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 December 31, 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
(State or other jurisdiction
of incorporation or organization) 77-0140882
(I.R.S. Employer Identification No.)

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 definitions 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 January 30, 2009 was 30,635,199.

IXYS CORPORATION

FORM 10-Q
December 31, 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		18
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
ITEM 4.		CONTROLS AND PROCEDURES		29
PART II —	OTHER INFORMATION			30
ITEM 1.		LEGAL PROCEEDINGS		30
ITEM 1A		RISK FACTORS		30
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		42
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES		42
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		42
ITEM 5.		OTHER INFORMATION		42
ITEM 6.		EXHIBITS		42
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)

	December 31,			March 31,
	2008			2008
ASSETS
Current assets:
Cash and cash equivalents	$	54,004		$	56,614
Restricted cash		137			620
Accounts receivable, net of allowances of $1,676 at December 31, 2008 and $1,712 at March 31, 2008		36,264			50,270
Inventories		91,394			86,516
Prepaid expenses and other current assets		4,927			6,415
Deferred income taxes		6,766			7,578
Total current assets		193,492			208,013
Property, plant and equipment, net		56,519			58,033
Other assets		8,055			8,593
Deferred income taxes		12,473			13,546
Goodwill		2,691			5,645
Total assets	$	273,230		$	293,830
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	4,200		$	4,890
Current portion of loans payable		1,513			1,286
Accounts payable		15,414			21,489
Accrued expenses and other current liabilities		18,007			17,956
Total current liabilities		39,134			45,621
Long term income tax payable		4,570			4,570
Capitalized lease obligations, net of current portion		5,677			7,023
Long term loans, net of current portion		18,581			19,159
Pension liabilities		13,966			17,228
Total liabilities		81,928			93,601
Commitments and contingencies (Note 15)
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; 36,030,986 issued and 30,634,699 outstanding at December 31, 2008 and 35,403,630 issued and 31,086,159 outstanding at March 31, 2008		360			354
Additional paid-in capital		175,441			170,043
Treasury stock, at cost: 5,396,287 common shares at December 31, 2008 and 4,317,471 common shares at March 31, 2008		(45,208	)		(37,918	)
Retained earnings		54,894			50,494
Accumulated other comprehensive income		5,815			17,256
Total stockholders’ equity		191,302			200,229
Total liabilities and stockholders’ equity	$	273,230		$	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						Nine Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
Net revenues	$	58,337		$	73,136		$	215,308		$	225,202
Cost of goods sold		45,683			52,381			154,095			162,054
Gross profit		12,654			20,755			61,213			63,148
Operating expenses:
Research, development and engineering		4,733			5,345			15,558			15,549
Selling, general and administrative		9,209			10,723			30,701			31,460
Impairment charge		3,749			—			3,749			—
Litigation provision		—			84			—			(5,895	)
Total operating expenses		17,691			16,152			50,008			41,114
Operating income (loss)		(5,037	)		4,603			11,205			22,034
Other income (expense):
Interest income		254			499			980			1,673
Interest expense		(405	)		(481	)		(1,349	)		(1,348	)
Other income (expense), net		(109	)		(1,325	)		1,624			(2,236	)
Income (loss) before income tax		(5,297	)		3,296			12,460			20,123
Benefit from (provision for) income tax		1,315			(1,079	)		(4,899	)		(6,953	)
Net income (loss)	$	(3,982	)	$	2,217		$	7,561		$	13,170
Net income (loss) per share
Basic	$	(0.13	)	$	0.07		$	0.24		$	0.41
Diluted	$	(0.13	)	$	0.07		$	0.23		$	0.39
Cash dividends per share		—			—		$	0.10			—
Weighted average shares used in per share calculation
Basic		30,979			31,776			31,238			32,180
Diluted		30,979			32,995			32,236			33,454

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						Nine Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
Net income (loss)	$	(3,982	)	$	2,217		$	7,561		$	13,170
Other comprehensive income (loss):
Unrealized (loss) gain on available for sale investment securities, net of taxes of ($30) and ($273) for the three and nine months ended December 31, 2008 and net of taxes of ($59) and ($279) for the three and nine months ended December 31, 2007		(59	)		(60	)		(529	)		(317	)
Foreign currency translation adjustments		(4,274	)		1,190			(10,912	)		4,885
Comprehensive income (loss)	$	(8,315	)	$	3,347		$	(3,880	)	$	17,738

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)

