1. Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

We are a leading worldwide developer and supplier of custom-designed user interface solutions that enable people to interact more easily and intuitively with a wide variety of mobile computing, communications, entertainment, and other electronic devices. We currently target the personal computer, or PC, market, primarily notebook computers, the markets for digital lifestyle products, including mobile smartphones and feature phones, the tablet market, and other select electronic device markets with our customized human interface solutions. Our original equipment manufacturer, or OEM, customers include most of the tier one PC OEMs and many of the world’s largest OEMs for mobile smartphones and feature phones.

The consolidated financial statements include our financial statements and those of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Our fiscal year is the 52- or 53-week period ending on the last Saturday in June. The fiscal years presented in this report were 52-week periods ended June 25, 2011, June 26, 2010, and June 27, 2009.

Stock Split

On July 31, 2008, we announced a 3-for-2 stock split to be effected as a stock dividend. The stock dividend was effective for stockholders of record on August 15, 2008 and was paid on August 29, 2008. All share and per share amounts contained herein for each period presented prior to the stock dividend date have been retroactively adjusted to reflect the stock split, except for treasury shares.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, cost of revenue, inventories, product warranty, share-based compensation costs, provision for income taxes, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, goodwill, intangible assets, investments, and contingencies. We base our estimates on historical experience, applicable laws, and regulations, and 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Cash Equivalents and Investments

Cash equivalents consist of highly liquid investments with original maturities of three months or less. Our non-current investments are reported at fair value, with unrealized gains and losses excluded from earnings and shown separately as a component of accumulated other comprehensive income within stockholders’ equity. We charge other-than-temporary declines in the fair value of a debt security to earnings if the decline is due to a credit loss or if we intend to or need to sell at a loss. We charge other-than-temporary declines in the fair value of a debt security to other comprehensive income if the decline is due to a noncredit loss, resulting in the establishment of a new cost basis for the debt security. We charge other-than-temporary declines in the fair value of equity securities to earnings. We include interest earned on securities in interest income. We determine realized gains and losses on the sale of securities using the specific identification method.

Investments in available-for-sale securities and cash equivalents as of the end of fiscal 2011 and 2010 were as follows (in thousands):

		2011
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Money market		$	243,966			$	—			$	—			$	243,966
Auction rate securities			23,356				2,520				—				25,876
Total available-for-sale securities		$	267,322			$	2,520			$	—			$	269,842

		2010
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Money market		$	208,040			$	—			$	—			$	208,040
Auction rate securities			26,497				1,515				—				28,012
Total available-for-sale securities		$	234,537			$	1,515			$	—			$	236,052

Weighted average interest rates, amortized costs, and estimated fair values of our money market investments as of the end of fiscal 2011 and 2010 were as follows (in thousands):

		2011												2010
		Weighted												Weighted
		Average								Estimated				Average								Estimated
		Interest				Amortized				Fair				Interest				Amortized				Fair
		Rate				Cost				Value				Rate				Cost				Value
Less than one year			0.2	%		$	243,966			$	243,966				0.2	%		$	208,040			$	208,040

Fair Values of Cash Equivalents and Investments

We measure financial assets at fair value. When we measure fair value on either a recurring or nonrecurring basis, inputs used in valuation techniques are assigned a hierarchical level as follows:

•

Level 1 inputs are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2 inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3 inputs are unobservable inputs reflecting our assumptions, which are incorporated into valuation techniques and models used to determine fair value. The assumptions are consistent with market participant assumptions that are reasonably available. Our Level 3 assets consist of non-current auction rate securities, or ARS, investments. We estimated the fair value of our ARS investments based on, among other factors, the following: (i) the collateral underlying the security investments; (ii) creditworthiness of the counterparty; (iii) timing of expected future cash flows; (iv) the probability of a successful auction in a future period; (v) the underlying structure of each investment; (vi) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (vii) consideration of the probabilities of default, passing a future auction, or repurchase at par for each period; and (viii) estimates of the recovery rates in the event of default for each investment. See Note 3 — Auction Rate Securities.

Financial assets measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the end of fiscal 2011 and 2010 were as follows (in thousands):

		2011								2010
		Level 1				Level 3				Level 1				Level 3
Money market		$	243,966			$	—			$	208,040			$	—
Auction rate securities			—				25,876				—				28,012
Total available-for-sale securities		$	243,966			$	25,876			$	208,040			$	28,012

Money market balances are included in cash and cash equivalents as of the end of fiscal 2011 and 2010. ARS investments are included in non-current investments as of the end of fiscal 2011 and 2010. There were no Level 2 financial assets as of the end of fiscal 2011 or 2010.

Changes in fair value of our Level 3 financial assets for fiscal 2011 and 2010 were as follows (in thousands):

		2011				2010
Beginning balance		$	28,012			$	28,767
Net unrealized gain			1,005				1,463
Impairment (loss)/recovery on investments, net			59				(443	)
Redemptions			(3,200	)			(1,775	)
Ending balance		$	25,876			$	28,012

There were no transfers in or out of our Level 1, 2, or 3 assets during fiscal 2011 or 2010.

The fair values of our cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their carrying values because of the short-term nature of those instruments. We base the fair value of our ARS investments on a discounted cash flow model.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investments, and trade accounts receivable. Our investment policy, which is predicated on capital preservation and liquidity, limits investments to U.S. government treasuries and agency issues, taxable securities, and municipal issued securities with a minimum rating of A1 (Moody’s) or P1 (Standard and Poor’s) or equivalent. Included within our investment portfolio are investments in ARS investments, which met our investment guidelines at the time of our investment. Our ARS investments are currently not liquid as a result of continued auction failures. If the issuers are not able to meet their payment obligations or if we sell our ARS investments before they recover, we may lose some or all of our principal invested or may be required to further reduce the carrying value. We do not intend to sell our ARS investments for less than par value.

