UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from              to             

COMMISSION FILE NUMBER 000-26124

IXYS CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	77-0140882
(State or other jurisdiction of incorporation or organization)	(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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

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.

Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of October 24, 2012 was 31,180,672.

IXYS CORPORATION

FORM 10-Q

September 30, 2012

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		5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		26
ITEM 4. CONTROLS AND PROCEDURES		26
PART II — OTHER INFORMATION		27
ITEM 1. LEGAL PROCEEDINGS		27
ITEM 1A. RISK FACTORS		27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		41
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		41
ITEM 4. MINE SAFETY DISCLOSURES		41
ITEM 5. OTHER INFORMATION		41
ITEM 6. EXHIBITS		41

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30,			March 31,
	2012			2012
ASSETS
Current assets:
Cash and cash equivalents	$	104,687		$	98,604
Restricted cash		564			509
Accounts receivable, net of allowances of $3,023 at September 30, 2012 and $2,473 at March 31, 2012		38,130			48,420
Inventories		89,583			86,240
Prepaid expenses and other current assets		6,569			6,934
Deferred income taxes		8,410			8,450
Total current assets		247,943			249,157
Property, plant and equipment, net		52,760			56,071
Intangible assets, net		4,017			5,144
Deferred income taxes		25,415			25,629
Other assets		12,161			7,909
Total assets	$	342,296		$	343,910
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	2,535		$	2,873
Current portion of loans payable		961			1,696
Accounts payable		14,215			14,427
Accrued expenses and other current liabilities		17,637			22,023
Total current liabilities		35,348			41,019
Long term income tax payable		6,470			6,456
Capitalized lease obligations, net of current portion		4,229			5,651
Long term loans, net of current portion		20,965			21,676
Pension liabilities		14,288			15,001
Total liabilities		81,300			89,803
Commitments and contingencies (Note 16)
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; 37,861,622 issued and 31,197,704 outstanding at September 30, 2012 and 37,805,697 issued and 31,323,538 outstanding at March 31, 2012		379			378
Additional paid-in capital		200,907			198,283
Treasury stock, at cost: 6,663,918 common shares at September 30, 2012 and 6,482,159 common shares at March 31, 2012		(58,608	)		(56,838	)
Retained earnings		118,479			110,194
Accumulated other comprehensive income (loss)		(161	)		2,090
Total stockholders’ equity		260,996			254,107
Total liabilities and stockholders’ equity	$	342,296		$	343,910

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

3

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net revenues	$	68,461		$	99,004		$	149,318		$	200,782
Cost of goods sold		47,943			67,526			101,611			134,269
Gross profit		20,518			31,478			47,707			66,513
Operating expenses:
Research, development and engineering		6,752			6,504			13,401			13,437
Selling, general and administrative		9,905			10,186			21,092			21,315
Amortization of acquisition-related intangible assets		484			603			1,124			1,245
Total operating expenses		17,141			17,293			35,617			35,997
Operating income		3,377			14,185			12,090			30,516
Other income (expense):
Interest income		84			92			168			161
Interest expense		(234	)		(293	)		(491	)		(577	)
Other income, net		206			1,661			907			1,267
Income before income tax provision		3,433			15,645			12,674			31,367
Provision for income tax		(1,076	)		(4,698	)		(4,310	)		(10,444	)
Net income	$	2,357		$	10,947		$	8,364		$	20,923
Net income per share:
Basic	$	0.08		$	0.35		$	0.27		$	0.67
Diluted	$	0.07		$	0.34		$	0.26		$	0.64
Weighted average shares used in per share calculation:
Basic		31,310			31,383			31,331			31,445
Diluted		31,975			32,545			32,192			32,669

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

4

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2012		2011			2012			2011
Net income	$	2,357	$	10,947		$	8,364		$	20,923
Unrealized gain (loss) on available-for-sale investment securities, net of taxes of $189 and $224 for the three and six months ended September 30, 2012 and net of taxes of $(43) and $(48) for the three and six months ended September 30, 2011		351		(80	)		416			(89	)
Foreign currency translation adjustments		2,433		(4,822	)		(2,667	)		(3,313	)
Total comprehensive income	$	5,141	$	6,045		$	6,113		$	17,521

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

5

IXYS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net income	$	8,364		$	20,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,358			6,807
Provision for receivable allowances		6,217			4,880
Net change in inventory provision		337			322
Foreign currency adjustments on intercompany amounts		(470	)		(757	)
Stock-based compensation		2,131			1,582
Loss on investments and disposal of fixed assets		31			124
Changes in operating assets and liabilities:
Accounts receivable		3,468			(6,288	)
Inventories		(4,696	)		(5,480	)
Prepaid expenses and other current assets		(1,239	)		1,102
Other assets		415			121
Accounts payable		(104	)		152
Accrued expenses and other liabilities		(2,497	)		5,984
Pension liabilities		(433	)		(402	)
Net cash provided by operating activities		17,882			29,070
Cash flows from investing activities:
Change in restricted cash		(55	)		11
Purchases of investments		(4,517	)		(188	)
Purchases of property and equipment		(2,780	)		(6,296	)
Proceeds from sale of investments		387			25
Net cash used in investing activities		(6,965	)		(6,448	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(1,435	)		(1,671	)
Repayments of loans and notes payable		(1,174	)		(705	)
Proceeds from loans		—			423
Proceeds from employee equity plans		762			1,795
Purchases of treasury stock		(2,118	)		(7,037	)
Net cash used in financing activities		(3,965	)		(7,195	)
Effect of exchange rate fluctuations on cash and cash equivalents		(869	)		(747	)
Net increase in cash and cash equivalents		6,083			14,680
Cash and cash equivalents at beginning of period		98,604			75,406
Cash and cash equivalents at end of period	$	104,687		$	90,086

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 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, but are not limited to, revenue reserves, inventory valuation, accounting for income taxes, allocation of purchase price in business combinations and restructuring costs. 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, 2012 has been derived from our audited balance sheet as of that date. It is recommended that the interim financial statements be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2012, or fiscal 2012, contained in our 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 and Accounting Changes

In June 2011, the Financial Accounting Standards Board, or FASB, issued authoritative guidance on the presentation of comprehensive income. Under the guidance, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance was effective for us in the fiscal year beginning on April 1, 2012. Although adopting the guidance did not impact the accounting for comprehensive income, it affected the presentation of components of comprehensive income by eliminating the historical practice of showing these items within the consolidated statements of stockholders’ equity.

In July 2012, FASB issued authoritative guidance on testing indefinite-lived intangible assets for impairment. Under the amendments in this guidance, an entity has the option to assess qualitative factors to determine whether it is more likely than not that the intangible asset is impaired. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the entity is not required to take further action. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived asset and perform the quantitative impairment test by comparing the fair value with the carrying value. The amendments are effective for us in the fiscal year beginning on April 1, 2013 and early adoption is permitted. We are currently evaluating the impact that the adoption of the amendments will have on our condensed consolidated financial statements and disclosures.

3. Fair Value

We account for certain assets and liabilities at fair value. In determining fair value, we consider its principal or most advantageous market and the assumptions that market participants would use when pricing, such as inherent risk, restrictions on sale and risk of nonperformance. The fair value hierarchy is 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. The 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.

7

Assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of September 30, 2012 and March 31, 2012 (in thousands):

	September 30, 2012 (1)								March 31, 2012 (1)
	Total			Fair Value Measured at Reporting Date Using					Total			Fair Value Measured at Reporting Date Using
Description				Level 1		Level 2						Level 1		Level 2
	(unaudited)								(unaudited)
Money market funds (2)	$	71,835		$	71,835	$	—		$	69,369		$	69,369	$	—
Marketable equity securities (3)		5,939			5,939		—			1,064			1,064		—
Auction rate preferred securities (3)		350			—		350			350			—		350
Derivative liabilities (4)		(255	)		—		(255	)		(203	)		—		(203	)
Total	$	77,869		$	77,774	$	95		$	70,580		$	70,433	$	147

(1) We did not have any recurring assets whose fair value was measured using significant unobservable inputs.

