The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our most recently filed Form 10-K/A. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this Quarterly Report on Form 10-Q the words "anticipate," "objective," "may," "might," "should," "could," "can," "intend," "expect," "believe," "estimate," "predict," "potential," "plan," "is designed to" or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our expectations regarding our expenses, sales and operations;

• our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;

• our ability to anticipate the future needs of our customers;

• our plans for future products and enhancements of existing products;

• our growth strategy elements;

• our intellectual property;

• our anticipated trends and challenges in the markets in which we operate; and

• our ability to attract customers.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q, including those under the heading "Risk Factors."

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Other than as required by applicable laws, we are under no obligation to, and do not intend to, update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

The following discussion reflects the effects of the restatement discussed in Note 13 "Restatement" to the condensed consolidated financial statements.

We are a supplier of power management semiconductors for consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, personal navigation and GPS devices, Bluetooth headphones and accessories, personal and digital multimedia TVs, set top boxes and displays. We focus our design and marketing efforts on the application-specific power management needs in these rapidly-evolving devices. We currently offer a portfolio of over 650 power management products comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip, multi-chip and chip-scale packages. We sell directly to original equipment manufacturers, or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd., Sony Ericsson Mobile Communications AB and Flextronics International Ltd. We sell through distributors and original design manufacturers, or ODMs, and to other system designers, including USI Corporation, Longcheer Holdings Ltd., Tianyu Communication Equipment Co., Ltd., Foxconn Electronics Inc. and Gemtek Technology Co. Ltd.

Our net revenue for the three months ended September 30, 2009 increased 2.8% compared to the three months ended September 30, 2008 as a result of an increase in demand for our products primarily in Korea and China. Gross margin for the three months ended September 30, 2009 increased to 51.2% compared to 50.0% for the three months ended September 30, 2008 primarily due to lower intangible asset amortization and a lower excess and obsolete inventory charge.

Cash, cash equivalents and short term investments decreased by approximately $6.4 million, from $109.5 million as of December 31, 2008 to $103.1 million as of September 30, 2009, primarily due to $3.3 million used to repurchase shares of our common stock during the nine months ended September 30, 2009 and $2.2 million used in operating activities. We continue to be debt free as of September 30, 2009.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventory valuation, stock-based compensation, income taxes, goodwill, investments and long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management's expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes that there have been no significant changes during the three and nine months ended September 30, 2009 to the items that we disclosed as our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K/A for the year ended December 31, 2008, except for an expanded discussion related to the accounting for goodwill.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization. We evaluate goodwill for impairment, at a minimum, on an annual basis as of September 30th and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.

The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based in-part on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For

example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. In addition, the other assumptions made by us may change in future periods as they are based on overall market conditions and/or comparable company data. A change in the assumptions used to determine if goodwill is impaired may result in a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

The goodwill impairment testing is a two-step process and is performed at the reporting unit level. Because we have one reporting unit, we assess goodwill for impairment at the entity level. The first step ("Step 1") is performed by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of: (1) the Transaction Approach, (2) the Income Approach, and (3) the Market Approach. Using the Transaction Approach, we estimate the fair value of the reporting unit by adding to our market capitalization a control premium. The estimated control premium is based on observable transactions involving control premiums paid in recent acquisitions of comparable companies. Using the Income Approach, we use the long-term financial outlook of our operations and make certain assumptions, including a discount rate and a long-term growth rate, to determine the fair value of the reporting unit based on future cash flows that we expect to generate. Under the Market Approach, we identify comparable companies' data and make certain assumptions including revenue multiples, to determine the fair value based on how the market values comparable companies. We place the highest weighting on the fair value derived by the Transaction Approach, as we consider quoted prices in active markets as the best evidence of fair value. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step ("Step 2") is performed to measure the amount of impairment loss, if any. Step 2 is performed by calculating the implied fair value of goodwill and comparing the implied fair value to the carrying amount of goodwill. If the implied fair value of goodwill is lower than its carrying amount, an impairment loss is recognized equal to the difference.

