The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. You are urged to carefully review and consider the various disclosures we made in this Report and in other reports filed with the SEC, including the annual report on Form 10-K for the year-ended March 29, 2008.

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, our beliefs, our assumptions, and our goals and objectives. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," and "estimates " and variations of these words and similar expressions, are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following: (1 ) our expectation that sales of our LED driver ICs for general lighting applications will grow during the fiscal 2009 and drivers for LED backlights are expected to grow in fiscal 2010; (2) our belief that sales of our high voltage analog switches and multiplexers, high voltage pulser ICs, high-speed MOSFET drivers, and discrete high voltage FETs to this market will continue to increase as the ultrasound market continues to expand globally; (3) our expectation that we will introduce more new integrated pulser ICs as well as ultrasound receiver blocks; (4) our belief that custom high voltage pulser ICs and analog switches/multiplexers will contribute to our revenue growth in the second quarter of fiscal 2009; (5) our expectation that R&D expenses as a percentage of net sales may fluctuate; (6) our expectation that our interest income during the second quarter will continue to decline due to the lower interest rates being paid on all our investments;
(7) our expectation that we will spend approximately $4,000,000 for capital acquisitions in fiscal 2009; (8) our belief that we have substantial production capacity in place to handle any projected increase in business in fiscal 2009;
(9) our belief that existing cash, cash equivalents and short-term investments, together with cash flow from operations, will be sufficient to meet our liquidity and capital requirements through the next twelve months (10) our belief that the estimated range of fair values of our ARS is appropriate; that the credit risk of our auction rate securities is very low; that we will receive the principal associated with these auction-rate securities; that the auction failures will not materially affect our ability to fund our working capital needs, capital expenditures, or other business requirements; and that declines in our ARS fair values are temporary; (11) our belief that our exposure to foreign currency risk is relatively small; and (12) our belief that it is unlikely that any legal claims will result in a material adverse effect on our financial position, results of operations or cash flows.

These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include material adverse changes in the demand for our customer's products in which the Company's products are used; that competition to supply semiconductor devices in the markets in which the Company competes increases and causes price erosion; that demand does not materialize and increase for recently released customer products incorporating the Company's products; that we have delays in developing and releasing into production our planned new products, that there could be unexpected manufacturing issues as production ramps up; that the demand for the Company's products or results of its product development changes such that it would be unwise not to decrease research and development; that the IRS will determine that more US income was realized than the Company claimed or that fewer expenses were allowable; that some of the Company's equipment will be unexpectedly damaged or become obsolete, thereby requiring replacement; and that short-term interest rates will decline; as well as those described in "Factors Which May Affect Operating Results" under Item 1A of Part I , "Risk Factors" in the Company's annual report of Form 10-K for the fiscal year ended March 29, 2008. The information included in this Form 10-Q is provided as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, the readers are cautioned not to place undue reliance on such statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statement, as a result of new information, future events, or otherwise.

Critical Accounting Policies

Our critical accounting policies are those that (1) are most important to the portrayal of the financial condition and results of operations and (2) require management's most difficult, subjective, or complex judgments, often requiring estimates about matters that are inherently uncertain. There have been no material changes from the methodology applied by management for critical accounting estimates previously disclosed in our most recent Annual Report on Form 10-K.

Overview

We design, develop, manufacture, and market integrated circuits (ICs), including analog and mixed signal devices utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. We supply standard and custom high voltage interface products primarily for use in the imaging, medical electronics, telecommunications (telecom), LED driver IC, and industrial/other markets. We also supply custom integrated circuits for our customers using customer-owned designs and mask toolings with our process technologies.

Results of Operations

Net Sales

We operate in one business segment comprising the design, development, manufacturing and marketing of high voltage semiconductor devices including specialty metal-oxide-field-effect-transistors (MOSFETs) analog and mixed signal integrated circuits (ICs). We have a broad customer base, which in some cases manufacture end electronic products and equipment spanning multiple markets. As such, the assignment of revenue to the aforementioned markets requires the use of estimates, judgment, and extrapolation. Actual results may differ slightly from those reported here.