	Nine Months Ended
	December 31,
	2008			2007
Cash flows from operating activities:
Net income	$	7,561		$	13,170
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,783			9,448
Provision for receivables allowances		4,568			2,188
Net change in inventory reserves		6,054			2,980
Goodwill impairment charge		3,749			—
Change in litigation provision		—			(5,895	)
Foreign currency adjustments on intercompany amounts		(157	)		580
Deferred income taxes		—			4,437
Stock-based compensation		1,925			1,525
Loss (gain) on investments and disposal of fixed assets		182			(478	)
Changes in operating assets and liabilities:
Accounts receivable		5,808			(2,037	)
Inventories		(18,969	)		(1,299	)
Prepaid expenses and other current assets		(2,541	)		288
Other assets		57			(560	)
Accounts payable		(3,664	)		(3,948	)
Accrued expenses and other liabilities		3,199			(2,163	)
Pension liabilities		(388	)		(793	)
Net cash provided by operating activities		17,167			17,443
Cash flows from investing activities:
Change in restricted cash		482			(732	)
Business combination, net of cash and cash equivalents acquired		(420	)		—
Purchases of investments		(1,083	)		(3,435	)
Purchases of plant and equipment		(7,792	)		(5,629	)
Proceeds from sale of investments and assets		3,923			788
Net cash used in investing activities		(4,890	)		(9,008	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(3,580	)		(3,137	)
Repayments of long term loans and notes payable		(1,823	)		(834	)
Payment of dividend to stockholders		(3,161	)		—
Purchases of treasury stock		(7,290	)		(14,560	)
Proceeds from employee equity plans		3,480			1,511
Net cash used in financing activities		(12,374	)		(17,020	)
Effect of exchange rate fluctuations on cash and cash equivalents		(2,513	)		2,295
Net decrease in cash and cash equivalents		(2,610	)		(6,290	)
Cash and cash equivalents at beginning of period		56,614			54,027
Cash and cash equivalents at end of period	$	54,004		$	47,737

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 was effective immediately and applied 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 quarters beginning 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 nine months ended December 31, 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 nine months ended December 31, 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 Equity Incentive Plan expires in May 2009. 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. During the nine months ended December 31, 2008, there were 94,244 shares purchased under the Purchase Plan, leaving 190,502 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				Nine Months Ended
	December 31,				December 31,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Selling, general and administrative expenses	$	753	$	581	$	1,925	$	1,525
Share-based compensation effect in income before taxes		753		581		1,925		1,525
Provision for income taxes (1)		271		227		693		595
Net share-based compensation effects in net income (loss)	$	482	$	354	$	1,232	$	930

(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 nine months ended December 31, 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 December 31, 2008, approximately $8.2 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 3.2 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 nine months ended December 31, 2008 and 2007, were based on estimates at the grant date as follows:

	Stock Options												Purchase Plan
	Three months ended						Nine months ended						Three months ended						Nine months ended
	December 31,						December 31,						December 31,						December 31,
	2008			2007			2008			2007			2008			2007			2008			2007
Weighted average estimated fair value of grant per share	$	2.94		$	3.48		$	3.38		$	4.26		$	5.28		$	3.10		$	4.21		$	2.88
Risk-free interest rate		2.3	%		3.4	%		2.4	%		4.1	%		2.0	%		4.8	%		2.6	%		4.8	%
Expected term (in years)		4.6			4.3			4.6			4.3			0.5			0.5			0.5			0.5
Volatility		51.6	%		47.1	%		50.4	%		48.1	%		96.1	%		60.6	%		77.8	%		52.4	%
Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%

     Activity with respect to outstanding stock options for the nine months ended December 31, 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		1,847,500		$	7.83
Options exercised		(524,344	)	$	5.51	$	3,159
Options cancelled and expired		(127,604	)	$	14.99
Balance, December 31, 2008		6,024,369		$	8.42
Exercisable, December 31, 2008		3,604,119		$	8.56
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.

     Activity with respect to outstanding restricted stock units for the nine months ended December 31, 2008 was as follows:

				Weighted Average
	Number of			Grant Date Fair		Aggregate Fair
	Shares			Value		Value (1)
						(000)
Balance, March 31, 2008		97,350		$	9.58
RSUs vested (2)		(32,450	)	$	9.58	$	285
RSUs forfeited		—			—
Balance, December 31, 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.

9

4. Computation of Net Income (Loss) per Share

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

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2008			2007		2008		2007
	(unaudited)					(unaudited)
Basic:
Weighted average shares		30,979			31,776		31,238		32,180
Net income (loss)	$	(3,982	)	$	2,217	$	7,561	$	13,170
Net income (loss) per share	$	(0.13	)	$	0.07	$	0.24	$	0.41
Diluted:
Weighted average shares		30,979			31,776		31,238		32,180
Common equivalent shares from stock options		—			1,219		998		1,274
Weighted average shares used in diluted per share calculation		30,979			32,995		32,236		33,454
Net income (loss)	$	(3,982	)	$	2,217	$	7,561	$	13,170
Net income (loss) per share	$	(0.13	)	$	0.07	$	0.23	$	0.39

     Basic income (loss) available per common share is computed using net income (loss) and the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed using net income (loss) 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. Due to the Company’s net loss for the quarter ended December 31, 2008, all of the stock options outstanding to purchase 4.6 million of the Company’s common stock were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive. For the nine months ended December 31, 2008, there were outstanding options to purchase 3.9 million shares, (2.0 million shares for the quarter and nine months ended December 31, 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

     The Company 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 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.