We sell our products primarily to contract manufacturers that provide manufacturing services for OEMs. We extend credit based on an evaluation of a customer’s financial condition, and we generally do not require collateral. To date, credit losses on our accounts receivable have been insignificant, and we believe that an adequate allowance for doubtful accounts has been provided.

The following customers accounted for more than 10% of our accounts receivable balance as the end of fiscal 2011 and 2010:

		2011				2010
Customer A			12	%			15	%
Customer B			*				15	%

Other Concentrations

Our products include certain components that are currently single sourced. We believe other vendors would be able to provide similar components; however, the qualification of such vendors may require start-up time. In order to mitigate any adverse impacts from a disruption of supply, we attempt to maintain an adequate supply of critical single-sourced components.

Revenue Recognition

We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred and title has transferred, the price is fixed or determinable, and collection is reasonably assured, which is generally upon shipment. We accrue for estimated sales returns and other allowances, based on historical experience, at the time we recognize revenue.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to meet their financial obligations. On an ongoing basis, we evaluate the collectability of accounts receivable based on a combination of factors. In circumstances in which we are aware of a specific customer’s potential inability to meet its financial obligation, we record a specific reserve of the bad debt against amounts due. In addition, we make judgments and estimates on the collectability of accounts receivable based on our historical bad debt experience, customers’ creditworthiness, current economic trends, recent changes in customers’ payment trends, and deterioration in customers’ operating results or financial position. If circumstances change adversely, additional bad debt allowances may be required.

Cost of Revenue

Our cost of revenue includes the cost of products shipped to our customers, which primarily includes the cost of products built to our specifications by our contract manufacturers, the cost of silicon wafers supplied by independent wafer foundries, and the related assembly, package, and test costs of our die and packaged ASICs. Also included in our cost of revenue are personnel and related costs, including share-based compensation, for quality assurance, and manufacturing support; logistics costs; depreciation of equipment supporting manufacturing; license amortization; provisions for excess and obsolete inventories;and warranty costs.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market (estimated net realizable value) as of the end of fiscal 2011 and 2010 and consisted of the following (in thousands):

		2011				2010
Raw materials		$	22,607			$	12,251
Finished goods			6,243				6,416
		$	28,850			$	18,667

Periodically, we purchase inventory from our contract manufacturers when a customer delays its delivery schedule or cancels its order. In those circumstances in which our customer has cancelled its order and we purchase inventory from our contract manufacturers, we consider a write-down to reduce the carrying value of the inventory purchased to its net realizable value. We charge write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to net realizable value to cost of revenue. The effect of these write-downs is to establish a new cost basis in the related inventory, which we do not subsequently write up.

Property and Equipment

We state property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful lives of the assets. We apply estimated useful lives of three to seven years to our computer equipment and software; estimated useful lives ranging from one to five years to our manufacturing equipment; estimated useful lives of three to five years to our furniture and fixtures; and an estimated useful life of 35 years to our building. We amortize leasehold improvements over the shorter of the lease term or the useful life of the asset. For fiscal 2011 and 2010, we retired fully depreciated equipment and furniture with an original cost of $1.9 million and zero, respectively.

Foreign Currency Translation

The U.S. dollar is our functional and reporting currency. We remeasure our monetary assets and liabilities not denominated in the functional currency into U.S. dollar equivalents at the rate of exchange in effect on the balance sheet date. We measure and record non-monetary balance sheet accounts at the historical rate in effect at the date of translation. All of our revenue and approximately 93% of our consolidated costs are denominated in U.S. dollars. We translate certain expenses at the weighted average exchange rate in the month that the transaction occurred. Remeasurement of monetary assets and liabilities that are not denominated in the functional currency are included currently in operating results. Translation losses included in operating results for fiscal 2011, 2010, and 2009 were not material. To date, we have not undertaken hedging transactions related to foreign currency exposure.

Goodwill

We review the carrying value of goodwill at least annually for impairment as of the fiscal year-end balance sheet date. The frequency of our review is dictated by events or changes in circumstances indicating that the carrying value may be impaired. Based on our latest review, we determined there was no impairment of the carrying value of goodwill.

Impairment of Long-Lived Assets

We evaluate long-lived assets, such as property and equipment and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, we recognize an impairment charge in an amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. There were no events during the fiscal year that would trigger an impairment of our long-lived assets.

Segment Information

We operate in one segment: the development, marketing, and sale of intuitive user interface solutions for electronic devices and products.

Share-Based Compensation Costs

We utilize the Black-Scholes option pricing model to estimate the grant date fair value of employee share-based compensatory awards, which requires the input of highly subjective assumptions, including expected volatility and expected life. Historical and implied volatilities were used in estimating the fair value of our share-based awards. The expected life for our options was previously estimated based on historical trends since our initial public offering. In fiscal 2011, we began to grant options with a contractual life of seven years rather than 10 years and now use the simplified method of establishing the expected life as we do not have any history of options with seven-year lives. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. Further, we estimate forfeitures for share-based awards that are not expected to vest. We charge estimated fair value less estimated forfeitures to earnings on a straight-line basis over the vesting period of the underlying awards, which is generally four years for our stock option and deferred stock unit, or DSU, awards and up to two years for our employee stock purchase plan.

Product Warranties

We generally warrant our products for a period of 12 months or more from the date of sale and estimate probable product warranty costs at the time we recognize revenue. Factors that affect our warranty liability include historical and anticipated rates of warranty claims, materials usage, rework, and delivery costs. However, we assess the adequacy of our warranty obligations periodically and adjust the accrued warranty liability on the basis of our estimates.

Changes in our warranty liability (included in other accrued liabilities)for fiscal 2011 and 2010 were as follows (in thousands):

		2011				2010
Beginning accrued warranty		$	2,096			$	693
Provision for product warranties			5,963				3,986
Cost of warranty claims and settlements			(5,075	)			(2,583	)
Ending accrued warranty		$	2,984			$	2,096

Comprehensive Income

Our comprehensive income generally consists of net income plus the effect of unrealized gains and losses on our investments primarily due to changes in market value of certain of our ARS investments. In addition, we recognize the noncredit portion of other-than-temporary impairment on debt securities in comprehensive income.

