The following management's discussion and analysis should be read in conjunction with our management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 30, 2007 filed with the SEC, and all of our other filings, including our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.

This Quarterly Report on Form 10-Q may contain certain statements that we believe are, or may be considered to be, "forward-looking statements" within the meaning of various provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as we "forecast," "expect," "anticipate," "estimate," "plan," "intend," "continue," "may," "can," "believe" or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. We discuss these risks and uncertainties in detail in Part I. Item 1A. of our 2007 Form 10-K together with further risks discussed in Part II. Item 1A. Risk Factors of this Form 10-Q.

Introduction

Overview

We are a leading global designer and manufacturer of high-quality brand name power supplies and power management products. We sell our products to original equipment manufacturers, distributors and service providers. Our customers span several industries including communications, networking equipment, server/storage, computer, instrumentation, industrial, renewable energy, and other electronic equipment industries. We are engaged in the design and production of the following products:

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º AC/DC power supplies that convert AC from a primary power source, such as a wall outlet, into a precisely controlled DC voltage. Virtually every electronic device that plugs into an AC wall outlet requires some type of AC/DC power supply, and we provide a broad range of AC/DC power supplies that power a wide variety of equipment in the communications, networking, server/storage, computer, instrumentation, industrial, and electronic industries;

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º DC power systems that are used by communications and Internet service providers to power, and used as backup power for large communications infrastructure equipment;

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º DC/DC converters that modify an existing DC voltage level to a different DC voltage level to meet the power needs of various subsystems and components within electronic equipment. Our DC/DC converters include high-density and low-density "brick" converters that are generally used to control power on communications printed circuit boards and also include Point-of-Load ("POL") converters that power devices within an Intermediate Bus Architecture as well as in other applications. Our Z-One® digital power management products fall into the DC/DC converter category;

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º Inverters for Renewable Energy ("RE"), also called Alternative energy ("AE") products that convert solar (photovoltaic or "PV") or wind energy into useable AC/DC power. (Note: while the industry uses both "AE" and "RE" terms, this document will only use "RE" or Renewable Energy); and

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º Additional products that include digital control products for motors and a variety of other application-specific specialty power products.

We are in the process of implementing detailed plans to improve our operational and financial performance, drive long-term growth and profitability, improve on-time delivery, reduce manufacturing inefficiencies, and increase gross margin. The operating framework in which we manage our business and guide our strategies is based on the disciplined management of three business levers:
targeted growth, operational efficiency and capital strategy. Although we have made progress towards our goals in recent periods, there are still many areas in which we believe that we can improve. Based on these plans we have already launched the following initiatives:

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º We entered into a restructuring plan, during 2007, to reduce our fixed spending by approximately $20 million annually by downsizing operations in North America and relocating certain functions to other existing facilities in low-cost locations, and reducing operations and overhead in other foreign locations.

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º We are significantly increasing our presence in Asia to take advantage of a lower cost structure and closer proximity to suppliers and certain major customers.

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º We are addressing supply chain issues, including programs to lower material costs, the acceleration of the transfer of manufacturing to China, and the implementation of new sales and operations planning processes.

Results of Operations

The Company's results for the third fiscal quarter and first nine months of fiscal 2008 improved, with sales and income from operations increasing over the prior year period. Our international operations experienced favorable foreign currency fluctuations which contributed to the third quarter and first nine months' results. These results were primarily due to leverage on increased sales volume, benefits from product rationalization actions and business mix.

Net Sales. Net sales increased $27.8 million, or 7%, to $407.1 million for the nine months ended September 28, 2008 from $379.3 million for the nine months ended September 30, 2007. As a result of the strengthening of the functional currencies at our international locations, primarily the Euro and Swiss Franc, our consolidated revenue levels increased by approximately $18 million as compared with the same period in 2007. A substantial portion of our European revenue is transacted in foreign currencies such as the Euro, the Swiss Franc, and the British Pound. As these currencies strengthened over the US Dollar in 2008, our consolidated revenue was favorably impacted for the nine months ended September 28, 2008. Net sales were also favorably impacted by demand in the renewable energy and communications markets.

Net sales increased $8.6 million, or 7%, to $140.1 million for the quarter ended September 28, 2008 from $131.5 million for the quarter ended September 30, 2007. As a result of the strengthening of the functional currencies at our international locations, our consolidated revenue levels were favorably impacted by approximately $5 million as compared with revenue levels in the same period in 2007. Net sales were also favorably impacted during the quarter ended September 28, 2008 by strength in the renewable energy and communications markets. We also fulfilled a substantial amount of past due orders which further contributed to the improved results.

