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 belief 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 if and when the overall market recovers and as the medical ultrasound market continues to expand globally; (2) our expectation that we will introduce more new integrated pulser ICs as well as ultrasound receiver blocks;
(3) our belief that custom and standard high voltage pulsers and analog switches and multiplexers will contribute to our revenue growth if and when the market recovers; (4) our expectation that there will be a sequential quarterly decrease in sales in EL inverter ICs and printer ICs due to overall weak demand; (5) our expectation that sales of our LED driver ICs for general lighting applications will resume growth if and when the overall economy recovers; and our expectation that sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs will begin to ramp in the fourth quarter of fiscal 2009 and will grow in fiscal 2010; (6) our expectation that backlighting module prices are expected to drop to a level competitive with CCFL BLU prices; (7) 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; (8) our expectation that R&D expenses as a percentage of net sales may fluctuate; (9) our expectation that our tax rate will be moderately higher in the fourth quarter of fiscal 2009; (10) our expectation that we will spend approximately $2,200,000 for capital acquisitions in fiscal 2009; (11) our belief that we have substantial production capacity in place to handle our projected business in fiscal 2009; (12) our belief that existing cash, cash equivalents together with cash flow from operations, will be sufficient to meet our liquidity and capital requirements through the next twelve months; (13) 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; (14) our belief that our exposure to foreign currency risk is relatively small; and (15) 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 fiscal 2008 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 ICs, 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 analog and mixed signal ICs and specialty metal-oxide-field-effect-transistors (MOSFETs) . 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 December 27, 2008 were $17,596,000, a 13% decrease compared to $20,147,000 for the same period of the prior fiscal year. This year-over-year decrease in net sales resulted primarily from the current weak global economy affecting nearly all of our markets, one of our customers of EL inverter ICs for cell phones losing market share, and reduced shipments to telecom due to lower demand for driver ICs for a military radio application. Net sales decreased 25% from $23,453,000 when compared to the quarter ended September 27, 2008, primarily due to the weak global economy affecting nearly all of our target markets. However, sales of LED backlighting drivers increased, as demand increased from a tier-one flat screen TV OEM due to ramping of a new line of LCD TVs.

Net sales for the nine months ended December 27, 2008 were $63,800,000, a 1% increase compared to $62,938,000 for the same period of fiscal 2008. This resulted from increases during the first half of fiscal 2009 in sales of our medical electronics products, custom processing services and industrial products. This was partially offset by reductions in our sales in most markets due to the weak global economy and reductions in EL driver ICs, due to reduced demand from a communications customer for legacy products, while our new multi-segment EL driver ICs sales increased.

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

                                                         Three Months Ended                                                                    Nine Months Ended
               December 27,         September      December 29,                                                            December 27,      December 29,
Net Sales              2008          27, 2008              2007        Sequential Change        Year-Over-Year Change              2008              2007       Year-Over-Year Change
Medical
Electronics    $      7,527      $      9,912      $      7,590                      -24 %                         -1 %    $     26,967      $     23,790                          13 %
Imaging               4,649             6,514             6,804                      -29 %                        -32 %          17,470            20,413                         -14 %
Industrial/
Other                 3,299             4,189             2,867                      -21 %                         15 %          10,386             9,760                           6 %
Telecom               1,215             2,101             2,380                      -42 %                        -49 %           5,981             6,103                          -2 %
LED
Lighting                906               737               506                       23 %                         79 %           2,996             2,872                           4 %
Net Sales      $     17,596      $     23,453      $     20,147                      -25 %                        -13 %    $     63,800      $     62,938                           1 %



                                            Three Months Ended                                         Nine Months Ended
                                               September 27,
Net Sales               December 27, 2008               2008       December 29, 2007       December 27, 2008         December 29, 2007
Medical Electronics                    43 %               42 %                    38 %                    42 %                      38 %
Imaging                                26 %               28 %                    34 %                    28 %                      32 %
Industrial/Other                       19 %               18 %                    14 %                    16 %                      15 %
Telecom                                 7 %                9 %                    12 %                     9 %                      10 %
LED Lighting                            5 %                3 %                     2 %                     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 nine months ended December 27, 2008 and December 29, 2007, and for the three months ended September 27, 2008. Sales to the medical electronics market for the three months ended December 27, 2008 were $7,527,000, which were essentially flat with the same period of the prior fiscal year. Sales to the medical electronics market decreased 24% sequentially due the weak global economy, normal seasonal decline in demand for our analog switches, high voltage pulser circuits and chipsets, and reduced custom processing services.