(2) Included in “Cash and cash equivalents” on our unaudited condensed consolidated balance sheets.

(3) Included in “Other assets” on our unaudited condensed consolidated balance sheets.

(4) Included in “Accrued expenses and other current liabilities” on our unaudited condensed consolidated balance sheets.

We measure our marketable securities and derivative contracts at fair value. Marketable securities are valued using the quoted market prices and are therefore classified as Level 1 estimates.

From time to time, we use derivative instruments to manage exposures to changes in interest rates and currency exchange rates, and the fair values of these instruments are recorded on the balance sheets. We have elected not to designate these instruments as accounting hedges. The changes in the fair value of these instruments are recorded in the current period’s statement of operations and are included in other income (expense), net. All of our derivative instruments are traded on over-the-counter markets where quoted market prices are not readily available. For those derivatives, we measure fair value using prices obtained from the counterparties with whom we have traded. The counterparties price the derivatives based on models that use primarily market observable inputs, such as yield curves and option volatilities. Accordingly, we classify these derivatives as Level 2. See Note 8, “Borrowing Arrangements” for further information regarding the terms of the derivative contract.

Auction rate preferred securities, or ARPS, are stated at par value based upon observable inputs including historical redemptions received from the ARPS issuers. All of our ARPS have AAA credit ratings, are 100% collateralized and continue to pay interest in accordance with their contractual terms. Additionally, the collateralized asset value ranges exceed the value of our ARPS by approximately 300 percent. Accordingly, the remaining ARPS balance of $350,000 is categorized as Level 2 for fair value measurement in accordance with the authoritative guidance provided by FASB and was recorded at full par value on the unaudited condensed consolidated balance sheets as of September 30, 2012 and March 31, 2012. We currently believe that the ARPS values are not impaired and as such, no impairment has been recognized against the investment. If future auctions fail to materialize and the credit rating of the issuers deteriorates, we may be required to record an impairment charge against the value of our ARPS.

Cash and cash equivalents are recognized and measured at fair value in our consolidated financial statements. Accounts receivable and prepaid expenses and other current assets are financial assets with carrying values that approximate fair value. Accounts payable and accrued expenses and other current liabilities are financial liabilities with carrying values that approximate fair value.

Long term loans, which primarily consist of loans from banks, approximate fair value as the interest rates either adjust according to the market rates or the interest rates approximate the market rates. The estimated fair value of our long-term debt was approximately $21.9 million and $23.4 million as of September 30, 2012 and March 31, 2012, respectively. Our long-term debt is categorized as Level 2 for fair value measurement. See Note 10, “Pension Plans” for a discussion of pension liabilities.

4. Other Assets

Other assets consist of the following (in thousands):

	September 30, 2012		March 31, 2012
	(unaudited)
Marketable equity securities	$	5,939	$	1,064
Auction rate preferred securities		350		350
Long term equity investments		5,130		5,340
Other items		742		1,155
Total	$	12,161	$	7,909

8

5. Inventories

Inventories consist of the following (in thousands):

	September 30, 2012		March 31, 2012
	(unaudited)
Raw materials	$	21,438	$	23,200
Work in process		41,345		41,570
Finished goods		26,800		21,470
Total	$	89,583	$	86,240

6. Accrued Expenses and Other Current Liabilities

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

	September 30, 2012		March 31, 2012
	(unaudited)
Uninvoiced goods and services	$	8,397	$	11,869
Compensation and benefits		6,629		7,214
Commission, royalties and other		2,611		2,940
Total	$	17,637	$	22,023

7. Intangible Assets

Identified intangible assets consisted of the following as of September 30, 2012 (in thousands):

	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Developed intellectual property	$	4,800	$	2,058	$	2,742
Customer relationships		6,100		5,471		629
Contract backlog		2,000		2,000		—
Other intangible assets		1,187		541		646
Total identifiable intangible assets	$	14,087	$	10,070	$	4,017

Identified intangible assets consisted of the following as of March 31, 2012 (in thousands):

	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Developed intellectual property	$	4,800	$	1,658	$	3,142
Customer relationships		6,100		4,840		1,260
Contract backlog		2,000		2,000		—
Other intangible assets		1,187		445		742
Total identifiable intangible assets	$	14,087	$	8,943	$	5,144

8. Borrowing Arrangements

Bank of the West

On November 13, 2009, we entered into a credit agreement for a revolving line of credit with Bank of the West, or BOW, under which we could borrow up to $15.0 million and all amounts owed under the credit agreement were due and payable on October 31, 2011. On December 29, 2010, we entered into an amendment with BOW to increase the line of credit to $20.0 million and to extend the expiration date to October 31, 2013. Borrowings may be repaid and re-borrowed at any time during the term of the credit agreement. The obligations are guaranteed by two of our subsidiaries. At September 30, 2012, the outstanding principal balance under the credit agreement was $15.0 million.

9

The credit agreement provides different interest rate alternatives under which we may borrow funds. We may elect to borrow based on LIBOR plus a margin, an alternative base rate plus a margin or a floating rate plus a margin. The margin can range from 150 basis points to 325 basis points, depending on interest rate alternatives and on our leverage of liabilities to effective tangible net worth. The effective interest rate as of September 30, 2012 was 2.83%.

The credit agreement is subject to a set of financial covenants, including minimum effective tangible net worth, the ratio of cash, cash equivalents and accounts receivable to current liabilities, profitability, a ratio of EBITDA to interest expense and a minimum amount of U.S. domestic cash on hand. At September 30, 2012, we complied with all of these financial covenants.

The credit agreement also includes a $3.0 million letter of credit subfacility. See Note 16, “Commitments and Contingencies” for further information regarding the terms of the subfacility.

IKB Deutsche Industriebank

On June 10, 2005, IXYS Semiconductor GmbH, our German subsidiary, borrowed €10.0 million, or about $12.2 million at the time, from IKB Deutsche Industriebank for a term of 15 years. The outstanding balance at September 30, 2012 was €5.2 million, or $6.6 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 our German subsidiary. In June 2010, we entered into an interest rate swap agreement commencing June 30, 2010. The swap agreement has a fixed interest rate of 1.99% and expires on June 30, 2015. It is not designated as a hedge in the financial statements. See Note 3, “Fair Value” for further information regarding the derivative contract.

During each fiscal quarter, a principal payment of €167,000, or about $215,000, and a payment of accrued interest are required. Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At September 30, 2012, we complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by our company in Lampertheim, Germany.

Note payable issued in acquisition

On September 10, 2008, we issued a note payable 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 Incorporated, or RTI. The note was repayable in 60 equal monthly installments of $38,666, which included interest at an annual rate of 6.0%. The note was collateralized by a security interest in the property acquired and the current assets of RTI. The note was paid in full in April 2012.

9. Restructuring Charges

In the quarter ended September 30, 2009, we initiated plans to restructure our European manufacturing and assembly operations to align them to current market conditions. The plans primarily involved the termination of employees and centralization of certain positions. Costs related to termination of employees represented severance payments and benefits.

During the quarter ended December 31, 2010, we relocated the Zilog employees to our headquarters in Milpitas and vacated the facility in San Jose, California, as a part of our integration plan to reduce costs.

The costs in connection with the restructuring plans in Europe and the Zilog lease and exit costs have been included under “Restructuring charges” in our unaudited condensed consolidated statements of operations.

10

Restructuring activity as of and for the three and six months ended September 30, 2012 was as follows (in thousands):

	Severance and Related Benefits			Lease Commitment Accrual			Total
Balance at March 31, 2012	$	72		$	127		$	199
Cash payments		—			(64	)		(64	)
Currency translation adjustment		(4	)		—			(4	)
Balance at June 30, 2012		68			63			131
Cash payments		—			(63	)		(63	)
Currency translation adjustment		1			—			1
Balance at September 30, 2012	$	69		$	—		$	69

We anticipate that the remaining restructuring obligations of $69,000 as of September 30, 2012 will be paid by December 31, 2013.

