10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

þ 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

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

For the transition period from                      to                     

COMMISSION FILE NUMBER 000-26124

IXYS CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	77-0140882
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

1590 BUCKEYE DRIVE
MILPITAS, CALIFORNIA 95035-7418
(Address of principal executive offices and Zip Code)

(408) 457-9000
(Registrant’s telephone number, including area code)

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 þ No o

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

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a 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 o No þ

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of October 30, 2008 was 31,098,630.

IXYS CORPORATION

FORM 10-Q
September 30, 2008

INDEX

		Page
PART I — FINANCIAL INFORMATION			3
ITEM 1.	FINANCIAL STATEMENTS		3
	UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS		3
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS		4
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)		5
	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
	NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		27
ITEM 4.	CONTROLS AND PROCEDURES		27
PART II – OTHER INFORMATION			28
ITEM 1.	LEGAL PROCEEDINGS		28
ITEM 1A	RISK FACTORS		28
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		40
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		40
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		40
ITEM 5.	OTHER INFORMATION		40
ITEM 6.	EXHIBITS		40
EX-31.1
EX-31.2
EX-32.1

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30,			March 31,
	2008			2008
ASSETS
Current assets:
Cash and cash equivalents	$	70,212		$	56,614
Restricted cash		140			620
Accounts receivable, net of allowances of $1,902 at September 30, 2008 and $1,712 at March 31, 2008		47,821			50,270
Inventories		87,144			86,516
Prepaid expenses and other current assets		4,901			6,415
Deferred income taxes		7,183			7,578
Total current assets		217,401			208,013
Property, plant and equipment, net		57,205			58,033
Other assets		6,789			8,593
Deferred income taxes		13,354			13,546
Goodwill		5,824			5,645
Total assets	$	300,573		$	293,830
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	4,118		$	4,890
Current portion of loans payable		1,548			1,286
Accounts payable		17,371			21,489
Accrued expenses and other current liabilities		27,362			17,956
Total current liabilities		50,399			45,621
Long term income tax payable		4,571			4,570
Capitalized lease obligations, net of current portion		5,170			7,023
Long term loans, net of current portion		19,210			19,159
Pension liabilities		15,514			17,228
Total liabilities		94,864			93,601
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized: 5,000,000 shares; none issued and outstanding		—			—
Common stock, $0.01 par value:
Authorized: 80,000,000 shares; 35,939,717 issued and 31,622,246 outstanding at September 30, 2008 and 35,403,630 issued and 31,086,159 outstanding at March 31, 2008		359			354
Additional paid-in capital		174,245			170,043
Treasury stock, at cost: 4,317,471 common shares at September 30, 2008 and March 31, 2008		(37,918	)		(37,918	)
Retained earnings		58,875			50,494
Accumulated other comprehensive income		10,148			17,256
Total stockholders’ equity		205,709			200,229
Total liabilities and stockholders’ equity	$	300,573		$	293,830

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

3

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net revenues	$	77,635		$	76,165		$	156,971		$	152,066
Cost of goods sold		53,838			56,160			108,412			109,673
Gross profit		23,797			20,005			48,559			42,393
Operating expenses:
Research, development and engineering		5,431			5,131			10,825			10,204
Selling, general and administrative		10,433			9,897			21,492			20,737
Litigation provision		—			(1,195	)		—			(5,979	)
Total operating expenses		15,864			13,833			32,317			24,962
Operating income		7,933			6,172			16,242			17,431
Other income (expense):
Interest income		429			595			726			1,174
Interest expense		(459	)		(559	)		(943	)		(867	)
Other income (expense), net		779			(1,253	)		1,732			(911	)
Income before income tax		8,682			4,955			17,757			16,827
Provision for income tax		(2,623	)		(1,006	)		(6,214	)		(5,874	)
Net income	$	6,059		$	3,949		$	11,543		$	10,953
Net income per share
Basic	$	0.19		$	0.12		$	0.37		$	0.34
Diluted	$	0.18		$	0.12		$	0.35		$	0.33
Cash dividends per share	$	0.10			—		$	0.10			—
Weighted average shares used in per share calculation
Basic		31,554			32,280			31,368			32,385
Diluted		32,887			33,603			32,567			33,696

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

4

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net income	$	6,059		$	3,949		$	11,543		$	10,953
Other comprehensive income (loss):
Unrealized (loss) gain on available for sale investment securities, net of taxes of ($39) and ($242) for the three and six months ended September 30, 2008 and net of taxes of ($393) and ($220) for the three and six months ended September 30, 2007		(75	)		(544	)		(471	)		(257	)
Foreign currency translation adjustments		(6,642	)		2,956			(6,637	)		3,694
Comprehensive income (loss)	$	(658	)	$	6,361		$	4,435		$	14,390

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

5

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	11,543		$	10,953
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,575			6,147
Provision for receivables allowances		2,941			1,419
Net change in inventory reserves		1,669			2,734
Change in litigation provision		—			(5,979	)
Foreign currency adjustments on intercompany amounts		(943	)		179
Deferred income taxes		—			4,437
Stock-based compensation		1,172			944
Loss (gain) on investments and fixed assets		89			(306	)
Changes in operating assets and liabilities:
Accounts receivable		(2,429	)		(4,264	)
Inventories		(6,263	)		(81	)
Prepaid expenses and other current assets		(912	)		368
Other assets		40			114
Accounts payable		(3,133	)		(1,040	)
Accrued expenses and other liabilities		9,028			(2,853	)
Pension liabilities		(279	)		(588	)
Net cash provided by operating activities		19,098			12,184
Cash flows from investing activities:
Change in restricted cash		479			(522	)
Business combination, net of cash and cash equivalents acquired		(231	)		—
Purchases of investments		(918	)		(2,408	)
Purchases of plant and equipment		(6,016	)		(2,855	)
Proceeds from sale of investments		3,611			366
Proceeds from sale of fixed assets		335			—
Net cash used in investing activities		(2,740	)		(5,419	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(2,484	)		(1,977	)
Repayments of long term loans and notes payable		(1,468	)		(536	)
Purchases of treasury stock		—			(5,028	)
Proceeds from employee equity plans		3,034			1,096
Net cash used in financing activities		(918	)		(6,445	)
Effect of exchange rate fluctuations on cash and cash equivalents		(1,842	)		1,662
Net increase in cash and cash equivalents		13,598			1,982
Cash and cash equivalents at beginning of period		56,614			54,027
Cash and cash equivalents at end of period	$	70,212		$	56,009

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

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Unaudited Condensed Consolidated Financial Statements

     The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of IXYS Corporation (“IXYS” or the “Company”) and its wholly-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most difficult judgments include: allowance for sales returns, allowance for doubtful accounts, allowance for ship and debits, valuation of inventories, valuation of property, plant, equipment, goodwill, and intangible assets, revenue recognition, legal contingencies, income tax and defined benefit plans. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. The condensed balance sheet as of March 31, 2008 has been derived from the Company’s audited balance sheet as of that date. It is recommended that the interim financial statements be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2008 contained in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year.

2. Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board, or the FASB, issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP 157-1”) and FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FASB FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective April 1, 2008, The Company adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis. The partial adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on the Company’s unaudited condensed consolidated financial statements, results of operations or cash flows. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for information and related disclosures regarding our fair value measurements.

     In October 2008 the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active,” (“FSP 157-3”) to clarify the application of the provisions of SFAS No. 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Company’s September 30, 2008 financial statements. The application of the provisions of FSP 157-3 did not materially affect the Company’s unaudited condensed consolidated financial statements, results of operations or cash flows.

     As of April 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings for items measured using the fair value option. The Company does not have any instruments that are eligible for the election of the fair value option. Therefore, the adoption of SFAS No. 159 in the first quarter of fiscal 2009 did not impact the Company’s unaudited condensed consolidated financial statements, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS No. 141(R) and SFAS No. 160 are effective for the fiscal year beginning April 1, 2009. The Company is currently evaluating the provisions of SFAS No. 141(R) and SFAS No. 160.

7

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). The standard requires additional quantitative disclosures (provided in tabular form) and qualitative disclosures for derivative instruments. The required disclosures include how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows; relative volume of derivative activity; the objectives and strategies for using derivative instruments; the accounting treatment for those derivative instruments formally designated as the hedging instrument in a hedge relationship; and the existence and nature of credit-related contingent features for derivatives. SFAS No. 161 does not change the accounting treatment for derivative instruments. SFAS No. 161 is effective for the Company for fiscal quarter beginning after January 1, 2009. The Company is currently evaluating the impact of SFAS No. 161.

3. Employee Equity Incentive Plans

Stock Options, Restricted Stock Units and Stock Bonuses:

     Stock options, restricted stock units (“RSUs”) and stock bonuses may be granted under the 1999 Equity Incentive Plan and the 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plans”). Stock options may be granted for not less than 85% of fair market value at the time of grant. The options granted to employees typically vest over four years and expire ten years from the date of grant. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. No options have been granted below fair market value. The Company also grants options that contain net exercise provisions. These options generally vest over a period of four years. In a net exercise option, the number of shares issued upon exercising the stock option is net of the number of shares subject to the option cancelled to cover the aggregate exercise price. Under the Plans, IXYS may also award shares of common stock as stock bonuses. The Company did not award any stock bonuses during the three and six months ended September 30, 2008.

     RSUs may be granted under the Company’s 1999 Equity Incentive Plan. Pursuant to an award, the Company will, in the future, deliver shares of the Company’s common stock if certain requirements, including continued performance of services, are met. RSUs granted to employees typically vest over four years. When vested, each RSU will entitle the holder of the RSU award to one share of the Company’s common stock. The Company did not award any RSUs during the three and six months ended September 30, 2008.

     Since inception, the cumulative amount authorized for the 1999 Equity Incentive Plan was approximately 12.6 million shares. The 1999 Equity Incentive Plan has an evergreen feature that adds up to 1,000,000 shares to the total shares authorized each year at the discretion of the Board. The 1999 Non-Employee Directors’ Equity Incentive Plan had a total of 500,000 shares authorized at its inception date.

