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 30, 2008

OR

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

Commission file number: 000-51349

Advanced Analogic Technologies Incorporated

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware	77-0462930
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
3230 Scott Blvd., Santa Clara, California	95054
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(408) 737-4600

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 is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨            Accelerated filer  x            Non-accelerated filer  ¨            Smaller Reporting Company  ¨

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

There were 45,808,227 shares of the Registrant’s common stock issued and outstanding as of October 27, 2008.

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3
	CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2008 AND DECEMBER 31, 2007	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007	4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER  30, 2007	5
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 4.	CONTROLS AND PROCEDURES	24
PART II. OTHER INFORMATION		25
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 1A.	RISK FACTORS	25
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	37
ITEM 5.	OTHER INFORMATION	37
ITEM 6.	EXHIBITS	37

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except shares and par value)

	September 30, 2008			December 31, 2007 (*)
Assets
Current assets
Cash and cash equivalents	$	80,940		$	53,779
Short-term investments		29,942			60,448
Total cash, cash equivalents and short-term investments		110,882			114,227
Accounts receivable, net of allowances		14,845			14,428
Inventories		12,411			12,214
Prepaid expenses and other current assets		1,702			2,273
Notes receivable		—			2,000
Deferred income taxes		580			591
Total current assets		140,420			145,733
Property and equipment, net		5,399			4,699
Other assets		4,288			1,377
Deferred income taxes		7,260			6,815
Intangibles, net		1,357			2,127
Goodwill		16,116			15,717
Total assets	$	174,840		$	176,468
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	7,998		$	7,938
Accrued liabilities		4,167			8,472
Income tax payable		248			1,367
Current portion of capital lease obligations		80			151
Total current liabilities		12,493			17,928
Long-term income tax payable		2,607			1,053
Long-term capital lease obligations		—			41
Other long-term liabilities		214			155
Total liabilities		15,314			19,177
Stockholders’ equity
Common stock, $0.001 par value—100,000,000 shares authorized; 45,808,227 and 45,355,884 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively		46			45
Additional paid-in capital		172,294			166,763
Deferred stock-based compensation		(58	)		(1,058	)
Accumulated other comprehensive loss		(385	)		(108	)
Accumulated deficit		(12,371	)		(8,351	)
Total stockholders’ equity		159,526			157,291
Total liabilities and stockholders’ equity	$	174,840		$	176,468

* Amounts as of December 31, 2007 were derived from the December 31, 2007 audited consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

3

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Net revenue	$	25,436		$	30,600		$	71,711		$	77,545
Cost of revenue		12,713			14,204			35,231			35,748
Gross profit		12,723			16,396			36,480			41,797
Operating expenses:
Research and development		7,462			7,948			22,910			22,623
Sales, general and administrative		6,112			6,373			18,760			19,172
Patent litigation		243			580			987			3,657
Total operating expenses		13,817			14,901			42,657			45,452
Income (loss) from operations		(1,094	)		1,495			(6,177	)		(3,655	)
Interest and other income (expense):
Interest income		700			1,408			2,578			4,145
Interest expense and other income (expense), net		23			(10	)		55			(295	)
Total interest and other income (expense), net		723			1,398			2,633			3,850
Income (loss) before income taxes		(371	)		2,893			(3,544	)		195
Provision for income taxes		266			316			477			1,260
Net income (loss)	$	(637	)	$	2,577		$	(4,021	)	$	(1,065	)
Net income (loss) per share:
Basic	$	(0.01	)	$	0.06		$	(0.09	)	$	(0.02	)
Diluted	$	(0.01	)	$	0.05		$	(0.09	)	$	(0.02	)
Weighted average shares used in net income (loss) per share calculation:
Basic		45,781			44,827			45,654			44,584
Diluted		45,781			47,170			45,654			44,584

See accompanying notes to condensed consolidated financial statements.

4

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine Months Ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,021	)	$	(1,065	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,232			2,043
Stock-based compensation		5,289			5,074
In-process research and development		255			—
Cumulative effect of adoption of FIN 48		—			543
Provision for doubtful accounts		—			(6	)
Excess tax benefit from share-based awards		(487	)		—
(Gain) loss on disposal of property and equipment		(9	)		9
Loss on liquidation of a foreign branch office		—			266
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable		(417	)		(6,454	)
Inventories		(179	)		(2,268	)
Prepaid expenses and other current assets		610			(190	)
Other assets		93			(95	)
Deferred income taxes		(254	)		(2,360	)
Accounts payable		154			4,648
Accrued and other liabilities		(4,144	)		1,753
Income taxes payable		431			2,900
Net cash (used in) provided by operating activities		(447	)		4,798
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,183	)		(2,420	)
Purchases of short-term investments		(30,755	)		(66,791	)
Proceeds from sales and maturities of short-term investments		57,949			53,607
Acquisition, net of cash acquired		(647	)		—
Collection of note receivable		2,000			—
Purchase of long-term investment		(250	)		—
Purchase of technology license		(100	)		—
Proceeds from sale of property and equipment		14			—
Net cash provided by (used in) investing activities		26,028			(15,604	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		1,213			695
Excess tax benefits from share-based awards		487			—
Principal payments on capital lease obligations		(112	)		(102	)
Net cash provided by financing activities		1,588			593
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(8	)		(89	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		27,161			(10,302	)
CASH AND CASH EQUIVALENTS—Beginning of period		53,779			58,121
CASH AND CASH EQUIVALENTS—End of period	$	80,940		$	47,819
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Vesting of restricted common stock	$	12		$	11
Increases (decreases) in accounts payable and accrued liabilities related to property and equipment purchases	$	(212	)	$	140
Cash paid for interest	$	11		$	22
Cash paid for income taxes	$	289		$	194

See accompanying notes to condensed consolidated financial statements.

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Advanced Analogic Technologies Incorporated (the “Company”) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its annual report on Form 10-K filed with the SEC on March 4, 2008.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 or for any other future period. The condensed consolidated balance sheet as of December 31, 2007 is derived from the audited consolidated financial statements as of and for the year then ended.

2. INVESTMENTS

The Company accounts for its available-for-sale investments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). At September 30, 2008, the Company had investments in short-term debt instruments and auction rate securities (ARS), discussed below, which were classified as available-for-sale under SFAS No. 115. Short-term investments consist primarily of investment grade debt securities with a maturity of greater than 90 days at the time of purchase. The Company classifies certain investments with maturities greater than one year as short-term investments as it considers all investments a potential source of operating cash regardless of maturity date. The Company’s debt securities are carried at fair market value with the related unrealized gains and losses included in accumulated other comprehensive loss, which is a separate component of stockholders’ equity. As of September 30, 2008, none of the securities in which the Company invested were secured by real estate. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in “Interest income” in the Condensed Consolidated Statements of Operations.

The following is a summary of cash equivalents and investments classified as available-for-sale at the end of September 30, 2008 and December 31, 2007:

	September 30, 2008
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Estimated Fair Value
	(in thousands)
Money market funds	$	43,909	$	—	$	—		$	43,909
Corporate debt securities		29,438		15		(17	)		29,436
U.S. government agency bonds		21,013		32		(9	)		21,036
Municipal bonds		11,696		—		(36	)		11,660
U.S. treasury bills		1,987		6		—			1,993
Auction rate securities		3,200		—		(498	)		2,702
Total	$	111,243	$	53	$	(560	)	$	110,736
Amounts included in:
Cash equivalents	$	78,093	$	9	$	(10	)	$	78,092
Short-term investments		29,950		44		(52	)		29,942
Other assets		3,200		—		(498	)		2,702
Total	$	111,243	$	53	$	(560	)	$	110,736

6

	December 31, 2007
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Estimated Fair Value
	(in thousands)
Money market funds	$	11,596	$	—	$	—		$	11,596
Corporate debt securities		39,620		62		(8	)		39,674
U.S. government agency bonds		46,618		86		—			46,704
Municipal bonds		1,004		—		—			1,004
Auction rate securities		7,500		—		—			7,500
Total	$	106,338	$	148	$	(8	)	$	106,478
Amounts included in:
Cash equivalents	$	46,022	$	8	$	—		$	46,030
Short-term investments		60,316		140		(8	)		60,448
Total	$	106,338	$	148	$	(8	)	$	106,478

The Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) as of January 1, 2008 to measure the fair value of certain of its financial assets required to be measured on a recurring basis, including available-for-sale securities and certain equity investments. Under SFAS No. 157, based on the observability of the inputs used in the valuation techniques, the Company is required to provide information according to a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Directly or indirectly observable market based inputs used in models or other valuation methodologies.

Level 3: Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.

Fair value measurements of financial assets on a recurring basis as of September 30, 2008 are as follows:

	Fair Value Measurements as of September 30, 2008 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Direct or Indirect Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Money market funds	$	43,909	$	—	$	—	$	43,909
Corporate debt securities		6,499		22,937		—		29,436
U.S. government agency bonds		21,036		—		—		21,036
Municipal bonds		11,660		—		—		11,660
U.S. treasury bills		1,993		—		—		1,993
Auction rate securities		—		—		2,702		2,702
Private equity investment		—		—		802		802
Total	$	85,097	$	22,937	$	3,504	$	111,538
Amounts included in:
Cash and cash equivalents	$	57,237	$	20,855	$	—	$	78,092
Short-term investments		27,860		2,082		—		29,942
Other assets		—		—		3,504		3,504
Total	$	85,097	$	22,937	$	3,504	$	111,538

7

The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3) (in thousands):

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Auction Rate Securities			Private Equity Investment		Total
Beginning balances as of January 1, 2008	$	—		$	802	$	802
Transfers in and/or out of Level 3		3,200			—		3,200
Unrealized losses included in accumulated other comprehensive loss, pre-tax		(376	)		—		(376	)
Ending balances as of March 31, 2008		2,824			802		3,626
Unrealized losses included in accumulated other comprehensive loss, pre-tax		(201	)		—		(201	)
Ending balances as of June 30, 2008		2,623			802		3,425
Unrealized gains included in accumulated other comprehensive loss, pre-tax		79			—		79
Ending balances as of September 30, 2008	$	2,702		$	802	$	3,504

Auction Rate Securities

As of September 30, 2008, the Company had approximately $2.7 million of ARS, the fair value of which has been measured using Level 3 inputs. These ARS are collateralized largely with Federal Family Education Loan Program student loans. The monthly auctions historically provided a liquid market for these securities. The three ARS in the Company’s portfolio had successful auctions until January 2008 and as such, their fair value would have been measured using Level 1 inputs at January 1, 2008. However, since February 2008, there has not been a successful auction in that there were insufficient buyers for these ARS. Therefore the Company transferred the ARS from the Level 1 to the Level 3 category in the first quarter of 2008.