10. Pension Plans

We maintain three defined benefit pension plans: one for United Kingdom employees, one for German employees, and one for Philippine employees. These plans cover most of the employees in the United Kingdom, Germany and the Philippines. 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, banks or trustees and/or accrue for the unfunded portion of the obligations. The measurement date for the projected benefit obligations and the plan assets is March 31. The United Kingdom and German plans have been curtailed. As such, the plans are closed to new entrants and no credit is provided for additional periods of service. The German plan is held by a separate legal entity. As of September 30, 2012, the German defined benefit plan was completely unfunded. We expect to contribute approximately $917,000 to the United Kingdom and the Philippines plans in the fiscal year ending March 31, 2013. This contribution is primarily contractual.

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

	Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011
	(unaudited)						(unaudited)
Service cost	$	25		$	21		$	49		$	42
Interest cost on projected benefit obligation		468			515			939			1,037
Expected return on plan assets		(379	)		(432	)		(758	)		(869	)
Recognized actuarial loss		42			19			84			38
Net periodic pension expense	$	156		$	123		$	314		$	248

11. Employee Equity Incentive Plans

Stock Purchase and Stock Option Plans

The 2011 Equity Incentive Plan and the 2009 Equity Incentive Plan

On September 10, 2009, our stockholders approved the 2009 Equity Incentive Plan, or the 2009 Plan, under which 900,000 shares of our common stock are reserved for the grant of stock options and other equity incentives. On September 16, 2011, our stockholders approved the 2011 Equity Incentive Plan, or the 2011 Plan, under which 600,000 shares of our common stock are reserved for the grant of stock options and other equity incentives. The 2009 Plan and the 2011 Plan are referred to as the Plans.

Stock Options

Under the Plans, nonqualified and incentive stock options may be granted to employees, consultants and non-employee directors. Generally, the per share exercise price shall not be less than 100% of the fair market value of a share on the grant date. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. While we may grant options that become exercisable at different times or within different periods, we have primarily granted options that vest over four years. The options, once granted, expire ten years from the date of grant.

11

Restricted Stock

Restricted stock awards may be granted to any employee, director or consultant under the Plans. Pursuant to a restricted stock award, we will issue shares of common stock that will be released from restriction if certain requirements, including continued performance of services, are met.

Stock Appreciation Rights

Awards of stock appreciation rights, or SARs, may be granted to employees, consultants and nonemployee directors pursuant to the Plans. A SAR is payable on the difference between the market price at the time of exercise and the exercise price at the date of grant. In any event, the exercise price of a SAR shall not be less than 100% of the fair market value of a share on the grant date and shall expire no later than ten years from the grant date. Upon exercise, the holder of a SAR shall be entitled to receive payment either in cash or a number of shares by dividing such cash amount by the fair market value of a share on the exercise date.

Restricted Stock Units

Restricted stock units, denominated performance units in the 2009 Plan, may be granted to employees, consultants and nonemployee directors under the Plans. Each restricted stock unit shall have a value equal to the fair market value of one share. After the applicable performance period has ended, the holder will be entitled to receive a payment, either in cash or in the form of shares, based on the number of restricted stock units earned over the performance period, to be determined as a function of the extent to which the corresponding performance goals or other vesting provisions have been achieved.

Zilog 2004 Omnibus Stock Incentive Plan

The Zilog 2004 Omnibus Stock Incentive Plan, or the Zilog 2004 Plan, was approved by the stockholders of Zilog in 2004, and was amended and approved by the stockholders of Zilog in 2007. In connection with the acquisition of Zilog, our Board of Directors approved assumption of the Zilog 2004 Plan. Employees of Zilog and persons first employed by our company after the closing of the acquisition of Zilog may receive grants under the Zilog 2004 Plan. Under the 2004 Plan, incentive stock options, non-statutory stock options, or restricted shares may be granted. At the time of the assumption of the Zilog 2004 Plan by our company, up to 652,963 shares of our common stock were available for grant under the plan.

Zilog 2002 Omnibus Stock Incentive Plan

The Zilog 2002 Omnibus Stock Incentive Plan, or the Zilog 2002 Plan, was adopted in 2002. In connection with the acquisition of Zilog, our Board of Directors approved the assumption of the Zilog 2002 Plan with respect to the shares available for grant as stock options. Employees of Zilog and persons first employed by our company after the closing of the acquisition of Zilog may receive grants under the Zilog 2002 Plan. At the time of the assumption of the Zilog 2002 Plan by our company, up to 366,589 shares of our common stock were available for grant under the plan. The Zilog 2002 Plan expired in May 2012 and no additional grants may be made thereafter.

Employee Stock Purchase Plan

In May 1999, the Board of Directors approved the 1999 Employee Stock Purchase Plan, or the Purchase Plan, and reserved 500,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, all eligible employees may purchase our common stock at a price equal to 85% of the lower of the fair market value at the beginning of the offer period or the semi-annual purchase date. Stock purchases are limited to 15% of an employee’s eligible compensation. On July 31, 2007 and July 9, 2010, the Board of Directors amended the Purchase Plan and on each occasion reserved an additional 350,000 shares of common stock for issuance under the Purchase Plan. During the six months ended September 30, 2012, there were 55,925 shares purchased under the Purchase Plan, leaving approximately 245,946 shares available for purchase under the plan in the future.

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Stock-Based Compensation

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

	Three Months Ended September 30,				Six Months Ended September 30,
Statement of Operations Classifications	2012		2011		2012		2011
	(unaudited)				(unaudited)
Selling, general and administrative expenses	$	1,036	$	798	$	2,131	$	1,582
Stock-based compensation effect in income before taxes		1,036		798		2,131		1,582
Provision for income taxes (1)		363		287		746		570
Net stock-based compensation effects in net income	$	673	$	511	$	1,385	$	1,012

(1) Estimated at a statutory income tax rate of 35% in fiscal year 2013 and 36% in fiscal year 2012.

During the six months ended September 30, 2012, the unaudited condensed consolidated statements of operations and cash flows do not reflect any tax benefit for the tax deduction from option exercises and other awards. As of September 30, 2012, approximately $6.0 million in stock-based compensation is to be recognized for unvested stock options granted under our equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.8 years.

The Black-Scholes option pricing model is used to estimate the fair value of options granted under our equity incentive plans and rights to acquire stock granted under our stock purchase plan. The weighted average estimated fair values of employee stock option grants and rights granted under the 1999 Employee Stock Purchase Plan, as well as the weighted average assumptions that were used in calculating such values during the six months ended September 30, 2012 and 2011, were based on estimates at the date of grant as follows:

	Stock Options												Purchase Plan (1)
	Three Months Ended September 30,						Six Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011			2012			2011
Weighted average estimated fair value of grant per share	$	5.01		$	6.22		$	5.21		$	6.44		$	3.67		$	2.51
Risk-free interest rate		1.0	%		1.1	%		1.0	%		1.4	%		0.1	%		0.2	%
Expected term in years		6.34			5.72			6.34			5.82			0.5			0.5
Volatility		55.5	%		55.4	%		55.4	%		55.5	%		46.8	%		44.9	%
Dividend yield		—			—			—			—			—			—

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

Activity with respect to outstanding stock options for the six months ended September 30, 2012 was as follows:

	Number of Shares			Weighted Average Exercise Price Per Share		Intrinsic Value (1)
						(000)
Balance at March 31, 2012		5,472,004		$	9.75
Options granted		205,000		$	9.85
Options exercised		(39,469	)	$	6.77	$	155
Options cancelled		(39,925	)	$	7.29
Options expired		(98,975	)	$	5.94
Balance at September 30, 2012		5,498,635		$	9.87
Exercisable at September 30, 2012		4,076,385		$	9.74
Exercisable at March 31, 2012		3,833,879		$	9.42

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

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12. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, at the end of each period were as follows (in thousands):

