The contact resistance degradation mechanism of the Pd/Ge ohmic contact on a pseudomorphic high electron mobility transistor was interpreted. The contact resistance continuously degrades at temperatures higher than 300 degrees C although no microstructural changes were observed. Meanwhile, elemental Ga atoms were preferentially outdiffused to the PdGe layer and Ge atoms were indiffused to the GaAs during annealing. The indiffused Ge converts the interfacial GaAs layer into n-GaAs, in which Ga vacancies are produced to maintain the charge neutrality condition. The Ga vacancy concentration further increases with annealing temperature, which plays a role in degrading the contact resistance as a result of the recombination of electrons with the Ga vacancies.