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 28, 2009.

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 the medical ultrasound market will continue to grow in the coming years and that we will continue to be a major player in this business; (2) our belief that sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs will continue to ramp in the second half of fiscal 2010; (3) our expectation that sales of our LED driver ICs for general lighting applications will continue the growth as the stimulus funds become available and the overall economy recovers;
(4) our belief that R&D expenses as a percentage of net sales may fluctuate from quarter to quarter; (5) our expectation that we will spend approximately $2,900,000 for capital acquisitions in fiscal 2010; (6) our belief that we have substantial production capacity in place to handle our projected business in fiscal 2010; (7) our belief that existing cash and 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; (8) our belief that the credit quality of the ARS we hold is high and our expectation that we will receive the full principal associated with these auction-rate securities; (9) our belief that the auction failures will not materially impact our ability to fund our working capital needs; (10) our belief that the estimated range of fair values of our ARS is appropriate;(11) our belief that the declines in our ARS fair values due to the lack of liquidity are temporary;(12) our belief that our exposure to foreign currency risk is relatively small; and (13) 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 28, 2009. 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 2009 Annual Report on Form 10-K.

Overview

We design, develop, manufacture, and market integrated circuits ("ICs"), utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. We are an industry leader in high voltage integrated circuits (HVCMOS and HVBiCMOS), taking advantage of the best features of CMOS, bipolar and DMOS technologies and integrating them into the same chip. These ICs are used in the, medical ultrasound imaging, telecommunications, LCD TV, LED general lighting, printer, flat panel display, industrial and consumer industries. We also supply custom integrated circuits for our customers using customer-owned designs and mask tooling 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 June 27, 2009 were $13,555,000, a 40% decrease compared to $22,751,000 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, reduced shipments to telecom due to lower demand for driver ICs for a military radio application and a general decline in the expansion of optical network infrastructure. Net sales decreased 10% from $15,010,000 when compared to the quarter ended March 28, 2009, primarily due to the continued weakness in the global economy affecting nearly all of our target markets. However, sales of LED backlighting drivers continued to ramp up, as demand increased from a tier-one flat screen TV OEM for their new line of LCD TVs using LED backlights and sales of our EL inverter ICs also grew.

The table below shows our estimate of the breakdown of net sales to customers by end market for the three months ended June 27, 2009, March 28, 2009 and June 28, 2008, as well as year-over-year and sequential percentage changes (in thousands except percentages):

                                                                  Three Months Ended
Net Sales               June 27, 2009      March 28, 2009       June 28, 2008       Sequential Change       Year-Over-Year Change
Medical Electronics   $         5,381     $         6,401     $         9,528                     -16 %                       -44 %
LED Lighting                    2,876               1,977               1,353                      45 %                       113 %
Imaging                         2,638               3,080               6,307                     -14 %                       -58 %
Industrial/Other                1,640               2,394               2,898                     -31 %                       -43 %
Telecom                         1,020               1,158               2,665                     -12 %                       -62 %
Net Sales             $        13,555     $        15,010     $        22,751                     -10 %                       -40 %



                                               Three Months Ended
      Net Sales               June 27, 2009       March 28, 2009       June 28, 2008
      Medical Electronics                40 %                 43 %                42 %
      LED Lighting                       21 %                 13 %                 6 %
      Imaging                            19 %                 20 %                28 %
      Industrial/Other                   12 %                 16 %                13 %
      Telecom                             8 %                  8 %                11 %
      Net Sales                         100 %                100 %               100 %

Our medical electronics product family accounted for the largest sales of all of our five focus markets for the three months ended June 27, 2009, March 28, 2009 and June 28, 2008. Sales to the medical electronics market for the three months ended June 27, 2009 were $5,381,000, a decrease of 44% compared to same period of the prior fiscal year due to reduced demand for our analog switches and high voltage pulser circuits and chipsets, as demand for our customers' products also declined resulting from the weak global economy and reduction in credit availability. Sequentially it decreased 16% due to a decline in shipments of analog switches for the same reasons.