	September 30, 2012			March 31, 2012
	(unaudited)
Accumulated net unrealized gain (loss) on available-for-sale investments securities, net of taxes of $187 at September 30, 2012 and $(37) at March 31, 2012	$	348		$	(68	)
Unrecognized actuarial loss, net of tax of $(1,523)		(4,314	)		(4,314	)
Accumulated foreign currency translation adjustments		3,805			6,472
Total accumulated other comprehensive income (loss)	$	(161	)	$	2,090

13. Computation of Net Income per Share

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

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
	(unaudited)				(unaudited)
Net income	$	2,357	$	10,947	$	8,364	$	20,923
Weighted average shares—basic		31,310		31,383		31,331		31,445
Weighted average shares—diluted		31,975		32,545		32,192		32,669
Net income per share—basic	$	0.08	$	0.35	$	0.27	$	0.67
Net income per share—diluted	$	0.07	$	0.34	$	0.26	$	0.64

Diluted weighted average shares includes approximately 665,000 and 1,162,000 common equivalent shares from stock options for the three months ended September 30, 2012 and 2011, and approximately 861,000 and 1,224,000 common equivalent shares from stock options for the six months ended September 30, 2012 and 2011.

Basic net income available per common share is computed using net income and the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed using net income and the weighted average number of common shares outstanding, assuming dilution, which 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. During the three and six months ended September 30, 2012, there were outstanding weighted average options to purchase 2,779,738 and 2,018,330 shares, respectively, that were not included in the computation of diluted net income per share since the exercise prices of the options exceeded the market price of the common stock. During the three and six months ended September 30, 2011, there were outstanding weighted average options to purchase 606,173 and 738,137 shares, respectively, that were not included in the computation of diluted net income per share since the exercise prices of the options exceeded the market price of the common stock. These options could dilute earnings per share in future periods if the market price of the common stock increases.

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14. Segment Information

We have a single operating segment. This operating segment is comprised of semiconductor products used primarily in power-related applications. While we have separate legal subsidiaries with discrete financial information, we have one chief operating decision maker with highly integrated businesses. Our net revenues by major geographic area (based on destination) were as follows (in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
	(unaudited)				(unaudited)
United States	$	20,241	$	27,562	$	45,163	$	55,267
Europe and the Middle East
France		1,125		1,915		2,698		3,946
Germany		7,446		12,888		16,603		26,304
United Kingdom		6,429		8,430		13,553		16,432
Other		9,227		13,643		19,477		27,783
Asia Pacific
China		10,586		16,971		23,970		35,536
Japan		1,717		2,607		3,545		4,695
Korea		2,082		3,004		4,325		6,949
Malaysia		1,146		1,036		2,449		2,156
Singapore		2,509		3,101		5,154		5,585
Taiwan		1,253		1,765		2,477		3,997
Other		1,319		1,717		2,674		3,086
Rest of the World
India		1,470		2,425		3,272		5,254
Other		1,911		1,940		3,958		3,792
Total	$	68,461	$	99,004	$	149,318	$	200,782

The following table sets forth net revenues for each of our product groups for the three and six months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011
	(unaudited)				(unaudited)
Power semiconductors	$	48,203	$	74,731	$	107,785	$	151,195
Integrated circuits		15,100		16,949		30,699		35,060
Systems and RF power semiconductors		5,158		7,324		10,834		14,527
Total	$	68,461	$	99,004	$	149,318	$	200,782

For the three and six months ended September 30, 2012, one distributor accounted for 14.1% and 13.2% of our net revenues, respectively, and another distributor accounted for 10.0% and 10.9% of our net revenues, respectively. For the three and six months ended September 30, 2011, one distributor accounted for 11.8% and 12.3% of our net revenues, respectively, and another distributor accounted for 11.2% and 11.1% of our net revenues, respectively.

15. Income Taxes

For the three and six months ended September 30, 2012, we recorded income tax provisions of $1.1 million and $4.3 million, reflecting effective tax rates of 31.3% and 34.0%, respectively. For the three and six months ended September 30, 2011, we recorded income tax provisions of $4.7 million and $10.4 million, reflecting effective tax rates of 30.0% and 33.3%, respectively. For the three and six months ended September 30, 2012, the effective tax rates were affected by changes in estimates of annual income in domestic and foreign jurisdictions. For the three and six months ended September 30, 2011, the effective tax rates were affected by changes in the estimates of annual income in foreign jurisdictions and by a valuation allowance release.

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16. Commitments and Contingencies

Legal Proceedings

We are currently 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 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.

Bank of the West

On November 13, 2009, we entered into a credit agreement with BOW. On December 29, 2010, we entered into an amendment with BOW to increase the line of credit to $20.0 million and to extend the expiration date to October 31, 2013. The credit agreement includes a letter of credit subfacility, under which BOW agrees to issue letters of credit of up to $3.0 million. However, borrowing under this subfacility is limited to the extent of availability under the $20.0 million revolving line of credit. At September 30, 2012, the outstanding principal balance under the credit agreement was $15.0 million. See Note 8, “Borrowing Arrangements” for further information regarding the terms of the credit agreement.

Other Commitments and Contingencies

On occasion, we provide limited indemnification to customers against intellectual property infringement claims related to our products. To date, we have not experienced significant activity or claims related to such indemnifications. We also provide in the normal course of business indemnification to our officers, directors and selected parties. We are unable to estimate any potential future liability, if any. Therefore, no liability for these indemnification agreements has been recorded as of September 30, 2012 and March 31, 2012.

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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 this Form 10-Q and, in particular, in Item 1A of Part II hereof. 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 “Item 1A. Risk Factors.” 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, except as may be required by law.

Overview

We are a multi-market integrated semiconductor company. Our three principal product groups are: power semiconductors; integrated circuits, or ICs; and systems and radio frequency, or 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 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 power semiconductors. Our microcontrollers provide application specific, embedded system-on-chip, or SoC, solutions for the industrial and consumer markets.

Our systems include laser diode drivers, high voltage pulse generators and modulators, and high power subsystems, sometimes known as 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.

Over the past two quarters, our net revenues have declined. Our product revenues from sales of power semiconductors and systems and RF power semiconductors decreased, while our product revenues from sales of ICs fluctuated from quarter to quarter. During the quarter ended September 30, 2012, our revenues fell across all major geographic regions and our sales to all major market segments declined as compared to the immediately preceding quarter. In addition, our selling, general and administrative expenses, or SG&A expenses, decreased, mainly because of reduced sales and personnel expenses. Our research, development and engineering expenses, or R&D expenses, have remained relatively flat. In future periods, both our SG&A and R&D expenses, as expressed in dollars, are expected to continue at approximately these levels. 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 unaudited condensed 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 58.6% of our net revenues in the six months ended September 30, 2012 and 56.2% of our net revenues in the six months ended September 30, 2011 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 generally transfer the risk of loss at the 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

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transactions, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and ship and debit 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.

Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfer, typically upon shipment from our company, at which point we have a legally enforceable right to collection under normal payment terms. 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 their end customers. Deferred amounts are presented net and included under accrued expenses and other liabilities.

We state our revenues net of any taxes collected from customers that are required to be remitted to various government agencies. The amount of taxes collected from customers and payable to government agencies 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 six months ended September 30, 2012 and 2011, approximately $1.4 million and $913,000, respectively, of products were returned to us under the program. We 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. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to a distributor’s customer. At the time we record sales to 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 six months ended September 30, 2012 (in thousands):

Balance at March 31, 2012	$	1,101
Additions		1,636
Deductions		(1,556	)
Balance at June 30, 2012		1,181
Additions		2,281
Deductions		(1,862	)
Balance at September 30, 2012	$	1,600

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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 expenses. 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. 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. The authoritative guidance provided by FASB requires certain abnormal expenditures to be recognized as expenses in the current period instead of 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.

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. 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, during the fourth quarter of fiscal 2009, 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 was considered as such. Therefore, we booked additional charges of about $14.9 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 write it up when it is subsequently utilized, 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.