Net sales for the three months ended June 28, 2008 were $22,751,000, a 10% increase compared to $20,762,000 for the same period of the prior fiscal year. This year-over-year increase in net sales is primarily driven by an increase in our medical ultrasound product sales, particularly our high voltage pulser ICs; in our telecom products, primarily high voltage optical-to-optical MEMS drivers; in our imaging products, primarily in our new multi-segment Electroluminescent (EL) inverters ICs and in our LED driver ICs for general lighting, through increased demand for these products from our customers. Net sales increased 16% from $19,621,000 when compared to the quarter ended March 29, 2008, primarily due to an increase in medical ultrasound products, both our high voltage analog switches/multiplexers and our high voltage pulser ICs, and due to an increase in our multi-segment EL inverter ICs.

The table below shows our estimate of the breakdown of net sales to customers by end market for the three months ended June 28, 2008, June 30, 2007, and the three months ended March 29, 2008, as well as year-over-year and quarterly sequential percentage changes (dollars in thousands):

                                                                  Three Months Ended
Net Sales               June 28, 2008      March 29, 2008       June 30, 2007       Sequential Change       Year-Over-Year Change
Medical Electronics   $         9,528     $         6,591     $         8,210                      45 %                        16 %
Imaging                         6,307               6,060               6,209                       4 %                         2 %
Industrial/Other                2,898               3,359               3,925                     -14 %                       -26 %
Telecom                         2,665               2,612               1,545                       2 %                        72 %
LED Driver IC                   1,353                 999                 873                      35 %                        55 %
 Net Sales            $        22,751     $        19,621     $        20,762                      16 %                        10 %



                                               Three Months Ended
      Net Sales               June 28, 2008       March 29, 2008       June 30, 2007
      Medical Electronics                42 %                 34 %                40 %
      Imaging                            28 %                 31 %                30 %
      Industrial/Other                   13 %                 17 %                19 %
      Telecom                            11 %                 13 %                 7 %
      LED Driver IC                       6 %                  5 %                 4 %
       Net Sales                        100 %                100 %               100 %

Our medical electronics product family accounted for the largest sales of all of our five focus markets for the three months ended June 28, 2008, June 30, 2007 and March 29, 2008. Sales to the medical electronics market for the three months ended June 28, 2008 were $9,528,000, which were 16% higher than the same period of the prior year, primarily from growth in shipments of our high voltage pulser ICs launched during the past two years, and to a lesser extent from shipments in our high voltage analog switches/multiplexers. Sales to the medical electronics market in our first fiscal quarter were higher by 45% compared to our fourth fiscal quarter of last year due to higher shipments of both our multi-channel analog switches and high voltage pulsers due to higher demand from our customers.

In recent years, the medical ultrasound system market has experienced significant growth in the transportable and hand-carried units. These high-performance, portable, low-cost systems are accelerating the proliferation of ultrasound imaging to medical disciplines other than the traditional clinical prenatal applications. Geographically, our market is expanding as well, as China, Korea and India are now designing and producing medical ultrasound imaging machines. We believe that sales of our high voltage analog switches and multiplexers, high voltage pulsers, high-speed MOSFET drivers, and high voltage MOSFETs to this market will continue to increase as the ultrasound market continues to expand globally. We are heavily investing in product development for this market and we expect to introduce more new integrated pulser ICs as well as ultrasound receiver building blocks. Custom high voltage pulsers and analog switches/multiplexers are projected to contribute to our revenue growth in the second quarter of fiscal 2009.

