855906--3/18/2008--SILICON_STORAGE_TECHNOLOGY

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Risks Related to Our Business The matters relating to the review of our historical stock option granting practices and the restatement of our consolidated financial statements has resulted in litigation, which could harm our financial results. We have not been in compliance with SEC reporting requirements and NASDAQ listing requirements and may continue to face compliance issues with such regulatory bodies. If we are unable to remain in compliance with SEC reporting requirements and NASDAQ listing requirements our business will be harmed. We are subject to the risks of additional lawsuits from former officers and employees in connection with our historical stock option practices, the resulting restatement, and the remedial measures we have taken. We may incur additional expenses in order to assist our employees with potential income tax liabilities which may arise under Section 409A of the Internal Revenue Code. Our operating results fluctuate materially, and an unanticipated decline in revenues may disappoint securities analysts or investors and result in a decline in our stock price. Our operating expenses are relatively fixed, and we order materials in advance of anticipated customer demand. Therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls. We incurred significant inventory valuation and adverse purchase commitment adjustments in 2005, 2006 and 2007 and we may incur additional significant inventory valuation adjustments in the future. Cancellations or rescheduling of backlog may result in lower future revenue and harm our business. Our business may suffer due to risks associated with international sales and operations. We invest in companies for strategic reasons and may not realize a return on our investments. Our investment portfolio may be impaired by further deterioration of the capital markets. Terrorist attacks and threats, and government responses thereto, could harm our business. We do not typically enter into long-term contracts with our customers, and the loss of a major customer could harm our business. We depend on stocking representatives and distributors to generate a majority of our revenues. We depend on Silicon Professional Technology Ltd., or SPT, our logistics center, to support many of our customers in Asia. We depend on a limited number of foreign foundries to manufacture our products, and these foundries may not be able to satisfy our manufacturing requirements, which could cause our revenues to decline. Manufacturing capacity has in the past been difficult to secure and if capacity constraints arise in the future our revenues may decline. Our cost of revenues may increase if we are required to purchase manufacturing capacity in the future. If our foundries fail to achieve acceptable wafer manufacturing yields, we will experience higher costs of revenues and reduced product availability. If our foundries discontinue the manufacturing processes needed to meet our demands, or fail to upgrade the technologies needed to manufacture our products, we may face production delays and lower revenues. Our dependence on third-party subcontractors to assemble and test our products subjects us to a number of risks, including an inadequate supply of products and higher costs of materials. Because our flash memory products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues. We face intense competition from companies with significantly greater financial, technical and marketing resources that could harm sales of our products. Our markets are subject to rapid technological change and, therefore, our success depends on our ability to develop and introduce new products. Our future success depends in part on the continued service of our key design engineering, sales, marketing and executive personnel and our ability to identify, recruit and retain additional personnel. Our ability to compete successfully depends, in part, on our ability to protect our intellectual property rights. We are engaged in derivative suits, which may become time consuming, costly and divert management resources and could impact our stock price. If we are accused of infringing the intellectual property rights of other parties we may become subject to time consuming and costly litigation. If we lose, we could suffer a significant impact on our business and be forced to pay damages. If an earthquake or other natural disaster strikes our manufacturing facility or those of our suppliers, we would be unable to manufacture our products for a substantial amount of time and we would experience lost revenues. A virus or viral outbreak in Asia could harm our business. Prolonged electrical power outages, energy shortages, or increased costs of energy could harm our business. Our growth has in the past placed a significant strain on our management systems and resources and if we fail to manage our growth, our ability to market or sell our products or develop new products may be harmed. We have determined that we have a material weakness in our internal control over financial reporting. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock. Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected revenue fluctuations and affect our reported results of operations. Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty. Acquisitions could result in operating difficulties, dilution and other harmful consequences. Risks Related to Our Industry Our success is dependent on the growth and strength of the flash memory market. The selling prices for our products are extremely volatile and have historically declined during periods of over capacity or industry downturns. There is seasonality in our business and if we fail to continue to introduce new products this seasonality may become more pronounced.

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855906--3/18/2008--SILICON_STORAGE_TECHNOLOGY_INC