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

Balance at March 31, 2012	$	28,138
Utilization or sale		(592	)
Scrap		(1,053	)
Additional accrual		607
Foreign currency translation adjustments		(423	)
Balance at June 30, 2012		26,677
Utilization or sale		(480	)
Scrap		(473	)
Additional accrual		766
Foreign currency translation adjustments		216
Balance at September 30, 2012	$	26,706

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 10,000 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 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 utilization, sale or scrapping of excess inventory.

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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, inventory is marked down accordingly. At September 30, 2012, our lower of cost or market reserve was $642,000.

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 unaudited condensed consolidated balance sheets. 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 management estimates is more likely than not to be realized. In determining the amount of the valuation allowance, we consider income over recent years, estimated future taxable income, feasible tax planning strategies and other factors in each taxing jurisdiction in which we operate. If we determine that it is more likely than not that we will not realize all or a portion of our remaining deferred tax assets, then we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that it is likely 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, then the related portion of the valuation allowance will reduce 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. We recognize liabilities for uncertain tax positions based on the two-step process as prescribed by the authoritative guidance provided by FASB. 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 audit, including resolution of any related appeals or litigation processes. The second step requires us to measure and determine the approximate amount of the tax benefit at the largest amount that is more than 50% likely of being realized upon ultimate settlement with the tax authorities. It is inherently difficult and requires significant judgment to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reexamine these uncertain tax positions on a quarterly basis. This reassessment is based on various factors during the period including, but not limited to, changes in worldwide tax laws and treaties, changes in facts or circumstances, effectively settled issues under audit and any new audit activity. A change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, see Note 2, “Recent Accounting Pronouncements and Accounting Changes” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.

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Results of Operations — Three and Six Months Ended September 30, 2012 and 2011

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 September 30,							Six Months Ended September 30,
	2012		% change			2011		2012		% change			2011
	(000)					(000)		(000)					(000)
Net revenues	$	68,461		(30.9	)	$	99,004	$	149,318		(25.6	)	$	200,782
Cost of goods sold		47,943		(29.0	)		67,526		101,611		(24.3	)		134,269
Gross profit	$	20,518		(34.8	)	$	31,478	$	47,707		(28.3	)	$	66,513
Operating expenses:
Research, development and engineering	$	6,752		3.8		$	6,504	$	13,401		(0.3	)	$	13,437
Selling, general and administrative		9,905		(2.8	)		10,186		21,092		(1.0	)		21,315
Amortization of acquisition-related intangible assets		484		(19.7	)		603		1,124		(9.7	)		1,245
Total operating expenses	$	17,141		(0.9	)	$	17,293	$	35,617		(1.1	)	$	35,997

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 Three Months Ended September 30,						% of Net Revenues Six Months Ended September 30,
	2012			2011			2012			2011
Net revenues		100.0			100.0			100.0			100.0
Cost of goods sold		70.0			68.2			68.1			66.9
Gross profit		30.0			31.8			31.9			33.1
Operating expenses:
Research, development and engineering		9.9			6.6			9.0			6.7
Selling, general and administrative		14.5			10.3			14.1			10.6
Amortization of acquisition-related intangible assets		0.7			0.6			0.7			0.6
Total operating expenses		25.1			17.5			23.8			17.9
Operating income		4.9			14.3			8.1			15.2
Other income, net		0.1			1.5			0.4			0.4
Income before income tax		5.0			15.8			8.5			15.6
Provision for income tax		(1.6	)		(4.7	)		(2.9	)		(5.2	)
Net income		3.4			11.1			5.6			10.4

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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 (1)	Three Months Ended September 30,							Six Months Ended September 30,
	2012		% change			2011		2012		% change			2011
	(000)					(000)		(000)					(000)
Power semiconductors	$	48,203		(35.5	)	$	74,731	$	107,785		(28.7	)	$	151,195
Integrated circuits		15,100		(10.9	)		16,949		30,699		(12.4	)		35,060
Systems and RF power semiconductors		5,158		(29.6	)		7,324		10,834		(25.4	)		14,527
Total	$	68,461		(30.9	)	$	99,004	$	149,318		(25.6	)	$	200,782

(1) Includes $724,000 and $832,000 of intellectual property revenues in integrated circuits during the quarters ended September 30, 2012 and 2011, respectively. Includes $1.4 million of intellectual property revenues in integrated circuits during the six months ended September 30, 2012. Includes $2.0 million of intellectual property revenues in power semiconductors and $1.7 million of intellectual property revenues in integrated circuits during the six months ended September 30, 2011.

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

Average Selling Prices	Three Months Ended September 30,							Six Months Ended September 30,
	2012		% change			2011		2012		% change			2011
Power semiconductors	$	2.15		(1.8	)	$	2.19	$	2.28		8.1		$	2.11
Integrated circuits	$	0.88		(1.1	)	$	0.89	$	0.88		(2.2	)	$	0.90
Systems and RF power semiconductors	$	30.70		(30.4	)	$	44.12	$	27.71		(18.0	)	$	33.78

Units	Three Months Ended September 30,							Six Months Ended September 30,
	2012		% change			2011		2012		% change			2011
	(000)					(000)		(000)					(000)
Power semiconductors		22,451		(34.3	)		34,191		47,277		(33.2	)		70,791
Integrated circuits		16,383		(9.2	)		18,038		33,380		(9.8	)		37,019
Systems and RF power semiconductors		168		1.2			166		391		(9.1	)		430
Total		39,002		(25.6	)		52,395		81,048		(25.1	)		108,240

The following tables set forth the net revenue by geographic region for the fiscal periods indicated:

	Three Months Ended September 30,								Six Months Ended September 30,
	2012				2011				2012				2011
	Net Revenue		% of Net Revenue		Net Revenue		% of Net Revenue		Net Revenue		% of Net Revenue		Net Revenue		% of Net Revenue
	(000)				(000)				(000)				(000)
Europe and Middle East	$	24,227		35.4	$	36,876		37.2	$	52,331		35.0	$	74,465		37.1
Asia Pacific		20,612		30.1		30,201		30.5		44,594		29.9		62,004		30.9
Rest of world		3,381		4.9		4,365		4.5		7,230		4.9		9,046		4.5
International revenues	$	48,220		70.4	$	71,442		72.2	$	104,155		69.8	$	145,515		72.5
USA		20,241		29.6		27,562		27.8		45,163		30.2		55,267		27.5
Total revenues	$	68,461		100.0	$	99,004		100.0	$	149,318		100.0	$	200,782		100.0

The 30.9% decrease in net revenues in the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 reflected a decrease of $26.6 million, or 35.5%, in the sale of power semiconductors, a decrease of $2.2 million, or 29.6%, in the sale of systems and RF power semiconductors and a decrease of $1.8 million, or 10.9%, in the sale of ICs. The decrease in power semiconductors included a $15.2 million decrease in the sale of bipolar products, primarily from the industrial and commercial market, and a $10.2 million decrease in the sale of MOS products, principally from the medical and the industrial and commercial market. The revenues from the sale of systems and RF power semiconductors decreased primarily due to a $1.7 million decrease in the sale of subassemblies to the industrial and commercial market. The decrease in revenues from the sale of ICs was primarily caused by reduced sales of microcontrollers.

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The 25.6% decrease in net revenues in the six months ended September 30, 2012 as compared to the six months ended September 30, 2011 reflected a decrease of $43.4 million, or 28.7%, in the sale of power semiconductors, a decrease of $4.4 million, or 12.4%, in the sale of ICs and a decrease of $3.7 million, or 25.4%, in the sale of systems and RF power semiconductors. The decrease in power semiconductors included a $21.6 million decrease in the sale of bipolar products, primarily from the industrial and commercial market, and an $18.3 million decrease in the sale of MOS products, principally from the medical market and the industrial and commercial market. The decrease in revenues from the sale of ICs was primarily caused by reduced sales of microcontrollers. The revenues from the sale of systems and RF power semiconductors decreased primarily due to a $3.2 million decrease in the sale of subassemblies to the industrial and commercial market.