Income Taxes

We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. We establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized. We consider the operating earnings of our foreign subsidiaries to be indefinitely invested outside the United States. Accordingly, no provision has been made for the U.S. federal, state, or foreign taxes that may result from future remittances of undistributed earnings of our foreign subsidiaries.

We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement with a taxing authority. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of highly complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our consolidated financial position, results of operations, and cash flows. We believe we have adequately provided for reasonably foreseeable outcomes in connection with the resolution of income tax uncertainties. However, our results have in the past, and could in the future, include favorable and unfavorable adjustments to our estimated tax liabilities in the period a determination of such estimated tax liability is made or resolved, upon the filing of an amended return, upon a change in facts, circumstances, or interpretation, or upon the expiration of a statute of limitation. Accordingly, our effective tax rate could fluctuate materially from period to period.

Research and Development

We expense costs to develop our products, which include the costs incurred to design interface solutions for customers prior to the customers incorporating those solutions into their products.

Net Income Per Share

Basic net income per share amounts for each period presented have been computed using the weighted average number of shares of common stock outstanding.

Diluted net income per share amounts for each period presented have been computed (1) using the weighted average number of potentially dilutive shares issuable in connection with our share-based compensation plans under the treasury stock method, and (2) using the weighted average number of potentially dilutive shares issuable in connection with our convertible debt under the treasury stock method, when dilutive.

2. Net Income Per Share

The computation of basic and diluted net income per share for fiscal 2011, 2010, and 2009 was as follows (in thousands, except per share amounts):

		2011				2010				2009
Numerator:
Net income		$	63,796			$	52,965			$	48,079
Denominator:
Shares, basic			34,042				33,836				33,981
Effect of dilutive share-based awards			1,412				1,587				1,596
Shares, diluted			35,454				35,423				35,577
Net income per share:
Basic		$	1.87			$	1.57			$	1.41
Diluted		$	1.80			$	1.50			$	1.35

Diluted net income per share does not include the effect of share-based awards for fiscal 2011, 2010, and 2009 as follows (in thousands):

		2011				2010				2009
Share-based awards			3,584				3,468				2,556

These share-based awards were not included in the computation of diluted net income per share because the proceeds received, if any, from such share-based awards combined with the average unamortized compensation costs adjusted for the hypothetical tax benefit or deficiency creditable or chargeable, respectively, to additional paid-in capital, were greater than the average market price of our common stock, and therefore, their effect would have been antidilutive.

Our basic net income per share amounts for each period presented have been computed using the weighted average number of shares of common stock outstanding. Our diluted net income per share amounts for each period presented include the weighted average effect of potentially dilutive shares. We used the “treasury stock” method to determine the dilutive effect of our stock options, DSUs, and convertible notes. Under the treasury stock method, shares associated with our convertible notes are included in the calculation of diluted net income per share only if the weighted average price of our common stock exceeds $33.69 during the reporting period.

3. Auction Rate Securities

Our ARS investments, which are included in non-current investments, have failed to settle in auctions beginning in 2007. These investments are not liquid, and in the event we need to access these funds, we will not be able to do so without a loss of principal, unless redeemed by the issuers or a future auction on these investments is successful. During fiscal 2011, 2010, and 2009, $3.2 million,$1.8 million, and $4.9 million, respectively, of our ARS investments were redeemed at par, and we recognized a gain of $59,000, $6,000, and $160,000, respectively, on the redemption of these investments, which is included in impairment of investments, net on the accompanying consolidated statements of income.

As there are currently no active markets for our various failed ARS investments, we have estimated the fair value of these investments as of the end of fiscal 2011 using a trinomial discounted cash flow analysis. The analysis considered, among others, the following factors:

•

the collateral underlying the security investments;

•

creditworthiness of the counterparty;

•

timing of expected future cash flows;

•

the probability of a successful auction in a future period;

	•		the underlying structure of each investment;
	•		the present value of future principal and interest payments discounted at rates considered to reflect current market conditions;

•

consideration of the probabilities of default, passing a future auction, or redemption at par for each period; and

•

estimates of the recovery rates in the event of default for each investment.

When possible, our failed ARS investments were compared to other observable market data or securities with similar characteristics. Our estimate of the fair value of our ARS investments could fluctuate materially from period to period depending on future market conditions.

Contractual maturities for our ARS investments are generally greater than five years, with fair value of $9.9 million maturing from 2016 to 2018, $8.7 million maturing from 2034 to 2045, and $7.3 million maturing thereafter or having no stated maturity. Of our ARS investments, $19.0 million are investment grade and the remaining $18.5 million par value is below investment grade. In fiscal 2011, 2010, and 2009, we recorded $59,000, ($443,000), and ($9.2) million, respectively, related to other-than-temporary impairment (loss)/recovery on investments, net.

Upon our adoption of the recognition and presentation of other-than-temporary impairments accounting standard in fiscal 2009, we reclassified $2.4 million from retained earnings to accumulated other comprehensive income to reflect the cumulative effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment.

