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 in the medical market will decrease moderately in the third fiscal quarter of 2009 due to normal seasonal declines; (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 and standard high voltage pulsers and analog switches/multiplexers will contribute to our revenue growth in the second half of fiscal 2009; (5) our expectation that there will be a sequential quarterly decrease in sales in legacy EL inverter ICs; (6) our expectation that sales of our LED driver ICs for general lighting applications will grow during the fiscal 2009 and beyond and that sales of LED drivers for backlighting LCD TVs will begin to ramp in the second half of fiscal 2009 and will grow in fiscal 2010; (7) our expectation that backlighting module prices are expected to drop to a level competitive with CCFL module prices over the next year and one-half; (8) our current growth strategy to successfully transition our new products, and continuously and successfully introduce and market new technology and innovative products that meet our customers' requirements; (9) our expectation that R&D expenses as a percentage of net sales may fluctuate; (10) our expectation that our tax rate will be moderately lower in the third quarter of fiscal 2009 due to a reversal of certain uncertain tax position liabilities and to extension of federal R&D tax credits;
(11) our expectation that we will spend approximately $4,000,000 for capital acquisitions in fiscal 2009;(12) our belief that we have substantial production capacity in place to handle any projected increase in business in fiscal 2009;
(13) 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; (14) 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; (15) our belief that our exposure to foreign currency risk is relatively small; and (16) 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 the credit crisis will not further affect our auction rate securities; 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 both (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 electronic end 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 September 27, 2008 were $23,453,000, a 6% increase compared to $22,029,000 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 electronics product sales, particularly our high voltage analog switches and custom processing products, and in our industrial products, primarily for automatic test equipment (ATE). Net sales increased 3% from $22,751,000 when compared to the quarter ended June 28, 2008, primarily due to an increase in industrial products, primarily for ATE applications, and imaging products, primarily EL drivers and various display products.

Net sales for the six months ended September 27, 2008 were $46,204,000, an 8% increase compared to $42,791,000 for the same period of fiscal 2008. This resulted from increases in sales of medical electronics products; telecom products, primarily high voltage optical MEMS drivers; and industrial products. This was partially offset by reductions in EL driver ICs, due to reduced demand from our major communications customer of legacy products, while our new multi-segment EL driver ICs sales have increased.

The table below shows our estimate of the breakdown of net sales to customers by end market for the three and six months ended September 27, 2008, September 29, 2007, and the three months ended June 28, 2008, as well as year-over-year and quarterly sequential percentage changes (dollars in thousands):

                                                           Three Months Ended                                                                       Six Months Ended
                 September 27,                          September 29,                                                          September 27,      September 29,
Net Sales                 2008       June 28, 2008               2007       Sequential Change       Year-Over-Year Change               2008               2007       Year-Over-Year Change
Medical
Electronics     $        9,912     $         9,528     $        7,990                       4 %                        24 %   $       19,440     $       16,200                          20 %
Imaging                  6,514               6,307              7,400                       3 %                       -12 %           12,821             13,609                          -6 %
Industrial/
Other                    4,189               2,898              2,968                      45 %                        41 %            7,087              6,893                           3 %
Telecom                  2,101               2,665              2,178                     -21 %                        -4 %            4,766              3,723                          28 %
LED Lighting               737               1,353              1,493                     -46 %                       -51 %            2,090              2,366                         -12 %
Net Sales       $       23,453     $        22,751     $       22,029                       3 %                         6 %   $       46,204     $       42,791                           8 %



                                             Three Months Ended                                           Six Months Ended
Net Sales              September 27, 2008       June 28, 2008       September 29, 2007       September 27, 2008         September 29, 2007
Medical Electronics                    42 %                42 %                     36 %                     42 %                       38 %
Imaging                                28 %                28 %                     34 %                     28 %                       32 %
Industrial/Other                       18 %                13 %                     13 %                     15 %                       16 %
Telecom                                 9 %                11 %                     10 %                     10 %                        9 %
LED Lighting                            3 %                 6 %                      7 %                      5 %                        5 %
Net Sales                             100 %               100 %                    100 %                    100 %                      100 %

Our medical electronics product family accounted for the largest sales of all of our five focus markets for the three and six months ended September 27, 2008 and September 29, 2007, and for the three months ended June 28, 2008. Sales to the medical electronics market for the three months ended September 27, 2008 were $9,912,000, which were 24% higher than the same period of the prior fiscal year from growth in shipments of our analog switches and our custom processing medical electronics products.

For the six months ended September 27, 2008, our Medical Electronics sales were $19,440,000, an increase of $3,240,000, or 20%, compared to the same period in the prior fiscal year. The year-over-year increase in the net sales is due to higher demand reflected in strong shipments of our high voltage pulser circuits and chipsets, and our analog switches. We expect sales in this market to decrease moderately in the third fiscal quarter due to normal seasonal declines.