Employee Stock Purchase Plan

     In May 1999, the stockholders approved the 1999 Employee Stock Purchase Plan (“Purchase Plan”) and reserved 500,000 shares of common stock for issuance under the Purchase Plan. In July 2007, the Purchase Plan was amended to reserve an additional 350,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, substantially all U.S. employees may purchase the Company’s common stock at a price equal to 85% of the lower of the fair market value at the beginning or the end of each specified six-month offering period. Stock purchases are limited to 15% of an employee’s eligible compensation. No shares were purchased during the quarter ended September 30, 2008. During the six months ended September 30, 2008, there were 44,231 shares purchased under the Purchase Plan, leaving 284,746 shares available for purchase under the plan in the future.

Stock-Based Compensation:

     The following table summarizes the effects of share-based compensation charges (in thousands):

Income Statement Classifications

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Selling, general and administrative expenses	$	575	$	510	$	1,172	$	944
Share-based compensation effect in income before taxes		575		510		1,172		944
Provision for income taxes (1)		207		199		422		368
Net share-based compensation effects in net income	$	368	$	311	$	750	$	576

(1) Estimated at a statutory income tax rate of 36% in fiscal year 2009 and 39% in fiscal year 2008.

8

     During the three and six months ended September 30, 2008, the unaudited condensed consolidated statements of operations and cash flows do not reflect any tax benefit for the tax deduction from option exercises and other awards. As of September 30, 2008, approximately $4.9 million in stock based compensation is to be recognized for unvested stock options granted under the Plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.8 years.

     The Black-Scholes option pricing model is used to estimate the fair value of options granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s stock purchase plan. The weighted average estimated values of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating these values during the three and six months ended September 30, 2008 and 2007, were based on estimates at the grant date as follows:

	Stock Options												Purchase Plan (1)
	Three months ended						Six months ended						Six months ended
	September 30,						September 30,						September 30,
	2008			2007			2008			2007			2008			2007
Weighted average estimated fair value of grant per share	$	4.78		$	4.54		$	4.57		$	4.29		$	3.00		$	2.65
Risk-free interest rate		2.8	%		4.0	%		2.8	%		4.5	%		3.3	%		4.9	%
Expected term (in years)		4.6			4.3			4.6			4.3			0.5			0.5
Volatility		47	%		48	%		47	%		49	%		57	%		44	%
Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%

(1) Under the stock purchase plan, rights to purchase shares are only granted during the first and third quarters of each fiscal year.

     Activity with respect to outstanding stock options for the six months ended September 30, 2008 was as follows:

				Weighted Average
	Number of			Exercise Price Per		Intrinsic
	Shares			Share		Value (1)
						(000)
Balance, March 31, 2008		4,828,817		$	8.46
Options granted		498,000		$	11.37
Options exercised		(468,344	)	$	5.88	$	2,872
Options cancelled and expired		(74,875	)	$	16.40
Balance, September 30, 2008		4,783,598		$	8.93
Exercisable, September 30, 2008		3,696,248		$	8.53
Exercisable, March 31, 2008		3,968,967		$	8.28

(1) Represents the difference between the exercise price and the value of IXYS stock at the time of exercise.

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     Activity with respect to outstanding restricted stock units for the six months ended September 30, 2008 was as follows:

				Weighted Average
	Number of			Grant Date Fair		Aggregate
	Shares			Value		Fair Value (1)
						(000)
Balance, March 31, 2008		97,350		$	9.58
RSUs vested (2)		(32,450	)	$	9.58	$	286
RSUs forfeited		—			—
Balance, September 30, 2008		64,900		$	9.58

(1)	For RSUs, represents value of IXYS stock on the date the restricted stock unit vests.
(2)	The number of restricted stock units vested includes shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

4. Computation of Net Income per Share

     Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Basic:
Weighted average shares		31,554		32,280		31,368		32,385
Net income	$	6,059	$	3,949	$	11,543	$	10,953
Net income per share	$	0.19	$	0.12	$	0.37	$	0.34
Diluted:
Weighted average shares		31,554		32,280		31,368		32,385
Common equivalent shares from stock options		1,333		1,323		1,199		1,311
Weighted average shares used in diluted per share calculation		32,887		33,603		32,567		33,696
Net income	$	6,059	$	3,949	$	11,543	$	10,953
Net income per share	$	0.18	$	0.12	$	0.35	$	0.33

     Basic income available per common share is computed using net income and the weighted average number of common shares outstanding during the period. Diluted income per common share is computed using net income and the weighted average number of common shares outstanding, assuming dilution. Weighted average common shares outstanding, assuming dilution, includes potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of stock options and assumed vesting of restricted stock units using the treasury stock method. These options could be included in the calculation in the future, if the average market value of the common shares increases and is greater than the exercise price of these options. For the quarter and the six months ended September 30, 2008, there were outstanding options to purchase 1.8 million and 2.4 million shares, respectively (2.0 million shares for the quarter and six months ended September 30, 2007) that were not included in the computation of dilutive net income per share since the exercise price of the options were greater than or equal to the average market price of the common stock.

5. Fair Value

     We adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) as of April 1, 2008. SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the principal or most advantageous market in which the Company would transact is considered and assumptions that market participants would use when pricing the asset or liability, such as inherent risk, restrictions on sale, and risk of nonperformance are considered. SFAS No. 157 also specifies a fair value hierarchy based upon the observability of inputs used in

10

valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with SFAS No. 157, fair value measurements are classified under the following hierarchy:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

     Assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of September 30, 2008 (in thousands):

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets		Significant Other		Unobservable
			for Identical		Observable Inputs		Inputs
	Total		Assets (Level 1)		(Level 2)		(Level 3)
	(unaudited)
Assets
Marketable equity securities (1)	$	176	$	176	$	—	$	—
Derivative contracts (2)		380		—		380		—
Total assets measured at fair value	$	556	$	176	$	380	$	—

(1)	Included in other assets on the Company’s unaudited condensed consolidated balance sheet.
(2)	Included in prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheet.

     The Company measures its marketable securities and derivative contracts at fair value. Marketable securities are valued using the quoted market prices.

     The Company uses derivative instruments to manage exposures to changes in foreign currency exchange rates and interest rates. In accordance with SFAS No. 133, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” the fair value of these instruments are recorded on the balance sheet. The changes in the fair value of these instruments are recorded in current period’s income statement. All of the Company’s derivative instruments are traded on over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value using prices obtained from the counterparties with whom the Company has traded. The counterparties price the derivatives based on models that use primarily market observable inputs, such as yield curves and option volatilities. Accordingly, the Company classifies these derivatives as Level 2.

     Other financial instruments not recorded at fair value on the balance sheet include cash and cash equivalents and accounts receivable. Long term debt, which primarily consists of notes from banks, approximates fair value due to the terms of the underlying debt.

6. Inventories

     Inventories consist of the following (in thousands):

	September 30,		March 31,
	2008		2008
	(unaudited)
Raw materials	$	21,403	$	23,108
Work in process		40,916		40,828
Finished goods		24,825		22,580
Total	$	87,144	$	86,516

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7. Other Assets

     Other assets consist of the following (in thousands):

	September 30,		March 31,
	2008		2008
	(unaudited)
Available for sale investment securities	$	176	$	3,161
Long term equity investment		3,999		4,298
Intangible assets, net		1,990		466
Other		624		668
Total	$	6,789	$	8,593

     The Company acquired certain intangible assets in a business combination completed during the quarter ended September 30, 2008. These intangible assets are expected to be amortized over 3 — 5 years. Refer to note 10 “Business Combination,” for more details on the acquisition.

8. Borrowing Arrangements

     IKB Deutsche Industriebank

     On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed €10.0 million, or about $12.2 million at the time, from IKB Deutsche Industriebank for a term of 15 years. The outstanding balance at September 30, 2008 was €7.8 million or $11.3 million. The outstanding balance at September 30, 2007 was €8.5 million or $12.1 million at the time.

     The interest rate on the loan is determined by adding the then effective three month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, then the Euribor rate for the purposes of the loan shall be 4.1%, and, if the Euribor rate falls below 2%, then the Euribor rate for the purposes of the loan shall be 3%. Thereafter, the interest rate is recomputed annually. The interest rate at September 30, 2008 was 4.8%.

     Each fiscal quarter beginning with the quarter ended September 2005, during the first five years of the loan, a principal payment of €167,000, or about $241,000 and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

     Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At September 30, 2008, the Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

     LaSalle Bank National Association

     On August 2, 2007, IXYS Buckeye, LLC, a subsidiary of IXYS, entered into an Assumption Agreement with LaSalle Bank National Association, trustee for Morgan Stanley Dean Witter Capital I Inc., for the assumption of a loan of $7.5 million in connection with the purchase of property in Milpitas, California. The loan carries a fixed annual interest rate of 7.455%. Monthly payments of principal and interest of $56,000 are due under the loan. In addition, monthly impound payments aggregating $13,000 are to be made for items such as real property taxes, insurance and capital expenditures. The loan is due and payable on February 1, 2011. At maturity, the remaining balance on the loan will be approximately $7.1 million. The loan is secured by a guarantee from IXYS and collateralized by a security interest in the property acquired. Aggregate loan costs of $93,000 incurred in connection with the loan are being amortized on straight-line basis over the loan period, and the unamortized balance is shown net of the loan liability.

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9. Accrued Expenses and Other Liabilities

     Accrued expenses and other liabilities consist of the following (in thousands):

	September 30,		March 31,
	2008		2008
	(unaudited)
Uninvoiced goods and services	$	8,575	$	6,306
Compensation and benefits		7,153		7,428
Income taxes		4,054		—
Dividends payable		3,162		—
Commission, royalties, deferred revenue and other		4,418		4,222
	$	27,362	$	17,956

10. Business Combination

     On September 10, 2008, the Company acquired all the outstanding shares of Reaction Technology Incorporated (“RTI”), a privately held company based in Santa Clara, California, for $3.0 million of purchase consideration. The purchase consideration consisted of $1.0 million in cash and the issuance of a note with a face value of $2.0 million. The note is repayable in 60 equal monthly installments of $38,666, which includes interest at an annual rate of 6%. The Company also purchased the land and building formerly leased from RTI’s majority shareholder for cash consideration of $1.5 million. RTI is a supplier of silicon epitaxy and silicon coatings to the semiconductor and industrial sectors. The acquisition of RTI is intended to improve the Company’s ability to meet its production requirements and provide the Company more control over manufacturing.

