You should read the following discussion of our financial condition and results of operations together with the consolidated condensed financial statements and the notes to the consolidated condensed financial statements included elsewhere in this Form 10-Q.

Forward Looking Statements

This Form 10-Q contains forward-looking statements. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as our future financial performance, future operational performance and our plans, objectives and expectations. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "estimates," "believes," "projects," "should," "will," "plans" and similar words. In light of the risks and uncertainties inherent in all such projected matters, forward-looking statements should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations or financial forecasts will be realized. Results could differ materially from those projected in forward-looking statements, due to factors including, but not limited to, those set forth in the "Risk Factors" and "Quantitative and Qualitative Disclosure About Market Risk" sections of this Form 10-Q and the "Risk Factors" section of our annual report on Form 10-K for the year ended January 25, 2009. We undertake no duty to update any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to regarding forward-looking statements with caution, you should consider that the preparation of financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to factual, legal, and accounting matters. Different conclusions, interpretations, judgments, assumptions, or estimates could result in materially different results. See Note 1 to the financial statements included in this report.

Overview

We design, produce and market a broad range of products that are sold principally to customers in the high-end consumer, industrial, computing and communications end-markets. Products for the high-end consumer market include handheld products, set-top boxes, digital televisions, digital video recorders, Bluetooth headsets and other consumer equipment. Products for the industrial customer base include automated meter reading, military and aerospace, medical, automated test equipment, security, automotive, home automation, and other industrial equipment. Computing market products include desktops, servers, notebooks, graphics, printers, and other computer peripherals. Communications market products include base stations, optical networks, switches and routers, wireless LAN, and other communication infrastructure equipment. Our end-customers are primarily original equipment manufacturers and their suppliers, including Alcatel, Apple, Cisco, Compal Electronics, Dell, Hewlett Packard, Intel, LG Electronics, Motorola, Nokia Siemens Networks, Phonak, Quanta Computer, Research In Motion, Samsung, Sanyo, Siemens, and Sony.

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. Product design and engineering revenue is recognized during the period in which services are performed. Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead. We determine the cost of inventory by the first-in, first-out method. Our operating costs and expenses generally consist of selling, general and administrative, product development and engineering costs, costs associated with acquisitions, and other operating related charges.

Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include liberal cancellation provisions in their purchase orders. Trends within the industry toward shorter lead-times and "just-in-time" deliveries have resulted in our reduced ability to predict future shipments. As a result, we rely on orders received and shipped within the same quarter for a significant

portion of our sales. Sales made directly to customers during the second quarter of fiscal year 2010 were 49% of net sales. The remaining 51% of net sales were made through independent distributors.

We divide and operate our business based on two reportable segments: Standard Semiconductor Products and Rectifier, Assembly and Other Products. We evaluate segment performance based on net sales and operating income of each segment. We do not track segment data or evaluate segment performance on additional financial information. We do not track balance sheet items by individual reportable segments. As such, there are no separately identifiable segment assets nor are there any separately identifiable statements of income data (below operating income). The Standard Semiconductor Products segment makes up the vast majority of overall sales and includes our Power Management, Protection, Advanced Communication and Sensing product lines. The Rectifier, Assembly and Other Products segment includes our line of assembly and rectifier devices, which are the remaining products from our founding as a supplier into the military and aerospace market.

Our business involves reliance on foreign-based entities. Most of our outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Taiwan, Singapore, Thailand, Malaysia, the Philippines, Germany, Israel and Canada. For the second quarter of fiscal year 2010, approximately 54% of our silicon, in terms of cost of wafers purchased, was manufactured in China. Foreign sales during the first six months of fiscal year 2010 constituted approximately 80% of our net sales. Approximately 60% of sales during the first six months of fiscal year 2010 were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada, and Mexico.

Sales into the computing and consumer markets have historically been seasonal and generally experience weaker demand in the first and second fiscal quarters of each year followed by stronger demand in the third and fourth fiscal quarters.

Critical Accounting Policies and Estimates

In addition to the discussion below, you should refer to the disclosures regarding critical accounting policies in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 25, 2009.

Revenue Recognition

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. We record a provision for estimated sales returns in the same period as the related revenues are recorded. We base these estimates on historical sales returns and other known factors. Actual returns could be different from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.

We defer revenue recognition on shipment of products to certain customers, principally distributors, under agreements which provide for limited pricing credits or product return privileges, until these products are sold through to end-users or the return privileges lapse. For sales subject to certain pricing credits or return privileges, the amount of future pricing credits or inventory returns cannot be reasonably estimated given the relatively long period in which a particular product may be held by the customer. Therefore, we have concluded that sales to customers under these agreements are not fixed and determinable at the date of the sale and revenue recognition has been deferred.

