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 28, 2008 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 "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 2008 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 ("OEM"), 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 OEM equipment;

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º DC power systems that are used by communications and Internet service providers to power their equipment, 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 products that convert solar (photovoltaic or "PV") or wind energy into useable AC/DC power; 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 have implemented 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 recently launched the following initiatives:

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º During the first fiscal quarter of 2009, we announced a plan to further reduce costs in response to improved operational efficiencies and demand uncertainty associated with the global economic slowdown. As a result, we reduced our global headcount during the quarter ended March 29, 2009 by approximately 1,000, or 22% of our workforce, and expect annualized savings of over $7 million.

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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 first fiscal quarter of 2009 were impacted by the global economic recession. Demand for our products during the first quarter decreased as many of our customers pushed orders out to future quarters and delayed new projects in response to the economic slowdown. We have reduced our overall cost structure and have made improvements in our gross margin as a result of the implementation of our operational and financial initiatives, in spite of revenue and booking levels being negatively impacted by external demand during the quarter.

Net Sales. Net sales decreased $20 million, or 16.9%, to $97.8 million for the quarter ended March 29, 2009 from $117.8 million for the quarter ended March 30, 2008. The decrease in sales related to the overall decline in demand resulting from the global economic conditions.

Net sales by customer category were as follows, in millions:

                                              Three Months Ended
                                      March 29, 2009       March 30, 2008
                OEMs                 $   70.8       72 %  $    85.7      73 %
                Distributors             25.2       26 %       26.7      23 %
                Service providers         1.8        2 %        5.4       4 %

                Total                $   97.8      100 %  $   117.8     100 %

No customer exceeded 10% of net sales during either of the quarters ended March 29, 2009 or March 30, 2008.

We have redefined our end-markets based on the customers we serve, and have reclassified certain customers. Our "Other" end-market category includes the Smart Motor Control market. Net sales for

the quarters ended March 29, 2009 and March 30, 2008 by end-markets under this new classification were as follows:

                                                 Three Months Ended
                                              March 29,     March 30,
                                                 2009          2008
              Network Telecom Equipment               32 %          42 %
              Industrial Equipment                    24 %          23 %
              Computer and Office Equipment           23 %          19 %
              Renewable Energy                        13 %           8 %
              Other                                    8 %           8 %

              Total                                  100 %         100 %

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

                                      March 29, 2009     December 28, 2008
          Combined 180-day backlog     $         56.6      $           81.9
          Combined 90-day backlog      $         49.0      $           68.6

The decrease in 180-day and 90-day backlog during the quarter ended March 29, 2009 was due to weakened demand during the quarter, as well as to a decrease in delinquent backlog of approximately $2.4 million resulting from implementation of operational initiatives which improved on-time delivery to customers and improved factory efficiencies. During the quarter ended March 29, 2009, bookings were $76.9 million, a decrease of 50.4% from bookings of $155.1 million during the same period in 2008. Bookings weakened as customer demand decreased in response to the global economic recession, as customers consumed their current inventory levels and delayed orders and projects to future periods.

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 growing portion of our business is engaged in the design, manufacture and sale of Renewable Energy products which have lead time expectations of fewer than six weeks, we expect the backlog composition to remain less than historic norms in the future. Our bookings were not significantly impacted by any new Vendor Managed Inventory ("VMI") programs during the quarter ended March 29, 2009. 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.

     Gross Profit.

                                               Three Months Ended
                                            March 29,     March 30,
                                               2009          2008
                Gross profit, in millions    $    13.9     $    21.3
                Gross profit margin               14.2 %        18.1 %

Selling, General and Administrative Expense. Selling, general and administrative expense decreased $7.0 million, or 35%, to $13.2 million for the quarter ended March 29 2009 from $20.2 million for the same period in 2008. As a percentage of net sales, selling, general and administrative expense improved to 13% for the quarter ended March 29, 2009 from 17% for the quarter ended March 30, 2008.

Selling expense decreased $2.7 million, or 31%, to $5.8 million for the quarter ended March 29, 2009 from $8.5 million for the same quarter in 2008. Administrative expense decreased $4.3 million, or 37%, to $7.4 million for the quarter ended March 29, 2009 from $11.7 million for the same quarter in 2008. The decrease in selling, general and administrative expenses is a result of continued efforts to reduce the company's cost structure.

Engineering and Quality Assurance Expense. Engineering and quality assurance expense decreased by $4.5 million, or 38%, to $7.5 million for the quarter ended March 29, 2009 from $12.0 million in the comparable period in 2008. As a percentage of net sales, engineering and quality assurance expense decreased to 8% during the quarter ended March 29, 2009 from 10% for the quarter ended March 30, 2008. The decrease in engineering and quality assurance expense was due to continued efforts to reduce the company's cost structure through spending reductions, relocation of engineering resources to lower cost locations, and efficiency improvements.