In recent years, the medical ultrasound systems market has experienced significant growth in the transportable and hand-carried units. These high-performance, portable, low-cost systems are also accelerating the proliferation of ultrasound imaging applications in the medical disciplines other than the traditional clinical prenatal applications, such as cardiovascular and organ scans. 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 and standard high voltage pulsers and analog switches/multiplexers are projected to contribute to our revenue growth in the second half of fiscal 2009.

Sales in the imaging market for the three and six months ended September 27, 2008 were $6,514,000 and $12,821,000, a decrease of 12% and 6%, respectively, when compared to the same periods in the last fiscal year. These sales decreases were due to a decline in shipments of our legacy EL inverter ICs due to reduced demand for these products from our major handset customer as that customer's products matured and demand for them declined. This was partially offset by the production ramp-up of our multi-segment EL inverter ICs to two major customers for mobile phone applications. Sales for the three months ended September 27, 2008, when compared to the prior fiscal quarter, were 3% higher due to increased sales of our legacy EL inverter ICs. We expect a sequential quarterly decrease in sales in legacy EL inverter ICs.

Sales in the industrial/other market for the three and six months ended September 27, 2008 were $4,189,000 and $7,087,000, an increase of 41% and 3%, respectively, when compared to the same periods a year ago and increased 45% sequentially. These increases were primarily due to higher shipments of a driver for an ATE application.

Sales to the telecom market decreased 4% during the three months ended September 27, 2008 to $2,101,000 compared to the same period a year ago and decreased 21% sequentially. The sequential decrease in sales is primarily due to lower shipments of driver ICs for a military radio application and high voltage optical MEMS driver ICs for optical-to-optical switching applications. For the six months ended September 27, 2008, sales to the telecom market increased $1,043,000, or 28%, to $4,766,000 compared to the same period of last fiscal year. The year-over-year increase was primarily due to higher shipments of high voltage optical MEMS driver ICs for optical-to-optical switching applications and driver ICs for military radio applications in the first quarter of this fiscal year.

Sales in LED driver ICs for lighting and backlighting were $737,000 for the three months ended September 27, 2008 compared to $1,493,000 for the same period last year and $1,353,000 for the prior quarter. For the six months ended September 27, 2008, sales to LED lighting and backlighting market were $2,090,000 compared to $2,366,000 for the same period of last fiscal year. The decreases in quarterly and year-over-year sales were primarily due to lower shipments of our high voltage driver ICs for backlighting flat screen LCD TVs, partially offset by increases in a broad range of general lighting applications. The sequential decrease was primarily due to lower shipments of LED backlight drivers for general lighting. We expect that sales of our LED driver ICs for general lighting applications will grow in fiscal 2009 and beyond. We also expect that sales of LED drivers for backlighting LCD TVs will begin to ramp in the second half of fiscal 2009 and will grow in fiscal 2010, when backlighting module prices are expected to drop to a level competitive with CCFL module 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 technology and innovative products 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 to their contract manufacturers outside the U.S. (in thousands):

                                                          Three Months Ended                                                                   Six Months Ended
                    September                            September                                                            September        September
Net Sales            27, 2008       June 28, 2008         29, 2007       Sequential Change       Year-Over-Year Change         27, 2008         29, 2007       Year-Over-Year Change
United States    $      8,214     $         7,700     $      7,220                      48 %                        25 %   $     15,914     $     14,804                           7 %
China                   5,352               4,360            5,377                      23 %                         0 %          9,712            9,890                          -2 %
Europe                  3,544               3,195            2,936                      11 %                        21 %          6,739            5,505                          22 %
Asia (excl.
China, Korea &
Japan)                  2,820               3,498            2,737                     -19 %                         3 %          6,318            5,387                          17 %
Japan                   2,085               1,523            1,929                      37 %                         8 %          3,608            4,140                         -13 %
Korea                   1,181               2,301            1,625                     -49 %                       -27 %          3,482            2,697                          29 %
Other                     257                 174              205                       7 %                        14 %            431              368                          17 %
Net Sales        $     23,453     $        22,751     $     22,029                       3 %                         6 %   $     46,204     $     42,791                           8 %

International
Sales            $     15,239     $        15,051     $     14,809                       1 %                         3 %   $     30,290     $     27,987                           8 %
Domestic Sales          8,214               7,700            7,220                       7 %                        14 %         15,914           14,804                           7 %
Net Sales        $     23,453     $        22,751     $     22,029                       3 %                         6 %   $     46,204     $     42,791                           8 %

Net sales to international customers for the three months ended September 27, 2008 were $15,239,000 or 65% of net sales as compared to $14,809,000, or 67% of net sales for the same period of the prior fiscal year and $15,051,000 or 66% for the three months ended June 28, 2008. Sales to international customers for the three months ended September 27, 2008 increased 3% compared to the same period last year and increased 1% sequentially. For the six months ended September 27, 2008, net sales to international customers were $30,290,000 or 66% of net sales, as compared to $27,987,000 or 65% of net sales for the same period of last fiscal year. Sales to international customers for the six months ended September 27, 2008 increased 8% compared to the same period of the prior fiscal year. The increases in international sales, year-over-year and sequentially, are primarily due to higher shipments of high voltage pulsers and analog switches for medical ultrasound markets, driver ICs for ATE applications, and new multi-segment EL backlighting inverter ICs for handsets.