     The purchase price allocation for this acquisition is preliminary and subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities becomes available. Any change in the estimated fair value of the net assets of the acquired company will change the amount of the purchase price allocable to goodwill. As a result of this acquisition, the Company recorded $1.6 million in intangible assets, consisting principally of customer relationships, and $0.2 million in goodwill. Goodwill represents the excess of purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets and is not deductible for tax purposes. RTI has been consolidated into the Company’s results of operations since the acquisition date. In the year ended December 31, 2007, RTI’s unaudited net revenues were about $3.8 million. Pro forma results of operations have not been presented because the effects of this acquisition were not material to the Company’s consolidated results of operations.

11. Pension Plans

     IXYS maintains two defined benefit pension plans: one for the United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. The Company deposits funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrues for the unfunded portion of the obligations. These plans have been curtailed. As such, the plans are closed to new entrants and no credit is provided for additional periods of service.

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     The net periodic pension expense includes the following components (in thousands):

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(unaudited)						(unaudited)
Service cost	$	—		$	3		$	—		$	5
Interest cost on projected benefit obligation		601			118			1,227			233
Expected return on plan assets		(452	)		(5	)		(923	)		(9	)
Recognized actuarial loss		24			8			49			16
Net periodic pension expense	$	173		$	124		$	353		$	245

     IXYS expects to contribute approximately $957,000 to the plans in the fiscal year ending March 31, 2009. This contribution is primarily contractual.

12. Accumulated Other Comprehensive Income:

     The components of accumulated other comprehensive income, net of tax (in thousands):

	September 30,			March 31,
	2008			2008
	(unaudited)
Accumulated net unrealized gain (loss) on available for sale investments securities, net of tax ($58) as of September 30, 2008 and $184 as of March 31, 2008	$	(113	)	$	358
Unrecognized actuarial loss, net of tax of $1,667		(3,100	)		(3,100	)
Accumulated foreign currency translation adjustments		13,361			19,998
Total accumulated other comprehensive income	$	10,148		$	17,256

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13. Segment Information

     IXYS has a single operating segment. This operating segment is comprised of semiconductor products used primarily in power-related applications. While the Company has separate legal subsidiaries with discrete financial information, the Company has one chief operating decision maker with highly integrated businesses. IXYS’s sales by major geographic area (based on destination) were as follows (in thousands):

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
United States	$	21,586	$	21,142	$	43,026	$	40,450
Europe and the Middle East
Germany		11,863		10,768		24,116		21,672
United Kingdom		5,046		5,011		10,179		12,002
France		2,119		1,794		4,312		3,585
Italy		1,982		1,939		4,524		3,780
Other		11,341		9,595		23,137		19,625
Asia Pacific
China		8,524		10,454		18,679		20,503
Korea		2,020		4,916		4,355		8,496
Japan		2,658		2,389		5,345		4,610
Other		4,967		3,506		9,091		7,748
Rest of the World
India		4,025		2,742		7,162		5,415
Other		1,504		1,909		3,045		4,180
Total	$	77,635	$	76,165	$	156,971	$	152,066

     The following table sets forth net revenues for each of IXYS’s product groups for the three and six months ended September 30, 2008 and 2007 (in thousands):

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Power semiconductors	$	61,089	$	58,553	$	125,351	$	115,383
Integrated circuits		9,244		11,114		17,412		23,782
Systems and RF power semiconductors		7,302		6,498		14,208		12,901
Total	$	77,635	$	76,165	$	156,971	$	152,066

     For the three and six months ended September 30, 2008 and for the six months ended September 30, 2007, no customer accounted for more than 10% of our net revenues. For the three months ended September 30, 2007, one customer accounted for 10.8% of our net revenues.

14. Commitments and Contingencies

Legal Proceedings:

     IXYS is currently involved in a variety of legal matters that arise in the normal course of business. Were an unfavorable ruling to occur, there could be a material adverse impact on our financial condition, results of operations or cash flows.

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International Rectifier

     In June 2000, International Rectifier Corporation filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain of IXYS’s products sold in the United States infringed U.S. patents owned by International Rectifier. In September 2006, the U.S. District Court entered a judgment for $6.2 million in damages and issued a permanent injunction barring IXYS from selling or distributing the infringing products. In February 2008, the Federal Circuit Court reversed the U.S. District Court, vacated the damages award and the permanent injunction and ruled that there shall be no further proceedings in the case regarding any question of infringement. IXYS reversed the liability recognized in the financial statement upon the ruling of the Federal Circuit Court. In July 2008, International Rectifier filed a petition for a writ of certiorari with the Supreme Court of the United States. In October 2008, the U.S. Supreme Court denied the petition for a writ of certiorari, concluding the litigation.

     In a related matter, the Company incurred litigation costs to defend a key supplier. The U.S. District Court for Central California has issued orders in this defense that are expected to result in the Company receiving about $2 million from International Rectifier for litigation costs incurred. The Company will record the receipt of the funds as a reduction of operating expenses in the period that the funds are received.

LoJack

     In April 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc., a subsidiary of IXYS, in the Superior Court of Norfolk County, Massachusetts claiming breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, failure to perform services and violation of a Massachusetts statute prohibiting unfair and deceptive acts and practices, all purportedly resulting from Clare’s alleged breach of a contract to develop custom integrated circuits and a module assembly. In February 2006, the jury awarded LoJack $36.7 million in damages. In July 2006, the Superior Court reduced LoJack’s damages to $4.0 million. In July 2007, the Appeals Court ruled that Clare owed LoJack $805,000 plus simple interest at the rate of 12% per annum from April 2003, which aggregated to $1.2 million. In September 2007, the Supreme Judicial Court of Massachusetts denied the application for further appellate review filed by LoJack. The denial by the Supreme Judicial Court effectively concluded the material litigation between Clare and LoJack. Clare paid LoJack $1.2 million in accordance with the opinion of the Appeals Court.

Other Commitments and Contingencies:

     IXYS Corporation guarantees, for certain events of default, a $5.0 million line of credit issued by a German bank to IXYS Semiconductor GmbH to support a letter of credit facility. At September 30, 2008, there were no open letters of credit to support inventory purchases. Westcode Semiconductor Limited (“Westcode”), a subsidiary, had a Letter of Credit facility from a British bank. At September 30, 2008, there were approximately £144,000, or $262,000, of open letters of credit to support inventory purchases. The bank also issued a guarantee on behalf of the subsidiary for £44,000, or $80,000, in connection with a product supply contract.

     On occasion, the Company provides limited indemnification to customers against intellectual property infringement claims related to the Company’s products. To date, the Company has not experienced significant activity or claims related to such indemnifications. The Company does provide in the normal course of business indemnification to its officers, directors and selected parties. The Company is unable to estimate any potential future liability, if any; therefore, no liability for these indemnification agreements has been recorded as of September 30, 2008 and March 31, 2008.

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

     This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in Item 1A of Part II of this Form 10-Q. Actual results may differ materially from the results discussed in the forward-looking statements. For a discussion of risks that could affect future results, see “Risk Factors” in Item 1A of Part II of this Form 10-Q. All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Overview

     We are a multi-market integrated semiconductor company. Our three principal product groups are: power semiconductors; integrated circuits; and systems and RF power semiconductors.

     Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 200 watts of power.

     We also design, manufacture and sell integrated circuits, or ICs, for a variety of applications. Our analog and mixed signal ICs are principally used in telecommunications applications. Our mixed signal application specific ICs, or ASICs, address the requirements of the medical imaging equipment and display markets. Our power management and control ICs are used in conjunction with our power semiconductors.

     Our systems include laser diode drivers, high voltage pulse generators and modulators, and high power subsystems, sometimes known as modules or stacks, that are principally based on our high power semiconductor devices. Our RF power semiconductors enable circuitry that amplifies or receives radio frequencies in wireless and other microwave communication applications, medical imaging applications and defense and space applications.

     In the September 2008 quarter, our revenue declined as compared to the immediately preceding quarter, in large part due to the effect of an increased U.S. Dollar/Euro exchange rate on the translation of our European revenues. This effect is expected to continue in the December 2008 quarter, along with a successive decline in our quarterly revenues. From the June 2008 quarter to the September 2008 quarter, distribution revenues decreased while original equipment manufacturers’ revenues increased slightly. Distributor inventory declined in the September 2008 quarter as compared to the June 2008 quarter. From the June 2008 quarter to the September 2008 quarter, power semiconductor revenues declined. The decrease in power semiconductor revenues primarily reflects decreasing sales to the industrial and commercial market, offset by increasing sales to the medical market. Sales of subassemblies to industrial and commercial customers have driven the growth in systems and RF power semiconductor revenues over the past year. Over the past two quarters, IC revenues increased in light of increasing demand in medical and telecommunications markets. In recent periods, research, development and engineering expenses have remained relatively consistent, both in absolute terms and expressed as a percentage of revenues. Selling, general and administrative expenses, exclusive of bad debt expenses and other non-recurring items, have been relatively flat over the past four quarters. In general, our visibility regarding future performance has declined in the face of the recent worldwide macroeconomic downturn.

Critical Accounting Policies and Significant Management Estimates

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the reasonableness of its estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies require that we make significant judgments and estimates in preparing our consolidated financial statements.

     Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 47% of our revenues in the first six months of fiscal 2009 and 50% of our revenues in the first six months of fiscal 2008 were from distributors. We provide some of our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a sales incentive program for products previously shipped to distributors. We recognize revenue from product sales upon shipment provided that we have received

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an executed purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Our shipping terms are generally FOB shipping point. Reserves for allowances are also recorded at the time of shipment. Our management must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical returns and ship and debit transactions, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing the allowances in any accounting period. We have visibility into inventory held by our distributors to aid in our reserve analysis. Different judgments or estimates would result in material differences in the amount and timing of our revenue for any period.

     Under certain circumstances where our management is not able to reasonably and reliably estimate the actual returns, revenues and costs relating to distributor sales are deferred until products are sold by the distributors to the distributor’s end customers. Deferred amounts are presented net and included under accrued expenses and other liabilities in our unaudited condensed consolidated financial statements. Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfer, typically upon shipment from IXYS at which point we have a legally enforceable right to collection under normal payment terms.

     We state our revenues, net of any taxes collected from customers that are required to be remitted to the various government agencies. The amount of taxes collected from customers and payable to government is included under accrued expenses and other liabilities. Shipping and handling costs are included in cost of sales.