For the three and six months ended September 30, 2012 as compared to the comparable periods of the previous fiscal year, the reductions in the ASPs of our product lines were due to shifts in our product mix toward the sale of lower-priced products, rather than changes in product prices. However, the increased ASP in power semiconductors from the six months ended September 30, 2011 to the six months ended September 30, 2012 was primarily caused by fewer shipments of lower-priced products.

For the three and six months ended September 30, 2012 as compared to the three and six months ended September 30, 2011, the decreases in unit shipments in our product lines were broad-based, except for relatively flat unit shipments in systems and RF power semiconductors when comparing the three months ended September 30, 2011 to the three months ended September 30, 2012.

Intellectual property revenues, consisting of sales, licensing fees and royalties, for the three and six months ended September 30, 2012 were $724,000 and $1.4 million, respectively, as compared to $832,000 and $3.7 million for the three and six months ended September 30, 2011. Intellectual property sales and licensing fees, which were nonrecurring in nature, were $2.0 million in the three and six months ended September 30, 2011 and zero in the three and six months ended September 30, 2012, respectively.

For the three and six months ended September 30, 2012 as compared to the three and six months ended September 30, 2011, we experienced reduced sales in all major geographic areas, including the U.S., Europe and the Middle East, and the Asia Pacific area, and to all of our major market segments.

For the three and six months ended September 30, 2012, one distributor accounted for 14.1% and 13.2% of our net revenues, respectively, and another distributor accounted for 10.0% and 10.9% of our net revenues, respectively. For the three and six months ended September 30, 2011, one distributor accounted for 11.8% and 12.3% of our net revenues, respectively, and another distributor accounted for 11.2% and 11.1% of our net revenues, respectively.

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

Gross Profit.

Gross profit margin decreased to 30.0% in the three months ended September 30, 2012 from 31.8% in the three months ended September 30, 2011. Gross profit margin fell to 31.9% in the six months ended September 30, 2012 from 33.1% in the six months ended September 30, 2011. For the three and six months ended September 30, 2012 as compared to the comparable periods of the preceding fiscal year, gross profit decreased by $11.0 million and $18.8 million, respectively. For both periods, gross profits in absolute dollars declined primarily because of reduced revenues. The lower gross profit margins were primarily due to underutilized capacity. For the six months ended September 30, 2011, the gross profit margin was positively affected by $2.0 million of nonrecurring intellectual property revenues, which carry a gross profit margin approaching 100%.

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.

R&D expenses typically consist of internal engineering efforts for product design and development. As a percentage of net revenues, our R&D expenses for the three and six months ended September 30, 2012 were 9.9% and 9.0%, respectively, as compared to 6.6% and 6.7% for the three and six months ended September 30, 2011. The increase in the percentages primarily resulted from reduced net revenues. Expressed in dollars, for the three and six months ended September 30, 2012 as compared to the same periods of the prior year, our R&D expenses remained relatively consistent.

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Selling, General and Administrative.

As a percentage of net revenues, our SG&A expenses for the three and six months ended September 30, 2012 were 14.5% and 14.1% as compared to 10.3% and 10.6% for the three and six months ended September 30, 2011. The increase in the percentages primarily resulted from reduced net revenues. Expressed in dollars, SG&A expenses decreased for the three and six months ended September 30, 2012 as compared to the same periods in the prior fiscal year, primarily due to lower sales commissions as a result of reduced revenues.

Amortization of Acquisition-Related Intangible Assets.

We recorded certain intangible assets during fiscal 2010 in connection with the acquisitions of Zilog. These assets are amortized based upon their estimated useful lives up to 72 months. For the three and six months ended September 30, 2012, we recorded amortization expenses on acquisition-related intangible assets of $484,000 and $1.1 million, respectively. For the three and six months ended September 30, 2011, we recorded amortization expenses on acquisition-related intangible assets of $603,000 and $1.2 million, respectively.

Other Income (Expense), net.

In the quarter ended September 30, 2012, other income, net was $206,000 as compared to other income, net of $1.7 million in the quarter ended September 30, 2011. The other income, net in the three months ended September 30, 2012 principally consisted of insurance compensation for the flood in Thailand that occurred in 2011. The other income, net in the three months ended September 30, 2011 consisted principally of $1.4 million in gains associated with changes in exchange rates for foreign currency transactions.

For the six months ended September 30, 2012, other income, net was $907,000, as compared to other income, net of $1.3 million in the six months ended September 30, 2011. For the six months ended September 30, 2012, other income, net consisted principally of $675,000 in gains associated with changes in exchange rates for foreign currency transactions. For the six months ended September 30, 2011, other income, net consisted principally of gains associated with changes in exchange rates for foreign currency transactions of $929,000.

Provision for Income Tax.

For the three and six months ended September 30, 2012, we recorded income tax provisions of $1.1 million and $4.3 million, reflecting effective tax rates of 31.3% and 34.0%, respectively. For the three and six months ended September 30, 2011, we recorded income tax provisions of $4.7 million and $10.4 million, reflecting effective tax rates of 30.0% and 33.3%, respectively. For the three and six months ended September 30, 2012, the effective tax rates were affected by changes in estimates of annual income in domestic and foreign jurisdictions. For the three and six months ended September 30, 2011, the effective tax rates were affected by changes in the estimates of annual income in foreign jurisdictions and by a valuation allowance release.

Liquidity and Capital Resources

At September 30, 2012, cash and cash equivalents were $104.7 million as compared to $98.6 million at March 31, 2012.

Our cash provided by operating activities for the six months ended September 30, 2012 was $17.9 million, a decrease of $11.2 million as compared to the $29.1 million of cash provided in the comparable period of the prior year. The change in our operating cash flow was primarily due to reduced revenues, as net income and adjustments to reconcile net income to net cash fell by $10.9 million.

Our net cash used in investing activities for the six months ended September 30, 2012 was $7.0 million, as compared to net cash used in investing activities of $6.4 million during the six months ended September 30, 2011. During the six months ended September 30, 2012, our uses of cash for investing activities principally reflected an increase in marketable securities of $4.5 million and capital expenditures of $2.8 million. During the six months ended September 30, 2011, our principal use of cash was to purchase property and equipment.

For the six months ended September 30, 2012, net cash used in financing activities was $4.0 million, as compared to net cash used in financing activities of $7.2 million in the six months ended September 30, 2011. During the six months ended September 30, 2012, we used $2.1 million for the purchase of treasury stock and $2.6 million for principal repayment on capital lease and loan obligations, offset by proceeds from employee equity plans of $762,000. During the six months ended September 30, 2011, we used $7.0 million for the purchase of treasury stock and $2.4 million for principal repayment on capital lease and loan obligations, offset by proceeds from employee equity plans of $1.8 million.

At September 30, 2012, capital lease obligations and loans payable totalled $28.7 million. This represented 27.4% of our cash and cash equivalents and 11.0% of our stockholders’ equity.

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We are obligated on a €5.2 million, or $6.6 million, loan. The loan has a term 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 a principal payment of €167,000, or about $215,000, and a payment of accrued interest are required. 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. At September 30, 2012, we complied with all of these financial covenants. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. The loan is collateralized by a security interest in the facility in Lampertheim, Germany, which is owned by our U.S. parent.

On November 13, 2009, we entered into a credit agreement for a revolving line of credit with BOW. Under the original terms, we could borrow up to $15.0 million and all amounts owed under the credit agreement were due and payable on October 31, 2011. On December 29, 2010, we entered into an amendment with BOW to increase the line of credit to $20.0 million and to extend the expiration date to October 31, 2013. Borrowings may be repaid and re-borrowed during the term of the credit agreement. The obligations are guaranteed by two of our subsidiaries. At September 30, 2012, the outstanding principal balance under the credit agreement was $15.0 million. The credit agreement is subject to a set of financial covenants, including minimum effective tangible net worth, the ratio of cash, cash equivalents and accounts receivable to current liabilities, profitability, a ratio of EBITDA to interest expense and a minimum amount of U.S. domestic cash on hand. At September 30, 2012, we complied with all of these financial covenants. See Note 8, “Borrowing Arrangements” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding the credit agreement. The credit agreement also includes a $3.0 million letter of credit subfacility. See Note 16, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding the terms of the subfacility.