10

     Assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of December 31, 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)	$	270	$	270	$	—	$	—
Derivative contracts (2)		220		—		220		—
Total assets measured at fair value	$	490	$	270	$	220	$	—

(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 is recorded on the balance sheet. The Company has elected not to designate these instruments as accounting hedges. The changes in the fair value of these instruments are recorded in current period’s income statement and are included in other income (expense), net. 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):

	December 31,		March 31,
	2008		2008
	(unaudited)
Raw materials	$	21,776	$	23,108
Work in process		43,704		40,828
Finished goods		25,914		22,580
Total	$	91,394	$	86,516

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7. Other Assets

     Other assets consist of the following (in thousands):

	December 31,		March 31,
	2008		2008
	(unaudited)
Available for sale investment securities	$	270	$	3,161
Long term equity investment		3,986		4,298
Intangible assets, net		1,784		466
Other		2,015		668
Total	$	8,055	$	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 years. Refer to Note 11 “Business Combination” for more details on the acquisition. During the quarter ended December 31, 2008, IXYS Semiconductor GmbH, a German subsidiary of IXYS, made a prepayment of $1.8 million to secure supply of silicon wafers. The prepayment has been classified as follows: $1.2 million in other assets and the balance in prepaid expenses and other current assets.

8. Goodwill

     Goodwill and intangible assets with indefinite lives are carried at fair value and reviewed at least annually for impairment during the quarter ending March 31, as of December 31, or more frequently if events and circumstances indicate that the asset might be impaired, in accordance with SFAS No. 142. An impairment loss would be recognized to the extent that the carrying amount exceeds the fair value of the reporting unit. There are two steps in the determination. The first step compares the carrying amount of the net assets to the fair value of the reporting unit. The second step, if necessary, recognizes an impairment loss to the extent the carrying amount of the reporting unit’s net assets exceed the fair value of the reporting unit.

     The financial performance of the Company during the quarter ended December 31, 2008 and the current economic environment triggered the testing of goodwill and other intangible assets for impairment. The goodwill is assigned to three reporting units, two of which were tested for impairment in the quarter ended December 31, 2008. The goodwill assigned to the third reporting unit was recorded during the acquisition of RTI concluded in September 2008 and was determined not impaired.

     The fair value of the two reporting units tested was determined using the discounted cash flow method applied to the internal projections of the reporting units’ operating results. Of the two reporting units, it was determined that the entire goodwill balance of $3.7 million associated with its Clare, Inc. reporting unit was impaired due to below expectation performance and the current economic environment of that reporting unit and consequently the Company recorded an impairment charge of that amount.

9. 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 December 31, 2008 was €7.7 million or $10.9 million.

     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 December 31, 2008 was 3.7%.

     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 $235,000 and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

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     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 December 31, 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 $17,000 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.

     Note issued on acquisition

     On September 10, 2008, the Company issued a note with a face value of $2.0 million in connection with the purchase of real property and the acquisition of the shares of Reaction Technology Incorporation (“RTI”). The note is repayable in 60 equal monthly installments of $38,666, which includes interest at an annual rate of 6.0%. The note is secured by a security interest in the property acquired and the current assets of RTI. Refer to Note 11, “Business Combinations” for more details regarding the acquisition.

10. Accrued Expenses and Other Liabilities

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

	December 31,		March 31,
	2008		2008
	(unaudited)
Uninvoiced goods and services	$	9,784	$	6,306
Compensation and benefits		5,245		7,428
Income taxes		25		—
Commission, royalties, deferred revenue and other		2,953		4,222
	$	18,007	$	17,956

11. Business Combination

     On September 10, 2008, the Company acquired all the outstanding shares of RTI, a privately held company based in Santa Clara, California. 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. For accounting purposes, the preliminary purchase price for the Company’s acquisition was $3.2 million, consisting of the following (in thousands):

Cash consideration	$	1,031
Note issued		2,000
Total acquisition consideration		3,031
Transaction costs		192
Total preliminary purchase price	$	3,223

     The Company also purchased the land and building formerly leased by RTI from its majority shareholder for cash consideration of $1.5 million.

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     The following table represents the preliminary purchase price allocation and summarizes the aggregate estimated fair values of the net assets acquired on the closing date of the acquisition (in thousands):

	Preliminary
	purchase price
	allocation
Cash	$	804
Other current assets		734
Plant and equipment		1,379
Current liabilities		(443	)
Note payable to bank		(853	)
Deferred tax liability		(813	)
Intangibles		1,620
Goodwill		795
Total purchase price	$	3,223

     The fair values set forth above are based on a preliminary valuation of RTI’s assets and liabilities performed by the Company in accordance with SFAS No. 141, “Business Combinations” (“SFAS No. 141”) and reflect “push-down” accounting in accordance with SEC Staff Accounting Bulletin No. 54 (“SAB 54”). Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The intangible assets primarily consist of related customers’ relationships and have an estimated useful life of 3 years. The fair value of the identified intangibles was determined using the income approach and the royalty savings approach. In presenting the preliminary purchase price allocation above, the Company is evaluating its deferred tax assets and deferred tax liabilities. Once this information has been determined, the Company will recognize the deferred tax assets and liabilities resulting from this acquisition. RTI has been consolidated into the Company’s results of operations since the acquisition date. In its fiscal 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.