Amortization of Intangible Assets. Amortization of intangible assets decreased to $0.4 million for the quarter ended March 29, 2009 compared with $0.9 million for the same quarter in 2008. The decrease was primarily due to certain intangibles reaching the end of their amortizable life.

Restructuring Charge. During the quarter ended March 29, 2009, we recorded pre-tax restructuring charges of $1.1 million in accordance with SFAS 146, "Accounting for Costs Associated with Disposal Activities." We recorded approximately $1.1 million related to severance payments for a reduction in headcount of approximately 1,000 factory employees worldwide as a result of our plan to restructure our organization in response to ongoing demand uncertainty. We expect that we will realize annual savings of approximately $7 million primarily in cost of goods sold.

Goodwill Impairment. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we do not amortize goodwill and other intangible assets that are deemed to have indefinite lives. We review goodwill and intangible assets for impairment annually at the end of each fiscal August, or more often if events or circumstances indicate that impairment may have occurred. 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. As a result of the continued decrease in our market capitalization during the quarter ended

March 29, 2009, we tested our goodwill for impairment in accordance with SFAS No. 142 and determined that goodwill was impaired. Our testing approach utilized a discounted cash flow analysis and comparative market multiples to determine our (single reporting unit) fair value for comparison to our carrying value. As our carrying value exceeded our estimated fair value as of March 29, 2009, we applied the approach prescribed in SFAS 142 for determining the impairment amount. As a result of the interim test, a goodwill impairment charge of $57.0 million was recorded in our consolidated condensed statements of operations for the quarter ended March 29, 2009.

Loss from Operations. As a result of the items above, loss from operations was $65.4 million for the quarter ended March 29, 2009 compared with a loss from operations of $11.8 million for the comparable period in 2008.

Interest Income (Expense), Net. Net interest expense was approximately $1.9 million for the quarter ended March 29, 2009, compared with net interest expense of approximately $1.8 million for the comparable period in 2008. The net interest expense recorded during the quarter ended March 29, 2009 related to an average of approximately $70.0 million of 8% senior secured convertible notes, carrying an effective interest rate of approximately 9.3%, along with interest related to credit facilities and long-term debt obligations at certain foreign locations. The net interest expense recorded during the quarter ended March 30, 2008 related to $50.0 million in term debt, carrying an effective interest rate of approximately 14.0%, borrowed to finance the acquisition in October 2006, along with interest related to credit facilities and long-term debt obligations at the acquired entity.

Gain on Extinguishment of Debt. Gain on extinguishment of debt of $3.1 million for the quarter ended March 29, 2009 was recorded as a result of the repurchase of $7 million of outstanding 8% senior secured convertible notes for approximately $3.6 million at the end of the first fiscal quarter of 2009.

Other Income (Expense), Net. Net other income was $2.0 million for the quarter ended March 29, 2009, compared with net other expense of $1.7 million for the same period in 2008. Included in net other income for the quarter ended March 29, 2009 are gains on foreign currency transactions of approximately $1.8 million. Included in net other expense for the quarter ended March 30, 2008 are losses on foreign currency transactions of approximately $1.8 million. Our primary foreign currencies are the Euro, the Swiss Franc, the British Pound, and the Chinese RMB.

Provision for Income Taxes. The benefit for income taxes was $0.9 million for the quarter ended March 29, 2009 as compared to a benefit for income taxes of $0.4 million recorded during the quarter ended March 30, 2008. During the quarter ended March 29, 2009, we reversed certain reserves for uncertain tax positions of approximately $1.4 million 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 our 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 effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. Applying the provisions of APB 28 and FIN 18 could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

Although we record deferred income tax assets in jurisdictions where we generate a loss for income tax purposes, we also record a valuation allowance against these deferred income tax assets in accordance with SFAS No. 109 when, in management's judgment, it is more likely than not that the deferred tax assets will not be realized. As a result, we may record no tax benefit in jurisdictions where we incur a loss, but record tax expense in jurisdictions where we record taxable income and have no

net operating loss (NOL) carryforward. As a result, few meaningful comparisons can be made on our consolidated tax rates between periods.

Equity in earnings of joint venture. During the quarter ended March 29, 2009, approximately $0.1 million related to our share in the earnings of the joint venture for the first fiscal quarter of 2009 were recorded in Equity in earnings of joint venture. During the quarter ended March 30, 2008, we received a cash dividend of $1.2 million, representing a return on our investment in the joint venture.

Liquidity and Capital Resources

Our cash and cash equivalents balance remained at $28.4 million at March 29, 2009 consistent with the balance at December 28, 2008. Our primary source of cash in the first three months of 2009 consisted of $7.1 million from operating activities. Our primary uses of cash in the first three months of 2009 consisted of $3.6 million paid to repurchase and extinguish $7 million of our 8% senior secured convertible notes, $3.4 million related to repayments of our bank credit facilities and foreign long-term debt, and $1.0 million for the acquisition of property and equipment.