Sales in the imaging market for the three months ended June 28, 2008 were $6,307,000, an increase of 2%, when compared to the same period in the last fiscal year. This increase in net sales is due to the production ramp-up of our multi-segment EL inverter ICs to two major customers for mobile phone applications, partially offset by a decline in shipments of our legacy EL inverter ICs due to reduced demand for these products from our major handset OEM, as that customer's products matured and demand for them declined. Sales for the three months ended June 28, 2008, when compared to the prior fiscal quarter, were 4% higher, due to increased multi-segment EL inverter sales, partially offset by reduced sales of our legacy EL inverter ICs.

Sales in the industrial/other market for the three months ended June 28, 2008 of $2,898,000 decreased 26% when compared to the same period a year ago and decreased 14% sequentially. Reduced foundry sales accounted for most of the decrease in year-over-year sales and was a major factor in the sequential reduction, along with a slow-down in shipments of an industrial control product.

Sales to the telecom market increased 72% during the three months ended June 28, 2008 to $2,665,000 compared to the same period a year ago and increased 2% sequentially. The increase in year-over-year sales is primarily due to higher shipments of high voltage optical MEMS driver ICs for optical to optical switching and driver ICs for a military radio application. The sequential sales increase is also primarily due to increased demand for optical MEMS driver ICs.

Sales in LED driver ICs for lighting and backlighting were $1,353,000 for the three months ended June 28, 2008 compared to $873,000 for the same period last year and $999,000 for the prior quarter. The increases in year-over-year and sequential sales are primarily due to higher shipments of our high voltage driver ICs for a broad range of general lighting applications. We expect that sales of our LED driver ICs for general lighting applications will continue to grow in fiscal 2009 and beyond. We also expect that sales of LED backlight drivers will begin to grow in fiscal 2010 when LED prices are expected to drop to a level competitive with CCFL prices.

Our current growth strategy relies on the successful transition of our new products, and our ability to continuously and successfully introduce and market new products and technologies that meet our customers' requirements.

Our principal markets are in Asia, the United States, and Europe. Sales by geography as well as year-over-year and sequential percentage changes were as follows, where international sales include sales to the U.S. based customers if the products are delivered outside the U.S. (in thousands):

                                                                     Three Months Ended
Net Sales                  June 28, 2008      March 29, 2008       June 30, 2007       Sequential Change       Year-Over-Year Change
China                    $         4,360     $         3,611     $         4,513                      21 %                        -3 %
Asia (excluding China,
Korea & Japan)                     3,498               2,103               2,650                      66 %                        32 %
Europe                             3,195               3,124               2,569                       2 %                        24 %
Korea                              2,301               1,178               1,072                      95 %                       115 %
Japan                              1,523               1,332               2,211                      14 %                       -31 %
Other                                174                 181                 163                      -4 %                         7 %
United States                      7,700               8,092               7,584                      -5 %                         2 %
Net Sales                $        22,751     $        19,621     $        20,762                      16 %                        10 %

International Sales      $        15,051     $        11,529     $        13,178                      31 %                        14 %
Domestic Sales                     7,700               8,092               7,584                      -5 %                         2 %
Net Sales                $        22,751     $        19,621     $        20,762                      16 %                        10 %

Net sales to international customers for the three months ended June 28, 2008 were $15,051,000 or 66% of net sales as compared to $13,178,000, or 63% of net sales for the same period of the prior fiscal year and $11,529,000 or 59% for the three months ended March 28, 2008. Sales to international customers for the three months ended June 28, 2008 increased 14% compared to the same period last year and increased 31% sequentially. The increases in international sales year-over-year and sequentially are primarily due to higher shipments of (1) high voltage pulsers and analog switches for medical ultrasound markets, (2) new multi-segment EL backlighting inverter ICs for handsets and (3) our LED driver ICs for architectural and infrastructure lighting to OEMs and to customers whose contract manufacturing vendors are located primarily in China.

Net sales to domestic customers for the three months ended June 28, 2008 increased 2% compared to the same period last year and decreased 5% sequentially.

Our assets are primarily located in the United States.