For the nine months ended December 27, 2008, our medical electronics sales were $26,967,000, an increase of $3,177,000, or 13%, compared to the same period in the prior fiscal year. The year-over-year increase in the net sales is due to higher demand in the first half of fiscal 2009 reflected in strong shipments of our high voltage pulser circuits and chipsets, and our analog switches and multiplexers.

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 has expanded as well, as China, Korea and India are 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 if and when the overall market recovers and as the medical 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 and multiplexers are projected to contribute to our revenue growth if and when the market recovers.

Sales in the imaging market for the three and nine months ended December 27, 2008 were $4,649,000 and $17,470,000, a decrease of 32% and 14%, 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 a handset customer as that customer's products continued to lose market share. The year-to-date decrease was partially offset by the production ramp-up in the first half of fiscal 2009 of our multi-segment EL inverter ICs to two cell phone customers. Sales for the three months ended December 27, 2008, when compared to the prior fiscal quarter, were 29% lower due primarily to a decline in shipments of our EL inverter ICs for cell phones, as one of our customers lost market share. We expect a sequential quarterly decrease in sales of EL inverter ICs and printer ICs primarily due to overall weak demand.

Sales in the industrial and other markets for the three and nine months ended December 27, 2008 were $3,299,000 and $10,386,000, respectively, or increases of 15% and 6%, respectively, as compared with the same periods of the prior fiscal year, primarily due to increased shipments of a driver for automatic test equipment. Sales in the third fiscal quarter were lower by $890,000 sequentially, primarily due to a reduction in demand for that product.

Sales to the telecom market decreased 49% during the three months ended December 27, 2008 to $1,215,000 compared to the same period a year ago and decreased 42% sequentially. These year-over-year and sequential decreases were due to the weak global economy, lower shipments of driver ICs for a military radio application and reduced demand for high voltage MEMS driver ICs for optical-to-optical switching applications.

For the nine months ended December 27, 2008, sales to the telecom market decreased $122,000, or 2%, to $5,981,000 compared to the same period of last fiscal year.

Sales of LED driver ICs for lighting and backlighting were $906,000 for the three months ended December 27, 2008 compared to $506,000 for the same period last year and $737,000 for the prior quarter. The quarterly year-over-year and sequential increases in sales were primarily due to increased shipments of our high voltage LED driver ICs for backlighting a new line of LCD TVs going into volume production at a tier-one OEM.

For the nine months ended December 27, 2008, sales to the LED lighting and backlighting market were $2,996,000 compared to $2,872,000 for the same period of last fiscal year, as sales of LED drivers for general lighting were significantly higher during this period of fiscal 2009, while sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs were lower. This was due to the sales trend during the first half of fiscal 2009 compared to the prior year, as sales of LED drivers for general lighting applications were significantly higher, while sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs declined steeply. However, in the third quarter of fiscal 2009, sales of LED driver ICs for backlighting LCD TVs resumed growth and demand for LED drivers for general lighting reduced slightly. We expect that sales of our driver ICs for general lighting applications will resume growth if and when the overall economy recovers. We also expect that sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs will begin to ramp in the fourth quarter of fiscal 2009 and will grow in fiscal 2010 when LED BLU prices are expected to drop to a level competitive with CCFL BLU prices, while the LED BLU offers far superior contrast ratio and power consumption.

Our current growth strategy relies on 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 except percentages):

                                                            Three Months Ended                                                                     Nine Months Ended
                 December 27,       September 27,      December 29,                                                            December 27,      December 29,
Net Sales                2008                2008              2007        Sequential Change        Year-Over-Year Change              2008              2007       Year-Over-Year Change
United States    $      7,105      $        8,214      $      7,266                      -14 %                         -2 %    $     23,019      $     22,070                           4 %
Asia
(excluding
China)                  4,457               6,086             4,808                      -27 %                         -7 %          17,865            17,032                           5 %
China                   4,195               5,352             5,402                      -22 %                        -22 %          13,907            15,292                          -9 %
Europe                  1,557               3,544             2,376                      -56 %                        -34 %           8,296             7,881                           5 %
Other                     282                 257               295                       10 %                         -4 %             713               663                           8 %
Net Sales        $     17,596      $       23,453      $     20,147                      -25 %                        -13 %    $     63,800      $     62,938                           1 %

International
Sales            $     10,491      $       15,239      $     12,881                      -31 %                        -19 %    $     40,781      $     40,868                           0 %
Domestic
Sales                   7,105               8,214             7,266                      -14 %                         -2 %          23,019            22,070                           4 %
Net Sales        $     17,596      $       23,453      $     20,147                      -25 %                        -13 %    $     63,800      $     62,938                           1 %

Net sales to international customers for the three months ended December 27, 2008 were $10,491,000 or 60% of net sales as compared to $12,881,000, or 64% of net sales for the same period of the prior fiscal year and $15,239,000 or 65% for the three months ended September 27, 2008. Sales to international customers for the three months ended December 27, 2008 decreased 19% compared to the same period last year and decreased 31% sequentially, primarily due to the weak global economy and reduced demand for EL inverter ICs.