The various types of failed ARS investments we held as of the end of fiscal 2011, including the original cost basis, other-than-temporary impairment included in other comprehensive income, other-than-temporary impairment included in retained earnings, new cost basis, unrealized gain, and fair value consisted of the following (in thousands):

						Cumulative Other-than-
						temporary Impairment
						Included				Included
		Original				in Other				in				New
		Cost				Comprehensive				Retained				Cost				Unrealized				Fair
		Basis				Income				Earnings				Basis				Gain				Value
Student loans		$	9,150			$	(593	)		$	(242	)		$	8,315			$	344			$	8,659
Closed end municipal and corporate funds			7,850				(823	)			(54	)			6,973				356				7,329
Credit linked notes			13,500				(156	)			(8,765	)			4,579				3,447				8,026
Preferred stock			5,000				—				(5,000	)			—				—				—
Municipals			2,000				(203	)			(83	)			1,714				148				1,862
Total ARS		$	37,500			$	(1,775	)		$	(14,144	)		$	21,581			$	4,295			$	25,876

The various types of failed ARS investments we held as of the end of fiscal 2010, including the original cost basis, other-than-temporary impairment included in other comprehensive income, other-than-temporary impairment included in retained earnings, new cost basis, unrealized gain, and fair value consisted of the following (in thousands):

						Cumulative Other-than-
						temporary Impairment
						Included				Included
		Original				in Other				in				New
		Cost				Comprehensive				Retained				Cost				Unrealized				Fair
		Basis				Income				Earnings				Basis				Gain				Value
Student loans		$	9,550			$	(617	)		$	(262	)		$	8,671			$	251			$	8,922
Closed end municipal and corporate funds			10,650				(1,112	)			(93	)			9,445				293				9,738
Credit linked notes			13,500				(156	)			(8,765	)			4,579				2,952				7,531
Preferred stock			5,000				—				(5,000	)			—				—				—
Municipals			2,000				(203	)			(83	)			1,714				107				1,821
Total ARS		$	40,700			$	(2,088	)		$	(14,203	)		$	24,409			$	3,603			$	28,012

We have accounted for all of our ARS investments as non-current as we are not able to reasonably determine when the ARS markets will recover or be restructured. Based on our ability to access our cash and cash equivalents, our expected operating cash flows, and our other sources of cash, we have the intent and ability to hold these investments until the value recovers or the investments mature. We will continue to monitor our ARS investments and evaluate our accounting for these investments quarterly. Subsequent to recording other-than-temporary impairment charges, certain of our ARS investments have increased in value above their new cost bases, and this increase is included as unrealized gain above and in accumulated other comprehensive income in the accompanying consolidated balance sheet.

4. Property and Equipment

Property and equipment as of the end of fiscal 2011 and 2010 consisted of the following (in thousands):

		Life		2011				2010
Land		—		$	2,500			$	2,500
Building and building improvements		35 years			11,144				10,835
Equipment, tooling, and leasehold improvements		1 year to 5 years			30,113				22,668
Furniture		3 years to 5 years			392				483
Capitalized software		3 years to 7 years			11,516				9,591
					55,665				46,077
Accumulated depreciation and amortization					(29,443	)			(20,256	)
Property and equipment, net				$	26,222			$	25,821

5. Leases, Other Commitments, and Contingencies

Leases

We maintain office facilities in various locations under operating leases with expiration dates from fiscal 2012 to fiscal 2015, some of which have renewal options of two to three years. Our leased office facilities are located in China, Finland, Hong Kong, Japan, Korea, Switzerland, Taiwan, and the United States. We recognized rent expense on a straight-line basis of $4.0 million, $3.4 million, and $2.4 million for fiscal 2011, 2010, and 2009, respectively.

The aggregate future minimum rental commitments as of the end of fiscal 2011 for noncancelable operating leases with initial or remaining terms in excess of one year were as follows (in thousands):

		Operating
		Lease
Fiscal Year		Payments
2012		$	2,905
2013			2,047
2014			541
2015			8
Total minimum operating lease payments		$	5,501

Contingencies

We may receive notices from third parties that claim our products infringe their rights. From time to time, we receive notice from third parties alleging infringement of their intellectual property rights. We cannot be certain that our technologies and products do not and will not infringe issued patents or other proprietary rights of third parties.

Any infringement claims, with or without merit, could result in significant litigation costs and diversion of management and financial resources, including the payment of damages, which could have a material adverse effect on our business, financial condition, and results of operations.

Indemnifications

In connection with certain third-party agreements we have executed in the past, we are obligated to indemnify the third party in connection with any technology infringement by us. We have also entered into indemnification agreements with our officers and directors. Maximum potential future payments cannot be estimated because these agreements do not have a maximum stated liability. However, historical costs related to these indemnification provisions have not been significant. We have not recorded any liability in our consolidated financial statements for such indemnification obligations.

Line of Credit

We have an unsecured $50.0 million working capital line of credit with Wells Fargo Bank. The Wells Fargo Bank revolving line of credit, which expires on September 1, 2012, has an interest rate equal to the prime lending rate or 250 basis points above LIBOR, depending on whether we choose a variable or fixed rate, respectively. We did not borrow any amounts under the line of credit during fiscal 2011.

6. Convertible Senior Subordinated Notes

In December 2004, we issued an aggregate of $125.0 million of convertible notes in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended. In connection with issuing the convertible notes, we incurred issuance costs of $4.3 million, consisting primarily of the initial purchasers’ discount and costs related to legal, accounting, and printing. We used the net proceeds for working capital and general corporate purposes.

In fiscal 2009, we repurchased and retired $59.7 million of our outstanding notes at a discount of approximately 7%, which resulted in a $1.1 million net loss on retirement of debt after deducting the associated unamortized discount and issuance costs. In fiscal 2010, we repurchased and retired $63.0 million par value of our notes when investors exercised their rights to require us to repurchase their notes. As of the end of fiscal 2011, $2.3 million par value of our notes remained outstanding and have been classified as long-term as the next date noteholders can require us to repurchase all or a portion of their notes is in December 2014.

During the first quarter of fiscal 2010, we adopted the accounting standard on convertible debt that can be settled in cash. The adoption of this accounting standard, which must be applied on a retrospective basis, results in a non-cash interest charge for all periods presented in our financial statements during which the notes were outstanding. This standard requires issuers of convertible notes that can be settled in cash to separately account for the liability and equity components of such convertible notes in a manner that reflects the entity’s nonconvertible debt borrowing rate. Prior to the application of the standard, the liability of the notes was carried at their par value, and only the contractual interest and amortization of debt issuance costs were recognized in our condensed consolidated statements of income.