     Allowance for sales returns. We maintain an allowance for sales returns for estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, current economic trends, changes in customer demand, known returns we have not received and other assumptions. If we were to make different judgments or utilize different estimates, the amount and timing of our revenue could be materially different. Given that our revenues consist of a high volume of relatively similar products, to date our actual returns and allowances have not fluctuated significantly from period to period, and our returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations.

     Allowance for stock rotation. We also provide “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous six months’ sales in exchange for orders of an equal or greater amount. In the first six months of fiscal 2009 and 2008, approximately $164,000 and $282,000, respectively, of products were returned to us under the program. We generally establish the allowance for all sales to distributors except in cases where the revenue recognition is deferred and recognized upon sale by the distributor of products to the end-customer. The allowance, which is management’s best estimate of future returns, is based upon the historical experience of returns and inventory levels at the distributors. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. Should distributors increase stock rotations beyond our estimates, our statements would be adversely affected.

     Allowance for ship and debit. Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. We have no obligation to accept this request. However, it is our historical practice to allow some companies to obtain pricing adjustments for inventory held. We receive periodic statements regarding our products held by our distributors. Our distributors had approximately $4.9 million in inventory of our products on hand at September 30, 2008. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. In accordance with Staff Accounting Bulletin No. 104, Topic 13, “Revenue Recognition,” at the time we record sales to the distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. We believe that the analysis of these inputs enable us to make reliable estimates of future credits under the ship and debit program. This analysis requires the exercise of significant judgments. Our actual results to date have approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates might be insufficient, which could significantly adversely affect our operating results.

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     Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period and reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the six months ended September 30, 2008 (in thousands):

Balance at March 31, 2008	$	345
Additions		637
Deductions		(553	)
Balance at June 30, 2008	$	429
Additions		583
Deductions		(639	)
Balance at September 30, 2008	$	373

     Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We evaluate our allowance for doubtful accounts based on the aging of our accounts receivable, the financial condition of our customers and their payment history, our historical write-off experience and other assumptions. If we were to make different judgments of the financial condition of our customers or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. This allowance is reported on the balance sheet as part of the accounts receivable allowance and is included on the statement of operations as part of selling, general and administrative expense. This allowance is based on historical losses and management’s estimates of future losses.

     Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Our accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. As it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, our inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. Effective April 1, 2006, we adopted SFAS No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. The application of SFAS No. 151 did not have a material impact on our consolidated financial statements. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs.

     We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. If our projected demand is overestimated, we may be required to reduce the valuation of our inventories below cost. We regularly review inventory quantities on hand and record an estimated provision for excess inventory based primarily on our historical sales and expectations for future use. We also recognize a reserve based on known technological obsolescence, when appropriate. However, for new products, we do not consider whether there is excess inventory until we develop sufficient sales history or experience a significant change in expected product demand based on backlog. Actual demand and market conditions may be different from those projected by our management. This could have a material effect on our operating results and financial position. If we were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

     Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written down inventory below cost, we do not subsequently write it up until inventory is subsequently sold or scrapped. We do not physically segregate excess inventory nor do we assign unique tracking numbers to it in our accounting systems. Consequently, we cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, we are unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on our gross profit margin.

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     The following table provides information on our excess and obsolete inventory reserve charged against inventory at cost (in thousands):

Balance at March 31, 2008	$	19,250
Sale of excess inventory		(181	)
Scrap of excess inventory		(602	)
Additional accrual of excess inventory		1,710
Balance at June 30, 2008	$	20,177
Sale of excess inventory		(128	)
Scrap of excess inventory		(412	)
Additional accrual of excess inventory		406
Balance at September 30, 2008	$	20,043

     The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, we do not know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than 9,000 different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to potential value and because our products generally do not quickly become obsolete, we expect to hold excess inventory for potential future sale for years. Consequently, we have no set time line for the sale or scrapping of excess inventory.

     In addition, our inventory is also being written down to the lower of cost or market or net realizable value. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, the inventory is marked down accordingly. At September 30, 2008, our lower of cost or market reserve was $521,000.

     Furthermore, we perform an annual inventory count and periodic cycle counts for specific parts that have a high turnover. We also periodically identify any inventory that is no longer usable and write it off.

     Income tax. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. A valuation allowance reduces our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. If we determine that we will not realize all or a portion of our remaining deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will reduce goodwill, intangible assets or income tax expense. Significant management judgment is required in determining our provision for income taxes and potential tax exposures, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the need for a related valuation allowance are monitored on an ongoing basis.

     Furthermore, computation of our tax liabilities involves examining uncertainties in the application of complex tax regulations. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions based on the two-step process as prescribed within the interpretation. The first step is to evaluate the tax position for recognition by determining if there is sufficient available evidence to indicate if it is more likely than not that the position will be sustained on an audit, including resolution of any related appeals or litigation processes. The second step requires us to measure and determine the approximate amount of the tax benefit at the largest amount that is more than 50% likely of being realized upon ultimate settlement with the tax authorities. It is inherently difficult and requires significant judgment to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reexamine these uncertain tax positions on a quarterly basis. This reassessment is based on various factors during the period including but not limited to, changes in worldwide tax laws and treaties, changes in facts or circumstances, effectively settled issues under audit and any new audit activity. A change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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Recent Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP 157-1”) and FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FASB FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective April 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis. The partial adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on our unaudited condensed consolidated financial statements, results of operations or cash flows. See Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements for information and related disclosures regarding our fair value measurements.

     In October 2008 the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active”, (“FSP 157-3”) to clarify the application of the provisions of SFAS No. 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our September 30, 2008 financial statements. The application of the provisions of FSP 157-3 did not materially affect our unaudited condensed consolidated financial statements, results of operations or cash flows.

     As of April 1, 2008, we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings for items measured using the fair value option. We do not have any instruments that are eligible for the election of the fair value option. Therefore, the adoption of SFAS No. 159 in the first quarter of fiscal 2009 did not impact our unaudited condensed consolidated financial statements, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS No. 141(R) and SFAS No. 160 are effective for the fiscal year beginning April 1, 2009. We are currently evaluating the provisions of SFAS No. 141(R) and SFAS No. 160.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). The standard requires additional quantitative disclosures (provided in tabular form) and qualitative disclosures for derivative instruments. The required disclosures include how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows; relative volume of derivative activity; the objectives and strategies for using derivative instruments; the accounting treatment for those derivative instruments formally designated as the hedging instrument in a hedge relationship; and the existence and nature of credit-related contingent features for derivatives. SFAS No. 161 does not change the accounting treatment for derivative instruments. SFAS No. 161 is effective for our company for fiscal quarter beginning after January 1, 2009. We are currently evaluating the impact of SFAS No. 161.

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Results of Operations — Three and Six Months Ended September 30, 2008 and 2007

     The following table sets forth selected consolidated statements of operations data for the fiscal periods indicated and the percentage change in such data from period to period. These historical operating results may not be indicative of the results for any future period.

	Three Months Ended								Six Months Ended
	September 30,								September 30,
	2008		% change			2007			2008		% change			2007
	(000)					(000)			(000)					(000)
Net revenues	$	77,635		1.9	%	$	76,165		$	156,971		3.2	%	$	152,066
Cost of goods sold		53,838		-4.1	%		56,160			108,412		-1.1	%		109,673
Gross profit	$	23,797		19.0	%	$	20,005		$	48,559		14.5	%	$	42,393
Operating expenses:
Research, development and engineering	$	5,431		5.8	%	$	5,131		$	10,825		6.1	%	$	10,204
Selling, general and administrative		10,433		5.4	%		9,897			21,492		3.6	%		20,737
Litigation provision		—		-100.0	%		(1,195	)		—		-100.0	%		(5,979	)
Total operating expenses	$	15,864		14.7	%	$	13,833		$	32,317		29.5	%	$	24,962

     The following table sets forth selected statements of operations data as a percentage of net revenues for the fiscal periods indicated. These historical operating results may not be indicative of the results for any future period.

	% of Net Revenues						% of Net Revenues
	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		69.3	%		73.7	%		69.1	%		72.1	%
Gross profit		30.7	%		26.3	%		30.9	%		27.9	%
Operating expenses:
Research, development and engineering		7.0	%		6.7	%		6.9	%		6.7	%
Selling, general and administrative		13.4	%		13.0	%		13.7	%		13.6	%
Litigation provision		—			-1.6	%		—			-3.9	%
Total operating expenses		20.4	%		18.1	%		20.6	%		16.4	%
Operating income		10.3	%		8.2	%		10.3	%		11.5	%
Other income (expense), net		0.9	%		-1.6	%		1.0	%		-0.4	%
Income before income tax		11.2	%		6.6	%		11.3	%		11.1	%
Provision for income tax		3.4	%		1.3	%		3.9	%		3.9	%
Net income		7.8	%		5.3	%		7.4	%		7.2	%

Net Revenues

     The following tables set forth the revenues for each of our product groups for the fiscal periods indicated:

Revenues

	Three Months Ended September 30,							Six Months Ended September 30,
	2008		% change			2007		2008		% change			2007
	(000)					(000)		(000)					(000)
Power semiconductors	$	61,089		4.3	%	$	58,553	$	125,351		8.6	%	$	115,383
Integrated circuits		9,244		-16.8	%		11,114		17,412		-26.8	%		23,782
Systems and RF power semiconductors		7,302		12.4	%		6,498		14,208		10.1	%		12,901
Total	$	77,635		1.9	%	$	76,165	$	156,971		3.2	%	$	152,066

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     The following tables set forth the average selling prices, or ASPs, and units for the fiscal periods indicated:

     Average Selling Prices (“ASPs”)

	Three Months Ended September 30,							Six Months Ended September 30,
	2008		% change			2007		2008		% change			2007
Power semiconductors	$	2.92		62.2	%	$	1.80	$	2.73		40.0	%	$	1.95
Integrated circuits	$	0.75		-14.8	%	$	0.88	$	0.76		-2.6	%	$	0.78
Systems and RF power semiconductors	$	21.04		24.6	%	$	16.88	$	25.65		47.2	%	$	17.43

Units

	Three Months Ended September 30,							Six Months Ended September 30,
	2008		% change			2007		2008		% change			2007
	(000)					(000)		(000)					(000)
Power semiconductors		20,953		-35.6	%		32,512		45,863		-22.5	%		59,169
Integrated circuits		12,383		-1.8	%		12,611		22,996		-25.0	%		30,670
Systems and RF power semiconductors		347		-9.9	%		385		554		-25.1	%		740
Total		33,683					45,508		69,413					90,579

     The 1.9% increase in net revenues in the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 reflects an increase of $2.5 million, or 4.3%, in the sale of power semiconductors and an increase of $804,000, or 12.4%, in the sale of systems and RF power semiconductors, offset by a $1.9 million, or 16.8%, decrease in the sale of ICs. The increase in revenues in the power semiconductor group included a $5.7 million increase from the sale of bipolar products primarily to the industrial and commercial market, offset by a $3.8 million decrease in the sale of MOS products to the consumer products market. The increase in revenues from the sale of systems and RF power semiconductors was due to an increase of $628,000 in the sale of subassemblies to the industrial and commercial market. Net revenues from the sales of ICs declined principally due to a $1.2 million decrease in the sale of ASICs to the consumer products market.