In recent years, the overall ultrasound market has been shifting from big console systems to transportable and hand-carried ultrasound units, which has driven the ultrasound market growth along with product upgrades for console machines or stationary systems. Because of space and power constraints, there are more requirements for integration, and with our high voltage IC technology, we have been among the most qualified to support these requirements. Geographically, the market is expanding very rapidly in China, India and many African countries. Traditionally, OEMs in the United States, Germany, and Japan have been the main developers and manufacturers of medical ultrasound machines to whom we have sold our products successfully, such as GE, Philips, and Siemens. Companies in those regions continue to grow and develop new machines. Today we see significant opportunities with medical ultrasound machine companies in China and South Korea. This market, which began to grow for us in fiscal 2007, continued to flourish in fiscal 2008 and 2009, and we expect that it will continue to grow in the coming years. We are expanding our product development activities and product offerings, not only in the transmit side but also in the receive side of the machine to capitalize on these exciting market growth opportunities. Through the introduction of our new integrated solutions along with our discrete building block product offerings, we believe we will continue to be a major player in this business.

In our imaging market, which consists of EL inverter ICs, commercial printing ICs and custom processing services, sales for the three months ended June 27, 2009 were $2,638,000, a decrease of 58% when compared to the same period in the last fiscal year. This sales decrease was due to a decline in shipments of our EL inverter ICs, commercial printing products and custom processing services, all of which declined due to reduced demand for our customers' products. Sales for the three months ended June 27, 2009, when compared to the prior fiscal quarter, were 14% lower due primarily to a decline in shipments of our commercial printing products.

Sales in the industrial and other markets for the three months ended June 27, 2009 were $1,640,000, or a decrease of 43%, as compared with the same period of the prior fiscal year due to the global recession and were lower by $754,000 sequentially, primarily due to decreased sales of driver ICs for automatic test equipment which was seriously affected by the global recession.

Sales to the telecom market decreased 62% during the three months ended June 27, 2009 to $1,020,000 compared to the same period a year ago and decreased 12% sequentially. The year-over-year decrease was due to 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. The sequential decrease was due to lower shipments of various telecom products.

Sales of LED driver ICs for lighting and backlighting were $2,876,000 for the three months ended June 27, 2009 compared to $1,353,000 for the same period last year, an increase of 113% and compared to $1,977,000 for the prior quarter, an increase of 45%. 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 ramping up volume production at a tier-one OEM.

We expect that sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs will continue to ramp in the second half of fiscal 2010 as LED BLU prices become increasingly competitive with CCFL BLU prices, while the LED BLU offers far superior contrast ratio, light weight, thin form factor, and very low power consumption. We expect that sales of our LED driver ICs for general lighting applications will continue to grow as the stimulus funds become available and the overall economy recovers.

Our current growth strategy relies on our ability to continuously and successfully introduce and market new innovative products that meet our customers' requirements.

Our principal markets are in Asia, the U.S., and Europe. Sales by geography regions 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
Net Sales          June 27, 2009      March 28, 2009       June 28, 2008       Sequential Change       Year-Over-Year Change
United States    $         5,133     $         6,282     $         7,700                     -18 %                       -33 %
China                      4,095               4,061               4,360                       1 %                        -6 %
Asia
(excluding
China & Korea)             2,412               2,201               5,021                      10 %                       -52 %
Europe                     1,177               1,797               3,195                     -35 %                       -63 %
Korea                        673                 604               2,301                      11 %                       -71 %
Other                         65                  65                 174                       0 %                       -63 %
Net Sales        $        13,555     $        15,010     $        22,751                     -10 %                       -40 %

International
Sales            $         8,422     $         8,728     $        15,051                      -4 %                       -44 %
Domestic Sales             5,133               6,282               7,700                     -18 %                       -33 %
Net Sales        $        13,555     $        15,010     $        22,751                     -10 %                       -40 %

Net sales to international customers for the three months ended June 27, 2009 were $8,422,000 or 62% of net sales as compared to $15,051,000 or 66% of net sales for the same period of the prior fiscal year and $8,728,000 or 58% for the three months ended March 28, 2009. Sales to international customers for the three months ended June 27, 2009 decreased 44% compared to the same period last year and decreased 4% sequentially, primarily due to the weak global economy and reduced demand for EL inverter ICs due to weak sales of our major OEM's products.