The Company has used a discounted cash flow model to determine the estimated fair value of its investment in ARS as of September 30, 2008. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity and other risk factors, and estimates for the amount of cash flows and expected holding periods of the ARS. These inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the ARS, including assumptions about risk, developed based on the best information available in the circumstances.

Based on this assessment of fair value, during the third quarter of 2008, the Company determined there was an increase in the fair value of its ARS investments of approximately $0.1 million resulting in a year-to-date impairment loss of approximately $0.5 million pre-tax, which was deemed temporary as the Company has the ability and intent to hold these ARS investments until a recovery of value or until maturity (ranging from 2025 to 2046). As of September 30, 2008, the entire ARS investment balance was included in long-term other assets on its condensed consolidated balance sheet as the Company believes that it will take longer than one year for its investments in ARS to recover to par value.

In October 2008, one of the Company’s external cash managers received an offer to participate in an auction rate securities rights offering from UBS to sell up to $1.2 million of the Company’s eligible auction rate securities commencing in June 2010. The offer gives the Company’s external cash manager the right but not the obligation to sell these securities at par to UBS. In addition, accepting this offer will allow the Company’s external cash manager on behalf of the Company to participate in no net cost loans to UBS affiliates to borrow money prior to June 2010. The auction rate securities rights offering from UBS expires on November 14, 2008 and requires a release of claims in favor of UBS. The Company is in the process of evaluating the offer and its potential financial statement impact.

8

Private Equity Investment

In addition to the ARS, the Company also holds an equity investment in a non-publicly traded company of $0.8 million that is included in long-term other assets. This investment is accounted for under the cost method and evaluated for other-than-temporary impairment at each reporting period. During the quarter ended September 30, 2008, the Company did not recognize an impairment on this investment as no indicators suggesting a potential reduction in value existed.

3. STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

The following table summarizes stock-based compensation expense related to stock options, including the amortization of the intrinsic value under Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” for pre-April 4, 2005 options, for the three and nine months ended September 30, 2008 and September 30, 2007, which was allocated as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Statement of operations classifications	2008		2007		2008		2007
	(in thousands)
Cost of revenue	$	110	$	78	$	282	$	209
Research and development		886		758		2,449		2,031
Sales, general and administrative		664		781		2,558		2,834
Total stock-based compensation expense	$	1,660	$	1,617	$	5,289	$	5,074

The related tax effect for stock-based compensation expense for the three and nine months ended September 30, 2008 was approximately $0.2 million and $0.7 million, respectively, and approximately $0.3 million and $1.1 million for the three and nine months ended September 30, 2007, respectively. The related tax effect was determined using the applicable tax rates in jurisdictions to which this expense relates.

For options granted subsequent to January 1, 2006, the Company estimates expected volatility based on a combination of historical and market-based implied volatility in accordance with guidance in SFAS No. 123(R) and SEC Topic 14, “Share-Based Payment (SAB 107)”. The Company determined that a combination of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. Starting from the fourth quarter of 2006, due to the lack of historical data, the Company derives the expected term assumption based on the Company and its peer group’s weighted average vesting period combined with the post-vesting holding period. Prior to the fourth quarter of 2006, the Company used the simplified method to calculate the expected term for its options, as allowed by SAB 107. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on common stock, and it does not anticipate paying any cash dividends in the foreseeable future.

9

The following table includes the weighted average assumptions utilized for purposes of calculating the valuation of the Company’s stock option grants for the three and nine months ended September 30, 2008 and September 30, 2007:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Volatility	48	%	50	%	49	%	49	%
Expected option term (in years)	4.04		4.07		4.04		4.15
Expected annual dividend yield	0	%	0	%	0	%	0	%
Risk free interest rate	3.04	%	4.10	%	2.94	%	4.57	%

4. NET INCOME (LOSS) PER SHARE

The Company calculates net income (loss) per share in accordance with SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”). Under SFAS No. 128, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period excluding shares subject to repurchase. Diluted net income per common share reflects the effects of potentially dilutive securities, which consist of common stock options and warrants outstanding and restricted common stock subject to repurchase, using the treasury stock method unless their inclusion would be anti-dilutive. Basic and diluted net loss per share are the same for the three and nine months ended September 30, 2008 and for the nine months ended September 30, 2007 due to the Company incurring losses in those periods.

A reconciliation of shares used in the calculation of basic and diluted net income (loss) per share is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(in thousands)
Weighted average common shares outstanding	45,802		44,899		45,677		44,659
Weighted average shares subject to repurchase	(21	)	(72	)	(23	)	(75	)
Shares used to calculate basic net loss per share	45,781		44,827		45,654		44,584
Effect of dilutive securities:
Common stock warrants	—		8		—		—
Common stock options	—		2,263		—		—
Weighted average shares subject to repurchase	—		72		—		—
Dilutive potential common stock	—		2,343		—		—
Weighted average common shares outstanding, assuming dilution	45,781		47,170		45,654		44,584

The Company excluded 8.1 million potentially dilutive common shares from the computation of diluted net loss per share for the three and nine months ended September 30, 2008, and 6.4 million potentially dilutive common shares from the computation of net loss per share for the nine months ended September 30, 2007, as their effect would have been antidilutive given the net loss incurred in these periods. For the three months ended September 30, 2007, the Company excluded 2.8 million potentially dilutive common shares from the calculation of net income per share as their effect would have been antidilutive.

5. OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive loss are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
	(in thousands)
Net loss, as reported	$	(637	)	$	2,577	$	(4,021	)	$	(1,065	)
Changes in cumulative translation adjustment		(42	)		17		153			235
Changes in unrealized gains /losses on investments, net of taxes		(22	)		71		(430	)		56
Total other comprehensive loss	$	(701	)	$	2,665	$	(4,298	)	$	(774	)

10

The changes in unrealized gains or losses on investments during the three months ended September 30, 2008 included a $0.1 million unrealized gain on the Company’s auction rate securities, net of taxes. The changes in unrealized gains or losses on investments during the nine months ended September 30, 2008 included a $0.3 million unrealized loss on the Company’s auction rate securities, net of taxes. See Note 2 for further disclosure regarding the Company’s auction rate securities.

The changes in cumulative translation adjustment during the first nine months of 2007 included a write-off of $0.3 million cumulative translation adjustment loss as a result of the liquidation of the Company’s Sweden branch office.

6. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS

	September 30, 2008			December 31, 2007
	(in thousands)
Work in process	$	8,533		$	7,876
Finished goods		3,878			4,338
Total inventories	$	12,411		$	12,214
Computers and software	$	5,419		$	4,733
Office and test equipment		6,474			5,744
Leasehold improvements		1,471			1,101
Gross property and equipment		13,364			11,578
Accumulated depreciation and amortization		(7,965	)		(6,879	)
Total property and equipment, net	$	5,399		$	4,699
Accrued payroll and benefits	$	1,912		$	6,049
Deferred revenue		112			219
Accrued legal and accounting services		772			621
Warranty reserve		83			101
Accrued payables and other		1,288			1,482
Total accrued liabilities	$	4,167		$	8,472

7. GOODWILL AND INTANGIBLE ASSETS

In October 2006, the Company acquired Analog Power Semiconductor Corporation (“AP Semi”). The purchase consideration was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their estimated fair values on the acquisition date under SFAS No. 141, “Business Combinations.”

In June 2008, the Company acquired Elite Micro Devices, Inc. (“Elite”), a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. The Company recorded nontax deductible goodwill of $0.4 million associated with this acquisition that was accounted for as a business combination under SFAS No. 141. The Company also wrote off $0.3 million of in-process research and development as a result of this acquisition. The Company did not record any intangible assets as a result of the Elite acquisition.

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As of September 30, 2008, the Company’s goodwill balance was $16.1 million. The Company performed a goodwill impairment analysis as of September 30, 2008 pursuant to the steps and requirements under SFAS No. 142 and determined that the goodwill is not impaired.

The following table summarizes intangible assets as of September 30, 2008 and December 31, 2007, respectively, (in thousands):

	Intangible Assets, Gross				Accumulated Amortization						Intangible Assets, Net
	September 30, 2008		December 31, 2007		September 30, 2008			December 31, 2007			September 30, 2008		December 31, 2007
Core technology	$	2,900	$	2,900	$	(1,855	)	$	(1,129	)	$	1,045	$	1,771
Customer relationships		580		580		(368	)		(224	)		212		356
Technology license		100		—		—			—			100		—
Total	$	3,580	$	3,480	$	(2,223	)	$	(1,353	)	$	1,357	$	2,127

Amortization expense for the three and nine months ended September 30, 2008 was $0.3 million and $0.9 million, respectively. Amortization expense for the three and nine months ended September 30, 2007 was $0.3 million and $0.9 million, respectively. Estimated future amortization expense for the remainder of 2008, 2009, and thereafter is $0.3 million, $1.0 million, and $0.1 million, respectively.

8. SEGMENT INFORMATION

As defined by the requirements of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company operates in one reportable segment: the design, development, marketing and sale of power management semiconductor products and solutions for the communications, computing and consumer portable and personal electronics marketplace. The Company’s chief operating decision maker is its chief executive officer.