                                Three Months Ended                       Nine Months Ended
                         September 28,       September 30,       September 28,       September 30,
                             2008                2007                2008                2007
   OEMs                 $  106.0      76 %  $  103.6      79 %  $  302.1      74 %  $  296.3      78 %
   Distributors             29.1      21 %      21.1      16 %      85.0      21 %      62.9      17 %
   Service providers         5.0       3 %       6.8       5 %      20.0       5 %      20.1       5 %

   Total                $  140.1     100 %  $  131.5     100 %  $  407.1     100 %  $  379.3     100 %

During the three and nine months ended September 28, 2008 and September 30, 2007, no customer exceeded 10% of net sales.

We have defined our end-markets based on the customers we serve. Net sales for the three and nine months ended September 28, 2008 and September 30, 2007 by end-markets were as follows:

                              Three Months                          Nine Months
                                  Ended                                Ended
                    September 28,       September 30,     September 28,      September 30,
                         2008               2007               2008              2007
Communications                   50 %               48 %               49 %              48 %
Instrumentation
and Industrial                   16 %               20 %               16 %              22 %
Renewable Energy                 14 %                3 %               12 %               2 %
Server, Storage
and Computer                      7 %               15 %               10 %              15 %
Other                            13 %               14 %               13 %              13 %

Total                           100 %              100 %              100 %             100 %

The Company's combined quarter-end 180-day and 90-day backlog were as follows, (in millions):

                                         September 28,     December 30,
                                             2008              2007
             Combined 180-day backlog     $       110.6     $       83.4
             Combined 90-day backlog      $        93.4     $       75.7

We generally sell our products pursuant to purchase orders rather than long-term contracts. 180-day backlog consists of purchase orders on-hand having delivery dates scheduled within the next six months. Our backlog may not necessarily be a reliable indicator of future revenue because our customers are able to cancel or modify their orders up to 30 days prior to delivery (up to 60 days prior to delivery without penalty). In addition, a significant portion of our revenues is derived from "turns" business (that is, revenues from orders that are booked and shipped within the same reporting period). Since a portion of our business is engaged in the design, manufacture and sale of AC/DC products that are customized to the particular customer, lead times can be longer and orders may be booked earlier than they would be for our standard products. Our bookings were not significantly impacted by any new Vendor Managed Inventory ("VMI") programs during the quarter and nine months ended September 28, 2008. Under a VMI program, we manufacture products for our customers based on their forecast. As a result, the booking and billing occur simultaneously upon use of the product, and therefore there is always a book-to-bill ratio of 1.0 for these programs. We may bring additional VMI programs on-line in the future, which would result in higher "turns" business, lower backlog, and higher finished goods inventory.

                                       Three Months                          Nine Months
                                           Ended                                Ended
                              September 28,      September 30,     September 28,     September 30,
                                  2008               2007              2008              2007
Gross profit, in millions       $        29.9     $        27.6     $        81.8     $        77.2
Gross profit margin                      21.4 %            21.0 %            20.1 %            20.4 %

Gross profit for the nine months ended September 28, 2008 increased by $4.6 million to $81.8 million compared with a gross profit of $77.2 million in the comparable period in 2007. As a percentage of net sales, gross margin decreased to 20.1% for the first nine months of 2008 compared with a gross margin of 20.4% for the same period in 2007. Gross profit was favorably impacted by higher sales volume, favorable product mix, and gross margin improvement initiatives during the nine months ended September 28, 2008. These favorable impacts to the gross profit were offset by unfavorable variances related to manufacturing inefficiencies, supply chain constraints and costs associated with expediting past due orders. During the nine months ended September 28, 2008 and September 30, 2007 the Company recognized losses of approximately $6.9 million and $3.5 million, respectively, related to excess inventory and other inventory adjustments, and recorded the charges as costs of goods sold.

Gross profit for the quarter ended September 28, 2008 increased by $2.3 million to $29.9 million compared with a gross profit of $27.6 million in the comparable period in 2007. As a percentage of net sales, gross margin increased to 21.4% for the third quarter of 2008 from a gross margin of 21.0% for the same period in 2007. The increase in gross profit and related gross margin was primarily related to higher sales volume, favorable product mix and favorable impacts resulting from gross margin improvement initiatives during the quarter ended September 28, 2008, as compared with the same quarter in the prior year. During the three months ended September 28, 2008 and September 30, 2007 the Company recognized losses of approximately $2.4 million and $1.6 million, respectively, related to excess inventory and other inventory adjustments, and recorded the charges as cost of goods sold.