Cash provided by operating activities of $7.1 million included a decrease in accounts receivable, net, inventory, and accounts payable of $25.1 million, $10.9 million, and $18.7 million, respectively. In addition, cash provided by operating activities included $2.0 million for cash paid for interest and $1.0 million of cash payments related to the Company's restructuring programs.

We maintain credit facilities with various banks in Europe and Asia. The aggregate limit on all credit facilities is approximately $31.2 million. The credit facilities bear interest on amounts outstanding at various intervals based on published market rates. At March 29, 2009, the total outstanding balance on all credit facilities was $22.5 million at a weighted average interest rate of 6.6%, and $1.7 million was committed to letters of credit. After consideration of these commitments, $7.0 million of additional borrowing capacity was available to us as of March 29, 2009. Some credit agreements require our subsidiaries to maintain certain financial covenants and to provide certain financial reports to the lenders. At March 29, 2009, the acquired subsidiary had been in default on $5.2 million of this balance as a result of not complying with a financial covenant requiring a maximum percentage of debt to equity at March 29, 2009. The $5.2 million outstanding balance under this credit agreement at a 6.9% interest rate has been classified as a current liability as we did not seek to obtain a waiver and consider this debt potentially callable by the bank. At March 29, 2009, we were in compliance with all other debt covenants.

Additionally, through our acquisition of the Power Electronics Group we have certain long-term notes payable through fiscal year 2011. Amounts outstanding at March 29, 2009, were $0.5 million and bore interest at 2%. The long-term notes payable agreements require our subsidiary to provide certain financial reports to the lender but do not require compliance with any financial covenants.

On April 23, 2009, we announced that a private investment firm will invest $60 million of new capital consisting of $23.6 million of convertible preferred stock, $36.4 million senior convertible notes due 2019, and 8.7 million warrants for Power-One common stock. The warrants will have an exercise price of $1.33 and expire in seven years. The preferred stock will pay quarterly dividends at a rate of 10% per year, and the notes will pay interest semi-annually at a rate of 6% per year the first year, 8% the second year and 10% thereafter. Both the preferred stock and the notes will be convertible into Power-One common stock at a conversion price of $1.35, which represents an approximate 42.1% premium over the closing price of Power-One common stock on April 23, 2009 of $0.95 a share. The conversion price and exercise price for all instruments are subject to adjustment under certain circumstances. The preferred stock and notes are redeemable by either the Company or the holders after the fifth anniversary of issuance subject to certain conditions. The preferred stock will have voting rights on an as-converted basis. Under the preferred stock provisions, the investor will be entitled to nominate two Directors. In conjunction with the closing of the transaction, two individuals nominated

by the investment firm will be appointed to the Power-One Board of Directors. Additionally, the investment firm will have the right to nominate one independent candidate to stand for election to the Power-One Board of Directors beginning at the 2010 annual meeting. The transaction is expected to close on May 8, 2009.

We anticipate that the net proceeds from the transaction, after deducting the estimated expenses, will be approximately $56 million. We intend to use these proceeds to purchase certain outstanding 8% Senior Secured Convertible Notes due 2013 from consenting bondholders, to fund strategic initiatives, and to provide for working capital needs and general corporate purposes. Pursuant to private negotiations with two of our bondholders, we plan to repurchase $21.75 million of outstanding bonds from these bondholders upon the close of the transaction, allowing us to modify certain covenants in the existing 8% Senior Secured Convertible Notes due 2013. These amendments will lower the minimum cash requirement to the lower of $20 million or 50% of outstanding 8% Senior Secured Convertible Notes due 2013, remove the minimum tangible net worth covenant, and loosen other restrictions that limit the total debt we may incur and our ability to secure new debt financing or execute our business strategy.

We currently anticipate that our total capital expenditures for 2009 will be in the range of $6 to $7 million, primarily for manufacturing equipment and process improvements, equipment related to research and development and product development, additions and upgrades to our facilities and information technology infrastructure, and other administrative requirements. However, the amount of these anticipated capital expenditures likely will change during the year based on changes in expected revenues, our financial condition and the general economic climate.

Based on current plans and business conditions, we believe our existing working capital and borrowing capacity, coupled with the funds that we expect to generate from our operations as well as from the transaction described above, will be sufficient to meet our liquidity requirements for the next twelve months. We will continue to evaluate our liquidity position and explore alternatives to maximize our position and we may determine to raise additional funding through the issuance of equity or incurrence of debt. In addition, if the subsidiary debt in default with its covenants is called by the bank it may be necessary to raise additional equity or debt.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Off-Balance Sheet Arrangements

Below we identify and disclose all of our significant off balance sheet arrangements and related party transactions. We do not utilize special purpose entities or have any known financial relationships with other companies' special purpose entities.

Operating Leases. We enter into operating leases where and when the economic climate is favorable. The liquidity impact of operating leases generally is not material.

Purchase Commitments. We have purchase commitments for materials, supplies, services, and property, plant and equipment as part of the normal course of business. Commitments to purchase inventory at above-market prices have been . . .