Delaware ~~Corp.~~corporation, anand ~~exempted~~T ~~Cayman~~Merger ~~Islands company~~Sub, ~~Orbit Acquisition Corp~~Inc., ana ~~exempted~~Delaware ~~Cayman~~corporation ~~Islands company,~~ and ~~Darren~~wholly ~~Huang,~~owned assubsidiary ~~the~~of ~~Securityholder~~QUALCOMM ~~Representative.~~(filed ~~The~~as ~~following~~Exhibit ~~exhibits~~2.1 to the ~~Agreement~~Registrant’s ~~and~~Current ~~Plan~~Report ofon ~~Merger~~Form ~~have~~8-K ~~been~~filed ~~omitted.~~on ~~The~~January ~~Registrant~~5, ~~will~~2011, ~~furnish~~and ~~copies~~incorporated ofherein ~~the~~by ~~omitted exhibits to the Commission upon request~~reference).
	Exhibit A	Form of Merger Documents
10.1	Offer Letter, dated December 7, 2010, by and between the Registrant and Dennis Kish.
	Exhibit B	Form of Merger Sub Governing Documents
10.2	Severance and Change in Control Agreement, dated December 7, 2010, by and between the Registrant and Dennis Kish.
	Exhibit C	Earnout Agreement
31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
	Exhibit D	Retention Bonuses
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
	Exhibit E	Form of Escrow Agreement
32.1(1)	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
	Exhibit F	Form of Letter of Transmittal of Stock Certificates
32.2(1)	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
	Exhibit G	Form of Voting Agreement
101.INS(2)	XBRL Instance Document
	Exhibit H	Form of Acquirer Closing Certificate
101.SCH(2)	XBRL Taxonomy Extension Schema Document
	Exhibit I	Form of Company Closing Certificate
101.CAL(2)	XBRL Taxonomy Extension Calculation Linkbase Document
	Exhibit J	Form of Company Secretary’s Certificate
101.LAB(2)	XBRL Taxonomy Extension Label Linkbase Document
	Exhibit K	Form of Company Shareholder Joinder and Release Agreement
101.PRE(2)	XBRL Taxonomy Extension Presentation Linkbase Document
	Exhibit L	Form of Optionholder Joinder and Release Agreement
	Exhibit M	Form of Opinions from Company Counsel
	Exhibit N	Form of Non-Competition Agreement
	Exhibit O	Form of Employment Agreements
10.1 10.2	Offer Letter, dated April 9, 2010, by and between the Registrant and Daniel Rabinovitsj. Severance and Change in Control Agreement, dated June 10, 2010, by and between the Registrant and Daniel Rabinovitsj.
10.3 10.4	Offer Letter, dated June 16, 2010, by and between the Registrant and Richard Hegberg. Severance and Change in Control Agreement, dated October 12, 2010, by and between the Registrant and Richard Hegberg.
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.1(1)	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS(2)	XBRL Instance Document
101.SCH(2)	XBRL Taxonomy Extension Schema Document
101.CAL(2)	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB(2)	XBRL Taxonomy Extension Label Linkbase Document
101.PRE(2)	XBRL Taxonomy Extension Presentation Linkbase Document

(1)

(2)

3331

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Filing Compare · ATHEROS COMMUNICATIONS INC