Selling, General and Administrative Expense. As a percentage of net sales, selling, general and administrative expense decreased to 14% for the nine months ended September 28, 2008 from 15% in the comparable period in 2007. Selling, general and administrative expense decreased $0.1 million to $57.3 million for the nine months ended September 28, 2008 from $57.4 million for the same period in 2007. As a percentage of net sales, selling, general and administrative expense decreased to 13% for the quarter ended September 28, 2008 from 14% for the same period in 2007. Selling, general and administrative expense increased $0.3 million, or 2%, to $18.2 million for the quarter ended September 28, 2008 from $17.9 million for the same period in 2007.

Selling expense decreased $0.8 million, or 3%, to $23.9 million for the nine months ended September 28, 2008 from $24.7 million for the same period in 2007. Selling expense decreased primarily as a result of the 2007 restructuring plan and related cost reduction efforts. These savings were partially offset by increased commissions related to increased renewable energy sales, one-time severance charges recorded during the nine month period ended September 28, 2008, and fluctuations in foreign currencies. As a result of the strengthening of the functional currencies at our international locations, primarily the Euro and Swiss Franc, our consolidated expense levels increased as compared with the same period in 2007. The translation of the functional currencies at our international locations to our reporting currency of the US Dollar negatively impacted our expense levels as the US Dollar weakened against most other foreign currencies during 2008 as compared with 2007.

Selling expense decreased $0.1 million, or 2%, to $7.5 million for the quarter ended September 28, 2008 from $7.6 million for the same period in 2007. Savings related to our 2007 restructuring plan and

cost reduction efforts were partially offset by increased commissions related to increased renewable energy sales, and increased expense levels resulting from unfavorable foreign currency fluctuations.

Administrative expense increased $0.7 million or 2%, to $33.4 million for the nine months ended September 28, 2008, compared with $32.7 million for the comparable period in 2007. The increase in expense during this period was mainly due to approximately $2.0 million in one-time severance charges related to the reorganization of the company's management personnel in North America, approximately $0.8 million in legal fees and costs related to the extension of the $50 million PWER Bridge loan, as well as due to unfavorable variances resulting from foreign currency fluctuations. The increased expense was offset in part by reductions in legal fees of approximately $2.4 million related to the patent infringement litigation against Artesyn Technologies incurred during the nine months ended September 30, 2007, and by savings related to the Company's 2007 restructuring plan.

Administrative expense increased $0.4 million, or 4%, to $10.7 million for the quarter ended September 28, 2008, compared with $10.3 million for the comparable period in 2007. During the quarter ended September 28, 2008, we incurred severance and recruiting charges of approximately $0.7 million related to the reorganization of the company's management personnel and experienced unfavorable foreign currency fluctuations as compared with the same period of 2007. These expenses were partially offset by a reduction in legal fees associated with the patent infringement litigation and savings related to the 2007 restructuring plan compared to the same quarter of 2007.

Engineering and Quality Assurance Expense. As a percentage of net sales, engineering and quality assurance expense decreased to 9% for the nine months ended September 28, 2008 from 10% for the same period in 2007. Engineering and quality assurance expense decreased $1.7 million, or 5%, to $35.0 million for the nine-month period ended September 28, 2008 from $36.7 million in the comparable period in 2007. As a percentage of net sales, engineering and quality assurance expense decreased to 8% for the quarter ended September 28, 2008 from 9% for the same period in 2007. Engineering and quality assurance expense decreased by $0.4 million, or 4%, to $11.2 million for the quarter ended September 28, 2008 from $11.6 million in the comparable period in 2007.

Engineering expense decreased $0.1 million, or 1%, to $28.5 million for the nine months ended September 28, 2008 from $28.6 million for the same period in 2007. Engineering expense increased $0.2 million, or 2%, to $9.3 million during the quarter ended September 28, 2008 from $9.1 million during the comparable period in 2007. For the three- and nine-month periods ended September 28, 2008, we achieved approximately $0.5 million and $2.4 million, respectively, of estimated savings as compared to the same periods in the prior year as a result of the execution of our 2007 restructuring plan and associated cost reduction efforts. The decrease in engineering expense was partially offset by unfavorable foreign currency fluctuations associated with expenses at our European design centers.

Quality Assurance expense decreased $1.6 million, or 19%, to $6.5 million for the nine months ended September 28, 2008 from $8.1 million for the same period in 2007. Quality assurance expense decreased $0.6 million or 24% to $1.9 million for the quarter ended September 28, 2008 from $2.5 million for the same period in 2007. The decrease in quality assurance expense during these periods is primarily due to the 2007 restructuring plan executed savings, partially offset by unfavorable foreign currency fluctuations.