Net sales to domestic customers for the three months ended September 27, 2008 increased 14% compared to the same period last fiscal year and 7% sequentially. For the six months ended September 27, 2008, net sales to domestic customers increased 7% compared to the same period last fiscal year. The increase in domestic sales year-over-year and sequentially are primarily due to higher shipments of driver ICs for military radio applications.

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 September 27, 2008 was $13,289,000, compared to $13,009,000 for the same period of fiscal 2008, and $12,751,000 for the prior quarter. The year-over-year quarterly increase in gross profit was primarily attributable to increased sales and improved product mix, partially offset by a decline in average selling prices on certain products and by a reduction in capacity utilization in the fab and backend manufacturing operations, as inventory was held flat in the second fiscal quarter of this year whereas in the same period of last fiscal year inventory increased. The $538,000 sequential increase in gross profit resulted primarily from higher sales and reduced charges for inventory excess and obsolescence. For the six months ended September 27, 2008, gross profit was $26,040,000 compared to $25,695,000 for the same period of last fiscal year. The increase in gross profit was primarily attributable to increased sales, partially offset by decline in average selling prices on certain products, a reduction in capacity utilization in the fab and backend manufacturing operations, and increased charges for inventory excess and obsolescence.

Gross margin, which is gross profit as a percent of net sales, was 57% for the three months ended September 27, 2008 compared to 59% for the same period of the prior fiscal year and 56% for the prior quarter. The year-over-year quarterly decrease in gross margin was primarily attributable to reduced absorption of factory costs during the period and by a decline in average selling prices on certain products. The sequential improvement in gross margin was primarily due to reduced charges for inventory excess and obsolescence. For the six months ended September 27, 2008, gross margin was 56% compared to 60% for the same period of the prior fiscal year. The decrease in gross margin was primarily due to reduced absorption of factory costs, a decline in average selling prices on certain products, and increased charges for inventory excess and obsolescence.

                                             Three Months Ended                                           Six Months Ended
( in thousands)        September 27, 2008       June 28, 2008       September 29, 2007       September 27, 2008         September 29, 2007
Gross Margin
Percentage                             57 %                56 %                     59 %                     56 %                       60 %
Included in Gross
Margin Percentage
Above
Gross Margin
Benefit from Sale
of Previously
Written Down
Inventory             $               356     $           326     $                380     $                682       $                778
Percentage of Net
Sales                                   2 %                 1 %                      2 %                      1 %                        2 %

We wrote down inventory totaling $316,000 and $846,000 for the three and six months ended September 27, 2008, respectively. For the comparable periods in fiscal 2008, we wrote down inventory totaling $469,000 and $850,000, respectively. We recorded revenue from sales of previously written-down inventory of $356,000 and $682,000 for the three and six months ended September 27, 2008, respectively. Such amounts were $380,000 and $778,000 for the three and six months ended September 29, 2007, respectively.

Research and Development (R&D) Expenses

(in
thousands)                                                  Three Months Ended                                                                             Six Months Ended
                                        June 28,
Net Sales       September 27, 2008          2008      September 29, 2007       Sequential Change      Year-Over-Year Change      September 27, 2008      September 29, 2007       Year-Over-Year Change
R&D Expenses   $             3,802     $   4,037     $             3,858                      -6 %                       -1 %   $             7,839     $             7,623                           3 %
Percentage
of Net Sales                    16 %          18 %                    18 %                                                                       17 %                    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 until such new products are released to production.

Expenditures for R&D were $3,802,000 for the three months ended September 27, 2008, as compared to $3,858,000 and $4,037,000 for the three months ended September 29, 2007 and June 28, 2008, respectively. The net decrease of $56,000 for the second fiscal quarter compared to the same period in the prior year primarily resulted from a reduction in usage of fab services for process development work of $633,000, partially offset by an increase in payroll and benefits of $548,000. Compared to the prior quarter, R&D expenses were $235,000 lower primarily due to a reduction in payroll and benefits of $360,000, partially offset by an increase in usage of fab services for process development work of $168,000.

For the six months ended September 27, 2008, R&D expenses increased $216,000 to . . .