For the nine months ended December 27, 2008, net sales to international customers were $40,781,000 or 64% of net sales, as compared to $40,868,000 or 65% of net sales for the same period of the prior fiscal year.

Net sales to domestic customers for the three months ended December 27, 2008 decreased 2% compared to the same period of the prior fiscal year and 14% sequentially. The sequential decrease in domestic sales is primarily due to lower custom processing services. For the nine months ended December 27, 2008, net sales to domestic customers increased 4% compared to the same period of the prior fiscal year.

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.

                                          Three Months Ended                         Nine Months Ended
( in thousands except       December 27,     September 27,     December 29,     December 27,        December
percentages)                        2008              2008             2007             2008        29, 2007
Gross Margin Percentage               54 %              57 %             56 %             56 %            59 %
Included in Gross Margin
Percentage Above
Gross Margin Benefit
from Sale of Previously
Written Down Inventory     $         443     $         356     $        287     $      1,125     $     1,065
Percentage of Net Sales                3 %               2 %              1 %              2 %             2 %

Gross profit for the quarter ended December 27, 2008 was $9,520,000, compared to $11,232,000 for the same period of fiscal 2008, and $13,289,000 for the prior quarter. The year-over-year quarterly decrease in gross profit was primarily attributable to decreased sales. The $3,769,000 sequential decrease in gross profit resulted primarily from reduced sales, unfavorable product mix, and increased charges for inventory excess and obsolescence. For the nine months ended December 27, 2008, gross profit was $35,560,000 compared to $36,927,000 for the same period of last fiscal year. The decrease in gross profit was primarily attributable to lower use of fab capacity for research and development wafer processing and reduction in average selling prices on certain products.

Gross margin, which is gross profit as a percent of net sales, was 54% for the three months ended December 27, 2008 compared to 56% for the same period of the prior fiscal year and 57% 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 decline in gross margin was primarily due to unfavorable product mix and increased charges for inventory excess and obsolescence. For the nine months ended December 27, 2008, gross margin was 56% compared to 59% for the same period of the prior fiscal year. The decrease in gross margin was primarily due to lower use of fab capacity for research and development wafer processing and reduction in average selling prices on certain products.

We wrote down inventory totaling $1,123,000 and $1,969,000 for the three and nine months ended December 27, 2008, respectively. For the comparable periods in fiscal 2008, we wrote down inventory totaling $1,235,000 and $2,085,000, respectively. We recorded revenue from sales of previously written-down inventory of $443,000 and $1,125,000 for the three and nine months ended December 27, 2008, respectively. Such amounts were $287,000 and $1,065,000 for the three and nine months ended December 29, 2007, respectively.

Research and Development (R&D) Expenses

                                                                Three Months Ended                                                               Nine Months Ended
( in thousands except       December        September        December                                                            December        December
percentages)                27, 2008         27, 2008        29, 2007       Sequential Change       Year-Over-Year Change        27, 2008        29, 2007       Year-Over-Year Change
R&D Expenses             $     3,467     $      3,802     $     3,358                      -9 %                         3 %   $    11,306     $    10,981                           3 %
Percentage of Net
Sales                             20 %             16 %            17 %                                                                18 %            17 %

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 $3,467,000 for the three months ended December 27, 2008, as compared to $3,358,000 and $3,802,000 for the three months ended December 29, 2007 and September 27, 2008, respectively. The net increase of $109,000 for the third fiscal quarter compared to the same period in the prior year primarily resulted from an increase in payroll expense partially offset by a reduction in benefits resulting from a decline in fair value of our Supplemental Employee Retirement Plan ("SERP"). Compared to the prior quarter, R&D expenses were $335,000 lower due to a reduction in payroll and benefits of $356,000 primarily resulting from a decline in fair value of our SERP.

For the nine months ended December 27, 2008, R&D expenses increased $325,000 to $11,306,000, compared to $10,981,000 for the same period of the prior fiscal year. The increase was due to higher payroll expense of $1,316,000, partially offset by a reduction in usage of fab services for wafer processing development of $931,000.

Some aspects of our R&D efforts require significant short-term expenditures. As . . .