Net sales to domestic customers for the three months ended June 27, 2009 decreased 33% compared to the same period of the prior fiscal year and 18% sequentially. The year-over-year decrease in domestic sales is primarily due to a reduction in demand for driver ICs for a military radio application and lower custom processing services. The sequential reduction in sales is primarily due to a reduction in custom processing services.

Our assets are primarily located in the United States.

Cost of Sales and Gross Profit

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

Gross profit for the quarter ended June 27, 2009 was $7,130,000, compared to $12,751,000 for the same period of fiscal 2009, and $6,319,000 for the prior quarter. The year-over-year quarterly decrease in gross profit was primarily attributable to decreased sales, unfavorable product mix, and higher charges for inventory excess and obsolescence. The $811,000 sequential increase in gross profit resulted from higher absorption of factory overhead costs through increased capacity utilization as we increased inventory of LED backlighting products whose sales are expected to ramp up, partially offset by unfavorable product mix and increased charges for inventory excess and obsolescence.

As a percentage of net sales, gross margin was 53% for the three months ended June 27, 2009 compared to 56% for the same period of the prior fiscal year and 42% for the prior quarter. The year-over-year quarterly decrease in gross margin was primarily attributable to unfavorable product mix and higher charges for inventory excess and obsolescence. The sequential increase in gross margin was primarily due to higher absorption of factory overhead costs through increased capacity utilization, partially offset by unfavorable product mix and increased charges for inventory excess and obsolescence. We wrote down inventory totaling $1,542,000 and $530,000 for the three months ended June 27, 2009 and June 28, 2008, respectively.

                                                      Three Months Ended
(Dollars in thousands)               June 27, 2009       March 28, 2009       June 28, 2008
Gross Margin Percentage                         53 %                 42 %                56 %
Included in Gross Margin
Percentage Above
Gross Margin Benefit from Cost
of Previously Written Down
Inventory Sold                     $           287     $            247     $           326
Percentage of Net Sales                          2 %                  2 %                 1 %

Research and Development ("R&D") Expenses

                                                               Three Months Ended
(Dollars in
thousands)           June 27, 2009       March 28, 2009       June 28, 2008       Sequential Change      Year-Over-Year Change
R&D Expenses       $         4,005     $          3,247     $         4,037                      23 %                       -1 %
Percentage of
Net Sales                       30 %                 22 %                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.

Expenditures for R&D were $4,005,000 for the three months ended June 27, 2009, as compared to $4,037,000 for the three months ended June 28, 2008, or essentially flat. Compared to the three months ended March 28, 2009, R&D spending was $758,000 higher due to increased costs of masks and tooling for new product design activity of $227,000, higher payroll expenses of $116,000, and an increase in benefits of $319,000 resulting from an increase in fair value of our Nonqualified Deferred Compensation Plan ("NQDCP").

Some aspects of our R&D efforts require significant short-term expenditures. As such, timing of such expenditures may cause fluctuations in our R&D expenses. In general, we have increased R&D activities in order to meet current and future new product requirements of our customers and markets. R&D expenses as a percentage of net sales may fluctuate from quarter to quarter.