Deferred net revenue

                                             July 26,     January 25,
                (in thousands)                 2009          2009
                Deferred revenues           $    4,845   $       5,198
                Deferred cost of revenues        2,248           2,390

                Deferred revenues, net      $    2,597   $       2,808

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our statements of
operations data expressed as a percentage of revenues.



                                        Three Months Ended           Six Months Ended
                                      July 26,      July 27,      July 26,      July 27,
                                        2009          2008          2009          2008
 Net Sales                               100.0 %       100.0 %       100.0 %       100.0 %
 Cost of Sales                            45.5 %        45.1 %        45.5 %        45.2 %

 Gross Profit                             54.5 %        54.9 %        54.5 %        54.8 %
 Operating costs and expenses:
 Selling, general & administrative        25.0 %        24.1 %        26.8 %        24.5 %
 Product development & engineering        16.0 %        13.4 %        16.4 %        14.1 %
 Acquisition related items                 0.5 %         0.4 %         0.5 %         0.4 %
 Restructuring charges                     0.2 %         0.2 %         0.3 %         1.5 %

 Total operating costs and expenses       41.7 %        38.0 %        43.9 %        40.5 %

 Operating income                         12.8 %        16.9 %        10.6 %        14.3 %
 Interest and other income, net            0.4 %         1.6 %         1.2 %         2.0 %

 Income before taxes                      13.3 %        18.5 %        11.9 %        16.3 %
 Provision for taxes                       2.1 %         3.5 %         2.1 %         3.3 %

 Net income                               11.2 %        15.0 %         9.8 %        13.0 %

Percentages may not add precisely due to rounding.

Comparison of The Three Months Ended July 26, 2009 and July 27, 2008

We report on the basis of 52 and 53 week periods and end our fiscal year on the last Sunday in January. All quarters consist of 13 weeks, except for one 14-week quarter in 53-week years. The second quarter of fiscal years 2010 and 2009 were both 13 week periods.

Net Sales. Net sales for the second quarter of fiscal year 2010 were $66.3 million, a decrease of 15% compared to $78.0 million for the second quarter of fiscal year 2009. Continuing weak global economic conditions resulted in continued weakness in demand for our customer's end products, which resulted in continued weakness in demand for our component products.

Our estimates of sales by major end-markets are detailed below:

End-Market

                                          Three Months Ended
                                        July 26,      July 27,
                     (% of net sales)     2009          2008
                     Computer                 15 %          17 %
                     Communications           20 %          18 %
                     Consumer                 40 %          39 %
                     Industrial               25 %          26 %

                     Total                   100 %         100 %

Net sales summarized by reportable segment are detailed below:

Net Sales by Reportable Segment

                                                 Three Months Ended          Three Months Ended
                                                      July 26,                    July 27,
(in thousands)                                          2009                        2008               Change
Standard Semiconductor Products                $      59,007       89 %    $      69,731       89 %       -15 %
Rectifier, Assembly and Other Products                 7,310       11 %            8,229       11 %       -11 %

Net sales                                      $      66,317      100 %    $      77,960      100 %       -15 %

The 15% decrease in sales of Standard Semiconductor Products in the second quarter of fiscal year 2010 reflected lower sales across all product lines within this segment resulting from the continuing weak global economic conditions.

Sales of our Rectifier, Assembly and Other Products, which are primarily sold into military and industrial applications, decreased 11% in the second quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009 as a result of softening demand for our rectifier products from military and industrial customers. These products rely on older technology and historically have supported a very limited customer base.

Cost of Sales and Gross Profit. Cost of sales consists primarily of purchased materials and services, labor and overhead associated with product manufacturing. We have experienced long-term price reductions in our manufacturing costs, in part due to our outsourcing of most manufacturing functions. However, declines in the average selling prices of our parts, a trend which is typical in the semiconductor industry, tends to offset much of the manufacturing cost savings. Our gross margin is most impacted by the mix of products used in our customer's particular end-applications. During the second quarter of fiscal year 2010, gross profit decreased to $36.2 million from $42.8 million in the second quarter of fiscal year 2009. This 16% decrease in gross profit reflects the impact of lower sales. Gross profit margins were essentially unchanged at approximately 55%.