Upon adoption of the new standard, and effective as of the issuance date of the notes, we recorded $39.4 million of the principal amount to equity, representing the debt discount for the difference between our estimated nonconvertible debt borrowing rate of 8.5% at the time of issuance and the 0.75% coupon rate of the notes using a five-year life, which coincides with the initial put rights of the noteholders. In addition, we allocated the $4.3 million of issuance costs pro-rata to the equity and debt components of the notes, or $1.4 million and $2.9 million, respectively. The discount and the issuance costs allocated to the debt component were amortized as interest expense using the effective interest method over five years and were fully amortized as of December 31, 2009.

The liability and equity components of the notes as of the end of fiscal 2011 and 2010 consisted of $2.3 million and $727,000, respectively.

The contractual interest expense and amortization of issuance costs and discount for the notes for fiscal 2011, 2010, and 2009 were as follows (in thousands):

		2011				2010				2009
Interest expense		$	17			$	213			$	661
Amortization of issuance costs			—				118				368
Amortization of discount			—				2,069				6,024
Total interest		$	17			$	2,400			$	7,053

7. Stockholders’ Equity

We have a Stockholders’ Rights Plan that may have the effect of deterring, delaying, or preventing a change in control that might otherwise be in the best interests of our stockholders. In general, stock purchase rights issued under the plan become exercisable when a person or group acquires 15% or more of our common stock or when a tender offer or exchange offer for 15% or more of our common stock is announced or commenced. After any such event, our other stockholders may purchase additional shares of our common stock at 50% of the then-current market price. The rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. The rights should not interfere with any merger or other business combination approved by our board of directors. The rights expire in August 2012.

Preferred Stock

We are authorized, subject to limitations imposed by Delaware law, to issue up to a total of 10,000,000 shares of preferred stock in one or more series without stockholder approval. Our board of directors has the power to establish from time to time the number of shares to be included in each series and to fix the rights, preferences, and privileges of the shares of each wholly unissued series and any of its qualifications, limitations, or restrictions. Our board of directors can also increase or decrease the number of shares of a series, but not below the number of shares of that series then outstanding, without any further vote or action by the stockholders.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could harm the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of our company and might harm the market price of our common stock and the voting power and other rights of the holders of common stock. As of the end of fiscal 2011, there were no shares of preferred stock outstanding and we have no current plans to issue any shares of preferred stock.

Shares Reserved for Future Issuance

Shares of common stock reserved for future issuance as of the end of fiscal 2011 were as follows:

Stock options outstanding			7,835,499
Deferred stock units outstanding			871,362
Awards available for grant under all share-based compensation plans			4,351,131
Reserved for future issuance			13,057,992

Treasury Stock

In April 2010, our board of directors approved an additional $100.0 million for the stock repurchase program, expiring in April 2012, bringing the cumulative authorization to $420.0 million. The program authorizes us to repurchase our common stock in the open market or in privately negotiated transactions depending upon market conditions and other factors. The number of shares repurchased and the timing of repurchases is based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities. Common stock repurchased under this program is held as treasury stock. As of the end of fiscal 2011, we had $67.9 million remaining under our common stock repurchase program.

8. Share-Based Compensation

The purpose of our various share-based compensation plans is to attract, motivate, retain, and reward high-quality employees, directors, and consultants by enabling such persons to acquire or increase their proprietary interest in our common stock in order to strengthen the mutuality of interests between such persons and our stockholders and to provide such persons with annual and long-term performance incentives to focus their best efforts in the creation of stockholder value. Consequently, we determine share-based compensatory awards issued subsequent to the initial award to our employees and consultants primarily on individual performance. Our share-based compensation plans with outstanding awards consist of our 1996 Stock Option Plan, or our 1996 Plan, our 2001 Incentive Compensation Plan, as amended, or our 2001 Plan, our 2010 Incentive Compensation Plan, or our 2010 Plan, and our 2010 Employee Stock Purchase Plan, or our 2010 ESPP.

Share-based compensation awards available for grant or issuance for each plan as of the beginning of the fiscal year, including changes in the balance of awards available for grant for fiscal 2011, were as follows:

		Awards												2001								2010
		Available				2000				2001				Employee				2010				Employee
		Under All				Nonstatutory				Incentive				Stock				Incentive				Stock
		Share-Based				Stock Option				Compensation				Purchase				Compensation				Purchase
		Award Plans				Plan				Plan				Plan				Plan				Plan
Balance at June 2010			5,761,516				56,376				4,849,225				855,915				—				—
Additional shares authorized			1,368,667				—				1,028,462				340,205				—				—
Transfer of shares			—				—				(5,499,415	)			(650,000	)			5,499,415				650,000
Stock options granted			(1,941,631	)			—				(588,395	)			—				(1,353,236	)			—
Deferred stock units granted			(518,630	)			—				(145,668	)			—				(372,962	)			—
Purchases under employee stock purchase plan			(397,204	)			—				—				(320,745	)			—				(76,459	)
Forfeited			674,476				—				670,103				—				4,373				—
Plan shares expired			(596,063	)			(56,376	)			(314,312	)			(225,375	)			—				—
Balance at June 2011			4,351,131				—				—				—				3,777,590				573,541

Our 1996 Plan expired in December 2006. Accordingly, no new grants can be issued under our 1996 Plan. Option awards that are currently outstanding under our 1996 Plan will remain outstanding until exercised, forfeited, or cancelled under the terms of the option grant agreements. Our 2001 Plan, which expired in March 2011, was replaced by our 2010 Plan. Option awards and DSUs that are currently outstanding under our 2001 Plan will remain outstanding until exercised, delivered, forfeited, or cancelled under the terms of the grant agreements. Our 2001 ESPP expired in December 2010, and was replaced by our 2010 ESPP.