The following is a summary of net revenue by geographic region based on the location to which the product is shipped:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(in thousands)
South Korea	$	16,376	$	15,467	$	44,783	$	39,854
China		3,830		8,571		10,775		22,224
Taiwan		3,981		5,206		11,476		11,745
Europe		553		635		1,678		1,665
North America (principally United States)		315		607		1,240		1,743
Japan		381		114		1,759		314
Total	$	25,436	$	30,600	$	71,711	$	77,545

The following table summarizes net revenue and accounts receivable for customers who accounted for 10% or more of accounts receivable or net revenue, respectively:

	Accounts Receivable as of				Net Revenue Three Months Ended September 30,				Net Revenue Nine Months Ended September 30,
	September 30,		December 31,
	2008		2007		2008		2007		2008		2007
Customer
A	34	%	17	%	26	%	—		19	%	11	%
B	23	%	17	%	21	%	22	%	26	%	22	%
C	12	%	—		12	%	—		10	%	—
D	10	%	—		11	%	—		10	%	—

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9. INCOME TAXES

The Company recorded a tax provision of approximately $0.3 million and $0.5 million for the three and nine months ended September 30, 2008, respectively. The Company recorded a tax provision of approximately $0.3 million and $1.3 million for the three and nine months ended September 30, 2007, respectively. The decrease in the Company’s tax provision from prior year is primarily due to a decrease in projected pre-tax income and nondeductible stock-based compensation.

The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Under this method, the Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. The Company adopted SFAS No. 123(R) as of January 1, 2006, and, as a result, incurred significant stock-based compensation expense. The Company’s stock-based compensation expense also includes amounts related to incentive stock options for which no corresponding tax benefit is recognized unless a disqualifying disposition occurs. Disqualifying dispositions result in a reduction of the provision for income taxes in the quarter when the disqualifying disposition occurs in an amount equal to the tax benefit relating to previously expensed stock compensation. During the three months ended September 30, 2008 and 2007, the provision for income taxes was reduced by less than $0.1 million as a result of disqualifying dispositions. During the nine months ended September 30, 2008 and 2007, the provision for income taxes was reduced by less than $0.1 million and $0.1 million, respectively, as a result of disqualifying dispositions.

During the nine months ended September 30, 2008, the Company increased its total amount of unrecognized tax benefits as calculated under FASB Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” by approximately $0.8 million, including an accrual of interest and penalties of less than $0.1 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

The Company is subject to taxation in the United States and various foreign jurisdictions. The Company is currently under examination by the Internal Revenue Service for the 2005 and 2006 tax years. As of September 30, 2008, no audit adjustments have been made. Currently, the Company cannot estimate the range of reasonably possible changes in unrecognized tax benefits in the next 12 months.

10. LEGAL PROCEEDINGS

In May 2003, the Company received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of its charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, the Company received a letter from Linear Technology alleging that certain of its switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, the Company contacted Linear Technology to convey its good faith belief that it does not infringe the patents in question. Subsequently, the Company became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt the Company’s business relationships and sales by suggesting to the Company’s customers that its products infringe the same U.S. patents mentioned in its two letters to the Company. As a result, in February 2006, the Company initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) investigation described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of the Company’s products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in the Company’s lawsuit with Linear Technology.

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In a Final Determination issued September 24, 2007, the USITC left unchanged its earlier initial determination that the Company’s charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim of ‘531 Patent owned by Linear Technology.

The Final Determination also found that a majority of the Company’s switching regulator designs do not infringe Linear Technology’s ‘258 Patent. The USITC also found that one family of switching regulator products infringes certain claims of the ‘258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under Section 337 of the Tariff Act prohibiting the direct importation by the Company of this particular product family. This exclusion order does not, however, prevent the Company’s customers from importing their products into the United States. To date, the Company’s sales of this product family in the United States have been minimal. Linear Technology’s request that downstream products be barred from importation was denied.

Linear Technology has appealed portions of the Final Determination to the United States Court of Appeals for the Federal Circuit. This appeal is bifurcated into separate charge pump and switching regulator portions. On August 28, 2008 the Court of Appeals issued a ruling on the charge pump portion and upheld the invalidity of the ‘531 Patent. The Company believes that this ends the unsuccessful attempt by Linear Technology to assert its ‘531 Patent against the Company at the International Trade Commission. The separate appeal for the switching regulator portion remains pending at the United States Court of Appeals for the Federal Circuit.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that the Company has violated the limited exclusion order by importing certain switching regulator products. The Company believes that these allegations are not based in fact and that none of its products infringe the Linear Technology patents in question. The Company’s domestic sales of these products have been minimal to date and the Company expects domestic sales of these products to be minimal in future periods. However, whether or not the Company prevails in this proceeding, the Company expects to incur significant legal expenses.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued SFAS No. 162 (“SFAS No. 162”), “The Hierarchy of Generally Accepted Accounting Principles.” This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. While this statement formalizes the sources and hierarchy of GAAP within the authoritative accounting literature, it does not change the accounting principles that are already in place. This statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No. 162 is not expected to have a material impact on the Company’s consolidated financial statements.

12. SUBSEQUENT EVENTS

On October 9, 2008, the Company accepted for exchange from eligible employees (excluding directors, consultants, and all executives), options to purchase an aggregate of approximately 1.8 million shares of the Company’s common stock, pursuant to a stock option exchange program (the “Exchange Offer”), giving them the right to tender outstanding stock options that were granted between February 1, 2007 and July 1, 2008 (the “Old Options”). The Old Options were cancelled as of October 9, 2008. The Company granted new options to purchase an equal number of shares of its common stock with an exercise price equal to the fair market value of the Company’s common stock on October 9, 2008, which was $3.08 per share, in exchange for the options cancelled in connection with the offer. These new options vest over four years at the rate of 25 percent after one year starting on October 9, 2008 and 6.25 percent every three months thereafter. The Company calculated incremental compensation costs related to the Exchange Offer as required by SFAS No. 123(R), which together with the unamortized costs related to the Old Options, will be amortized over the vesting period of the new options.

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The Company performed its annual goodwill impairment analysis as of September 30, 2008 pursuant to the steps and requirements of SFAS No. 142 and determined that its $16.1 million goodwill balance was not impaired. SFAS No. 142 requires the Company to perform a goodwill impairment test whenever events or circumstances indicate the carrying value may not be recoverable. Due to the current economic environment, the Company’s operating results, and the sustained decline in its market valuation subsequent to September 30, 2008, if such market declines continue or worsen, the Company will perform an interim goodwill impairment test during the fourth quarter ended December 31, 2008. As a result of the interim goodwill impairment test, the Company may determine that a non-cash impairment charge is required. A goodwill impairment charge, if any, may have a significant negative impact on the Company’s results of operations for the fourth quarter ended December 31, 2008.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was signed into law. A provision in this legislation provided for the extension of the research and development tax credit for qualifying expenditures paid or incurred from January 1, 2008 through December 31, 2009. As a result of this new legislation, the Company expects to generate federal research and development tax credits for the year ended December 31, 2008 resulting in additional tax credit carryovers. For the quarter and year ended December 31, 2008, the Company expects to record the full year tax benefit of this credit, which will be approximately $460,000 of tax credit.

On October 29, 2008, the Company’s board of directors authorized a program to repurchase shares of the Company’s outstanding common stock. Under the stock repurchase program, the Company is authorized to use up to $30 million to repurchase its outstanding common stock. The Company may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend upon market conditions and other factors, in accordance with Securities and Exchange Commission requirements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our most recently filed Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this Quarterly Report on Form 10-Q the words “anticipate,” “objective,” “may,” “might,” “should,” “could,” “can,” “intend,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “is designed to” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our expectations regarding our expenses, sales and operations;

• our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;

• our ability to anticipate the future needs of our customers;

• our plans for future products and enhancements of existing products;

• our growth strategy elements;

• our intellectual property;

• our anticipated trends and challenges in the markets in which we operate; and

• our ability to attract customers.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q, including those under the heading “Risk Factors.”

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Other than as required by applicable laws, we are under no obligation to, and do not intend to, update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

We are a supplier of power management semiconductors for consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, Bluetooth headphones and accessories, notebook computers, digital TVs, set top boxes and displays. We focus our design and marketing efforts on the application-specific power management needs in these rapidly-evolving devices. We currently offer a portfolio of over 600 power management products comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip

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and multi-chip packages. We sell directly to original equipment manufacturers, or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd. and Sony Ericsson. We sell through distributors and original design manufacturers, or ODMs, and to other system designers, including Hewlett-Packard Company, Lenovo Group Ltd., Quanta Computers Inc. and Toshiba Corporation.

Our net revenue in the third quarter of 2008 decreased 17 percent compared to the third quarter of 2007 primarily as a result of a decrease in market demand primarily in China and Taiwan. Gross margin in the third quarter of 2008 decreased to 50% compared to 54% in the third quarter of 2007 primarily due to the impact of a higher excess inventory charge in the third quarter of 2008.

Cash, cash equivalents and short term investments as of September 30, 2008 decreased by $3 million to $111 million compared to December 31, 2007, due to reclassification of approximately $3 million of auction rate securities from short-term investments to long-term other assets and approximately $1 million used to purchase Elite Micro Devices, Inc. (“Elite”). We continue to be debt free as of September 30, 2008.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventories, share-based compensation, income taxes, goodwill, investments and long-lived assets. 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. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes that there have been no significant changes during the three and nine months ended September 30, 2008 to the items that we disclosed as our critical accounting policies and estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2007.