12. 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.

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

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
	(unaudited)						(unaudited)
Service cost	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation		507			553			1,734			1,626
Expected return on plan assets		(377	)		(438	)		(1,300	)		(1,296	)
Recognized actuarial loss		20			16			69			47
Net periodic pension expense	$	150		$	131		$	503		$	377

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

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13. Accumulated Other Comprehensive Income

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

	December 31,			March 31,
	2008			2008
	(unaudited)
Accumulated net unrealized gain (loss) on available for sale investments securities, net of tax ($89) as of December 31, 2008 and $184 as of March 31, 2008	$	(171	)	$	358
Unrecognized actuarial loss, net of tax of $1,667		(3,100	)		(3,100	)
Accumulated foreign currency translation adjustments		9,086			19,998
Total accumulated other comprehensive income	$	5,815		$	17,256

14. 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				Nine Months Ended
	December 31,				December 31,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
United States	$	17,507	$	18,320	$	60,532	$	58,770
Europe and the Middle East
France		1,491		1,807		5,803		5,392
Germany		8,153		10,574		32,269		32,246
Italy		1,520		1,883		6,044		5,664
United Kingdom		3,511		4,603		13,690		16,605
Other		8,042		9,128		31,178		28,753
Asia Pacific
China		6,534		9,907		25,213		30,409
Japan		1,852		2,254		7,197		6,863
Korea		1,527		5,577		5,882		14,074
Other		4,378		4,313		13,470		12,059
Rest of the World
India		2,275		3,431		9,437		8,847
Other		1,547		1,339		4,593		5,520
Total	$	58,337	$	73,136	$	215,308	$	225,202

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     The following table sets forth net revenues for each of IXYS’s product groups for the three and nine months ended December 31, 2008 and 2007 (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2008		2007		2008		2007
	(unaudited)				(unaudited)
Power semiconductors	$	45,318	$	58,408	$	170,669	$	173,791
Integrated circuits		7,533		8,058		24,945		31,840
Systems and RF power semiconductors		5,486		6,670		19,694		19,571
Total	$	58,337	$	73,136	$	215,308	$	225,202

     For the three and nine months ended December 31, 2008 and December 31, 2007, no customer accounted for more than 10% of our net revenues.

15. 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.

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 of Massachusetts 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.

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Other Commitments and Contingencies:

     Westcode Semiconductor Limited (“Westcode”), a subsidiary, had a Letter of Credit facility from a British bank. At December 31, 2008, there were £500,000, or $724,000, of open letters of credit to support inventory purchases.

     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 December 31, 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 December 2008 quarter, we experienced a sharp decline in our net revenues and backlog. The recent worldwide economic downturn has resulted in our customers becoming more cautious in new orders and making downward adjustments in their forecasts. Our customers rescheduled deliveries as well as reduced new orders ahead of the holiday season. The reduced revenues reflect decreasing sales to all major market segments, including the consumer, medical, telecommunication and industrial and commercial markets. In recent periods, research, development and engineering expenses, or R&D expenses, and our selling, general and administrative expenses, or SG&A expenses, have been reduced slightly. In light of the cost cutting measures, we expect our R&D expenses and SG&A expenses, to decline slightly in future periods. In general, our visibility regarding future performance has declined in the face of the uncertain macroeconomic outlook.

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 46.5% of our revenues in the first nine months of fiscal 2009 and 48.9% of our revenues in the first nine 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 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

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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 nine months of fiscal 2009 and 2008, approximately $1.6 million and $811,000, 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 $4.3 million in inventory of our products on hand at December 31, 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.

     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 nine months ended December 31, 2008 (in thousands):

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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
Additions		706
Deductions		(647	)
Balance at December 31, 2008	$	432

     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. For example, in the quarter ended December 31, 2008, we examined our inventory and as a consequence of the dramatic retrenchment in some of our markets, certain of our inventory that normally would not be considered excess were considered as such; therefore, we booked an additional charge of about $3.0 million to recognize this exposure.

     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
Sale of excess inventory		(141	)
Scrap of excess inventory		(609	)
Additional accrual of excess inventory		4,117
Balance at December 31, 2008	$	23,410

     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 December 31, 2008, our lower of cost or market reserve was $523,000.

     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

21

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.