     For the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, the increase in the ASPs of power semiconductors was caused by a reduction in sales of low priced semiconductors to the consumer product market. The increase in the ASPs of systems and RF power semiconductors was principally due to an increase in the sale of higher priced subassemblies. The decrease in the ASPs of ICs was primarily due to a decline in shipments of high priced ASICs to the medical market and customer premise equipment ICs.

     The 3.2% increase in net revenues in the six months ended September 30, 2008 as compared to the six months ended September 30, 2007 reflects an increase of $10.0 million, or 8.6%, in the sale of power semiconductors and an increase of $1.3 million, or 10.1%, in the sale of systems and RF power semiconductors, offset by a $6.4 million, or 26.8%, decrease in the sale of ICs. The increase in revenues in the power semiconductor group included a $13.2 million increase from the sale of bipolar products principally to the industrial and commercial market, offset by a $3.9 million decrease from the sale of MOS products to the consumer products market. The increase in revenues from the sale of systems and RF power semiconductors was due to an increase of $1.0 million in the sale of subassemblies to the industrial and commercial market. Net revenues from the sales of ICs declined due to a $3.7 million decline in the sale of semiconductors for customer premise equipment, and a $1.4 million decrease in the sale of solid state relays, both to the telecommunications market, and a $1.6 million decrease in the sale of ASICs to the consumer products market.

     For the six months ended September 30, 2008 as compared to the six months ended September 30, 2007, the increase in the ASPs of power semiconductors was caused by a reduction in sales of low priced semiconductors to the consumer product market. The increase in the ASPs of systems and RF power semiconductors was principally due to an increase in the sale of higher priced subassemblies. The decrease in the ASPs of ICs was primarily due to a decline in shipments of high priced customer premise equipment ICs partly offset by an increase in ASPs of ASICs due to fewer shipments of low priced ASICs to the consumer products market.

     Units declined in all product groups. For the three and six months ended September 30, 2008 as compared to the three and six months ended September 30, 2007, the decline in shipments of power semiconductors was due to reduced shipments to the consumer products market; in systems and RF power semiconductors, the unit decline was principally caused by reduced shipments of RF power semiconductors; and in ICs, the unit decline was caused by the reduction of shipments to the telecommunications market.

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     For the quarter ended September 30, 2008, sales to customers in the United States represented approximately 27.8%, and sales to international customers represented approximately 72.2%, of our net revenues. Of our international sales, approximately 57.7% were derived from sales in Europe and the Middle East, approximately 32.4% were derived from sales in the Asia Pacific region and approximately 9.9% were derived from sales in the rest of the world. By comparison, for the quarter ended September 30, 2007, sales to customers in the United States represented approximately 27.8%, and sales to international customers represented approximately 72.2%, of our net revenues. Of our international sales, approximately 52.9% were derived from sales in Europe and the Middle East, approximately 38.6% were derived from sales in the Asia Pacific region and approximately 8.5% were derived from sales in the rest of the world.

     For the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, growth was substantial in Europe as a result of sales to the industrial and commercial market, while notable declines were experienced in Korea, because of reduced sales to the consumer products market, and in China. For the six months period ended September 30, 2008, sales to customers in the United States represented approximately 27.4%, and sales to international customers represented approximately 72.6%, of our net revenues. Of our international sales, approximately 58.2% were derived from sales in Europe and the Middle East, approximately 32.8% were derived from sales in the Asia Pacific region and approximately 9.0% were derived from sales in the rest of the world. By comparison, for the six months period ended September 30, 2007, sales to customers in the United States represented approximately 26.6%, and sales to international customers represented approximately 73.4%, of our net revenues. Of our international sales, approximately 54.4% were derived from sales in Europe and the Middle East, approximately 37.0% were derived from sales in the Asia Pacific region and approximately 8.6% were derived from sales in the rest of the world.

     For the six months ended September 30, 2008 as compared to the six months ended September 30, 2007, growth was substantial in the United States because of the sales to the medical market, and in Europe, as a result of sales to the industrial and commercial market; whereas, reductions occurred in Korea, because of reduced sales to the consumer products market, and in China.

     For the three and six months ended September 30, 2008 and for the six months ended September 30, 2007, no customer accounted for more than 10% of our net revenues. For the three months ended September 30, 2007, one customer accounted for 10.8% of our net revenues.

     Our revenues were reduced by allowances for sales returns, stock rotations and ship and debit. See “Critical Accounting Policies and Significant Management Estimates” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Gross Profit.

     Gross profit margin increased to 30.7% in the three months ended September 30, 2008 from 26.3% in the three months ended September 30, 2007. Gross profit margin increased to 30.9% in the six months ended September 30, 2008 from 27.9% in the six months ended September 30, 2007. The gross profit margin increased primarily due to a shift in our product mix towards higher margin semiconductors for the medical market and due to better utilization of facilities and improved efficiencies in production. Improved utilization of facilities and efficiencies in production resulted in $902,000 and $2.4 million increases in gross profit for the three and six months periods ended September 30, 2008, respectively.

     Our gross profit and gross profit margin were positively affected by the sale of excess inventory, which had previously been written down. See “Critical Accounting Policies and Significant Management Estimates — Inventories” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Research, Development and Engineering.

     Research, development and engineering, or R&D, expenses typically consist of internal engineering efforts for product design and development. For the three months ended September 30, 2008 as compared to the same period of the prior year, R&D expenses increased by $300,000, or 5.8%. For the six months ended September 30, 2008 as compared to the same period of the prior year, R&D expenses increased by $621,000, or 6.1%. Expressed as a percentage of revenues, our R&D expenses were relatively consistent and increased marginally to 7.0% and 6.9% in the three and six months ended September 2008 as compared to 6.7% in the three and six months ended September 30, 2007. The increase in R&D expenses was primarily due to an increase in process improvement expenses and increased headcount in temporary employees. Although R&D expenses may increase as we fund more development projects, we do not expect a material increase in such expenses when expressed as a percentage of revenues.

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Selling, General and Administrative.

     For the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, selling, general and administrative expenses increased by $536,000, or 5.4%, and from 13.0% to 13.4% of net revenues. The increase in selling, general and administrative expenses expressed in dollars was primarily due to a $900,000 charge on an uncollectable advance payment to a supplier, offset by a decrease of $344,000 in professional and consulting fees for regulatory compliance.

     For the six months ended September 30, 2008 as compared to six months ended September 30, 2007, selling, general and administrative expenses increased by $755,000, and from 13.6% to 13.7% of net revenues. The increase was principally due to a $900,000 charge on a prior advance payment to a supplier, an increase in selling expenses of $725,000 as a result of higher commissions and freight expenses, offset by a decrease of $1.2 million in professional and consulting fees for regulatory compliance.

Litigation Provision.

     For the three and six months ended September 30, 2008, we had no litigation provision. For the quarter ended September 30, 2007, we released $1.3 million, net of interest accruals, including our remaining provision for our litigation against LoJack Corporation. For the six months ended September 30, 2007, we released $6.0 million, net of interest accruals, from our litigation provision.

Other Income (Expense).

     In the quarter ended September 30, 2008, other income, net was $749,000 as compared to other expense, net of $1.2 million in the quarter ended September 30, 2007. In the three months ended September 30, 2008, other income, net consisted principally of gains associated with changes in exchange rates for foreign currency transactions of $691,000. For the three months ended September 30, 2007, other expense, net primarily consisted of losses associated with changes in exchange rates for foreign currency transactions of $1.3 million.

     Other income, net in the six months ended September 30, 2008 was $1.5 million, as compared to other expense, net of $604,000 in the six months ended September 30, 2007. In the six months ended September 30, 2008, other income, net primarily consisted of gains associated with changes in exchange rates for foreign currency transactions of $1.6 million. For the six months ended September 30, 2007, other expense, net consisted principally of losses associated with changes in exchange rates for foreign currency transactions of $2.2 million, offset by the recognition of $1.1 million received on an insurance claim.

Provision for Income Tax.

     The provision for income tax is a result of applying the estimated annual effective tax rate to cumulative income before taxes adjusted for certain discrete items which are fully recognized in the period they occur. In the quarter ended September 30, 2008, provision for income tax reflected an effective tax rate of 30.2% as compared to an effective tax rate of 20.3% in the quarter ended September 30, 2007. The rate for the three months ended September 30, 2007 was impacted by settlement of a tax audit in a foreign jurisdiction. For the six months ended September 30, 2007 as compared to September 30, 2008, the effective tax rate increased marginally from 34.9% to 35.0%.

Liquidity and Capital Resources

     At September 30, 2008, cash and cash equivalents of $70.2 million increased by 24.0% from the $56.6 million at March 31, 2008.

     Net cash provided by operating activities in the six months ended September 30, 2008 was $19.1 million, as compared to net cash provided by operating activities of $12.2 million in the six months ended September 30, 2007. As compared to last fiscal year, our operating cash flow improved in large part because of higher revenues and higher gross profit. Net accounts receivable decreased by $2.4 million, or 4.9%, from March 31, 2008 to September 30, 2008, primarily due to improved collections and decreased revenues in the September 2008 quarter as compared to the March 2008 quarter. At September 30, 2008, one customer accounted for 11.8% of our net receivables. Our accrued expenses and other liabilities at September 30, 2008 increased by $9.4 million, or 52.4%, from accrued expenses and other liabilities at March 31, 2008, primarily because of an income tax accrual. Our accounts payable at September 30, 2008 decreased by $4.1 million, or 19.2%, from accounts payable at March 31, 2008, principally because of a reduction in the purchase of inventories.