Operating Costs and Expenses. Operating costs and expenses were $27.6 million, or 42% of net sales in the second quarter of fiscal year 2010. Operating costs and expenses for the second quarter of fiscal year 2009 were $29.6 million, or 38% of net sales. Operating costs and expenses in the second quarter of fiscal years 2010 and 2009 were impacted by $5.0 million and $4.4 million of stock-based compensation, respectively. In the second quarter of fiscal year 2010, operating costs benefited from approximately $1.5 million of targeted, temporary, cost reduction initiatives and a $1.3 million insurance recovery of previously incurred legal expenses related to historical stock option practices. The benefit from the cost reduction initiatives, which included a mandatory time-off provision, will be lower in the third quarter of fiscal year 2010 as we are not expecting to continue the mandatory time-off program. Stock-based compensation is expected to be approximately $4.6 million in the third quarter of fiscal year 2010.

Operating Costs and Expenses



                                                  Three Months Ended
                                             July 26,            July 27,
    (in thousands)                             2009                2008           Change
    Selling, general and administrative   $ 16,581    60 %    $ 18,787    63 %       -12 %
    Product development and engineering     10,591    38 %      10,434    35 %         2 %
    Acquisition related items                  302     1 %         273     1 %        11 %
    Restructuring charges                      160     1 %         140     0 %        14 %

    Total operating costs and expenses    $ 27,634   100 %    $ 29,634   100 %        -7 %

Operating Income. Operating income was $8.5 million in the second quarter of fiscal year 2010, down from $13.2 million in the second quarter of fiscal year 2009. Operating income was unfavorably impacted by a 15% decrease in net sales. The impact of lower sales was partially offset by approximately $1.5 million of targeted cost reduction initiatives and a $1.3 million insurance recovery of previously incurred legal expenses related to historical stock option practices.

We evaluate segment performance based on net sales and operating income of each segment. Detailed below is operating income by reportable segment.

Operating Income by Reportable Segment



                                                     Three Months Ended          Three Months Ended
                                                          July 26,                    July 27,
(in thousands)                                              2009                        2008
Standard Semiconductor Products                    $      5,144        60 %    $       9,500       72 %
Rectifier, Assembly and Other Products                    3,374        40 %            3,661       28 %

Total Operating Income                             $      8,518       100 %    $      13,161      100 %

Operating income in the second quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009 for the Standard Semiconductor Products segment decreased as a result of lower net sales. The impact of lower sales in the second quarter of fiscal year 2010 was partially offset by targeted cost reduction initiatives.

Operating income in the second quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009 for the Rectifier, Assembly and Other Products segment decreased as a result of lower production yields and softer demand.

Interest and Other Income, Net. Interest and other income includes interest income from investments and other items. Net interest and other income was $0.3 million in the second quarter of fiscal year 2010 compared to $1.2 million in the second quarter of fiscal year 2009. This decrease is attributable to declining interest rates when compared to the same period last year.

Provision for Taxes. Provision for income taxes was $1.4 million for the second quarter of fiscal year 2010, compared to $2.7 million in the second quarter of fiscal year 2009. The effective tax rate for the second quarter of fiscal years 2010 and 2009 was 16% and 19%, respectively. The decrease in rate is primarily attributable to changes in regional revenue and higher benefits from research and development tax credits.

Comparison of The Six Months Ended July 26, 2009 and July 27, 2008

We report on the basis of 52 and 53 week periods and end our fiscal year on the last Sunday in January. All quarters consist of 13 weeks, except for one 14-week quarter in 53-week years. The first six months of fiscal years 2010 and 2009 were both 26 week periods.

Net Sales.Net sales for the first six months of fiscal years 2010 and 2009 were $126.4 million and $152.4 million, respectively. Continuing weak global economic conditions resulted in continued weakness in demand for our customer's end products, which resulted in continued weakness in demand for our component products.

Our estimates of sales by major end-markets are detailed below:

End-Market

                                           Six Months Ended
                                        July 26,      July 27,
                     (% of net sales)     2009          2008
                     Computer                 15 %          18 %
                     Communications           19 %          18 %
                     Consumer                 38 %          38 %
                     Industrial               28 %          26 %

                     Total                   100 %         100 %

Net sales summarized by reportable segment are detailed below:

Net Sales by Reportable Segment

                                                         Six Months Ended
                                                  July 26,             July 27,
      (in thousands)                                2009                 2008
      Standard Semiconductor Products          $ 111,148    88 %    $ 136,003    89 %
      Rectifier, Assembly and Other Products      15,246    12 %       16,401    11 %

      Net Sales                                $ 126,394   100 %    $ 152,404   100 %

The 18% decrease in sales of Standard Semiconductor Products in the first six months of fiscal year 2010 compared to the first six months of fiscal year 2009 reflected lower sales across all product lines within this segment resulting from the continuing weak global economic conditions.

Sales of our Rectifier, Assembly and Other Products, which are primarily sold into military and industrial applications, decreased 9% in the first six months of fiscal year 2010 compared to the first six months of fiscal year 2009 as we worked to resolve post-fire yield and ramp-up issues in the fabrication facility and as a result of softening demand for our rectifier products from military and industrial customers. These products rely on older technology and historically have supported a very limited customer base.