Share-based compensation and the related tax benefit recognized in our consolidated statement of income for fiscal 2011,2010, and 2009 were as follows (in thousands):

		2011				2010				2009
Cost of revenue		$	1,294			$	2,307			$	1,680
Research and development			13,823				14,330				8,897
Selling, general, and administrative			18,808				18,739				13,843
Total		$	33,925			$	35,376			$	24,420
Income tax benefit on share-based compensation		$	9,745			$	9,642			$	7,972

We utilize the Black-Scholes option pricing model to estimate the grant date fair value of certain employee share-based compensatory awards, which requires the input of highly subjective assumptions, including expected volatility and expected life. Historical and implied volatilities were used in estimating the fair value of our share-based awards. The expected life for our options was previously estimated based on historical trends since our initial public offering. In fiscal 2011, we began to grant options with a contractual life of seven years rather than 10 years and now use the simplified method of establishing the expected life as we do not have any history of options with seven-year lives. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based awards. Further, as required under accounting standards, we estimate forfeitures for share-based awards that are not expected to vest. We charge the estimated fair value less estimated forfeitures to earnings on a straight-line basis over the vesting period of the underlying awards, which is generally four years for our stock option and DSU awards and up to two years for our employee stock purchase plan. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options having no vesting restrictions and being fully transferable. As our stock option and employee stock purchase plan awards have characteristics that differ significantly from traded options and, as changes in the subjective assumptions can materially affect the estimated value, our estimate of fair value may not accurately represent the value assigned by a third party in an arms’-length transaction. While our estimate of fair value and the associated charge to earnings materially affects our results of operations, it has no impact on our cash position.

We recognize tax benefit upon expensing certain share-based awards associated with our share-based compensation plans, including nonqualified stock options and DSU awards, but under current accounting standards we cannot recognize tax benefit concurrent with the recognition of share-based compensation expenses associated with incentive stock options and employee stock purchase plan shares (qualified stock options). For qualified stock options that vested after our adoption of the accounting standards, we recognize tax benefit only in the period when disqualifying dispositions of the underlying stock occur, which historically has been up to several years after vesting and in a period when our stock price substantially increases. For qualified stock options that vested prior to our adoption of the accounting standards, the tax benefit is recorded directly to additional paid-in capital.

We determine excess tax benefit using the long-haul method in which we compare the actual tax benefit associated with the tax deduction from share-based award activity to the hypothetical tax benefit on the grant date fair values of the corresponding share-based awards. Tax benefit associated with excess tax deduction creditable to additional paid-in capital is not recognized until the deduction reduces taxes payable. During fiscal 2011, 2010, and 2009, we recognized $1.7 million, $7.1 million, and $9.4 million, respectively, of net excess tax benefit as additional paid-in capital.

Historically, we have issued new shares in connection with our share-based compensation plans; however, treasury shares were also available for issuance as of the end of fiscal 2011. Any additional shares repurchased under our common stock repurchase program would be available for issuance under our share-based compensation plans.

Stock Options

Our share-based compensation plans with outstanding stock option awards include our 1996 Plan, our 2001 Plan, and our 2010 Plan. Under our 2010 Plan, we may grant employees, consultants, and directors incentive stock options or nonqualified stock options to purchase shares of our common stock at not less than 100% of the fair market value, or FMV, on the date of grant. Stock options granted to our employees generally are incentive stock options, or qualified options, under the Internal Revenue Code, subject to calendar year vesting limitations with any balance being nonqualified stock options.

Options granted under the 2010 Plan generally vest over four years from the vesting commencement date and expire seven years after the date of grant if not exercised.

Certain stock option activity for fiscal 2011 and balances as of the end of fiscal 2011 were as follows:

		Stock				Weighted
		Option				Average				Intrinsic
		Awards				Exercise				Value
		Outstanding				Price				(In thousands)
Balance at June 2010			7,748,570			$	22.43
Granted			1,941,631				28.97
Exercised			(1,267,751	)			15.34
Forfeited			(586,951	)			28.97
Balance at June 2011			7,835,499				24.71			$	21,814
Exercisable at June 2011			4,758,094			$	22.64			$	20,275

The aggregate intrinsic value was determined using the closing price of our common stock on the last trading day of fiscal 2011, or June 24, 2011, of $25.02 and excludes the impact of options that were not in-the-money.

At the end of fiscal 2011, we estimated fully vested options and options expected to vest to be 7.6 million with an aggregate intrinsic value of $21.8 million, having a weighted average exercise price of $24.67 and a weighted average remaining contractual term of seven years. The weighted average remaining contractual term for the options exercisable is approximately six years.

Cash received and the aggregate intrinsic value of stock options exercised for fiscal 2011, 2010, and 2009 were as follows (in thousands):

		2011				2010				2009
Cash received		$	19,445			$	9,469			$	13,305
Aggregate intrinsic value		$	17,684			$	8,306			$	17,548

The fair value of each award granted from our plans for fiscal 2011, 2010, and 2009 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:

		2011		2010		2009
Expected volatility		42.7% – 47.0%		44.2% – 62.2%		56.9% – 65.4%
Expected life in years		4.6 – 5.1		4.7 – 5.1		4.5 – 4.7
Risk-free interest rate		1.2% – 2.1%		1.9% – 2.7%		1.7% – 3.2%
Fair value per award		$10.00 – $12.58		$12.19 – $13.58		$10.06 – $17.32

The unrecognized share-based compensation costs for stock options granted under our various plans were approximately $39.7 million as of the end of fiscal 2011 to be recognized over a weighted average period of approximately 2.3 years.

During fiscal 2011, we modified the vesting provisions of our former Chief Executive Officer’s share-based awards and recorded an additional $1.4 million of share-based compensation expense in connection with the modification of the awards.

Deferred Stock Units

Our 2001 Plan, which expired in March 2011, provided for the grant of DSU awards to our employees, consultants, and directors. Currently, our 2010 Plan provides for the grant of DSU awards to our employees, consultants, and directors. A DSU is a promise to deliver shares of our common stock at a future date in accordance with the terms of the DSU grant agreement. We began granting DSUs in January 2006.