Amortization of Intangible Assets. Amortization of intangible assets was $1.9 million for the nine-month period ended September 28, 2008 compared to $3.4 million for the same period in 2007. Amortization of intangible assets was $0.5 million for the quarter ended September 28, 2008 compared to $1.0 million for the same period in 2007. The decrease in amortization expense during the periods was primarily due to certain intangibles reaching the end of their amortizable life.

Restructuring and Asset Impairment. No restructuring or asset impairment charges were recorded during the three- and nine-month periods ended September 28, 2008.

In addition to the testing above, which is done on an annual basis, management considers whether certain impairment indicators are present in assessing whether the carrying value of goodwill and other intangible assets may be impaired. Management's considerations include (i) forecasts that demonstrates continuing declines in the cash flow of the Company or inability of the Company to improve its operations to forecasted levels and (ii) a significant adverse change in the business climate that could affect the value of an entity or
(iii) the book value of our shareholders' equity continues to be significantly in excess of our market capitalization. The risk of goodwill impairment losses increases to the extent that our market capitalization declines. A decrease in our market capitalization resulting from a short-term decrease in our stock price, or a negative long-term performance outlook, as well as a variety of other impairment indicators, could cause the carrying value of the Company to exceed its fair value, which may result in an impairment loss. Given the current economic environment, we have and will continue to monitor the need to test our intangibles for impairment as required by SFAS No. 142.

During the three- and nine-month periods ended September 30, 2007, we recorded pre-tax restructuring charges of $3.0 million in accordance with SFAS 146, "Accounting for Costs Associated with Disposal Activities." We recorded approximately $1.7 million related to severance payments for a reduction in headcount, $1.0 million as contract termination costs related to facility closures, and $0.3 million related to consolidation of excess facilities and other contract termination costs. The charges were a result of our plan to restructure our organization domestically, as we moved certain functions to our other existing facilities in low-cost locations. During the quarter ended September 30, 2007, we recorded pre-tax restructuring charges of approximately $1.0 million in accordance with SFAS 146. We recorded approximately $0.7 million related to severance payments for a reduction in headcount, $0.2 million related to facility closures, and $0.1 million related to other associated costs.

As a result of the restructuring, we recorded asset impairment charges of $0.5 million and $1.2 million during the three- and nine-month periods ended September 30, 2007, respectively, in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." These charges were incurred by our North American facilities primarily related to leasehold improvements, computer software and manufacturing equipment for leased facilities whose operations were closed or downsized.

Income (Loss) from Operations. As a result of the items above, loss from operations was $12.3 million for the nine months ended September 28, 2008 compared with an operating loss of $24.4 million for the same period in 2007. Income from operations was $0.1 million for the quarter ended September 28, 2008 compared with an operating loss of $4.4 million for the comparable period in 2007.

Other Income (Expense), Net. Net other expense was $2.5 million for the nine months ended September 28, 2008, compared with net other income of $2.0 million for the same period in 2007. Net other income was $0.2 million for the quarter ended September 28, 2008, compared with net other income of $1.2 million for the same period in 2007. Included in net other expense for the nine months ended September 28, 2008 was approximately $1.2 million expense related to the write-off of a loan to a foreign supplier and a $0.2 million investment in a privately-held company, as well as approximately $1.6 million expense related to net foreign currency transaction losses. Included in net other income for the three and nine months ended September 30, 2007 was approximately $0.6 million gain on the sale of an equity investment the Company held in one of its publicly-held Asian contract manufactuers. Also included in net other income for the three and nine months ended September 30, 2007 were gains of approximately $0.6 million and $1.0 million, respectively, attributable to net foreign currency transaction gains.

Provision (Benefit) for Income Taxes. The benefit for income taxes was $0.3 million for the nine months ended September 28, 2008 compared with a tax provision of $2.6 million for the nine months ended September 30, 2007. The benefit for income taxes was $0.1 million during the quarter ended September 28, 2008 compared with a tax provision of $1.1 million for the quarter ended September 30, 2007. During the three and nine months ended September 28, 2008, we reversed certain reserves for uncertain tax positions of approximately $0.9 million upon the expiration of a tax statute as well as due to a closed tax audit.

Our effective tax rate varies significantly from period to period due to the level, mix and seasonality of earnings generated in its various U.S. and foreign jurisdictions. Under Accounting Principles Board Opinion No. 28, "Interim Financial Reporting" ("APB 28"), and FASB Interpretation No. 18, "Accounting for Income Taxes in Interim Periods" ("FIN 18"), we are required to adjust our . . .