Cost of Sales and Gross Profit. Cost of sales consists primarily of purchased materials and services, labor and overhead associated with product manufacturing. We have experienced long-term price reductions in our manufacturing costs, in part due to our outsourcing of most manufacturing functions. However, declines in the average selling prices of our parts, a trend which is typical in the semiconductor industry, tends to offset much of the manufacturing cost savings. Our gross margin is most impacted by the mix of products used in our customer's particular end-applications. During the first six months of fiscal year 2010, gross profit decreased to $68.9 million from $83.6 million in the first six months of fiscal year 2009. This 18% decrease in gross profit reflects the impact of lower sales. Gross profit margins were essentially unchanged at approximately 55%.

Operating Costs and Expenses. Operating costs and expenses were $55.5 million, or 44% of net sales in the first six months of fiscal year 2010. Operating costs and expenses for the first six months of fiscal year 2009 were $61.8 million, or 41% of net sales. Operating costs and expenses in the first six months of fiscal years 2010 and 2009 were impacted by $9.7 million and $9.3 million, respectively, of stock-based compensation. The first six months of fiscal year 2010 benefited from approximately $3.3 million of targeted cost reduction initiatives.

During the first quarter of fiscal year 2009, we initiated a restructuring plan to reorganize certain operations, consolidate research and development activities and reduce our workforce. During the first quarter of fiscal year 2009, we recorded costs of $2.2 million for employee severance and other facility consolidation costs.

Operating Costs and Expenses



                                                   Six Months Ended
                                             July 26,            July 27,
    (in thousands)                             2009                2008           Change
    Selling, general and administrative   $ 33,848    61 %    $ 37,408    61 %       -10 %
    Product development and engineering     20,675    37 %      21,506    35 %        -4 %
    Acquisition related items                  605     1 %         545     1 %        11 %
    Restructuring charges                      348     1 %       2,310     4 %       -85 %

    Total operating costs and expenses    $ 55,476   100 %    $ 61,769   100 %       -10 %

Operating Income. Operating income was $13.4 million for the first six months of fiscal year 2010, down from $21.8 million for the first six months of fiscal year 2009. Operating income was unfavorably impacted by a 17% decrease in net sales. The impact of lower sales was partially offset by approximately $3.3 million of targeted cost reduction initiatives and a $1.3 million insurance recovery of previously incurred legal expenses related to historical stock option practices.

We evaluate segment performance based on net sales and operating income of each segment. Detailed below is operating income by reportable segment.

Operating Income by Reportable Segment



                                             Six Months          Six Months
                                               Ended               Ended
                                              July 26,            July 27,
  (in thousands)                                2009                2008           Change
  Standard Semiconductor Products          $  6,245    47 %    $ 14,203    65 %       -56 %
  Rectifier, Assembly and Other Products      7,163    53 %       7,614    35 %        -6 %

  Total Operating Income                   $ 13,408   100 %    $ 21,817   100 %       -39 %

Operating income for the first six months of fiscal year 2010 compared to the first six months of fiscal year 2009 for the Standard Semiconductor Products segment decreased as a result of lower net sales. The impact of lower sales was partially offset by targeted cost reduction initiatives and lower restructuring costs.

Operating income for the first six months of fiscal year 2010 compared to the first six months of fiscal year 2009 for the Rectifier, Assembly and Other Products segment decreased as a result of softer demand and lower production yields.

Interest and Other Income, Net. Interest and other income includes interest income from investments and other items. Net interest and other income was $1.6 million in the first six months of fiscal year 2010 compared to $3.0 million in the first six months of fiscal year 2009. This decrease is attributable to declining interest rates when compared to the same period last year. Lower interest rates were offset by approximately $600,000 of realized foreign currency gains associated with a stronger U.S. dollar in the first quarter of fiscal year 2010.

Provision for Taxes. Provision for income taxes was $2.6 million for the first six months of fiscal year 2010, compared to $5.1 million in the first six months of fiscal year 2009. The effective tax rate for the first six months of fiscal years 2010 and 2009 was 17% and 20%, respectively. The decrease in rate is primarily attributable to changes in regional revenue and higher benefits from research and development tax credits.

Business Outlook

On August 19, 2009, we announced our outlook for the third quarter of fiscal year 2010. At that time, we expected sequential revenue growth of approximately 6% to 10% from the second quarter. We expect earnings per diluted share of approximately $0.12 to $0.14. Refer to Exhibit 99.1 of our Form 8-K filed on August 19, 2009 for the complete announcement.

Liquidity and Capital Resources

. . .