DSUs granted under our 2010 Plan generally vest 25% over four years from the vesting commencement date. Delivery of shares under the plan takes place on the quarterly vesting dates. At the delivery date, we withhold shares to cover statutory minimum tax withholding by delivering a net quantity of shares. Until delivery of shares, the grantee has no rights as a stockholder.

An election to defer delivery of the underlying shares for unvested DSUs can be made by the grantee provided the deferral election is made at least one year before vesting and the deferral period is at least five years from the scheduled delivery date.

DSU activity, including DSUs granted, delivered, and forfeited in fiscal 2011, and the balance and aggregate intrinsic value of DSUs as of the end of fiscal 2011 were as follows:

						Aggregate				Weighted
						Intrinsic				Average
		DSU Awards				Value				Grant Date
		Outstanding				(in thousands)				Fair Value
Balance at June 30, 2010			821,146							$	26.92
Granted			518,630								28.83
Delivered			(384,226	)							28.83
Forfeited			(87,525	)							27.93
Balance at June 30, 2011			868,025			$	21,718				27.74

Of the shares delivered, 108,807 shares valued at $3.2 million were withheld to meet statutory minimum tax withholding requirements. The aggregate intrinsic value was determined using the closing price of our common stock on the last trading day of fiscal 2011, or June 24, 2011, of $25.02.

The unrecognized share-based compensation cost for DSUs granted under the 2001 Plan and the 2010 Plan was approximately $24.6 million as of the end of fiscal 2011, which will be recognized over a weighted average period of approximately 2.6 years. The aggregate market value of DSUs delivered in fiscal 2011, 2010, and 2009 was $11.1 million, $7.7 million, and $6.1 million, respectively.

Employee Stock Purchase Plan

Our 2001 Employee Stock Purchase Plan, or our 2001 ESPP, became effective on January 29, 2002, the effective date of the registration statement for our initial public offering. Our 2010 ESPP became effective on January 1, 2011 and replaced our 2001 ESPP, which expired in December 2010. The 2010 ESPP allows employees to designate up to 15% of their base compensation, subject to legal restrictions and limitations, to purchase shares of common stock at 85% of the lesser of the FMV at the beginning of the offering period or the exercise date. The offering period extends for up to two years and includes four exercise dates occurring at six-month intervals. Under the terms of our 2010 ESPP, if the FMV at an exercise date is less than the FMV at the beginning of the offering period, the current offering period will terminate and a new two-year offering period will commence.

In accordance with accounting standards related to the accounting for employee stock purchase plans with a look-back option, the early termination of an offering period followed by the commencement of a new offering period represents a modification to the terms of the related awards. Under the terms of our 2010 ESPP, the offering period that commenced on January 3, 2011 was terminated on May 13, 2011 and a new offering period commenced on May 16, 2011. The May 16, 2011 modification affected approximately 437 employees and resulted in incremental compensation costs, which are not material and which will be recognized on a straight-line basis over the two-year period ending May 15, 2013.

Under the terms of our 2001 ESPP, the offering period that commenced on July 1, 2007 was terminated on December 31, 2008 and a new offering period commenced on January 1, 2009. The December 31, 2008 modification affected approximately 275 employees and resulted in incremental compensation costs, which are not material and which were recognized on a straight-line basis over the two-year period ended December 31, 2010.

The fair value of each award granted under our 2001 ESPP and 2010 ESPP for fiscal 2011, 2010, and 2009 was estimated using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:

		2011		2010		2009
Expected volatility		32.5% – 48.6%		56.6% – 63.2%		53.3% – 73.0%
Expected life in years		0.5 – 2.0		0.5 – 2.0		0.5 – 2.0
Risk-free interest rate		0.1% – 0.6%		0.2% – 1.1%		0.3% – 2.4%
Fair value per award		$6.77 – $11.56		$10.05 – $18.81		$6.01 – $10.44

The expected volatility is based on either implied volatility or a weighting of implied and historical volatility; the expected life is based on each period that begins with the enrollment date until each purchase date remaining in the offering period at the date of enrollment in the plan; and the risk free interest rate is based on U.S. Treasury yields or yield curve in effect for each expected life.

Unrecognized share-based compensation costs for awards granted under our 2010 ESPP at the end of fiscal 2011 were approximately $4.8 million to be amortized over the next 22 months.

9. Employee Benefit Plans

401(k) Plan

We have a 401(k) Retirement Savings Plan for full-time employees. Under the plan, eligible employees may contribute a maximum of 30% of their net compensation or the annual limit of $16,500. The annual limit for employees who are 50 years or older is $22,000. In fiscal 2011, we provided matching funds of 25% of the employee’s contribution up to a maximum of $4,125 per employee. We made matching contributions of $1.0 million, $943,000, and $783,000 in fiscal 2011, 2010, and 2009, respectively.

10. Income Taxes

Income (loss) before provision for income taxes for fiscal 2011, 2010, and 2009 consisted of the following (in thousands):

		2011				2010				2009
U.S		$	(915	)		$	(16,077	)		$	(13,469	)
Foreign			74,386				76,334				68,811
Income before provision for income taxes		$	73,471			$	60,257			$	55,342

The provision for income taxes for fiscal 2011, 2010, and 2009 consisted of the following (in thousands):

		2011				2010				2009
Current tax expense
Federal		$	2,573			$	4,101			$	13,170
State			152				453				1,200
Foreign			10,616				9,272				6,809
			13,341				13,826				21,179
Deferred tax expense
Federal			(3,579	)			(9,058	)			(11,927	)
State			—				2,619				(1,980	)
Foreign			(87	)			(95	)			(9	)
			(3,666	)			(6,534	)			(13,916	)
Provision for income taxes		$	9,675			$	7,292			$	7,263

The provision for income taxes differs from the federal statutory rate for fiscal 2011, 2010, and 2009 as follows (in thousands):