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 was effective immediately and applied 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 Nine Months Ended December 31, 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							Nine Months Ended
	December 31,							December 31,
	2008		% change			2007		2008		% change			2007
	(000)					(000)		(000)					(000)
Net revenues	$	58,337		-20.2	%	$	73,136	$	215,308		-4.4	%	$	225,202
Cost of goods sold		45,683		-12.8	%		52,381		154,095		-4.9	%		162,054
Gross profit	$	12,654		-39.0	%	$	20,755	$	61,213		-3.1	%	$	63,148
Operating expenses:
Research, development and engineering	$	4,733		-11.4	%	$	5,345	$	15,558		0.1	%	$	15,549
Selling, general and administrative		9,209		-14.1	%		10,723		30,701		-2.4	%		31,460
Impairment charges		3,749		nm			—		3,749		nm			—
Litigation provision		—		nm			84		—		nm			(5,895	)
Total operating expenses	$	17,691		9.5	%	$	16,152	$	50,008		21.6	%	$	41,114

nm — not meaningful

     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						Nine Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		78.3	%		71.6	%		71.6	%		72.0	%
Gross profit		21.7	%		28.4	%		28.4	%		28.0	%
Operating expenses:
Research, development and engineering		8.1	%		7.3	%		7.2	%		6.9	%
Selling, general and administrative		15.8	%		14.7	%		14.3	%		14.0	%
Impairment charges		6.4	%		—			1.7	%		—
Litigation provision		—			0.1	%		—			-2.6	%
Total operating expenses		30.3	%		22.1	%		23.2	%		18.3	%
Operating income (loss)		-8.6	%		6.3	%		5.2	%		9.7	%
Other income (expense), net		-0.5	%		-1.8	%		0.6	%		-0.8	%
Income (loss) before income tax		-9.1	%		4.5	%		5.8	%		8.9	%
Benefit from (provision for) income tax		2.3	%		-1.5	%		-2.3	%		-3.1	%
Net income (loss)		-6.8	%		3.0	%		3.5	%		5.8	%

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Net Revenues

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

Revenues

	Three Months Ended December 31,							Nine Months Ended December 31,
	2008		% change			2007		2008		% change			2007
	(000)					(000)		(000)					(000)
Power semiconductors		$ 45,318		-22.4	%		$ 58,408		$ 170,669		-1.8	%		$ 173,791
Integrated circuits		7,533		-6.5	%		8,058		24,945		-21.7	%		31,840
Systems and RF power semiconductors		5,486		-17.8	%		6,670		19,694		0.6	%		19,571
Total		$ 58,337		-20.2	%		$ 73,136		$ 215,308		-4.4	%		$ 225,202

     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 December 31,							Nine Months Ended December 31,
	2008		% change			2007		2008		% change			2007
Power semiconductors	$	2.57		38.2	%	$	1.86	$	2.69		40.1	%	$	1.92
Integrated circuits	$	0.77		-7.2	%	$	0.83	$	0.76		-3.8	%	$	0.79
Systems and RF power semiconductors	$	25.88		97.6	%	$	13.10	$	25.71		64.1	%	$	15.67

Units

	Three Months Ended December 31,							Nine Months Ended December 31,
	2008		% change			2007		2008		% change			2007
	(000)					(000)		(000)					(000)
Power semiconductors		17,633		-44.0	%		31,480		63,496		-30.0	%		90,649
Integrated circuits		9,763		1.0	%		9,664		32,759		-18.8	%		40,334
Systems and RF power semiconductors		212		-58.3	%		509		766		-38.7	%		1,249
Total		27,608					41,653		97,021					132,232

     The 20.2% decrease in net revenues in the three months ended December 31, 2008 as compared to the three months ended December 31, 2007 reflects a decrease of $13.1 million, or 22.4%, in the sale of power semiconductors, a decrease of $525,000, or 6.5%, in the sale of ICs, and a decrease of $1.2 million, or 17.8%, in the sale of systems and RF power semiconductors. The decrease in revenues in the power semiconductor group was primarily due to a decrease of $9.5 million in the sale of power MOSFET products, principally to the consumer products market and to the industrial and commercial market, and a decrease of $3.0 million in the sale of bipolar products, principally to the industrial and commercial market. The decline in revenues from the sale of ICs was primarily due to a decrease in sales to the telecommunication market of solid state relays, or SSRs, of $819,000. The decline in revenues from the sale of systems and RF power semiconductors was mainly due to a decrease of $837,000 in the sale of subassemblies to the industrial and commercial market.

     For the three months ended December 31, 2008 as compared to the three months ended December 31, 2007, the increase in the ASPs of power semiconductors was caused by a reduction in sales of lower priced semiconductors to the consumer product market. The increase in the ASPs of systems and RF power semiconductors was principally due to a decrease in the number of RF power semiconductors sold. The decrease in the ASPs of ICs was primarily due to an increase in shipments of lower priced ASICs to the consumer and defense markets and an increase in shipments of lower priced customer premise equipment ICs.

     For the three months ended December 31, 2008 as compared to the three months ended December 31, 2007, the decline in power semiconductors units was primarily due to reduced shipments to the consumer products market and industrial and commercial market;

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in systems and RF power semiconductors, the unit decline was principally caused by reduced shipments of RF power semiconductors; and in ICs, the unit shipments were largely unchanged.