Cost of Sales and Gross Profit

Gross profit represents net sales less cost of sales. Cost of sales includes the cost of raw silicon wafers; the costs associated with assembly, packaging, test, quality assurance and product yields; the cost of personnel, facilities and depreciation on equipment for manufacturing and its support; and charges for excess or obsolete inventory.

Gross profit for the quarter ended June 28, 2008 was $12,751,000, compared to $12,686,000 for the same period of fiscal 2008, and $10,054,000 for the prior quarter. The year-over-year increase in gross profit was primarily attributable to increased sales, partially offset by a reduction in capacity utilization in the fab and backend manufacturing operations, as inventories decreased in the first fiscal quarter of this year while in the same period of last fiscal year inventories increased. The $2,697,000 sequential increase in gross profit resulted primarily from higher sales, the resolution of the incoming material quality issues, and reduced charges for inventory excess and obsolescence, partially offset by a reduction in inventory absorption.

Gross margin, which is gross profit as a percent of net sales, was 56% for the three months ended June 28, 2008 compared to 61% for the same period of the prior fiscal year and 51% for the fourth fiscal quarter of fiscal 2008. The decrease in gross margin for the three months ended June 28, 2008 compared to the same period in fiscal 2008 is primarily attributable to reduced absorption of factory costs, as work-in-process inventory reduced slightly in the first quarter of fiscal 2009 while it increased $1.9 million in the first quarter of fiscal 2008. The sequential improvement in gross margin is primarily due to higher sales, improved incoming material quality, and reduced charges for inventory excess and obsolescence, partially offset by a reduction in inventory absorption.

                                                 Three Months Ended
   (Dollars in thousands)       June 28, 2008       March 29, 2008       June 30, 2007
   Gross Margin Percentage                 56 %                 51 %                61 %
   Included in Gross Margin
   Percentage Above
   Gross Margin Benefit
   from Sale of Previously
   Written Down Inventory     $           326     $            444     $           398
   Percentage of Net Sales                  1 %                  2 %                 2 %

We wrote down inventory totaling $530,000 and $381,000 for the three months ended June 28, 2008 and June 30, 2007, respectively. We recorded revenue from sales of previously written-down inventory of $326,000 and $398,000 for the three months ended June 28, 2008 and June 30, 2007, respectively.

Research and Development (R&D) Expenses

                                                                Three Months Ended
(Dollars in
thousands)           June 28, 2008       March 29, 2008       June 30, 2007       Sequential Change       Year-Over-Year Change
R&D Expenses       $         4,037     $          3,972     $         3,765                       2 %                         7 %
 Percentage of
Net Sales                       18 %                 20 %                18 %

R&D expenses include payroll and benefits, processing costs, and depreciation. We also expense prototype wafers and mask sets related to new product development as R&D expenses unless such new products are released to production.

Expenditures for R&D were $4,037,000 for the three months ended June 28, 2008, compared to $3,765,000 for the same period last year. The net increase of $272,000 for the first fiscal quarter compared to the prior year resulted primarily from an increase in payroll and benefits of $541,000, partially offset by a reduction in usage of fab equipment and reduced supplies usage for proto-type wafers.

Compared to the prior quarter, R&D expenses were $65,000 higher due to increased payroll and benefits.

Some aspects of our R&D efforts require significant short-term expenditures. As such, timing of such expenditures may cause fluctuations in our R&D expenses. We have increased R&D activities in order to increase the number of new products we introduce and to meet current and future technological requirements of our customers and markets. R&D expenses as a percentage of net sales may fluctuate from quarter to quarter as the top line fluctuates.

Selling, General and Administrative (SG&A) Expenses

                                                                Three Months Ended
(Dollars in
thousands)           June 28, 2008       March 29, 2008       June 30, 2007       Sequential Change       Year-Over-Year Change
SG&A Expenses      $         3,796     $          3,810     $         3,646                       0 %                         4 %
 Percentage of
Net Sales                       17 %                 19 %                18 %

SG&A expenses consist primarily of employee related expenses, commissions to sales representatives, occupancy expenses including expenses associated with our regional sales offices, cost of advertising and publications, and outside services such as legal, auditing and tax.