Selling, General and Administrative ("SG&A") Expenses

                                                                Three Months Ended
(Dollars in
thousands)           June 27, 2009       March 28, 2009       June 28, 2008       Sequential Change       Year-Over-Year Change
SG&A Expenses      $         2,790     $          2,479     $         3,796                      13 %                       -27 %
Percentage of
Net Sales                       21 %                 17 %                17 %

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

SG&A expenses for the three months ended June 27, 2009 were $2,790,000, a decrease of $1,006,000 when compared to $3,796,000 for the same period last year. The year-over-year decrease is primarily due to lower commission expense of $396,000, lower payroll and bonus costs of $406,000, and reduced professional services and audit fees of $306,000. This was partially offset by increased benefits resulting from an increase in fair value of our NQDCP. The sequential increase of $311,000 was primarily due to higher benefits expense resulting from an increase in fair value of our NQDCP in the three months ended June 27, 2009 compared to a decrease in fair value for the three months ended March 28, 2009.

 Interest Income and Other Income, Net

                                                                        Three Months Ended
                                                                                              Sequential
(Dollars in thousands)          June 27, 2009       March 28, 2009       June 28, 2008            Change       Year-Over-Year Change
Interest Income               $           337     $            446     $         1,041               -24 %                       -68 %
Other Income (Expense), Net               449     $           (219 )   $           (66 )            -305 %                      -780 %
Total Interest Income and
Other Income, Net             $           786     $            227     $           975               246 %                       -19 %
Percentage of Net Sales                     6 %                  2 %                 4 %

Interest income, which consists primarily of interest income from our cash, cash equivalents and short-term and long-term investments, was $337,000 for the three months ended June 27, 2009, compared to $1,041,000 for the same period of the prior fiscal year. The year-over-year decrease in interest income resulted primarily from lower investment yields. Interest income decreased $109,000 from $446,000 for the prior quarter. The sequential decrease was primarily driven by lower investment yields, partially offset by higher cash and investment balance.

Other income, net, for the three months ended June 27, 2009 was $449,000, compared to expense of $66,000 for the same period in the prior fiscal year, and $220,000 for the prior quarter. The year-over-year and sequential differences were primarily due to an increase of $455,000 in fair value of investments held by our NQDCP during the first quarter of fiscal 2010 compared to decreases in fair value during the three months ended June 28, 2008 and March 28, 2009.

Provision for Income Taxes

The income tax provision for the interim period represents federal, state and foreign taxes and reflects our computed estimated annual effective tax rate. It differs from the taxes computed at the federal and state statutory rates primarily due to the effect of foreign rate differentials, non-deductible stock-based compensation expense, tax exempt interest income, FIN 48 tax contingencies and the domestic production activities deduction.

The provision for income taxes for the three months ended June 27, 2009 was $216,000 on income before tax of $1,121,000 at the effective tax rate of 19%, compared to $1,453,000 on income before tax of $5,893,000 at the effective tax rate of 25% for the same period in the prior fiscal year. The year-over-year decrease in the estimated effective tax rate for the three months ended June 27, 2009 compared to same period in the prior fiscal year was primarily due to R&D tax credits, shifts of income among jurisdictions with different tax rates and increased domestic manufacturing tax deductions partially offset by a favorable resolution of a prior year tax uncertainty of approximately $295,000, including interest, recognized by us in the first quarter of fiscal 2009.

The "Emergency Economic Stabilization Act of 2008," which contains the "Tax Extenders and Alternative Minimum Tax Relief Act of 2008", or the 2008 Tax Act, was signed into law on October 3, 2008. Under the 2008 Tax Act, the federal R&D credit was retroactively extended for amounts paid or incurred after December 31, 2007 and before January 1, 2010. The effects of the change in the tax law were recognized in our third fiscal quarter of 2009, which is the quarter in which the 2008 Tax Act was enacted.

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

Financial Condition

Overview

We ended the first quarter of fiscal 2010 with $142,931,000 in cash, cash equivalents, short-term and long-term investments. This represents an increase of $5,897,000 when compared with the amount of $137,034,000 on March 28, 2009. Working capital is defined as current assets less current liabilities. As of June 27, 2009, working capital was $83,180,000, an increase of $5,849,000 from $77,331,000 as of March 28, 2009. The increase in working capital was . . .