We performed our annual goodwill impairment analysis as of September 30, 2009. As part of Step 1, we performed a sensitivity analysis by preparing our Income Approach using a range of discount rates and long-term growth rates. We analyzed the results of the Income Approach and noted that changing the significant assumptions used would not have changed our Step 1 conclusion in that the fair value of the reporting unit exceeded the carrying amount in all cases. Under the Market Approach, we performed a sensitivity analysis using a range of revenue multiples, from which we selected an amount from the lower end of the range. Had we used a less conservative revenue multiple in our Market Approach, a higher fair value would have resulted. As such, a change in the Market Approach assumptions would not have changed management's Step 1 conclusion. For the Transaction Approach, we used a control premium from the low end of the range of recent control premiums identified. As such, if we had used a higher control premium, a higher fair value would have resulted and would not have changed management's Step 1 conclusion. As a result of the analysis, we determined that goodwill was not impaired as of September 30, 2009.

Results of Operations

The following table sets forth our unaudited historical operating results, in
dollar amounts and as a percentage of net revenue for the periods indicated:



                                         Three Months Ended September 30,                 Nine Months Ended September 30,
                                           2009                     2008                    2009                    2008
                                                                (in thousands, except percentages)
Net revenue                         $  26,140     100.0 %    $ 25,436     100.0 %    $ 65,667     100.0 %    $ 71,711     100.0 %
Cost of revenue                        12,763      48.8        12,716      50.0        33,763      51.4        35,258      49.2

Gross profit                           13,377      51.2        12,720      50.0        31,904      48.6        36,453      50.8
Operating expenses:
Research and development                6,928      26.5         7,506      29.5        20,319      30.9        23,228      32.4
Sales, general and administrative       6,337      24.2         6,191      24.3        18,047      27.5        19,257      26.9
Patent litigation                       1,013       3.9           243       1.0         1,699       2.6           987       1.4

Total operating expenses               14,278      54.6        13,940      54.8        40,065      61.0        43,472      60.6

Loss from operations                     (901 )    (3.4 )      (1,220 )    (4.8 )      (8,161 )   (12.4 )      (7,019 )    (9.8 )
Interest and other income
(expense):
Interest income                           177       0.7           700       2.8           793       1.2         2,578       3.6
Interest expense and other income
(expense), net                            (36 )    (0.1 )          23       0.1            16       0.0            55       0.1

Total interest and other income
(expense), net                            141       0.5           723       2.8           809       1.2         2,633       3.7

Loss before income taxes                 (760 )    (2.9 )        (497 )    (2.0 )      (7,352 )   (11.2 )      (4,386 )    (6.1 )
Provision for income taxes                256       1.0           207       0.8         1,361       2.1           292       0.4

Net loss                            $  (1,016 )    (3.9 )%   $   (704 )    (2.8 )%   $ (8,713 )   (13.3 )%   $ (4,678 )    (6.5 )%

Comparison of Three and Nine Months ended September 30, 2009 and September 30, 2008

Revenues

The following table illustrates our net revenue by principal product families:



                                     Three Months Ended September 30,               Nine Months Ended September 30,
                                        2009                   2008                   2009                   2008
                                            Percent                Percent                Percent                Percent
                                            of net                 of net                 of net                 of net
                                  Amount    revenue      Amount    revenue      Amount    revenue      Amount    revenue
                                                              (dollar amounts in thousands)
Display and Lighting Solutions   $ 17,674        68 %   $ 15,498        61 %   $ 43,770        67 %   $ 42,975        60 %
Voltage Regulation and DC/DC
Conversion                          3,680        14 %      4,386        17 %      9,476        14 %     13,600        19 %
Interface and Power Management      3,105        12 %      4,492        18 %      9,293        14 %     13,127        18 %
Battery Management                  1,681         6 %      1,060         4 %      3,128         5 %      2,009         3 %

Total                            $ 26,140       100 %   $ 25,436       100 %   $ 65,667       100 %   $ 71,711       100 %

Our net revenue for the third quarter of 2009 as compared to the third quarter of 2008 increased by $0.7 million, or 2.8%. Average selling prices decreased by 11% in the third quarter of 2009 compared to the third quarter of 2008, while total unit shipments in the third quarter of 2009 increased 15% compared to the third quarter of 2008.