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     We used $2.7 million in net cash for investing activities during the six months ended September 30, 2008, as compared to net cash used in investing activities of $5.4 million during the six months ended September 30, 2007. During the six months ended September 30, 2008, we spent $6.0 million on purchases of property, plant and equipment, which was offset by proceeds of $3.6 million from sales of investments. During the six months ended September 30, 2007, we spent $2.4 million on a strategic long-term investment and $2.9 million on the purchase of plant and equipment.

     For the six months ended September 30, 2008, net cash used in financing activities was $918,000 as compared to net cash used in financing activities of $6.4 million in the six months ended September 30, 2007. During the six months ended September 30, 2008, the cash was used principally for principal repayments on capital lease obligations and repayments of loans, offset by proceeds from employee equity plans. For the six months ended September 30, 2007, the cash was used principally to purchase treasury stock and for principal repayments on capital lease obligations.

     Another potential source of liquidity is available borrowings under existing lines of credit. At September 30, 2008, we had credit aggregating $5.3 million available.

     At September 30, 2008, our debt, consisting of capital lease obligations and loans payable, was $30.0 million, representing 42.8% of our cash and cash equivalents and 14.6% of our stockholders equity.

     We are obligated on a €7.8 million, or $11.3 million, loan. The loan has a remaining term of 12 years, ending in June 2020, and bears a variable interest rate, dependent upon the current Euribor rate and the ratio of indebtedness to cash flow for the German subsidiary. Each fiscal quarter during the first five years of the loan ending in June 2010, a principal payment of €167,000, or about $241,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed. Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At September 30, 2008, the Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

     On August 2, 2007, we completed the purchase of a building in Milpitas, California. We moved our corporate office and a facility for operations to this location in January 2008. In connection with the purchase, we assumed a loan, secured by the building, of $7.5 million. The loan bears interest at the rate of 7.455% per annum and is due and payable in February 2011. Monthly payments of principal and interest of $56,000 are due under the loan. In addition, monthly impound payments aggregating $13,000 are to be made for items such as real property taxes, insurance and capital expenditures. The balance of the loan liability at September 30, 2008 was $7.3 million. At maturity, the remaining balance on the loan will be approximately $7.1 million.

     During September 2008, we declared and accrued $3.2 million in dividends which were paid during October 2008, consisting of a special, one-time dividend of $0.07 per share and a quarterly dividend of $0.03 per share. The quarterly dividend is at the discretion of the Board of Directors.

     Additionally, we maintain two defined benefit pension plans at our European locations. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. We deposit funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrue for the unfunded portion of the obligations. Both plans have been curtailed. As such, the plans are closed to new entrants and no credit is provided for additional periods of service. The total pension liability accrued for these plans as on September 30, 2008 was $15.5 million.

     We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirement for the next 12 months. Our liquidity could be negatively affected by a decline in demand for our products, investments in new product development or one or more acquisitions. We use forward and option contracts in the normal course of business to manage our foreign currency exchange risks. We did not have any significant open foreign exchange forward and option contracts at September 30, 2008. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our market risk has not changed materially from the market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     Based on their evaluation as of September 30, 2008, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and were also effective to ensure that information required to be disclosed by us in this quarterly report on Form 10-Q was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

     There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

     Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, have been detected.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We currently are involved in a variety of legal matters that arise in the normal course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters, including the matters described by reference below, will have a material adverse effect on our financial condition, results of operations and cash flows. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

     The information set forth in Note 14 of Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 hereof is hereby incorporated by reference into this Item 1 of Part II.

ITEM 1A. RISK FACTORS

     In addition to the other information in this Quarterly Report on Form 10-Q, the following risk factors should be considered carefully in evaluating our business and us. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition.

Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.

     Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter to quarter and year to year. For example, comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. Further, from fiscal 2002 to fiscal 2003 and from fiscal 2005 to fiscal 2006, net income in one year shifted to net loss in the next year. Some of the factors that may affect our quarterly and annual results are:

• the reduction, rescheduling or cancellation of orders by customers;

• fluctuations in timing and amount of customer requests for product shipments;

• changes in the mix of products that our customers purchase;

• loss of key customers;

• the cyclical nature of the semiconductor industry;

• competitive pressures on selling prices;

• damage awards or injunctions as the result of litigation;

• market acceptance of our products and the products of our customers;

• fluctuations in our manufacturing yields and significant yield losses;

• difficulties in forecasting demand for our products and the planning and managing of inventory levels;

• the availability of production capacity;

• the amount and timing of investments in research and development;

• changes in our product distribution channels and the timeliness of receipt of distributor resale information;

• the impact of vacation schedules and holidays, largely during the second and third fiscal quarters of our fiscal year; and

• the amount and timing of costs associated with product returns.

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     As a result of these factors, many of which are difficult to control or predict, as well as the other risk factors discussed in this Quarterly Report on Form 10-Q, we may experience materially adverse fluctuations in our future operating results on a quarterly or annual basis.

Our gross margin is dependent on a number of factors, including our level of capacity utilization.

     Semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. We are limited in our ability to reduce fixed costs quickly in response to any shortfall in revenues. If we are unable to utilize our manufacturing, assembly and testing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.

We order materials and commence production in advance of anticipated customer demand. Therefore, revenue shortfalls may also result in inventory write downs.

     We typically plan our production and inventory levels based on our own expectations for customer demand. Actual customer demand, however, can be highly unpredictable and can fluctuate significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and production in advance of customer demand. This advance ordering and production may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize. This risk has increased in recent periods. As our customers have increasingly demanded “just-in-time” deliveries that cannot be accommodated in the time required for a normal production cycle, we have increased our inventory produced in expectation of future orders.

Our international operations expose us to material risks.

     For the fiscal year ended March 31, 2008, our product sales by region were approximately 26.3% in the United States, approximately 40.2% in Europe and the Middle East, approximately 27.5% in Asia Pacific and approximately 6.0% in Canada and the rest of the world. We expect revenues from foreign markets to continue to represent a significant portion of total revenues. We maintain significant operations in Germany and the United Kingdom and contracts with suppliers and manufacturers in South Korea, Japan and elsewhere in Europe and Asia Pacific. Some of the risks inherent in doing business internationally are:

• foreign currency fluctuations;

• longer payment cycles;

• challenges in collecting accounts receivable;

• changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;

• trade restrictions;

• cultural and language differences;

• employment regulations;

• limited infrastructure in emerging markets;

• transportation delays;

• seasonal reduction in business activities;

• work stoppages;

• labor and union disputes;

• terrorist attack or war; and

• economic or political instability.

     Our sales of products manufactured in our Lampertheim, Germany facility and our costs at that facility are primarily denominated in Euros, and sales of products manufactured in our Chippenham, U.K. facility and our costs at that facility are primarily denominated in British pounds. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant adverse impact on our balance sheet and results of operations. We generally do not enter into foreign currency hedging transactions to control

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or minimize these risks. Fluctuations in currency exchange rates could cause our products to become more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. If we expand our international operations or change our pricing practices to denominate prices in other foreign currencies, we could be exposed to even greater risks of currency fluctuations.

     In addition, the laws of certain foreign countries may not protect our products or intellectual property rights to the same extent as do U.S. laws regarding the manufacture and sale of our products in the U.S. Therefore, the risk of piracy of our technology and products may be greater when we manufacture or sell our products in these foreign countries.

The semiconductor industry is cyclical, and an industry downturn could adversely affect our operating results.

     Business conditions in the semiconductor industry may rapidly change from periods of strong demand and insufficient production to periods of weakened demand and overcapacity. The industry in general is characterized by:

• changes in product mix in response to changes in demand;

• alternating periods of overcapacity and production shortages, including shortages of raw materials;

• cyclical demand for semiconductors;

• significant price erosion;

• variations in manufacturing costs and yields;

• rapid technological change and the introduction of new products; and

• significant expenditures for capital equipment and product development.

     These factors could harm our business and cause our operating results to suffer.

Fluctuations in the mix of products sold may adversely affect our financial results.

     Changes in the mix and types of products sold may have a substantial impact on our revenues and gross profit margins. In addition, more recently introduced products tend to have higher associated costs because of initial overall development costs and higher start-up costs. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product, and as a result can negatively impact our financial results.

We may not be able to increase production capacity to meet the present and future demand for our products.

     The semiconductor industry has been characterized by periodic limitations on production capacity. Although we may be able to obtain the capacity necessary to meet present demand, if we are unable to increase our production capacity to meet possible future demand, some of our customers may seek other sources of supply or our future growth may be limited.

Semiconductors for inclusion in consumer products have short product life cycles.

     We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than other types of products sold by our customers. Shorter product life cycles result in more frequent design competitions for the inclusion of semiconductors in next generation consumer products, which may not result in design wins for us.

     In particular, in recent years we have sold semiconductors for inclusion in the plasma display panels of a small number of manufacturers. Plasma display panels are one of several technologies used for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels that incorporate our products, our operating results could be adversely affected. Moreover, our operating results could be adversely affected if those plasma display panel manufacturers that have selected our semiconductors for inclusion in their products are not successful in their competition against other manufacturers of plasma display panels. As plasma display panels cycle into next generation products, we must achieve new design wins for our semiconductors to be included in the next generation plasma display panels. New design wins may not occur.

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We may not be successful in our acquisitions.

     We have in the past made, and may in the future make, acquisitions of other companies and technologies. These acquisitions involve numerous risks, including:

• diversion of management’s attention during the acquisition process;

• disruption of our ongoing business;

• the potential strain on our financial and managerial controls and reporting systems and procedures;

• unanticipated expenses and potential delays related to integration of an acquired business;

• the risk that we will be unable to develop or exploit acquired technologies;

• failure to successfully integrate the operations of an acquired company with our own;

• the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;

• the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;

• the risks of entering new markets in which we have limited experience;

• difficulties in expanding our information technology systems or integrating disparate information technology systems to accommodate the acquired businesses;

• failure to retain key personnel of the acquired business;

• the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate policies, benefits and compliance programs;

• customer dissatisfaction or performance problems with an acquired company’s products or personnel;

• adverse effects on our relationships with suppliers;

• the reduction in financial stability associated with the incurrence of debt or the use of a substantial portion of our available cash;

• the costs associated with acquisitions, including in-process R&D charges and amortization expense related to intangible assets, and the integration of acquired operations; and

• assumption of known or unknown liabilities or other unanticipated events or circumstances.