Additionally, we maintain three defined benefit pension plans: one in the United Kingdom, one in Germany and one in the Philippines. Benefits are based on years of service and the employees’ compensation. We either deposit funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, banks or trustees, or accrue for the unfunded portion of the obligations. The United Kingdom and German 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 the three plans at September 30, 2012 was $14.3 million.

We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirements for the next 12 months. Our liquidity could be negatively affected by a decline in demand for our products, increases in the cost of materials or labor, investments in new product development or one or more acquisitions. From time to time, we use derivative contracts in the normal course of business to manage our foreign currency exchange and interest rate risks. We did not have any significant open derivative contracts at September 30, 2012. 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, 2012.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on their evaluation as of September 30, 2012, 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. Furthermore, these controls and procedures 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.

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 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.

ITEM 1A. RISK FACTORS

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

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

Given the nature of the markets in which we participate, as well as macroeconomic uncertainties, 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, from fiscal 2005 to fiscal 2006 and from fiscal 2008 to fiscal 2009, 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:

• changes in business and economic conditions, including a downturn in demand or decrease in the rate of growth in demand, whether in the global economy, a regional economy or the semiconductor industry;

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

• 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;

• changes in the level of customers’ component inventory;

• loss of key customers;

• the availability of production capacity, whether internally or from external suppliers;

• the cyclical nature of the semiconductor industry;

• competitive pressures on selling prices;

• strategic actions taken by our competitors;

• 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 raw materials, supplies and manufacturing services from third parties;

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

• damage awards or injunctions as the result of litigation;

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• 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. Changes in demand for our products and 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. 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. Factory planning decisions may also shorten the useful lives of long-lived assets, including facilities and equipment, and cause us to accelerate depreciation. 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.

Our backlog may not result in future revenues.

Customer orders typically can be cancelled or rescheduled by the customer without penalty to the customer. Cancellations or reschedulings are common in periods of decreasing demand. Further, in periods of increasing demand, particularly when production is allocated or delivery delayed, customers of semiconductor companies have on occasion placed orders without expectation of accepting delivery to increase their share of allocated product or in an effort to improve the timeliness of delivery. While we are attuned to the potential for such behavior and attempt to identify such orders, we could accept orders of this nature and subsequently experience order cancellation unexpectedly.

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.

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 or wafer foundry, and, as a result, can negatively impact our financial results.

Our international operations expose us to material risks.

For the fiscal year ended March 31, 2012, our net revenues by region were approximately 28.0% in the United States, approximately 37.7% in Europe and the Middle East, approximately 30.2% in the Asia Pacific region and approximately 4.1% in Canada and the rest of the world. We expect revenues from foreign markets to continue to represent a majority of total net revenues. We maintain significant business operations in Germany, the United Kingdom and the Philippines and work with subcontractors, suppliers and manufacturers in South Korea, Japan, the Philippines and elsewhere in Europe and the Asia Pacific region. Some of the risks inherent in doing business internationally are:

• foreign currency fluctuations, particularly in the Euro and the British pound;

• 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;

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• transportation delays;

• seasonal reduction in business activities;

• work stoppages;

• labor and union disputes;

• electrical outages;

• 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. Reductions in the value of the Euro or British pound would reduce our revenues recognized in U.S. dollars, all other things being equal. Increases in the value of the Euro or the British pound could cause or increase losses associated with changes in exchange rates for foreign currency transactions. 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.

Our financial performance is dependent on economic stability and credit availability in international markets. Actions by governments to address deficits or sovereign or bank debt issues, particularly in Europe, could adversely affect gross domestic product or currency exchange rates in countries where we operate, which in turn could adversely affect our financial results. If our customers or suppliers are unable to obtain the credit necessary to fund their operations, we could experience increased bad debts, reduced product orders and interruptions in supplier deliveries leading to delays or stoppages in our production. Conversely, actions in emerging markets, such as China, to limit inflation or to address asset or other “bubbles” could also adversely affect gross domestic products or the growth thereof, and result in reduced product orders or increased bad debt expense for us.

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.

Uncertain global macroeconomic conditions could adversely affect our results of operations and financial condition.

Uncertain global macroeconomic conditions that affect the economy and the economic outlook of the United States, Europe and other parts of the world could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition. These uncertainties, including, among other things, sovereign and foreign bank debt levels, the inability of national or international political institutions to effectively resolve economic or budgetary crises or issues, consumer confidence, unemployment levels (and a corresponding increase in the uninsured and underinsured population), interest rates, availability of capital, fuel and energy costs, tax rates, healthcare costs and the threat or outbreak of terrorism or public unrest, could adversely impact our customers and vendors, which could adversely affect us. Recessionary conditions and depressed levels of consumer and commercial spending may cause customers to reduce, modify, delay or cancel plans to purchase our products and may cause vendors to reduce their output or change their terms of sales. We generally sell products to customers with credit payment terms. If customers’ cash flow or operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, they may not be able to pay, or may delay payment to us. Likewise, for similar reasons vendors may restrict credit or impose different payment terms. Any inability of current or potential customers to pay us for our products or any demands by vendors for different payment terms may adversely affect our results of operations and financial condition.

Approximately 36.9% of our total consolidated net sales for the fiscal year ended March 31, 2012 were derived from Europe. There have been continuing concerns and uncertainties about the state of the European economies and Europe’s political institutions. Continued difficult or declining economic conditions in Europe may adversely affect our operations in Europe by adversely affecting our European customers and vendors in the ways described above. Additionally, the inability of Europe’s political institutions to deal effectively with actual or perceived currency or budget crises could increase economic uncertainty in Europe, and globally, and may have an adverse effect on our customers’ cash flow or operating performance. Further, debt or budget crises in the European countries may lead to reductions in government spending in certain countries or higher income or corporate taxes, which could depress spending overall. Our results of operations and financial condition could be adversely affected by any of these events.

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

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

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

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

• 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.

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. Assembly subcontractors generally work on narrow margins and have limited capital. We have experienced assembly subcontractors who have ceased or reduced production because of financial problems. We engage assembly subcontractors who operate while in insolvency proceedings or whose financial stability is uncertain. The unexpected cessation of production or reduction in production by one or more of our assembly subcontractors could adversely affect our production, our customer relations, our revenues and our financial condition. Our reliance on these subcontractors also involves the following significant risks:

• reduced control over delivery schedules and quality;

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

• difficulties selecting and integrating new subcontractors;

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

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

• potential misappropriation of our intellectual property; and

• economic or political instability in foreign countries.

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

In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experience financial, operational, production or quality assurance difficulties, we could experience a reduction or interruption in supply. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors. Moreover, in engaging alternative subcontractors in exigent circumstances, our production costs could increase markedly.

We 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:

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• failure to retain key personnel of the acquired business;

• 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;

• 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 expenses 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 one or more of the foregoing risks materialize or market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows or stock price could be negatively impacted.

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

Of our net revenues for our fiscal year ended March 31, 2012, 35.6% 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, four of which produce the wafers for power semiconductors that we purchase from external foundries.

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. In this regard, we expect that we will cease using the Samsung Electronics facility in Kiheung, South Korea as an external foundry at some future date. If growth in demand for our products occurs, our external foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. Accordingly,

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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 foundry capacity as required, our relationships with our customers could be harmed, we could be unable to fulfill contractual requirements and our revenues could be reduced or our growth limited. Moreover, even if we are able to secure 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 to 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. One or more of these external foundries may not continue to produce wafers for us or continue to advance the process design technologies on which the manufacturing of our products is based. If we are required to transition production from one foundry to another, we may make large last-time buys of product at the foundry that we are exiting, which could eventually result in substantial inventory write-offs if semiconductors are not sold or utilized. 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 dies 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, the additional demands placed on existing equipment and personnel or the addition of new equipment or personnel may lead to a decrease in manufacturing yields. As a result, we may not be able to cost-effectively expand our production capacity in a timely manner.