Our net revenue for the first nine months of 2009 as compared to the first nine months of 2008 decreased by $6.0 million, or 8.5%. Average selling prices decreased 10% during the first nine months of 2009 compared to the first nine months of 2008 while total unit shipments increased 2%.

Geographically, sales to Korea and China increased during the three months ended September 30, 2009 compared to the three months ended September 30, 2008 due to higher demand.

For the nine months ended September 30, 2009, sales to Taiwan decreased by $6.4 million, compared to the three months ended September 30, 2008 due to lower sales to three customers. For the nine months ended September 30, 2009, sales to China increased by $2.4 million, compared to the nine months ended September 30, 2008 due to higher demand.

Gross Profit



                                            Three Months Ended                                         Nine Months Ended
                                               September 30,                                             September 30,
                                            2009           2008          Increase (Decrease)           2009          2008          Increase (Decrease)
                                                                                (in thousands, except percentages)
Net revenue                               $  26,140      $ 25,436      $        704           3 %    $ 65,667      $ 71,711      $     (6,044 )       (8 )%
Cost of revenue                              12,763        12,716                47           0 %      33,763        35,258            (1,495 )       (4 )%

Gross profit                              $  13,377      $ 12,720      $        657                  $ 31,904      $ 36,453      $     (4,549 )

Gross profit margin percentage                 51.2 %        50.0 %             1.2 %                    48.6 %        50.8 %            (2.2 )%

Our gross margin was 51.2% for the three months ended September 30, 2009, compared to 50.0% for the three months ended September 30, 2008. This increase in gross margin was primarily due to lower intangible asset amortization and a lower excess and obsolete inventory charge.

Our gross margin for the nine months ended September 30, 2009 was 48.6%, compared to 50.8% for the nine months ended September 30, 2008. This decrease in gross margin was primarily due to 3 percentage point decrease due to an unfavorable change in product mix and average selling prices, partially offset by a one percentage point increase due to lower intangible asset amortization.

During the three months ended September 30, 2009, our gross inventory write-down was approximately $0.9 million and was offset by the sale of $0.6 million of previously written down inventory. During the three months ended September 30, 2008, our gross inventory write-down was approximately $1.0 million and partially offset by the sale of $0.5 million of previously written down inventory.

During the nine months ended September 30, 2009, our gross inventory write-down was approximately $3.2 million, partially offset by the sale of $1.7 million of previously written down inventory. During the nine months ended September 30, 2008, our gross inventory write-down was approximately $3.0 million, partially offset by the sale of $1.2 million of previously written-down inventory.

Research and Development

Research and development expenses for the third quarter of 2009 decreased by $0.6 million as compared to the third quarter of 2008 primarily due to decreases in stock-based compensation expense, payroll and personnel related expenses, non-recurring engineering expenses and IT related expenses.

Research and development expenses for the first nine months of 2009 decreased by $2.9 million as compared to the first nine months of 2009 primarily due to a $1.3 million decrease in payroll and benefit related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures, a $0.6 million decrease in facilities, IT and operation support expenses, a $0.6 million decrease in stock-based compensation expense, and a $0.3 million decrease due to a one-time in-process research and development charge associated with our acquisition of Elite during the second quarter of 2008.