     We cannot assure that we will be able to successfully acquire other businesses or product lines or integrate them into our operations without substantial expense, delay in implementation or other operational or financial problems.

     As a result of an acquisition, our financial results may differ from the investment community’s expectations in a given quarter. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows, or stock price could be negatively impacted.

We depend on external foundries to manufacture many of our products.

     Of our revenues for fiscal year ended March 31, 2008, 37.8% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We currently have arrangements with a number of wafer foundries, three of which produce the wafers for power semiconductors that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry. We and Samsung are in the process of migrating our products fabricated at Samsung from a 6” to an 8” line. In making the transition, we will be making new photo masks for our products and will be experiencing the issues associated with ramping up production on a new wafer fabrication line. During the ramp up phase, we may encounter problems that may affect our manufacturing yields or delay our production.

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     Our relationships with our external foundries do not guarantee prices, delivery or lead times, or wafer or product quantities sufficient to satisfy current or expected demand. These foundries manufacture our products on a purchase order basis. We provide these foundries with rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundry’s available capacity. At any given time, these foundries could choose to prioritize capacity for their own use or other customers or reduce or eliminate deliveries to us on short notice. If growth in demand for our products occurs, these foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. Accordingly, we cannot be certain that these foundries will allocate sufficient capacity to satisfy our requirements. In addition, we cannot be certain that we will continue to do business with these or other foundries on terms as favorable as our current terms. If we are not able to obtain additional foundry capacity as required, our relationships with our customers could be harmed and our revenues could be reduced or growth limited. Moreover, even if we are able to secure additional foundry capacity, we may be required, either contractually or as a practical business matter, to utilize all of that capacity or incur penalties or an adverse effect on the business relationship. The costs related to maintaining foundry capacity could be expensive and could harm our operating results. Other risks associated with our reliance on external foundries include:

• the lack of control over delivery schedules;

• the unavailability of, or delays in obtaining access to, key process technologies;

• limited control over quality assurance, manufacturing yields and production costs; and

• potential misappropriation of our intellectual property.

     Our requirements typically represent a small portion of the total production of the external foundries that manufacture our wafers and products. We cannot be certain these external foundries will continue to devote resources to the production of our wafers and products or continue to advance the process design technologies on which the manufacturing of our products is based. These circumstances could harm our ability to deliver our products or increase our costs.

Our success depends on our ability to manufacture our products efficiently.

     We manufacture our products in facilities that are owned and operated by us, as well as in external wafer foundries and subcontract assembly facilities. The fabrication of semiconductors is a highly complex and precise process, and a substantial percentage of wafers could be rejected or numerous die on each wafer could be nonfunctional as a result of, among other factors:

• contaminants in the manufacturing environment;

• defects in the masks used to print circuits on a wafer;

• manufacturing equipment failure; or

• wafer breakage.

     For these and other reasons, we could experience a decrease in manufacturing yields. Additionally, if we increase our manufacturing output, we may also experience a decrease in manufacturing yields. As a result, we may not be able to cost-effectively expand our production capacity in a timely manner.

Increasing raw material prices could impact our profitability.

     Our products use large amounts of silicon, metals and other materials. In recent periods, we have experienced price increases for many of these items. If we are unable to pass price increases for raw materials onto our customers, our gross margins and profitability could be adversely affected.

Our markets are subject to technological change and our success depends on our ability to develop and introduce new products.

     The markets for our products are characterized by:

• changing technologies;

• changing customer needs;

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• frequent new product introductions and enhancements;

• increased integration with other functions; and

• product obsolescence.

     To develop new products for our target markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to expand our technical and design expertise. Failure to do so could cause us to lose our competitive position and seriously impact our future revenues.

     Products or technologies developed by others may render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets would have a material adverse effect on our competitive position within the industry.

Our revenues are dependent upon our products being designed into our customers’ products.

     Many of our products are incorporated into customers’ products or systems at the design stage. The value of any design win largely depends upon the customer’s decision to manufacture the designed product in production quantities, the commercial success of the customer’s product and the extent to which the design of the customer’s electronic system also accommodates incorporation of components manufactured by our competitors. In addition, our customers could subsequently redesign their products or systems so that they no longer require our products. The development of the next generation of products by our customers generally results in new design competitions for semiconductors, which may not result in design wins for us, potentially leading to reduced revenues and profitability. We may not achieve design wins or our design wins may not result in future revenues.

We could be harmed by intellectual property litigation.

     As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We have been sued on occasion for purported patent infringement. In the future, we could be accused of infringing the intellectual property rights of third parties. We also have certain indemnification obligations to customers and suppliers with respect to the infringement of third party intellectual property rights by our products. We could incur substantial costs defending ourselves and our customers and suppliers from any such claim. Infringement claims or claims for indemnification, whether or not proven to be true, may divert the efforts and attention of our management and technical personnel from our core business operations and could otherwise harm our business.

     In the event of an adverse outcome in any intellectual property litigation, we could be required to pay substantial damages, cease the development, manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license from the third party claiming infringement with royalty payment obligations upon us. An adverse outcome in an infringement action could materially and adversely affect our financial condition, results of operations and cash flows.

We may not be able to protect our intellectual property rights adequately.

     Our ability to compete is affected by our ability to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect our intellectual property rights. Despite these efforts, we cannot be certain that the steps we take to protect our proprietary information will be adequate to prevent misappropriation of our technology, or that our competitors will not independently develop technology that is substantially similar or superior to our technology. More specifically, we cannot assure that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties. Nor can we assure that, if challenged, our patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark Office, which can demand significant financial and management resources and could harm our financial results. Also, others may independently develop similar products or processes, duplicate our products or processes or design their products around any patents that may be issued to us.

Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.

     The time from initiation of design to volume production of new semiconductors often takes 18 months or longer. We first work with customers to achieve a design win, which may take nine months or longer. Our customers then complete the design, testing and evaluation process and begin to ramp up production, a period that may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.

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Our backlog may not result in future revenues.

     Customer orders typically can be cancelled or rescheduled without penalty to the customer. As a result, our backlog at any particular date is not necessarily indicative of actual revenues for any succeeding period. A reduction of backlog during any particular period, or the failure of our backlog to result in future revenues, could harm our results of operations.

The markets in which we participate are intensely competitive.

     Certain of our target markets are intensely competitive. Our ability to compete successfully in our target markets depends on the following factors:

• proper new product definition;

• product quality, reliability and performance;

• product features;

• price;

• timely delivery of products;

• technical support and service;

• design and introduction of new products;

• market acceptance of our products and those of our customers; and

• breadth of product line.

     In addition, our competitors or customers may offer new products based on new technologies, industry standards or end-user or customer requirements, including products that have the potential to replace our products or provide lower cost or higher performance alternatives to our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.

     Our primary power semiconductor competitors include Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics and Toshiba. Our IC products compete principally with those of Supertex, Zarlink Semiconductor, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices. Many of our competitors have greater financial, technical, marketing and management resources than we have. Some of these competitors may be able to sell their products at prices below which it would be profitable for us to sell our products or benefit from established customer relationships that provide them with a competitive advantage. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased price competition.

We rely on our distributors and sales representatives to sell many of our products.

     Many of our products are sold to distributors or through sales representatives. Our distributors and sales representatives could reduce or discontinue sales of our products. They may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. In addition, we depend upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives. If any significant distributor or sales representative experiences financial difficulties, or otherwise becomes unable or unwilling to promote and sell our products, our business could be harmed. For example, All American Semiconductor, Inc., one of our distributors, filed for bankruptcy in April 2007.

Our future success depends on the continued service of management and key engineering personnel and our ability to identify, hire and retain additional personnel.

     Our success depends upon our ability to attract and retain highly skilled technical, managerial, marketing and finance personnel, and, to a significant extent, upon the efforts and abilities of Nathan Zommer, Ph.D., our President and Chief Executive Officer, and

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other members of senior management. The loss of the services of one or more of our senior management or other key employees could adversely affect our business. We do not maintain key person life insurance on any of our officers, employees or consultants. There is intense competition for qualified employees in the semiconductor industry, particularly for highly skilled design, applications and test engineers. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our business or to replace engineers or other qualified individuals who could leave us at any time in the future. If we grow, we expect increased demands on our resources, and growth would likely require the addition of new management and engineering staff as well as the development of additional expertise by existing management employees. If we lose the services of or fail to recruit key engineers or other technical and management personnel, our business could be harmed.

Growth and expansion place a significant strain on our resources, including our information systems and our employee base.

     Presently, because of past acquisitions, we are operating a number of different information systems that are not integrated. In part because of this, we use spreadsheets, which are prepared by individuals rather than automated systems, in our accounting. Consequently, in our accounting, we perform many manual reconciliations and other manual steps, which result in a high risk of errors. Manual steps also increase the probability of control deficiencies and material weaknesses.

     If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including those adopted under the Sarbanes-Oxley Act of 2002, requires an effective planning and management system and process. We will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future.

     In improving our operational and financial systems, procedures and controls, we would expect to periodically implement new software and other systems that will affect our internal operations regionally or globally. The conversion process from one system to another is complex and could require, among other things, that data from the existing system be made compatible with the upgraded system. During any transition, we could experience errors, delays and other inefficiencies, which could adversely affect our business. Any delay in the implementation of, or disruption in the transition to, any new or enhanced systems, procedures or controls, could harm our ability to forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and record and report financial and management information on a timely and accurate basis. In addition, as we add additional functionality, new problems could arise that we have not foreseen. Such problems could adversely impact our ability to do the following in a timely manner: provide quotes; take customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and our results of operations, cash flows, and stock price could be negatively impacted.

     Any future growth would also require us to successfully hire, train, motivate and manage new employees. In addition, continued growth and the evolution of our business plan may require significant additional management, technical and administrative resources. We may not be able to effectively manage the growth and evolution of our current business.

Our dependence on subcontractors to assemble and test our products subjects us to a number of risks, including an inadequate supply of products and higher materials costs.

     We depend on subcontractors for the assembly and testing of our products. The substantial majority of our products are assembled by subcontractors located outside of the United States. Our reliance on these subcontractors involves the following significant risks:

• reduced control over delivery schedules and quality;

• the potential lack of adequate capacity during periods of excess demand;

• difficulties selecting and integrating new subcontractors;

• limited or no warranties by subcontractors or other vendors on products supplied to us;

• potential increases in prices due to capacity shortages and other factors;

• potential misappropriation of our intellectual property; and

• economic or political instability in foreign countries.