Results of Operations

The following table sets forth our unaudited historical operating results, in dollar amounts and as a percentage of net revenue for the periods indicated:

	Three Months Ended September 30,										Nine Months Ended September 30,
	2008					2007					2008					2007
	(in thousands, except percentages)
Net revenue	$	25,436		100.0	%	$	30,600		100.0	%	$	71,711		100.0	%	$	77,545		100.0	%
Cost of revenue		12,713		50.0			14,204		46.4			35,231		49.1			35,748		46.1
Gross profit		12,723		50.0			16,396		53.6			36,480		50.9			41,797		53.9
Operating expenses:
Research and development		7,462		29.3			7,948		26.0			22,910		31.9			22,623		29.2
Sales, general and administrative		6,112		24.0			6,373		20.8			18,760		26.2			19,172		24.7
Patent litigation		243		1.0			580		1.9			987		1.4			3,657		4.7
Total operating expenses		13,817		54.3			14,901		48.7			42,657		59.5			45,452		58.6
Income (loss) from operations		(1,094	)	(4.3	)		1,495		4.9			(6,177	)	(8.6	)		(3,655	)	(4.7	)
Interest and other income (expense):
Interest income		700		2.8			1,408		4.6			2,578		3.6			4,145		5.3
Interest expense and other income (expense), net		23		0.1			(10	)	(0.0	)		55		0.1			(295	)	(0.4	)
Total interest and other income (expense), net		723		2.9			1,398		4.6			2,633		3.7			3,850		4.9
Income (loss) before income taxes		(371	)	(1.5	)		2,893		9.5			(3,544	)	(4.9	)		195		0.2
Provision for income taxes		266		1.0			316		1.0			477		0.7			1,260		1.6
Net income (loss)	$	(637	)	(2.5	)%	$	2,577		8.5	%	$	(4,021	)	(5.6	)%	$	(1,065	)	(1.4	)%

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Comparison of Three and Nine Months ended September 30, 2008 and September 30, 2007

Revenues

The following table illustrates our net revenue by principal product families:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2008				2007				2008				2007
	Amount		Percent of net revenue		Amount		Percent of net revenue		Amount		Percent of net revenue		Amount		Percent of net revenue
	(dollar amounts in thousands)
Display and Lighting Solutions	$	15,498	61	%	$	17,857	58	%	$	42,975	60	%	$	45,035	58	%
Voltage Regulation and DC/DC Conversion		4,386	17	%		5,847	19	%		13,600	19	%		13,850	18	%
Interface and Power Management		4,492	18	%		6,228	21	%		13,127	18	%		17,082	22	%
Battery Management		1,060	4	%		668	2	%		2,009	3	%		1,578	2	%
Total	$	25,436	100	%	$	30,600	100	%	$	71,711	100	%	$	77,545	100	%

Our net revenue for the third quarter of 2008 as compared to the third quarter of 2007 decreased by $5.2 million, or 17%. This decrease reflected lower sales of all our product families except for Battery Management, as a result of decreased demand. Total unit shipments in the third quarter of 2008 decreased 20% compared to the third quarter of 2007 while the average selling prices increased by approximately 4%.

Our net revenue for the first nine months of 2008 as compared to the first nine months of 2007 decreased by $5.8 million, or 8%. This decrease reflected a $4.0 million decrease in sales of our Interface and Power Management product family and a $2.1 million decrease in sales of our Display and Lighting Solutions product family, partially offset by an increase in sales of our Battery Management product family. Total unit shipments in the first nine months of 2008 decreased 7% compared to the first nine months of 2007, while average selling prices remained relatively unchanged.

Geographically, sales in China and Taiwan decreased primarily due to lower shipments to our major distributors as a result of lower demand. Sales in Korea for first nine months of 2008 increased compared to the first nine months of 2007 due to higher sales to two major customers and sales in China decreased due to lower shipments to our distributors as a result of lower demand.

Gross Profit

	Three Months Ended September 30,											Nine Months Ended September 30,
	2008			2007			Increase (Decrease)					2008			2007			Increase (Decrease)
	(in thousands, except percentages)
Net revenue	$	25,436		$	30,600		$	(5,164	)	(17	%)	$	71,711		$	77,545		$	(5,834	)	(8	%)
Cost of revenue		12,713			14,204			(1,491	)	(10	%)		35,231			35,748			(517	)	(1	%)
Gross profit	$	12,723		$	16,396							$	36,480		$	41,797
Gross profit margin percentage		50.0	%		53.6	%		(3.6	%)				50.9	%		53.9	%		(3.0	%)

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Our gross margin was 50% for the third quarter of 2008, compared to 54% for the third quarter of 2007. This decrease was primarily due to a 3% unfavorable impact from higher excess inventory charges resulting from lower demand for our products than anticipated, as described below.

Our gross margin was 51% for the first nine months of 2008, compared to 54% for the first nine months of 2007. This decrease was primarily due to an approximate 2% unfavorable impact due to higher excess inventory charges resulting from lower demand for our products than anticipated, as described below, and an approximate 1% unfavorable impact from a change in product mix.

During the third quarter of 2008, our gross inventory write-down was approximately $1.0 million, partially offset by the sale of $0.5 million of previously written down inventory. During the first nine months of 2008, our gross inventory write-down was approximately $3.0 million, partially offset by the sale of $1.2 million of previously written down inventory. During the third quarter of 2007, our gross inventory write-down was approximately $0.7 million, offset by the sale of $1.2 million of previously written down inventory. During the first nine months of 2007, our gross inventory write-down was approximately $3.3 million, offset by the sale of $3.1 million of previously written down inventory. The net effect of inventory write-down on our gross margin contributed to an unfavorable 3% decrease to our gross margin during the third quarter of 2008 relative to the third quarter of 2007 and an unfavorable 2% decrease to our gross margin during the first nine months of 2008 relative to the first nine months of 2007.

Research and Development

	Three Months Ended September 30,											Nine Months Ended September 30,
	2008			2007			Increase (Decrease)					2008			2007			Increase (Decrease)
	(in thousands, except percentages)
Research and development	$	7,462		$	7,948		$	(486	)	(6.1	%)	$	22,910		$	22,623		$	287		1.3	%
Percentage of net revenue		29.3	%		26.0	%		3.3	%				31.9	%		29.2	%		2.7	%

Research and development expenses for the third quarter of 2008 decreased by $0.5 million as compared to the third quarter of 2007 primarily due to a $0.4 million reduction in payroll and benefit related expenses.

Research and development expenses for the first nine months of 2008 increased by $0.3 million as compared to the first nine months of 2007 primarily due a $0.4 million increase in stock-based compensation expense.

Sales, General and Administrative

	Three Months Ended September 30,											Nine Months Ended September 30,
	2008			2007			Increase (Decrease)					2008			2007			Increase (Decrease)
	(in thousands, except percentages)
Sales, general and administrative	$	6,112		$	6,373		$	(261	)	(4	%)	$	18,760		$	19,172		$	(412	)	(2	%)
Percentage of net revenue		24.0	%		20.8	%		3.2	%				26.2	%		24.7	%		1.5	%

Sales, general and administrative expenses for the third quarter of 2008 decreased by $0.3 million as compared to the third quarter of 2007 primarily due to a $0.6 million decrease in payroll and benefit related expenses, partially offset by a $0.3 million increase in professional service expenses.

Sales, general and administrative expenses for the first nine months of 2008 decreased by $0.4 million as compared to the first nine months of 2007 primarily due to a $0.6 million decrease in payroll and benefit related expenses and a $0.3 million decrease in stock-based compensation expense, partially offset by a $0.3 million increase in office supplies expense and a $0.2 million increase in travel expense.

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Patent Litigation

	Three Months Ended September 30,											Nine Months Ended September 30,
	2008			2007			Increase (Decrease)					2008			2007			Increase (Decrease)
	(in thousands, except percentages)
Patent litigation	$	243		$	580		$	(337	)	(58	%)	$	987		$	3,657		$	(2,670	)	(73	%)
Percentage of net revenue		1.0	%		1.9	%		(0.9	%)				1.4	%		4.7	%		(3.3	%)

Litigation expenses were significantly lower for the third quarter of 2008 and the first nine months of 2008 as compared to the third quarter of 2007 and the first nine months of 2007, respectively, due to lower level of activity related to the patent infringement case. We believe that we will continue to incur significant litigation expenses for the remainder of 2008 and future years. For a description of our litigation, please see Part II, Item 1 - Legal Proceedings- for further details.

Interest Income

Interest income from investments of approximately $0.7 million in the third quarter of 2008 decreased $0.7 million compared to the third quarter of 2007 due to significantly lower average interest rates.

Interest income from investments of approximately $2.6 million in the first nine months of 2008 decreased $1.5 million compared to the first nine months of 2007 due to significantly lower average interest rates.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was approximately zero in the third quarter of 2008, the third quarter of 2007 and the first nine months of 2008.

Interest and other expense was approximately $0.3 million in the first nine months of 2007 primarily as a result of a $0.3 million write-off of cumulative translation adjustment loss as a result of the liquidation of our Sweden branch office during the first quarter of 2007.

Provision for Income Taxes

We recorded a tax provision of approximately $0.3 million and $0.5 million for the three and nine months ended September 30, 2008, respectively. We recorded a tax provision of approximately $0.3 million and $1.3 million for the three and nine months ended September 30, 2007, respectively. The decrease in our tax provision from prior year is primarily due to a decrease in projected pre-tax income and nondeductible stock-based compensation.

We account for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” Under this method, we determine deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of our assets and liabilities using tax rates in effect for the year in which we expect the differences to affect taxable income. We adopted SFAS No. 123(R) as of January 1, 2006, and, as a result, incurred significant stock-based compensation expense. Our stock-based compensation expense also includes amounts related to incentive stock options for which no corresponding tax benefit is recognized unless a disqualifying disposition occurs. Disqualifying dispositions result in a reduction of the provision for income taxes in the quarter when the disqualifying disposition occurs in an amount equal to the tax benefit relating to previously expensed stock compensation. During the three months ended September 30, 2008 and 2007, the provision for income taxes was reduced by less than $0.1 million, as a result of disqualifying dispositions. During the nine months ended September 30, 2008 and 2007, the provision for income taxes was reduced by less than $0.1 million and $0.1 million, respectively, as a result of disqualifying dispositions.

During the nine months ended September 30, 2008, we increased the total amount of unrecognized tax benefits as calculated under FASB Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” by approximately $0.8 million, including an accrual of interest and penalties of less than $0.1 million. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.

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We are subject to taxation in the United States and various foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2005 and 2006 tax years. As of September 30, 2008, no audit adjustments have been made. Currently, we cannot estimate the range of reasonably possible changes in unrecognized tax benefits in the next 12 months.