     For the quarter ended December 31, 2008, sales to customers in the United States represented approximately 30.0%, and sales to international customers represented approximately 70.0%, of our net revenues. Of our international sales, approximately 55.6% were derived from sales in Europe and the Middle East, approximately 35.0% were derived from sales in the Asia Pacific region and approximately 9.4% were derived from sales in the rest of the world. By comparison, for the quarter ended December 31, 2007, sales to customers in the United States represented approximately 25.0%, and sales to international customers represented approximately 75.0%, of our net revenues. Of our international sales, approximately 51.1% were derived from sales in Europe and the Middle East, approximately 40.2% were derived from sales in the Asia Pacific region and approximately 8.7% were derived from sales in the rest of the world.

     For the three months ended December 31, 2008 as compared to the three months ended December 31, 2007, the revenue decrease was substantially located in Europe, as a result of reduced sales to the industrial and commercial market. Revenues also declined in Korea, because of reduced sales to the consumer products market, and in China.

     The 4.4% decrease in net revenues in the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007 reflects a decrease of $3.1 million, or 1.8%, in the sale of power semiconductors and a decrease of $6.9 million, or 21.7%, in the sale of ICs, offset by a $123,000, or 0.6%, increase in the sale of systems and RF power semiconductors. The decrease in revenues in the power semiconductor group was primarily due to a decrease of $13.3 million in the sale of power MOSFET products, principally to the consumer products market and the industrial and commercial market, offset by an increase of $10.2 million in the sale of bipolar products, principally to the industrial and commercial market. The decrease in revenues from the sales of ICs was primarily due to a $2.2 million decline in the sale of SSRs and a $3.9 million decrease in the sale of semiconductors for customer premises equipment, both to the telecommunication market, and an $809,000 decrease in the sale of ASICs, principally to the consumer products market. The revenues from the sale of systems and RF power semiconductors were relatively flat.

     For the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007, the increase in the ASPs of power semiconductors was primarily caused by a reduction in sales of lower priced semiconductors to the consumer product market. The increase in the ASPs of systems and RF power semiconductors was principally due to a change in the product mix between the sale of higher priced subassemblies and lower priced RF power semiconductors. The decrease in the ASPs of ICs was the result of changes in product mix, most notably in the customer premise equipment product line.

     Units declined in all product groups for the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007. The decline in shipments of power semiconductors was principally due to reduced shipments to the consumer products market and industrial and commercial 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 principally caused by the reduction of shipments to the telecommunication and consumer markets.

     For the nine months period ended December 31, 2008, sales to customers in the United States represented approximately 28.1%, and sales to international customers represented approximately 71.9%, of our net revenues. Of our international sales, approximately 57.5% were derived from sales in Europe and the Middle East, approximately 33.4% were derived from sales in the Asia Pacific region and approximately 9.1% were derived from sales in the rest of the world. By comparison, for the nine months period ended December 31, 2007, sales to customers in the United States represented approximately 26.1%, and sales to international customers represented approximately 73.9%, of our net revenues. Of our international sales, approximately 53.3% were derived from sales in Europe and the Middle East, approximately 38.1% 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 nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007, growth was substantial in the United States, because of sales to the medical market. In contrast, reductions principally occurred in Europe, as a result of fewer sales to the industrial and commercial market; in Korea, because of reduced sales to the consumer products market; and in China.

     For the three and nine months ended December 31, 2008 and December 31, 2007, no customer accounted for more than 10% 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.

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  Gross Profit.

     Gross profit margin decreased to 21.7% in the three months ended December 31, 2008 from 28.4% in the three months ended December 31, 2007. The decrease in gross margin dollars over the same periods was $8.1 million. The decline in gross profit margin was primarily the result of $4.1 million of additional inventory write-downs in the 2009 period as compared to the 2008 period. The decrease in the gross margin dollars in the 2009 period as compared to the 2008 period was due to the decline in net revenues and the additional inventory write-downs. For the nine months ended December 31, 2008, the gross profit margin was relatively flat and increased marginally to 28.4%, as compared to gross margin of 28.0% for the nine months period of the previous year. The gross profit margin increased due to increased sales to the higher margin medical market and reduced sales to the lower margin consumer products market. Reduced revenues in fiscal 2009 led to reduced gross margin dollars in the nine months period of 2009 when compared to the same period in 2008.

     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 December 31, 2008 as compared to the same period of the prior year, R&D expenses decreased by $612,000, or 11.4%. The decrease in R&D expenses was primarily due to decreased mask and outside consulting expense. R&D expenses were largely unchanged for the nine months ended December 31, 2008 as compared to the same period of the prior year. Expressed as a percentage of revenues, our R&D expenses increased to 8.1% and 7.2% in the three and nine months ended December 31, 2008 as compared to 7.3% and 6.9% for the three and nine months ended December 31, 2007 due to reduced net revenues. In light of our cost-cutting efforts, we expect our R&D expenses to decline slightly in future periods.

  Selling, General and Administrative.