Sales, General and Administrative



                                              Three Months Ended                                      Nine Months Ended
                                                 September 30,                                          September 30,
                                               2009          2008         Increase (Decrease)         2009          2008         Increase (Decrease)
                                                                                (in thousands, except percentages)
Sales, general and administrative           $    6,337      $ 6,191     $         146         2 %   $  18,047     $ 19,257     $       (1,210 )     (6 )%
Percentage of net revenue                         24.2 %       24.3 %            (0.1 )%                 27.5 %       26.9 %              0.6 %

Sales, general and administrative expenses for the third quarter of 2009 increased by $0.1 million as compared to the third quarter of 2008 due to an increase in stock-based compensation expense.

Sales, general and administrative expenses for the first nine months of 2009 decreased by $1.2 million as compared to the first nine months of 2008 primarily due to a $0.6 million decrease in payroll and payroll related expenses as a result of lower headcount due to our December 2008 reduction in workforce and other cost reduction measures and a $0.6 million decrease in audit expenses, a $0.5 million decrease in travel expenses, and a $0.5 million decrease in stock-based compensation expense, partially offset by a $0.8 million increase in legal and consulting expenses.

Patent Litigation



                                            Three Months Ended                                        Nine Months Ended
                                               September 30,                                            September 30,
                                             2009           2008         Increase (Decrease)           2009          2008        Increase (Decrease)
                                                                               (in thousands, except percentages)
Patent litigation                         $     1,013       $ 243     $        770          317 %   $     1,699      $ 987     $        712         72 %
Percentage of net revenue                         3.9 %       1.0 %            2.9                          2.6 %      1.4 %            1.2 %

Patent litigation expense increased by $0.8 million during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Patent litigation expense for the first nine months of 2009 increased by $0.7 million compared to the first nine months of 2008. Patent litigation

expenses increased in these periods due to a higher level of activity in our patent infringement cases. We believe that we will continue to incur significant litigation expenses for the remainder of 2009 and future years. For a description of our litigation, please see Part II, Item 1 - Legal Proceedings - for further details.

Interest Income

Interest income for the third quarter of 2009 decreased by $0.5 million compared to the third quarter of 2008 due to lower average interest rates on our investments. Interest income for the first nine months of 2009 decreased by $1.8 million compared to the first nine months of 2008 due to lower average interest rates on our investments.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was approximately zero for the three months ended September 30, 2009 and 2008.

Interest and other income (expense) was approximately zero for the nine months ended September 30, 2009 and $0.1 million of the three months ended September 30, 2008.

Provision for Income Taxes

We adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We also record the tax effect of unusual or infrequently occurring discrete items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. Our effective tax rate reflects the impact of a significant amount of our earnings being taxed in foreign jurisdictions at rates below the United States statutory tax rate and a valuation allowance maintained on our U.S. deferred tax assets.

We recorded a tax provision of approximately $0.3 million and $1.4 million for the three months and nine months ended September 30, 2009, respectively. We recorded a tax provision of approximately $0.2 million and $0.3 million for the three and nine months ended September 30, 2008, respectively. The increase in our tax provision for the nine months ended September 30, 2009 compared to prior year is primarily due to a full valuation allowance against our United States deferred tax assets at September 30, 2009. Accordingly, no benefit is recognized for stock-based compensation as any increase in our related deferred tax asset will have a corresponding increase in our valuation allowance.

We established a full valuation allowance against our United States deferred tax assets on December 31, 2008. We have established valuation allowances for deferred tax assets based on a "more likely than not" threshold. Our ability to realize our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of our deferred tax assets:

• Future reversals of existing taxable temporary differences;

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback years; and

• Tax-planning strategies.

We conclude that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling three years of actual results as our primary measure of its cumulative losses in recent years. As of September 30, 2009, we continue to have a three year cumulative loss and, therefore, conclude that a valuation allowance is still required.

During the nine months ended September 30, 2009, we increased our total amount of unrecognized tax benefits by approximately $4.0 million, including an accrual . . .