Subsequent Events

On October 9, 2008, we accepted for exchange from eligible employees (excluding directors, consultants, and all executives), options to purchase an aggregate of approximately 1.8 million shares of our common stock, pursuant to a stock option exchange program (the “Exchange Offer”), giving them the right to tender outstanding stock options that were granted between February 1, 2007 and July 1, 2008 (the “Old Options”). The Old Options were cancelled as of October 9, 2008. We granted new options to purchase an equal number of shares of our common stock with an exercise price equal to the fair market value of our common stock on October 9, 2008, which was $3.08 per share, in exchange for the options cancelled in connection with the offer. These new options vest over four years at the rate of 25 percent after one year starting on October 9, 2008 and 6.25 percent every three months thereafter. We calculated incremental compensation costs related to the Exchange Offer as required by SFAS No. 123(R), which together with the unamortized costs related to the Old Options, will be amortized over the vesting period of the new options.

We performed our annual goodwill impairment analysis as of September 30, 2008 pursuant to the steps and requirements of SFAS No. 142 and determined that our $16.1 million goodwill balance was not impaired. SFAS No. 142 requires us to perform a goodwill impairment test whenever events or circumstances indicate the carrying value may not be recoverable. Due to the current economic environment, our operating results, and because we have experienced a sustained decline in our market valuation subsequent to September 30, 2008, if such market declines continue or worsen, we will perform an interim goodwill impairment test during the fourth quarter ended December 31, 2008. As a result of the interim goodwill impairment test, we may determine that a non-cash impairment charge is required. A goodwill impairment charge, if any, may have a significant negative impact on our results for the fourth quarter ended December 31, 2008.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was signed into law. A provision in this legislation provided for the extension of the research and development tax credit for qualifying expenditures paid or incurred from January 1, 2008 through December 31, 2009. As a result of this new legislation, we expect to generate federal research and development tax credits for the year ended December 31, 2008 resulting in additional tax credit carryovers. For the quarter and year ended December 31, 2008, we expect to record the full year tax benefit of this credit, which will be approximately $460,000 of tax credit.

On October 29, 2008, our board of directors authorized a program to repurchase shares of our outstanding common stock. Under the stock repurchase program, we are authorized to use up to $30 million to repurchase its outstanding common stock. We may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend upon market conditions and other factors, in accordance with Securities and Exchange Commission requirements.

Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162 (“SFAS No. 162”), “The Hierarchy of Generally Accepted Accounting Principles.” This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. While this statement formalizes the sources and hierarchy of GAAP within the authoritative accounting literature, it does not change the accounting principles that are already in place. This statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No. 162 is not expected to have a material impact on our consolidated financial statements.

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Liquidity and Capital Resources

	Nine Months Ended September 30,
	2008			2007			Increase (Decrease)
	(in thousands, except percentages)
Net cash (used in) provided by operating activities	$	(447	)	$	4,798		$	(5,245	)	(109	%)
Net cash provided by (used in) investing activities		26,028			(15,604	)		41,632		(267	%)
Net cash provided by financing activities		1,588			593			995		168	%
Effect of exchange rate changes on cash and cash equivalents		(8	)		(89	)		81		(91	%)
Net increase (decrease) in cash and cash equivalents	$	27,161		$	(10,302	)	$	37,463

Net Cash (Used in) Provided by Operating Activities

Cash used in operating activities was $0.4 million for the nine months ended September 30, 2008 primarily due to a net loss of $4.0 million, adjusted for non-cash items including $5.3 million of stock-based compensation expense and $2.2 million of depreciation and amortization, and a $4.1 million decrease in accrued and other liabilities. Accrued and other liabilities decreased by $4.1 million as we paid out 2007 bonuses during the first quarter of 2008.

Net cash provided by operating activities was $4.8 million for the nine months ended September 30, 2007. Net loss of $1.1 million was adjusted for non-cash charges consisting primarily of $2.0 million of depreciation and amortization expense and $5.1 million of stock-based compensation expense. Amortization expense included $0.9 million related to the AP Semi acquisition. Accounts payable and accrued liabilities increased $6.4 million due to the increased purchases of materials and services to meet expected demand. Inventory increased $2.3 million as a result of anticipated sales during the remainder of 2007. Accounts receivable increased $6.5 million due to higher revenue during the period.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $26.0 million in the nine months ended September 30, 2008, primarily as a result of a net cash inflow of $27.1 million from sales, maturities and purchases of our short-term investments. In the first quarter of 2008, we modified our investment policy to place greater emphasis on more liquid securities. The net cash increase provided by investing activities reflects that policy change. The net cash inflow from investing activities also included a $2.0 million cash inflow from the receipt of a note receivable, partially offset by $2.2 million used to purchase testing and other equipment and to invest in office leasehold improvements as well as $0.6 million, net of cash acquired, used to acquire Elite during the first nine months of 2008.

In June 2008, we acquired Elite, a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. Elite’s high performance Class D audio amplifier and CODEC products are designed for audio amplification and audio processing in handsets, personal media players, Bluetooth hands-free car kits and high definition televisions. We recorded goodwill of $0.4 million associated with this acquisition. We did not record any intangible assets as a result of the Elite acquisition.

Net cash used in investing activities was $15.6 million in the nine months ended September 30, 2007, primarily as a result of a net cash outflow of $13.2 million from purchases and maturities of our short-term investments and $2.4 million used to purchase testing and other equipment and to support our internal infrastructure growth.

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Net Cash Provided by Financing Activities

Net cash provided by financing activities was $1.6 million in the nine months ended September 30, 2008, primarily from net proceeds of $1.2 million from exercises of common stock options and $0.5 million of excess tax benefit from employee stock-based compensation, offset by $0.1 million used to pay our capital lease obligations.

Net cash provided by financing activities was $0.6 million in the nine months ended September 30, 2007, primarily as a result of $0.7 million net proceeds from exercises of common stock options, offset by $0.1 million used to pay our capital lease obligations.

Liquidity

Our cash, cash equivalents and short term investments were $110.9 million as of September 30, 2008 and $114.2 million as of December 31, 2007.

At September 30, 2008, we also had approximately $2.7 million of auction rate securities (“ARS”) which were illiquid. We classified these securities as long-term other assets because of our inability to determine when these ARS would recover to par value. In addition, we have recorded approximately $0.5 million of pre-tax unrealized impairment losses to-date because the fair value of these ARS measured using Level 3 inputs under the requirements of SFAS No. 157 is below the carrying value. We recorded this unrealized loss as a component of other comprehensive loss because the impairment was deemed temporary as of September 30, 2008. We have the ability and intent to hold these ARS until a recovery of value or until maturity (ranging from 2025 to 2046) because not having access to these funds does not have any significant impact on our current or anticipated liquidity needs.

In October 2008, one of our external cash managers received an offer to participate in an auction rate securities rights offering from UBS to sell up to $1.2 million of our eligible auction rate securities commencing in June 2010. The offer gives our external cash manager the right but not the obligation to sell these securities at par to UBS. In addition, accepting this offer will allow our external cash manager on behalf of us to participate in no net cost loans to UBS affiliates to borrow money prior to June 2010. The auction rate securities rights offering from UBS expires on November 14, 2008 and requires a release of claims in favor of UBS. We are in the process of evaluating the offer and its potential financial statement impact.

We believe our existing cash, cash equivalents and short-term investment balances, as well as any cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our long-term future capital requirements will depend on many factors, including our level of revenue, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, our level of acquisition activity or other strategic transactions, the continuing market acceptance of our products and the amount and intensity of our litigation activity. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

Contractual Obligations

The following table describes our principal contractual cash obligations as of September 30, 2008:

	Total		Remaining 2008		2009		2010		2011		2012		2013 and beyond
	(in thousands)
Obligations under capital leases	$	80	$	39	$	41	$	—	$	—	$	—	$	—
Operating leases		5,958		446		1,554		1,094		553		568		1,743
Purchase commitments (1)		5,332		4,150		788		394		—		—		—
Total contractual obligations	$	11,370	$	4,635	$	2,383	$	1,488	$	553	$	568	$	1,743

⁽¹⁾ Purchase commitments consist primarily of our commitment to purchase wafers and technology licenses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2008, we had cash and cash equivalents totaling $80.9 million, compared to $53.8 million at December 31, 2007. At September 30, 2008, we had $29.9 million in short-term investments as compared to $60.4 million at December 31, 2007. Cash equivalents have an original or remaining maturity when purchased of 90 days or less; short-term investments generally have an original or remaining maturity when purchased of greater than 90 days. The increase in cash and cash equivalent balances and the decrease in short-term investments reflected our change in investment policy as a result of the recent liquidity crisis. Our investment policy now places greater emphasis on instruments with more liquidity.

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The taxable equivalent interest rates for the three and nine months ended September 30, 2008, on those cash equivalents and short-term investments average approximately 2.4% and 3.0%, respectively. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. While none of the securities in which we invested are secured by real estate, these securities may be 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 may maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, debt securities and treasury notes.

A hypothetical increase in market interest rates of 100 basis points from the market rates in effect at September 30, 2008 would cause the fair value of these investments to decrease by an immaterial amount, which would not have significantly impacted our financial position or results of operations. Declines in interest rates over time will result in lower interest income. Based upon our analysis the fair values did not change materially as our investments are of short duration.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As of September 30, 2008, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective to ensure that information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2008 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In May 2003, we received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of our charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, we received a letter from Linear Technology alleging that certain of our switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, we contacted Linear Technology to convey our good faith belief that we do not infringe the patents in question. Subsequently, we became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt our business relationships and sales by suggesting to our customers that our products infringe the same U.S. patents mentioned in its two letters to us. As a result, in February 2006, we initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) investigation described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of our products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in our lawsuit with Linear Technology.

In a Final Determination issued September 24, 2007, the USITC left unchanged its earlier initial determination that our charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim of ‘531 Patent owned by Linear Technology.

The Final Determination also found that a majority of our switching regulator designs do not infringe Linear Technology’s ‘258 Patent. The USITC also found that one family of switching regulator products infringes certain claims of the ‘258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under Section 337 of the Tariff Act prohibiting the direct importation by us of this particular product family. This exclusion order does not, however, prevent our customers from importing their products into the United States. To date, our sales of this product family in the United States have been minimal. Linear Technology’s request that downstream products be barred from importation was denied.