		2011				2010				2009
Provision at U.S. federal statutory rate		$	25,715			$	21,088			$	19,370
State income taxes			390				2,650				550
Qualified stock options			2,129				2,474				1,700
Business credits			(2,910	)			(846	)			(2,749	)
Foreign tax differential			(15,818	)			(16,994	)			(13,957	)
Tax exempt interest			(18	)			(106	)			(479	)
Change in valuation allowance			(21	)			155				3,237
Tax benefit from NOL carryback			—				(1,804	)			—
Other differences			208				675				(409	)
Provision for income taxes		$	9,675			$	7,292			$	7,263

Net deferred tax assets as of the end of fiscal 2011 and 2010 consisted of the following (in thousands):

		2011				2010
Current deferred tax assets		$	1,143			$	1,387
Non-current deferred tax assets			16,514				12,604
Net deferred tax assets		$	17,657			$	13,991

Current deferred tax assets and non-current deferred tax assets are included in prepaid expenses and other current assets, and other assets, respectively, in the accompanying consolidated balance sheets.

Significant components of our deferred tax assets (liabilities) as of the end of fiscal 2011 and 2010 consisted of the following (in thousands):

		2011				2010
Deferred tax assets:
Investment writedowns		$	7,253			$	7,375
Capital Loss carryforward			2,066				2,094
Inventory writedowns			334				246
Depreciation and amortization			651				1,433
Accrued compensation			924				980
Share-based compensation			15,996				14,146
Business credit carryforward			13,958				9,990
Other accruals			274				451
			41,456				36,715
Valuation allowance			(15,058	)			(14,058	)
			26,398				22,657
Deferred tax liabilities:
Interest deduction			(8,741	)			(8,666	)
			(8,741	)			(8,666	)
Net deferred tax assets		$	17,657			$	13,991

Realization of deferred tax assets depends on our generating sufficient U.S. and certain foreign taxable income in future years to obtain benefit from the reversal of deferred tax assets. Accordingly, the amount of deferred tax assets considered realizable may increase or decrease when we reevaluate the underlying basis for our estimates of future U.S. and foreign taxable income. As of the end of fiscal 2011, a valuation allowance of $15.1 million had been established to reduce deferred tax assets to levels that we believe are more than likely than not to be realized through future taxable income.

Undistributed operating earnings of our foreign subsidiaries were approximately $280.2 million as of the end of fiscal 2011 and are all considered to be indefinitely reinvested overseas, and no U.S. income taxes have been provided for on these earnings. The potential deferred tax liability associated with undistributed operating earnings of our foreign subsidiaries was approximately $70.7 million.

As of the end of fiscal 2011, we had state net operating loss carryforwards of approximately $31.6 million. The state net operating loss carryforwards were attributable to share-based award deductions. The benefit of these net operating losses will be recorded directly to additional paid-in capital when realized. In addition, we had $7.7 million and $6.7 million of federal and state research tax credit carryforwards, respectively. The federal research tax credit carryforward begins to expire in 2027 and the state research tax credit can be carried forward indefinitely. We also had $1.7 million of federal alternative minimum tax credit carryforward available to offset future federal tax liabilities with no expiration.

Under the current tax law, net operating loss and tax credit carryforwards available to offset future income or income taxes may be limited by statute or upon the occurrence of certain events, including significant changes in ownership. The state net operating loss will begin to expire in fiscal 2017, if not utilized. The federal and state capital losses begin to expire in fiscal 2013.

The total liability for gross unrecognized tax benefits, included in other liabilities in our consolidated balance sheet, increased $1.2 million to $20.2 million in fiscal 2011 from $19.0 million in fiscal 2010. All of this amount would affect the effective tax rate on income from continuing operations, if recognized. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits consisted of the following (in millions):

Balance as of June 2010		$	19.0
Increase in unrecognized tax benefits related to current year tax positions			2.8
Decrease due to statue expiration			(1.6	)
Balance as of June 2011		$	20.2

Accrued interest and penalties increased by $438,000 to $1.6 million at the end of fiscal 2011 from $1.2 million at the end of fiscal 2010. Our policy to classify interest and penalties, if any, as components of income tax expense did not change.

In May 2011, we were notified by the Internal Revenue Service that our fiscal 2003 through 2006 and fiscal 2008 through 2010 will be subject to an audit. The early periods are being audited in connection with the mandatory Joint Committee Review for a refund in excess of $2.0 million when we carried back our fiscal 2008 net operating loss. The audit is ongoing, and no tax assessment has been proposed.

It is reasonably possible that the amount of the liability for unrecognized tax benefits may change within the next 12 months and an estimate of the range of possible changes cannot be made at this time due to the high uncertainty of the resolution of our tax positions with the tax authorities in various jurisdictions in which we operate.

Our major tax jurisdictions are the United States, California, and Hong Kong SAR and fiscal 2003 onward remain subject to examination by one or more of these jurisdictions.

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, or the Act. The Act in part retroactively reinstated the research credit to January 1, 2010. Accordingly, our current quarterly and year-to-date effective tax rates for fiscal 2011 include the benefit of the retroactive reinstatement.

11. Segment, Customers, and Geographic Information

We operate in one segment: the development, marketing, and sale of interactive user interface solutions for electronic devices and products. We generate our revenue from two broad product categories: the PC market and digital lifestyle product markets. The PC market accounted for 48%, 59%, and 57%of our net revenue for fiscal 2011, 2010, and 2009, respectively.

Net revenue within geographic areas based on our customers’ locations for fiscal 2011, 2010, and 2009 consisted of the following (in thousands):

		2011				2010				2009
China		$	399,798			$	389,499			$	307,813
Taiwan			76,631				56,096				46,899
Korea			24,523				32,496				70,661
Japan			65,548				35,838				35,811
United States			6,314				430				3,531
Other			25,724				531				8,587
		$	598,538			$	514,890			$	473,302