     These risks may lead to delayed product delivery or increased costs, which would harm our profitability and customer relationships.

     In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experience financial, operational, production or quality assurance difficulties, we could experience a reduction or

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interruption in supply. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors. Moreover, in engaging alternative subcontractors in exigent circumstances, our production costs could increase markedly.

We depend on a limited number of suppliers for our substrates, most of whom we do not have long-term agreements with.

     We purchase the bulk of our silicon substrates from a limited number of vendors, most of whom we do not have long-term supply agreements with. Any of these suppliers could reduce or terminate our supply of silicon substrates at any time. Our reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon substrates and reduced control over the price, timely delivery, reliability and quality of the silicon substrates. We cannot assure that problems will not occur in the future with suppliers.

Costs related to product defects and errata may harm our results of operations and business.

     Costs associated with unexpected product defects and errata (deviations from published specifications) due to, for example, unanticipated problems in our manufacturing processes include, the costs of:

• writing off the value of inventory of defective products;

• disposing of defective products that cannot be fixed;

• recalling defective products that have been shipped to customers;

• providing product replacements for, or modifications to, defective products; and/or

• defending against litigation related to defective products.

     These costs could be substantial and may therefore increase our expenses and lower our gross margin. In addition, our reputation with our customers or users of our products could be damaged as a result of such product defects and errata, and the demand for our products could be reduced. These factors could harm our financial results and the prospects for our business.

We face the risk of financial exposure to product liability claims alleging that the use of products that incorporate our semiconductors resulted in adverse effects.

     Approximately 12% of our net revenues for the fiscal year ended March 31, 2008 were derived from sales of products used in medical devices such as defibrillators. Product liability risks may exist even for those medical devices that have received regulatory approval for commercial sale. We cannot be sure that the insurance that we maintain against product liability will be adequate to cover our losses. Any defects in our semiconductors used in these devices, or in any other product, could result in significant product liability costs to us.

If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.

     Under generally accepted accounting principles, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or long-lived assets may not be recoverable include a decline in stock price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or long-lived assets is determined resulting in an impact on our results of operations.

We estimate tax liabilities, the final determination of which is subject to review by domestic and international taxation authorities.

     We are subject to income taxes and other taxes in both the United States and the foreign jurisdictions in which we currently operate or have historically operated. We are also subject to review and audit by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires significant judgment and estimation. The provision for income taxes can be adversely affected by a variety of factors, including but not limited to changes in tax laws, regulations and accounting principles, including accounting for uncertain tax positions, or interpretation of those changes. Significant judgment is required to determine the recognition and measurement attributes prescribed in FIN 48. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income, goodwill or cash flows in the period or periods for which such determination is made.

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We are exposed to various risks related to the regulatory environment.

     We are subject to various risks related to: (1) new, different, inconsistent or even conflicting laws, rules and regulations that may be enacted by legislative bodies and/or regulatory agencies in the countries in which we operate; (2) disagreements or disputes between national or regional regulatory agencies; and (3) the interpretation and application of laws, rules and regulations. If we are found by a court or regulatory agency not to be in compliance with applicable laws, rules or regulations, our business, financial condition and results of operations could be materially and adversely affected.

     In addition, approximately 12% of our net revenues for the fiscal year ended March 31, 2008 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

     Our business could also be harmed by delays in receiving or the failure to receive required approvals or clearances, the loss of previously obtained approvals or clearances or the failure to comply with existing or future regulatory requirements.

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report of management on the effectiveness of our internal controls over financial reporting and an attestation by our independent registered public accounting firm to the adequacy of management’s assessment of our internal control. Ongoing compliance with these requirements is complex, costly and time-consuming. If (1) we fail to maintain effective internal control over financial reporting; (2) our management does not timely assess the adequacy of such internal control; or (3) our independent registered public accounting firm does not timely attest to the evaluation, we could be subject to regulatory sanctions and the public’s perception of our company may decline.

We invest in companies for strategic reasons and may not realize a return on our investments.

     We make investments in companies to further our strategic objectives and support our key business initiatives. Such investments include investments in equity securities of public companies and investments in non-marketable equity securities of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies whose products or technologies may directly support a product or initiative. The success of these companies is dependent on product development, market acceptance, operational efficiency, and other key business success factors. The private companies in which we invest may fail because they may not be able to secure additional funding, obtain favorable investment terms for future financings, or take advantage of liquidity events such as initial public offerings, mergers, and private sales. If any of these private companies fail, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for the equity securities of the public and private companies in which we invest, we write down the investment to its fair value and recognize the related write-down as an investment loss. Furthermore, when the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may decide to dispose of the investment even at a loss. Our investments in non-marketable equity securities of private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could negatively affect our results of operations.

Our ability to access capital markets could be limited.

     From time to time, we may need to access the capital markets to obtain long-term financing. Although we believe that we can continue to access the capital markets on acceptable terms and conditions, our flexibility with regard to long-term financing activity could be limited by our existing capital structure, our credit ratings, and the health of the semiconductor industry. In addition, many of the factors that affect our ability to access the capital markets, such as the liquidity of the overall capital markets and the current state of the economy, are outside of our control. There can be no assurance that we will continue to have access to the capital markets on favorable terms.

Geopolitical instability, war, terrorist attacks, terrorist threats, and government responses thereto, may negatively affect all aspects of our operations, revenues, costs and stock prices.

     Any such event may disrupt our operations or those of our customers or suppliers. Our markets currently include South Korea, Taiwan and Israel, which are currently experiencing political instability. Additionally, our principal external foundry is located in South Korea.

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Business interruptions may damage our facilities or those of our suppliers.

     Our operations and those of our suppliers are vulnerable to interruption by fire, earthquake and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and do not have backup generators. Our facilities in California are located near major earthquake faults and have experienced earthquakes in the past. If any of these events occur, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

We may be affected by environmental laws and regulations.

     We are subject to a variety of laws, rules and regulations in the United States, England and Germany related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process. Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs could significantly increase. Failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

Nathan Zommer, Ph.D. owns a significant interest in our common stock.

     Nathan Zommer, Ph.D., our President and Chief Executive Officer, beneficially owned, as of October 30, 2008, approximately 22% of the outstanding shares of our common stock. As a result, Dr. Zommer can exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. His holdings could result in a delay of, or serve as a deterrent to, any change in control of IXYS, which may reduce the market price of our common stock.

Our stock price is volatile.

     The market price of our common stock has fluctuated significantly to date. The future market price of our common stock may also fluctuate significantly in the event of:

• variations in our actual or expected quarterly operating results;

• announcements or introductions of new products;

• technological innovations by our competitors or development setbacks by us;

• conditions in the communications and semiconductor markets;

• the commencement or adverse outcome of litigation;

• changes in analysts’ estimates of our performance or changes in analysts’ forecasts regarding our industry, competitors or customers;

• announcements of merger or acquisition transactions or a failure to achieve the expected benefits of an acquisition as rapidly or to the extent anticipated by financial analysts;

• terrorist attack or war;

• sales of our common stock by one or more members of management, including Nathan Zommer, Ph.D., our President and Chief Executive Officer; or

• general economic and market conditions.

     In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, including semiconductor companies. These fluctuations have often been unrelated or disproportionate to the operating performance of companies in our industry, and could harm the market price of our common stock.

The anti-takeover provisions of our certificate of incorporation and of the Delaware General Corporation Law may delay, defer or prevent a change of control.

     Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control

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because the terms of any issued preferred stock could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction, without the approval of the holders of the outstanding shares of preferred stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders.

     Our stockholders must give substantial advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to our stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The Delaware statute makes it more difficult for us to be acquired without the consent of our board of directors and management.

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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

     The 2008 Annual Meeting of the Stockholders of the Company was held on September 5, 2008.

     At the Annual Meeting, the stockholders elected each of the persons identified below to serve as a director of the Company until the next Annual Meeting of the Stockholders or until such person’s successor is elected (the “Director Proposal”), did not approve the 2008 Equity Incentive Plan (the “Stock Plan Proposal”), and ratified the appointment of BDO Seidman, LLP as the independent registered public accounting firm of the Company for the fiscal year ending March 31, 2009 (the “Auditor Proposal”). The votes on the three proposals were as follows:

Proposal 1: The Director Proposal

Director	Votes For		Votes Withheld
Donald Feucht		20,595,638		8,968,343
Samuel Kory		20,168,787		9,395,194
S. Joon Lee		29,387,350		176,631
Timothy A. Richardson		20,671,053		8,892,928
James M. Thorburn		29,050,943		513,038
Nathan Zommer		29,056,996		506,985

Proposal 2: The Stock Plan Proposal

For	Against	Abstain	Broker Non-Vote
12,805,138	13,060,714	291,922	3,406,207

Proposal 3: The Auditor Proposal

For	Against	Abstain	Broker Non-Vote
29,516,417	28,138	19,426	0

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

See the Index to Exhibits, which is incorporated by reference herein.

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SIGNATURES

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

IXYS CORPORATION
By:	/s/ Uzi Sasson
	Uzi Sasson, Chief Operating Officer,
	Chief Financial Officer and Vice President (Principal Financial Officer)

Date: November 7, 2008

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EXHIBIT INDEX

Exhibit
No.	Description
31.1	Certificate of Chief Executive Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification required under Section 906 of the Sarbanes-Oxley Act of 2002. (1)

(1) This exhibit is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1933, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities and Exchange Act of 1993, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Nathan Zommer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2008

/s/ Nathan Zommer  

Nathan Zommer 

President, Chief Executive Officer and Chairman
(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Uzi Sasson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2008

/s/ Uzi Sasson  

Uzi Sasson 

Chief Operating Officer,
Chief Financial Officer and Vice President (Principal Financial Officer) 

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002), Nathan Zommer, the Chief Executive Officer of IXYS Corporation (the “Company”), and Uzi Sasson, the Chief Operating Officer and Chief Financial Officer of the Company, each hereby certifies that, to his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the periods covered by the Periodic Report and results of operations of the Company for the periods covered by the Periodic Report.

Dated: November 7, 2008

/s/ Nathan Zommer  

Nathan Zommer 

Chief Executive Officer 

/s/ Uzi Sasson  

Uzi Sasson 

Chief Operating Officer
Chief Financial Officer