Linear Technology has appealed portions of the Final Determination to the United States Court of Appeals for the Federal Circuit. This appeal is bifurcated into separate charge pump and switching regulator portions. On August 28, 2008 the Court of Appeals issued a ruling on the charge pump portion and upheld the invalidity of the ‘531 Patent. We believe that this ends the unsuccessful attempt by Linear Technology to assert its ‘531 Patent against us at the International Trade Commission. The separate appeal for the switching regulator portion remains pending at the United States Court of Appeals for the Federal Circuit.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that we have violated the limited exclusion order by importing certain switching regulator products. We believe that these allegations are not based in fact and that none of our products infringe the Linear Technology patents in question. Our domestic sales of these products have been minimal to date and we expect domestic sales of these products to be minimal in future periods. However, whether or not we prevail in this proceeding, we expect to incur significant legal expenses.

ITEM 1A. RISK FACTORS

Our customers may cancel their orders, change production quantities or delay production, and if we fail to forecast demand for our products accurately, we may incur product shortages, delays in product shipments or excess or insufficient product inventory.

We generally do not obtain firm, long-term purchase commitments from our customers. Because production lead times often exceed the amount of time required to fulfill orders, we often must build in advance of orders, relying on an imperfect demand forecast to project volumes and product mix. Our demand forecast accuracy can be adversely affected by a number of factors, including inaccurate forecasting by our customers, changes in market conditions, new part introductions by our competitors that lead to our loss of previous design wins, adverse changes in our product order mix and demand for our customers’ products or models. China, in particular, is an emerging market where forecasting by our

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distributors is not accurate, and there can be rapid changes in the distribution system and market conditions. Even after an order is received, our customers may cancel these orders or request a decrease in production quantities. Any such cancellation or decrease subjects us to a number of risks, most notably that our projected sales will not materialize on schedule or at all, leading to unanticipated revenue shortfalls and excess or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are unable to project customer requirements accurately, we may not build enough products, which could lead to delays in product shipments and lost sales opportunities in the near term, as well as force our customers to identify alternative sources, which could affect our ongoing relationships with these customers. We have in the past had customers dramatically increase their requested production quantities with little or no advance notice and after they had submitted their original order. We have on occasion been unable to fulfill these revised orders within the time period requested. Either overestimating or underestimating demand would lead to excess, obsolete or insufficient inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers.

We receive a substantial portion of our revenues from a small number of OEM customers and distributors, and the loss of, or a significant reduction in, orders from those customers or our other largest customers would adversely affect our operations and financial condition.

We receive a substantial portion of our revenues from two of our OEM customers, Samsung of South Korea and LG Electronics Inc. of South Korea, as well as from a few of our distributors, such as ChiefTech Electronics Ltd. of China. We received an aggregate of approximately 26% and 21% of our revenue from Samsung and LG Electronics in the third quarter of 2008 and 8% and 22% in the third quarter of 2007, respectively. In addition, we sell to a number of Samsung’s contract manufacturers. Total sales to Samsung and its contract manufacturers represented 41% and 25% of our net revenue for the third quarter of 2008 and 2007, respectively. We anticipate that we will continue to be dependent on these customers for a significant portion of our revenue in the immediate future; however, we do not have long-term contractual purchase commitments from them, and we cannot assure you that they will continue to be our customers.

We received an aggregate of approximately 86% of our revenues from our ten largest customers in both the third quarter of 2008 and 2007. Any action by one of our largest customers that affects our orders, product pricing or vendor status could significantly reduce our revenues and harm our financial results. In the future, our sales to our large customers will continue to be susceptible to quarterly fluctuation as our customers manage their inventories, principally for seasonal variations. In particular, our customers’ increase in inventory of our products in advance of the peak buying season during the second half of year for wireless handsets often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth calendar quarter. Because our largest customers account for such a significant part of our business, the loss of, or a decline in sales to, any of our major customers would negatively impact our business.

Our operating results have fluctuated in the past and we expect our operating results to continue to fluctuate.

Our revenues are difficult to predict and have varied significantly in the past from period to period. We expect our revenues and expense levels to continue to vary in the future, making it difficult to predict our future operating results. In particular, we experience seasonality and variability in demand for our products as our customers manage their inventories. Our customers tend to increase inventory of our products in anticipation of the peak fourth quarter buying season for the mobile consumer electronic devices in which our products are used, which often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth calendar quarter.

Additional factors that could cause our results to fluctuate include:

• the forecasting, scheduling, rescheduling or cancellation of orders by our customers, particularly in China and other emerging markets;

• costs associated with litigation, especially related to intellectual property;

• liquidity and cash flow of our distributors and end-market customers;

• changes in manufacturing costs, including wafer, test and assembly costs, and manufacturing yields, product quality and reliability;

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• the timing and availability of adequate manufacturing capacity from our manufacturing suppliers;

• our ability to successfully define, design and release new products in a timely manner that meet our customers’ needs;

• the timing, performance and pricing of new product introductions by us and by our competitors;

• general economic conditions in the countries where we operate or our products are used;

• changes in exchange rates, interest rates, tax rates and tax withholding;

• geopolitical stability, especially affecting China, Taiwan and Asia in general; and

• changes in domestic and international tax laws.

Unfavorable changes in any of the above factors, most of which are beyond our control, could significantly harm our business and results of operations.

We may be required to record additional significant charges to earnings if our goodwill becomes impaired.

Under accounting principles generally accepted in the United States, we review our goodwill for impairment each year as of September 30 and when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of our goodwill may not be recoverable due to factors such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. We may be required to record a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

As of September 30, 2008, our investment portfolio included $3.2 million in par value of interest bearing auction rate securities (ARS). Our ARS represent investments in debt obligations collateralized by Federal Family Education Program student loans. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The monthly auctions historically provided a liquid market for these securities. However, beginning in fiscal year 2008, uncertainties in the credit markets have affected all of our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement dates. Auctions for our investments in these securities have continued to fail during the three months ended September 30, 2008. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. The Company has the ability and intent to hold these ARS investments until a recovery of value or until maturity (ranging from 2025 to 2046).

The valuation of our investment portfolio, including our investment in ARS, is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates, liquidity and ongoing strength and quality of credit markets.

Although we currently have the ability and intent to hold these ARS investments until a recovery of the auction process or until maturity, if the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may be required to record impairment charges in future quarters which may negatively impact our results of operations.

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We may be unsuccessful in developing and selling new products or in penetrating new markets.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our competitiveness and future success depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues and a loss of design wins to our competitors. For example, we introduced over 100 new products during 2007 but many of them have not been adopted by our customers as of September 30, 2008. The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:

• effective marketing, sales and service;

• timely and efficient completion of process design and device structure improvements and implementation of manufacturing, assembly and test processes; and

• the quality, performance and reliability of the product.

If we fail to introduce new products or penetrate new markets, our revenues will likely decrease over time and our financial condition could suffer.

Due to defects and failures that may occur, our products may not meet specifications, which may cause customers to return or stop buying our products and may expose us to product liability claims.

Our customers generally establish demanding specifications for quality, performance and reliability that our products must meet. Integrated circuits, or ICs, as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require product replacement or recall. In addition, our customers may not use our products in a way that is consistent with our published specifications. If defects and failures occur in our products during the design phase or after, or our customers use our products in ways that are not consistent with their intended use, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, or product returns or discounts, any of which would harm our operating results. We cannot assure you that we will have sufficient resources, including any available insurance, to satisfy any asserted claims.

The nature of the design process requires us to incur expenses prior to earning revenues associated with those expenses, and we will have difficulty selling our products if system designers do not design our products into their electronic systems.

We devote significant time and resources in working with our customers’ system designers to understand their future needs and to provide products that we believe will meet those needs. If a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system because changing suppliers can involve significant cost, time, effort and risk for our customers.

We often incur significant expenditures in the development of a new product without any assurance that our customers’ system designers will select our product for use in their electronic systems. We often are required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need for that particular design. In some cases, there is minimal or no demand for our products in our anticipated target applications. Even if our products are selected by our customers’ system designers, a substantial period of time will elapse before we generate revenues related to the significant expenses we have incurred. The reasons for this delay generally include the following elements of our product sales and development cycle timeline and related influences:

• our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems;

• it can take up to 12 months from the time our products are selected to complete the design process;

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• it can take an additional nine to 12 months or longer to complete commercial introduction of the electronic systems that use our products, if they are introduced at all;

• original equipment manufacturers typically limit the initial release of their electronic systems to evaluate performance and consumer demand; and

• the development and commercial introduction of products incorporating new technology are frequently delayed.

We estimate that the overall sales and development cycle timeline of an average product is approximately 16 months.

Additionally, even if system designers use our products in their electronic systems, we cannot assure you that these systems will be commercially successful. As a result, we are unable to accurately forecast the volume and timing of our orders and revenues associated with any new product introductions.

Any increase in the manufacturing cost of our products could reduce our gross margins and operating profit.

The semiconductor business exhibits ongoing competitive pricing pressure from customers and competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase price variances or adverse manufacturing cost variances, will reduce our gross margins and operating profit. For example, if we do not incorporate the partially fabricated wafers held for us by our suppliers into our products in a timely fashion, we may still become obligated to purchase these materials, which may reduce our gross margins. We do not have many long-term supply agreements with our manufacturing suppliers and, consequently, we may not be able to obtain price reductions or anticipate or prevent future price increases from our suppliers.

The average selling price of our products may decline, or a change in the mix of product orders may occur, either of which could reduce our gross margins.

During a power management product’s life, its selling price tends to decrease for a particular application. As a result, to maintain gross margins on our products, we must continue to identify new applications for our products, reduce manufacturing costs for our existing products and introduce new products. If we are unable to identify new, high gross margin applications for our existing products, reduce our production costs or sell new, high gross margin products, our gross margins will suffer. A sustained reduction in our gross margins could harm our future operating results, cash flow and financial condition, which could lead to a significant drop in the price of our common stock.

Because we receive a substantial portion of our revenues through distributors, their financial viability and ability to access the capital markets could impact our ability to continue to do business with them and could result in lower revenues, which could adversely affect our operating results and our customer relationships.