SG&A expenses for the three months ended June 28, 2008 were $3,796,000 or an increase of $150,000 when compared to $3,646,000 for the comparable period last year. This increase is primarily due to higher consulting and legal expenses of $316,000, partially offset by reductions in benefits and sales incentives.

SG&A expenses for the first fiscal quarter of 2009 compared to the prior quarter were essentially flat, as higher commissions were offset by payroll, benefits and outside services.

Interest Income and Other Income, Net

                                                                        Three Months Ended
(Dollars in thousands)       June 28, 2008       March 29, 2008       June 30, 2007       Sequential Change       Year-Over-Year Change
Interest Income and
Other Income, Net          $           975     $          1,562     $         1,507                     -38 %                       -35 %
 Percentage of Net Sales                 4 %                  8 %                 7 %

Interest income, which consists primarily of interest income from our cash, cash equivalents and short-term and long-term investments, was $1,041,000 for the three months ended June 28, 2008 compared to $1,380,000 for the same period last fiscal year. This decrease in interest income is primarily a result of lower investment yields and lower cash investment balances due to our stock repurchases through fiscal 2008. We expect our interest income during the second quarter to continue to decline due to the lower interest rates being paid on all our investments due to prevailing lower market interest rates.

Other income and expense, net, for the three months ended June 28, 2008 was an expense of $66,000 compared to income of $127,000 for the same period in the prior fiscal year. This difference of $193,000 is due to a decline in the fair value of investments held by our Supplemental Retirement Plan.

Provision for Income Taxes

The income tax provision for the interim period represents federal, state and foreign taxes and reflects our computed estimated annual effective tax rate. It differs from the taxes computed at the federal and state statutory rates primarily due to the effect of foreign rate differential, non-deductible stock-based compensation expense, tax exempt interest income, FIN 48 tax contingencies and the domestic production activities deduction. The provision for income taxes for the three months ended June 28, 2008 was $1,453,000 on income before tax of $5,893,000 at the effective tax rate of 25%, compared to $2,309,000 on income before tax of $6,782,000 at the effective tax rate of 34% for the same period in the prior fiscal year. The decrease in estimated effective tax rate for the three months ended June 28, 2008 is primarily due to shifts of income among jurisdictions with different tax rates. In addition, during the first quarter of fiscal 2009, we recognized a favorable resolution of a prior year uncertainty of approximately $295,000, including interest.

We maintain liabilities for uncertain tax positions within our income taxes payable account. The determination of the liability amount involves considerable judgment and estimation, and is continuously monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.

Financial Condition

Overview

We ended the first quarter of fiscal 2009 with $130,186,000 in cash, cash equivalents, short-term and long-term investments. This represents an increase of $8,926,000 when compared with the amount of $121,260,000 on March 29, 2008. As of June 28, 2008, working capital was $64,529,000, an increase of $18,035,000 from $46,494,000 as of March 29, 2008. Working capital is defined as current assets less current liabilities. The increase in working capital was mostly the result of cash generated from operations and a reclassification from long-term to short term investments of an auction rate security that was partially redeemed on July 10, 2008.

Liquidity and Capital Resources

 In summary, our cash flows were as follows:

                                             Three Months Ended
             (Dollars in
             thousands)               June 28, 2008        June 30, 2007
             Net cash provided by
             operating activities   $         8,009      $         6,475
             Net cash used in
             investing activities              (794 )             (5,335 )
             Net cash provided by
             (used in) financing
             activities                       1,108               (2,423 )
             Net increase
             (decrease) in cash
             and cash equivalents   $         8,323      $        (1,283 )

Operating Activities

Net cash provided by operating activities is net income adjusted for certain . . .