     For the three months ended December 31, 2008 as compared to the three months ended December 31, 2007, selling, general and administrative expenses decreased by $1.5 million, or 14.1% and increased from 14.7% to 15.8% of net revenues. The decrease in selling, general and administrative expenses expressed in dollars was primarily due to a decrease of $476,000 in sales expense as a consequence of lower revenues, a decrease of $373,000 in professional and consulting fees for regulatory compliance and a reduction in bad debt expense of $465,000.

     For the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007, selling, general and administrative expenses decreased by $759,000, or 2.4%, and increased from 14.0% to 14.3% of net revenues. The decrease was principally due to a decrease of $1.6 million in professional and consulting fees for regulatory compliance, offset by an increase in bad debt expense of $435,000 and an increase in stock compensation expenses of $400,000.

  Impairment Charge.

     Our financial performance during quarter ended December 31, 2008 and the current economic environment triggered the testing of goodwill and other intangible assets for impairment. The goodwill is assigned to three reporting units, two of which were tested for impairment in the quarter ended December 31, 2008. The goodwill assigned to the third reporting unit arose during the acquisition of RTI concluded in September 2008 and was not required to be analyzed. Of the two reporting units, it was determined that the entire goodwill balance of $3.7 million associated with its Clare, Inc. reporting unit was impaired due to below expectation performance and the current economic environment of that reporting unit and consequently we recorded an impairment charge of that amount.

  Litigation Provision.

     For the three and nine months ended December 31, 2008, we had no litigation provision. For the quarter ended December 31, 2007, our litigation provision was $84,000 and consisted of the accrual of interest on the damages awarded in our litigation against International Rectifier. For the nine months ended December 31, 2007, we released $5.9 million, net of interest accruals, from our litigation provision as a result of a favorable court ruling in the quarter.

  Other Income (Expense).

     In the quarter ended December 31, 2008, other expense, net was $109,000 as compared to other expense, net of $1.3 million in the quarter ended December 31, 2007. In the three months ended December 31, 2008 and December 31, 2007, other expense, net primarily consisted of losses associated with changes in exchange rates for foreign currency transactions.

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     Other income, net in the nine months ended December 31, 2008 was $1.6 million, as compared to other expense, net of $2.2 million in the nine months ended December 31, 2007. In the nine months ended December 31, 2008, other income, net primarily consisted of gains associated with changes in exchange rates for foreign currency transactions. For the nine months ended December 31, 2007, other expense, net consisted principally of losses associated with changes in exchange rates for foreign currency transactions of $3.6 million, offset by the recognition of $1.1 million received on an insurance claim.

(Benefit from) provision for Income Tax.

     In the quarter ended December 31, 2008, tax benefit reflected an effective tax rate of 24.8% as compared to a provision with an effective tax rate of 32.7% in the quarter ended December 31, 2007. For the nine months ended December 31, 2007 as compared to December 31, 2008, the effective tax rate increased from 34.6% to 39.3%. In both periods, the effective tax rate was affected by permanent items, including the goodwill impairment, net of a valuation allowance release. During the December 2008 quarter, we decided not to implement a tax planning strategy. This did not have any impact on our financial statements.

Liquidity and Capital Resources

     At December 31, 2008, cash and cash equivalents of $54.0 million decreased by 4.6% from the $56.6 million at March 31, 2008.

     Net cash provided by operating activities in the nine months ended December 31, 2008 was $17.2 million, as compared to net cash provided by operating activities of $17.4 million in the nine months ended December 31, 2007. Our net inventories at December 31, 2008 increased $4.9 million, or 5.6%, from March 31, 2008 as a result of the unanticipated reduction in net revenues. Net accounts receivable decreased by $14.0 million, or 27.9%, from March 31, 2008 to December 31, 2008, primarily due to decreased revenues and improved collections in the December 2008 quarter as compared to the March 2008 quarter. At December 31, 2008, one customer accounted for 11.3% of our net receivables.

     We used $4.9 million in net cash for investing activities during the nine months ended December 31, 2008, as compared to net cash used in investing activities of $9.0 million during the nine months ended December 31, 2007. During the nine months ended December 31, 2008, we spent $7.8 million on purchases of property, plant and equipment, which was offset by proceeds of $3.6 million from sales of investments. During the nine months ended December 31, 2007, we spent $3.4 million on purchase of investments and $5.6 million on the purchase of plant and equipment for wafer fabrication facilities.

     For the nine months ended December 31, 2008, net cash used in financing activities was $12.4 million as compared to net cash used in financing activities of $17.0 million in the nine months ended December 31, 2007. During the nine months ended December 31, 2008, we used $7.3 million for the purchase of treasury stock, $3.6 million for principal repayments on capital lease obligations, $3.2 million for the payment of dividends to stockholders and $1.7 million for repayments of loans, offset by proceeds from employee equity plans of $3.5 million. For the nine months ended December 31, 2007, we used $14.6 million for the purchase of treasury stock, and $3.1 million for repayments on capital lease obligations, offset by proceeds from employee equity plans of $1.5 million. In January 2009, we suspended the dividend indefinitely.