We obtain a portion of our revenues through sales to distributors located in Asia who act as our fulfillment representatives. Sales to distributors accounted for 29% and 43% of our revenues for the third quarter of 2008 and 2007, respectively. In the normal course of their operation as fulfillment representatives, these distributors typically perform functions such as order scheduling, shipment coordination, inventory stocking, payment and collections and, when applicable, currency exchange between purchasers of our products and these distributors. Our distributors’ compensation for these functions is reflected in the price of the products we sell to these distributors. Many of our current distributors also serve as our sales representatives procuring orders for us to fill directly. If these distributors are unable to pay us in a timely manner or if we anticipate that they will not pay us, we may elect to withhold future shipments, which could adversely affect our operating results. If one of our distributors experiences severe financial difficulties, becomes insolvent or declares bankruptcy, we could lose product inventory held by that distributor and we could be required to write off the value of any receivables owed to us by that distributor. We could also be required to record bad debt expense in excess of our reserves. We may not be successful in recognizing these indications or in finding replacement distributors in a timely manner, or at all, any of which could harm our operating results, cash flow and financial condition.

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Our distributor arrangements often require us to accept product returns and to provide price protection and if we fail to properly estimate our product returns and price protection reserves, this may adversely impact our reported financial information.

A substantial portion of our sales are made through third-party distribution arrangements, which include stock rotation rights that generally permit the return of up to 5% of the previous six months’ purchases. We generally accept these returns in the second and fourth quarter of each annual period. Our arrangements with our distributors typically also include price protection provisions if we reduce our list prices. We record estimated returns at the time of shipment, and we record reserves for price protection at the time we decide to reduce our list prices. In the future, we could receive returns or claims that are in excess of our estimates and reserves, which could harm our operating results.

Our distributor arrangements often require us to accept returns of unsold products if contractual arrangements with a distributor are terminated, which could harm our operating results or, if we fail to take steps, could harm our relationship with these distributors and lead to a loss of revenues.

If our relationship with any of our distributors deteriorates or terminates, it could lead to a temporary or permanent loss of revenues until a replacement sales channel can be established to service the affected end-user customers, as well as inventory write-offs or accounts receivable write-offs. We may not be successful in finding suitable alternative distributors and this could adversely affect our ability to sell in certain locations or to certain end-user customers. We also may be obligated to repurchase unsold products from a distributor if we decide to terminate our relationship with that distributor.

Our current backlog may not be indicative of future sales.

Due to the nature of our business, in which order lead times may vary, and the fact that customers are generally allowed to reschedule or cancel orders on short notice, we believe that our backlog is not necessarily a good indicator of our future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because our lead times for the manufacturing of our products generally take six to ten weeks, we often must build in advance of orders. This exposes us to certain risks, most notably the possibility that expected sales will not occur, which may lead to excess inventory, and we may not be able to sell this inventory to other customers. In addition, we supply LG Electronics, one of our largest customers, through its central hub and we do not record backlog with respect to the products we ship to the hub. Therefore, our backlog may not be a reliable indicator of future sales.

If consumer demand for mobile consumer electronic devices declines, our revenues will decrease.

Our products are used primarily in the mobile consumer electronic devices market. For the foreseeable future, we expect to see the significant majority of our revenues continue to come from this market, especially in wireless handsets. If consumer demand for these products declines and fewer mobile customer electronic devices are sold, our revenues will decrease significantly. For example, in an adverse economic climate, consumers are less likely to prioritize purchasing new mobile consumer electronic devices or upgrading existing devices. In addition, if we are unsuccessful in identifying alternative markets for our products in a timely manner, our operating results will suffer dramatically. For example, there was a decline in the wireless handset demand in China and Taiwan during the first six months of 2008 and as a result, we experienced significant reduction in revenue during this period.

Substantially all of our manufacturing suppliers, customers and operations are located in Asia, which subjects us to additional risks, including regional economic influences, logistical complexity, political instability and natural disasters including earthquakes.

We conduct, and expect to continue to conduct, almost all of our business with companies that are located outside the United States. Based on ship-to locations, approximately 97% and 96% of our revenues came from customers in Asia, particularly South Korea, Taiwan, China and Japan, in the third quarter of 2008 and 2007, respectively. A vast majority of our contract manufacturing operations are located in South Korea, Taiwan, Malaysia and China. In addition, we have a design center in Shanghai, China. As a result of our international focus, we face several challenges, including:

• increased complexity and costs of managing international operations;

• longer and more difficult collection of receivables;

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• political and economic instability;

• limited protection of our intellectual property;

• unanticipated changes in local regulations, including tax regulations;

• timing and availability of import and export licenses; and

• foreign currency exchange fluctuations relating to our international operating activities.

Our corporate headquarters in Santa Clara, California, our operations office in Chupei, Taiwan, and the production facilities of one of our wafer fabrication suppliers and several of our assembly and test suppliers in Hsinchu and across Taiwan are located near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and our business could be damaged in the event of a major earthquake or other natural disaster.

In addition to risks in our operations from natural disasters, our customers are also subject to these risks. Any disaster impacting our customers could result in loss of orders, delay of business and temporary regional economic recessions.

We are also more susceptible to the regional economic impact of health crises. Because we anticipate that we will continue to rely heavily on foreign companies or U.S. companies operating in Asia for our future growth, the above risks and issues that we do not currently anticipate could adversely affect our ability to conduct business and our results of operations.

We outsource our wafer fabrication, testing, packaging, warehousing and shipping operations to third parties, and rely on these parties to produce and deliver our products according to requested demands in specification, quantity, cost and time.

We rely on third parties for substantially all of our manufacturing operations, including wafer fabrication, wafer probe, wafer thinning, assembly, final test, warehousing and shipping. We depend on these parties to supply us with material of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in the quantity required, which in turn could cause an unanticipated decline in our sales and possibly damage our customer relationships.

Our products are manufactured at a limited number of locations. If we experience manufacturing problems at a particular location, we would be required to transfer manufacturing to a backup supplier. Converting or transferring manufacturing from a primary supplier to a backup fabrication facility could be expensive and could take as long as six to 12 months. During such a transition, we would be required to meet customer demand from our then-existing inventory, as well as any partially finished goods that can be modified to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be able to meet customer needs during such a transition, which could delay shipments, cause a production delay or stoppage for our customers, result in a decline in our sales and damage our customer relationships.

In addition, a significant portion of our sales are to customers that practice just-in-time order management from their suppliers, which gives us a very limited amount of time in which to process and complete these orders. As a result, delays in our production or shipping by the parties to whom we outsource these functions could reduce our sales, damage our customer relationships and damage our reputation in the marketplace, any of which could harm our business, results of operations and financial condition.

The loss of any of our key personnel could seriously harm our business, and our failure to attract or retain specialized technical and management talent could impair our ability to grow our business.

The loss of services of one or more of our key personnel could seriously harm our business. In particular, our ability to define and design new products, gain new customers and grow our business depends on the continued contributions of Richard K. Williams, our President, Chief Executive Officer and

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Chief Technical Officer, as well as our senior level sales, finance, operations, technology and engineering personnel. Our future growth will also depend significantly on our ability to recruit and retain qualified and talented managers and engineers, along with key manufacturing, quality, sales and marketing staff members. There remains intense competition for these individuals in our industry, especially those with power and analog semiconductor design and applications expertise. We cannot assure you we will be successful in finding, hiring and retaining these individuals. If we are unable to recruit and retain such talent, our product and technology development, manufacturing, marketing and sales efforts could be impaired.

We may not be able to sustain our historical growth rate, and we may not be able to manage any future growth effectively.

We experienced significant growth in a short period of time. Our revenues increased from approximately $1.0 million in 2001 to $110.0 million in 2007. We do not expect to achieve similar growth rates in future periods. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance. If we are unable to maintain adequate revenue growth, our financial results could suffer and our stock price could decline.

We have also grown from 110 employees on January 1, 2004 to 302 employees on September 30, 2008, with many located in regional and international offices. Our international growth may subject us to income and transaction taxes in the United States and in multiple foreign locations. Our future effective tax rates could be affected by changes in our U.S. and foreign tax estimates and liabilities, or changes in tax laws or the interpretation of such tax laws. If additional taxes are assessed against us, our operating results or financial condition could be materially affected.

Our expansion has placed a significant strain on our management, personnel, systems and resources. Any future expansion is likely to result in additional strain on our managerial infrastructure. To manage our growth successfully and handle the responsibilities of being a public company, we believe we must effectively:

• recruit, hire, train and manage additional qualified engineers for our research and development activities, especially in the positions of design engineering, product and test engineering, and applications engineering;

• continue to implement and improve adequate administrative, financial and operational systems, procedures and controls; and

• enhance our information technology support for enterprise resource planning and design engineering by adapting and expanding our systems and tool capabilities, and properly training new hires as to their use.

If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new products, our introduction of derivative products may be delayed and we may fail to satisfy customer requirements, maintain product quality, execute our business plan or respond to competitive pressures.

A failure to maintain our international structure may adversely affect our tax rate, financial condition and operating results.

During 2005, we realigned certain areas of our operations in connection with the implementation of an international structure. This realignment required us to transfer certain functions previously handled in our Santa Clara, California headquarters to offices in foreign jurisdictions, primarily Macau. If we fail to maintain our realigned operations, our operating results may be adversely affected. Additionally, our international structure results in an increased volume of transactions and accounting for those transactions may require us to increase our headcount either domestically or internationally. A failure to process those transactions in an accurate and timely manner could be indicative of a material weakness in our internal controls over financial reporting. Our international structure requires that we understand complex tax laws and regulations in various domestic and international jurisdictions. If we are unable to comply with domestic and international tax laws, our tax rate and our financial condition may be adversely impacted. Further, the domestic and international tax laws governing our structure are subject to change, which could adversely affect our operations and financial results. We are currently undergoing an audit by the Internal

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Revenue Service for our 2005 and 2006 tax years. In connection with this audit, the IRS could challenge certain tax positions, including our international structure. If the IRS challenges our international structure and such challenge is successful, our financial results and financial condition could be materially and adversely affected.

Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our future effective tax rates could be adversely affected by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. Further, as a result of certain ongoing employment and capital investment commitments made by us, our income in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from tax. Our failure to meet such commitments could adversely impact our effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

If we continue to experience quarterly operating losses over an extended period of time, we may need to establish a valuation allowance on our deferred tax assets, which could adversely affect our results of operations.

During the past two quarters, we have generated operating losses. If the current trends and market conditions continue and if we continue to generate operating losses, we will need to evaluate whether a valuation allowance on our deferred tax assets should be established. The key components of this evaluation are, among other things, considering all of the positive and negative evidence in existence at that time, including the cumulative results of operations in recent years, the nature of recent losses, forecasts of a return to profitability and the length of tax loss carryforward periods. We will continue to assess whether the establishment of a valuation allowance is necessary each quarter by considering all of the positive and negative evidence in existence at that time and, depending upon the nature and weighting of such evidence, a valuation allowance on our deferred tax assets may be required in the near term, which would adversely affect our results of operations.

We compete against companies with substantially greater financial and other resources, and our market share or gross margins may be reduced if we are unable to respond to competitive challenges effectively.

The analog, mixed-signal, or analog with digital, and power management semiconductor industry in which we operate is highly competitive and dynamic, and we expect it to remain so. Our ability to compete effectively depends on defining, designing and regularly introducing new products that meet or anticipate the power management needs of our customers’ next-generation products and applications. We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other resources with which to pursue marketing, technology development, product design, manufacturing, quality, sales and distribution of their products.

We consider our primary competitors to be Maxim Integrated Products, Inc., Linear Technology Corporation, Texas Instruments Incorporated, Semtech Corporation and National Semiconductor Corporation. We expect continued competition from existing competitors as well as from new entrants into the power management semiconductor market. Our ability to compete depends on a number of factors, including:

• our success in identifying new and emerging markets, applications and technologies, and developing power management solutions for these markets;

• our products’ performance and cost effectiveness relative to that of our competitors’ products;

• our ability to deliver products in large volume on a timely basis at a competitive price;

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• our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;

• our ability to recruit application engineers and designers; and

• our ability to protect our intellectual property.

We cannot assure you that our products will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by our existing competitors or new companies entering this market.

Assertions by third parties of infringement by us of their intellectual property rights could result in significant costs, reduce sales of our products and cause our operating results to suffer.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We have in the past received, and expect that in the future we may receive, communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following:

• stop selling products or using technology that contain the allegedly infringing intellectual property;

• incur significant legal expenses;

• pay damages to the party claiming infringement;

• redesign those products that contain the allegedly infringing intellectual property; and

• attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

We initiated a lawsuit against Linear Technology Corporation in February 2006 for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. In this case, we are seeking to prevent Linear Technology from continuing a marketing campaign designed to disrupt our business relationships and sales by suggesting to our customers that our products infringe several U.S. patents owned by Linear Technology. As we informed Linear Technology in 2003 and 2004, and as discussed in our prior public filings, we believe that none of our products infringe the patents in question. However, whether or not we prevail in this lawsuit, we expect to incur significant legal expenses related to this case. In February 2006, in a related action, Linear Technology petitioned the United States International Trade Commission (“USITC”) requesting that the USITC initiate an investigation to determine if certain of our products infringe certain patents owned by Linear Technology under Section 337 of the Tariff Act. The patents involved in this action are a subset of the patents involved in the lawsuit that we filed against Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in our lawsuit with Linear Technology.

In a Final Determination issued September 24, 2007, the USITC left unchanged its earlier initial determination that our charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim of U.S. Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology.

The Final Determination also found that a majority of our switching regulator designs do not infringe Linear’s Patent No. 6,580,258 (‘258 Patent). The USITC also found that one family of switching regulator products infringes certain claims of the ‘258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under Section 337 of the Tariff Act prohibiting the direct importation by us of this particular product family. This exclusion order does not, however, prevent our customers from importing their products into the United States. Linear Technology’s request that downstream products be barred from importation was denied.

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Linear Technology has appealed portions of the Final Determination to the United States Court of Appeals for the Federal Circuit. This appeal is bifurcated into separate charge pump and switching regulator portions. On August 28^th, 2008 the Court of Appeals issued a ruling on the charge pump portion and upheld the invalidity of the ‘531 Patent. We believe that this ends the unsuccessful attempt by Linear Technology to assert its ‘531 Patent against AATI at the International Trade Commission. The separate appeal for the switching regulator portion remains pending at the United States Court of Appeals for the Federal Circuit.

On October 1, 2008, the USITC served notice that it will begin a formal enforcement proceeding for the limited exclusion order originally issued on September 24, 2007. The enforcement proceeding has been undertaken at the request of Linear Technology which has alleged that we have violated the limited exclusion order by importing certain switching regulator products. We believe that these allegations are not based in fact and that none of our products infringe the Linear Technology patents in question. Our domestic sales of these products have been minimal to date and we expect domestic sales of these products to be minimal in future periods. However, whether or not we prevail in this proceeding, we expect to incur significant legal expenses.

Uncertainty over the outcome of our litigation with Linear Technology may cause our customers or potential customers to elect not to include our products that are the subject of this litigation into the design of their systems. Once a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system, because changing suppliers can involve significant cost, time, effort and risk for our customers. As a result, our litigation with Linear Technology or any similar future litigation may reduce both our current and future revenues. If we are unsuccessful in this case, our business and our ability to compete in foreign markets could be harmed, and we could be enjoined from selling the accused products in the United States, either directly or indirectly, which could have a material adverse impact on our revenues, financial condition, results of operations and cash flows.

Our failure to protect our intellectual property rights adequately could impair our ability to compete effectively or to defend ourselves from litigation, which could harm our business, financial condition and results of operations.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements to protect our proprietary technologies and know-how. While we have more than 50 patents issued or allowed in the United States or foreign countries and a larger number of pending applications, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents could be challenged or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is generally not as comprehensive as our U.S. patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products.

Monitoring unauthorized use of our intellectual property is difficult and costly. It is possible that unauthorized use of our intellectual property may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could harm our business, results of operations and financial condition. We may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.

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Any acquisitions we make could disrupt our business, result in integration difficulties or fail to realize anticipated benefits, which could adversely affect our financial condition and operating results.

We may choose to acquire companies, technologies, assets and personnel that are complementary to our business, including for the purpose of expanding our new product design capacity, introducing new design, market or application skills or enhancing and expanding our existing product lines. In October 2006, we acquired Analog Power Semiconductor Corporation and related assets and personnel, primarily located in Shanghai, China. In June 2008, we acquired Elite, located in Shanghai, China. Acquisitions involve numerous risks, including the following:

• difficulties in integrating the operations, systems, technologies, products and personnel of the acquired companies;

• diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;

• difficulties in entering markets in which we may have no or limited direct prior experience and where competitors may have stronger market positions;

• the potential loss of key employees, customers, distributors, suppliers and other business partners of the companies we acquire following and continuing after announcement of acquisition plans;

• improving and expanding our management information systems to accommodate expanded operations;

• insufficient revenue to offset increased expenses associated with acquisitions; and

• addressing unforeseen liabilities of acquired businesses.

Acquisitions may also cause us to:

• issue capital stock that would dilute our current stockholders’ percentage ownership;

• use a substantial portion of our cash resources or incur debt;

• assume liabilities;

• record goodwill or incur amortization expenses related to certain intangible assets; and

• incur large and immediate write-offs and other related expenses.

Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, and our failure to realize these benefits could adversely affect our business. In addition, we may not be successful in identifying future acquisition opportunities or in consummating any acquisitions that we may pursue on favorable terms, if at all. Any transactions that we complete may impair stockholder value or otherwise adversely affect our business and the market price of our stock. Failure to manage and successfully integrate acquisitions could materially harm our financial condition and operating results.

Our operating results, financial condition and cash flows may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry.

The semiconductor industry has historically exhibited cyclical behavior which at various times has included significant downturns in customer demand. These conditions have caused significant variations in product orders and production capacity utilization, as well as price erosion. Because a significant portion of our expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses rapidly enough to offset any unanticipated shortfall in revenues. If this situation were to occur, it could adversely affect our operating results, cash flow and financial condition.

Additionally, general worldwide economic conditions have recently experienced a downturn due to slower economic activity, concerns about inflation and deflation, fears of recession, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the wired and wireless communications markets, recent international conflicts and terrorist and military activity and the impact of natural disasters and public health emergencies. Our operations and performance depend significantly on worldwide economic conditions and their impact on consumer spending, which has recently deteriorated significantly in many countries and regions, including the United States and Asia, and may remain depressed fro the foreseeable future. For example, some of the factors that could influence consumer spending include continuing increases in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. In addition, these conditions make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the economy or markets in which we operate do not continue at their present levels, our business, financial condition and results of operations will likely be materially and adversely affected.

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Our business may be adversely impacted if our end customers cannot obtain sufficient supplies of other components in their products to meet their production projections and target quantities.

Our power management products are used by our customers in conjunction with a number of other components such as digital integrated circuits, baseband processors, microcontrollers and digital signal processors. If for any reason our customers incur a shortage of any component, their ability to produce the forecasted quantity of their end product or model may be adversely affected and our product sales would decline until such shortage is remedied. Such a situation could harm our operating results, cash flow and financial condition.

A failure of our information systems would adversely impact our ability to process orders for and manufacture products.

We operate a multinational business enterprise with manufacturing, administration and sales groups located in Asia, Europe and the United States. These disparate groups are connected by a private network-based enterprise resource planning system, where daily manufacturing operations and order entry functions rely on maintaining a reliable network among locations. Any failure of our computer network or our enterprise resource planning system would impede our ability to schedule orders, monitor production work in process and ship and bill our finished goods to our customers.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings 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 in any filings.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

SIGNATURE

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.

	ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED
Dated: October 31, 2008	By:	/s/ Brian R. McDonald
		Brian R. McDonald
		Chief Financial Officer, Vice President of Worldwide Finance and Secretary

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EXHIBIT INDEX

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings 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 in any filings.

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