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.

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.

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

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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. For example, additional inventory write-downs occurred in the quarter ended March 31, 2009.

Semiconductors for inclusion in consumer products have shorter 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. Shorter product life cycles may lead to more frequent circumstances where sales of existing products are reduced or ended.

Our debt agreements contain certain restrictions that may limit our ability to operate our business.

The agreements governing our debt contain, and any other future debt agreement we enter into may contain, restrictive covenants that limit our ability to operate our business, including, in each case subject to certain exceptions, restrictions on our ability to:

• incur additional indebtedness;

• grant liens;

• consolidate, merge or sell our assets, unless specified conditions are met;

• acquire other business organizations;

• make investments;

• redeem or repurchase our stock; and

• change the nature of our business.

In addition, our debt agreements contain financial covenants and additional affirmative and negative covenants. Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. If we are not able to comply with all of these covenants for any reason and we have debt outstanding at the time of such failure, some or all of our outstanding debt could become immediately due and payable and the incurrence of additional debt under the credit facilities provided by the debt agreements would not be allowed. If our cash is utilized to repay any outstanding debt, depending on the amount of debt outstanding, we could experience an immediate and significant reduction in working capital available to operate our business.

As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us, such as strategic acquisitions or joint ventures.

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. These limitations may result in longer lead times for product delivery than desired by many of our customers. If we are unable to increase our production capacity to meet future demand, some of our customers may seek other sources of supply, our future growth may be limited or our results of operations may be adversely affected.

Changes in our decisions about restructuring could affect our results of operations and financial condition.

Factors that could cause actual results to differ materially from our expectations about restructuring actions include:

• timing and execution of a plan that may be subject to local labor law requirements, including consultation with appropriate work councils;

• changes in assumptions related to severance costs;

• changes in employment levels and turnover rates; and

• changes in product demand and the business environment, including changes in global economic conditions.

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Our intellectual property revenues are uncertain and unpredictable in amount.

We are unable to discern a pattern in or otherwise predict the amount of any payments for the sale or licensing of intellectual property that we may receive. Consequently, we are unable to plan on the timing of intellectual property revenues and our results of operations may be adversely affected by a reduction in the amount of intellectual property revenues.

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 for purported patent infringement and have been 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. For example, in June 2000, we were sued for patent infringement by International Rectifier Corporation. The case was ultimately resolved in our favor, but not until October 2008. In the interim, the U.S. District Court entered multimillion dollar judgments against us on two different occasions, each of which was subsequently vacated.

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

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be adequate to prevent misappropriation of our technology, or that our competitors will not independently develop technology that is substantially similar or superior to our technology. More specifically, we cannot assure that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties. Nor can we assure that, if challenged, our patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark Office, which can demand significant financial and management resources and could harm our financial results. Also, others may independently develop similar products or processes, duplicate our products or processes or design their products around any patents that may be issued to us.

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

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

The markets in which we participate are intensely competitive.

Many 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, Toshiba and Vishay Intertechnology. Our IC products compete principally with those of Atmel, Cypress Semiconductor, Freescale Semiconductor, Microchip, NEC, Renesas Technology, Silicon Labs and Supertex. Our RF power semiconductor competitors include Microsemi and 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.

Most 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

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and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives. Foreign distributors are typically granted longer payment terms, resulting in higher accounts receivable balances for a given level of sales than domestic distributors. Our risk of loss from the financial insolvency of distributors is, therefore, disproportionally weighted to foreign distributors. 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 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.

Acquisitions, expansion, technological and administrative changes and vendor updates place a significant strain on our information systems.

Presently, because of our 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. 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 possibility of control deficiencies and material weaknesses.

We are also transferring some accounting functions to our Philippine subsidiary from other locations. These transfers involve changing accounting systems and implementing different software from that previously used.

If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage or 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, consolidating, changing or updating our operational and financial systems, procedures and controls, we would expect to periodically implement new or different 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 or different system.

In connection with any of the foregoing, we could experience errors, interruptions, delays, cessations of service and other inefficiencies, which could adversely affect our business. Any error, delay, disruption, interruption, cessation, transition or conversion, including with respect to any new or different 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 or change functionality, 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, adversely affect our ability to manage our business, increase expense or adversely affect our results of operations, cash flows, stock price or reputation.

System security risks, data protection breaches and cyber-attacks could disrupt our internal operations and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.

Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or

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otherwise exploit any security vulnerabilities of our products. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.

We manage and store various proprietary information and sensitive or confidential data relating to our business and the businesses of third parties. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our partners or customers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our partners and customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Delayed sales, lower margins or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation

New regulations related to conflict-free minerals will force us to incur additional expenses

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of Congo, or DRC, and adjoining countries. As a result, the SEC established new annual disclosure and reporting requirements for those companies who use “conflict” minerals mined from the DRC and adjoining countries in their products. These new requirements could affect the sourcing and availability of minerals used in the manufacture of our products. As a result, we cannot ensure that we will be able to obtain minerals at competitive prices. Moreover, there will be additional costs associated with complying with the extensive due diligence and audit procedures required by the SEC. In addition, as our supply chain is complex, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures that we implement.

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

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

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

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

• writing off the value of inventory of defective products;

• disposing of defective products;

• 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 10.3% of our net revenues for the fiscal year ended March 31, 2012 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.

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If our 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. Factors that may be considered a change in circumstances indicating that the carrying value of long-lived assets may not be recoverable include a decline in future cash flows and slower growth rates in our industry.

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 the authoritative guidance issued by FASB in connection with accounting for income taxes. 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.

Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying our accounting policies.

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Significant Management Estimates” in Part I, Item 2 of this Form 10-Q). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations.

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

We are subject to various risks related to 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; disagreements or disputes between national or regional regulatory agencies; and 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 10.3% of our net revenues for the fiscal year ended March 31, 2012 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 or result in damages or other compensation payable to medical device manufacturers.

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

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 for operational reasons or 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

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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 and terrorist threats, and government responses thereto, may negatively affect all aspects of our operations, revenues, costs and stock price.

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, we have accounting operations in the Philippines, our principal external foundry is located in South Korea and assembly subcontractors are located in Indonesia, the Philippines and 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, flood 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. For example, the March 2011 earthquake in Japan adversely affected the operations of some of our Japanese suppliers, which limited the availability of certain production inputs to us for a period of time. If a natural disaster occurs, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

We may be affected by environmental laws and regulations.

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

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

Nathan Zommer, Ph.D., our Chief Executive Officer, beneficially owned, as of October 24, 2012, approximately 21.5% 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 our company, 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;

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• 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 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

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share			(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2012 – July 31, 2012		—		(2	)		—		371,221
August 1, 2012 – August 31, 2012		206,831	$	9.54			206,831		1,164,390
September 1, 2012 – September 30, 2012		14,397	$	9.49			14,397		1,149,993
Total		221,228	$	9.53			221,228

(1) On February 4, 2011, we announced that our Board of Directors had authorized a program to repurchase up to 1,000,000 shares of our common stock. On August 24, 2012, our Board of Directors authorized another program to repurchase up to 1,000,000 shares of our common stock.

(2) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

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, President and Chief Financial Officer
	(Principal Financial Officer)

Date: November 2, 2012

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Fifth Amended Executive Employment Agreement by and between IXYS Corporation and Nathan Zommer, effective as of July 16, 2012 (filed on August 3, 2012 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
10.2	Second Amended Executive Employment Agreement by and between IXYS Corporation and Uzi Sasson, effective as of July 16, 2012 (filed on August 3, 2012 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
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)
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

(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.

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