     At December 31, 2008, our debt, consisting of capital lease obligations and loans payable, was $30.0 million, representing 55.5% of our cash and cash equivalents and 15.7% of our stockholders equity.

     We are obligated on a €7.7 million, or $10.9 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 $235,000, 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 December 31, 2008, we had complied with the financial covenants. The loan is partially collateralized by a security interest in our facility 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 $17,000 are to be made for items such as real property taxes, insurance and capital expenditures. The balance of the loan liability at December 31, 2008 was $7.3 million. At maturity, the remaining balance on the loan will be approximately $7.1 million.

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     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 December 31, 2008 was $14.0 million.

     We have an ongoing stock repurchase program. At December 31, 2008, we could purchase an additional 1.4 million shares under the program.

     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. At times, we use forward and option contracts to manage our foreign currency exchange risks. We did not have any significant open foreign exchange forward and option contracts at December 31, 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 December 31, 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 December 31, 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 15 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.

Fluctuations in demand for our products may harm our financial results and are difficult to forecast.

     Current uncertainty in global economic conditions poses a risk to the overall economy as our customers may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters. If demand for our products fluctuates as a result of economic conditions or otherwise, our revenue and gross margin could be harmed. Important factors that could cause demand for our products to fluctuate include:

• changes in business and economic conditions, including a downturn in the semiconductor industry and/or the overall economy;

• changes in consumer and business confidence caused by changes in market conditions, including changes in the credit market, expectations for inflation, and energy prices;

• competitive pressures, particularly pricing pressures;

• changes in customer product needs;

• changes in the level of customers’ components inventory; and

• strategic actions taken by our competitors;

     If product demand decreases, our manufacturing or assembly and test capacity could be underutilized, and we may be required to record an impairment on our long-lived assets including facilities and equipment, as well as intangible assets, which would increase our expenses. In addition, factory-planning decisions may shorten the useful lives of long-lived assets, including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products, and changes in our customers’ product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, lower our gross margin percentage, or require us to recognize impairments of our assets. In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record underutilization charges, which would have a negative impact on our gross margin.

The recent financial crisis could negatively affect our business, results of operations, and financial condition.

     The recent financial crisis affecting the banking system and financial markets and the going concern threats to investment banks and other financial institutions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit and equity markets. There could be a number of follow-on effects from the credit crisis on our business, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies; and increased expense or inability to obtain financing of our operations.

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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.

     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 economic conditions have declined.

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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.

Our international operations expose us to material risks.

     For the nine months ended December 31, 2008, our product sales by region were approximately 28.1% in the United States, approximately 41.3% in Europe and the Middle East, approximately 24.0% in Asia Pacific and approximately 6.6% 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 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;

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•	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.

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:

• bankruptcy or insolvency of one or more of our subcontractors adversely affecting our production;

• 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 interruption in supply. For example, two of our recent assembly subcontractors have either ceased operations or entered into insolvency proceedings. 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.

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

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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.

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.

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

     Of our revenues for nine months ended December 31, 2008, 33.3% 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.

     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.

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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;

• 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.

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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.

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.

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, Matsushita, 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 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

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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 former 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 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.

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:

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• 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 13.6% of our net revenues for the nine months ended December 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. For example, in our quarter ended December 31, 2008, we recorded an impairment charge for goodwill of $3.7 million. Thus, in the future, 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.

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 13.6% of our net revenues for the nine months ended December 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.

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     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.

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.

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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 January 30, 2009, approximately 22.3% 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 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

ISSUER PURCHASES OF EQUITY SECURITIES

						(c) Total Number of
						Shares (or Units)
	(a) Total Number of			(b) Average		Purchased as Part of		(d) Maximum Number (or Approximate Dollar
	shares (or Units)			Price Paid per		Publicly Announced		Value) of Shares (or Units) that May Yet Be
Period	Purchased			Share (or Unit)		Plans or Programs		Purchased Under the Plans or Programs
October 1, 2008 — October 31, 2008		523,616	(1)		6.59		—		—
November 1, 2008 — November 30, 2008		269,400			6.36		269,400		1,730,600	(2)
December 1, 2008 — December 31, 2008		285,800			7.35		285,800		1,444,800
Total		1,078,816			6.73		555,200

(1)	A single transaction of purchasing 523,616 shares of common stock was approved by Board of Directors on October 8, 2008.
(2)	The current stock purchase program was approved on November 14, 2008 and will expire on November 13, 2010. The purchase of up to 2,000,000 shares of common stock was approved.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

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: February 6, 2009

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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: February 6, 2009 

/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: February 6, 2009 

/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 December 31, 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: February 6, 2009 

/s/ Nathan Zommer  

Nathan Zommer 

Chief Executive Officer 

/s/ Uzi Sasson  

Uzi Sasson 

Chief Operating Officer
Chief Financial Officer