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 $1,500,000 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 and six months ended September 26, 2009 were $15,875,000 and $29,430,000, respectively, a 32% and 36% decrease compared to $23,453,000 and $46,204,000 for the same periods of the prior fiscal year. These year-over-year decreases in net sales resulted primarily from the current weak global economy affecting nearly all of our markets, one of our customers of EL inverter ICs for cell phones losing market share, and reduced shipments to telecom due to lower demand for driver ICs for a military radio application, as well as a general decline in the expansion of optical network infrastructure. These decreases were partially offset by increases in sales of our LED driver ICs for backlighting LCD TVs and LED lighting driver ICs for general lighting.

Net sales increased 17% from $13,555,000 when compared to the quarter ended June 27, 2009, primarily due to increased sales of our driver ICs for LED lighting and backlighting, increased sales of our ICs for medical ultrasound products, and sales to a cell phone handset customer for a new family of products.

The table below shows our estimate of the breakdown of net sales to customers by end market for the three and six months ended September 26, 2009 and September 27, 2008, and three months ended June 27, 2009, as well as year-over-year and sequential percentage changes (in thousands except percentages):

                                                                 Three Months Ended                                                                Six Months Ended
                              September      June 27,        September                                                            September        September
Net Sales                      26, 2009          2009         27, 2008       Sequential Change       Year-Over-Year Change         26, 2009         27, 2008       Year-Over-Year Change
Medical Electronics        $      6,272     $   5,381     $      9,912                      17 %                       -37 %   $     11,653     $     19,440                         -40 %
LED Lighting                      3,897         2,876              737                      36 %                       429 %          6,773            2,090                         224 %
Imaging                           2,670         2,638            6,514                       1 %                       -59 %          5,308           12,821                         -59 %
Industrial/Other                  1,962         1,640            4,189                      20 %                       -53 %          3,602            7,087                         -49 %
Telecom                           1,074         1,020            2,101                       5 %                       -49 %          2,094            4,766                         -56 %
Net Sales                  $     15,875     $  13,555     $     23,453                      17 %                       -32 %   $     29,430     $     46,204                         -36 %




                                             Three Months Ended                                           Six Months Ended
Net Sales              September 26, 2009       June 27, 2009       September 27, 2008       September 26, 2009         September 27, 2008
Medical Electronics                    40 %                40 %                     42 %                     40 %                       42 %
LED Lighting                           24 %                21 %                      3 %                     23 %                        5 %
Imaging                                17 %                19 %                     28 %                     18 %                       28 %
Industrial/Other                       12 %                12 %                     18 %                     12 %                       15 %
Telecom                                 7 %                 8 %                      9 %                      7 %                       10 %
Net Sales                             100 %               100 %                    100 %                    100 %                      100 %

Our medical electronics product family accounted for the largest sales of all of our five focus markets for the three and six months ended September 26, 2009 and September 27, 2008, and three months ended June 27, 2009. Sales to the medical electronics market for the three and six months ended September 26, 2009 were $6,272,000 and $11,653,000, respectively, which were 37% and 40% lower than the same periods 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 sales increased 17%, resulting from higher customer demand for our high voltage pulser circuits and chipsets as well as our medical custom processing services.

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.

Sales of LED driver ICs for lighting and backlighting were $3,897,000 for the three months ended September 26, 2009, compared to $737,000 for the same period last year and $2,876,000 for the prior quarter. For the six months ended September 26, 2009, sales to LED lighting and backlighting market were $6,773,000 compared to $2,090,000 for the same period of last fiscal year. The year-over-year quarter and year-to-date increases, as well as the sequential increase, in sales were due to increased shipments of our high voltage LED driver ICs for backlighting a new line of LCD TVs which were ramping up volume production at a tier-one OEM and for general lighting applications.

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 also continue to grow as the stimulus funds become available and the overall economy recovers.

In our offerings for the imaging market, which consist of EL inverter ICs, commercial printing ICs and custom processing services, sales for the three and six months ended September 26, 2009 were $2,670,000 and $5,308,000, both decreased 59% when compared to the same periods in the last fiscal year. These sales decreases were due to reduced demand for our customers' products. Sales for the three months ended September 26, 2009, when compared to the prior fiscal quarter, were essentially flat. During the second fiscal quarter we increased shipments of our EL inverter ICs to a hand-set OEM for a new family of products; however this increase in sales was offset by reduced sales in custom processing services.

Sales in the industrial and other markets for the three and six months ended September 26, 2009 were $1,962,000 and $3,602,000 , a decrease of 53% and 49%, respectively, when compared to the same periods a year ago and increased 20% sequentially. The year-over-year decreases were primarily due to decreased sales of driver ICs for automatic test equipment which was seriously affected by the global recession. The sequential increase in net sales was primarily due to increased shipments in custom processing services.

Compared to the same periods a year ago, sales to the telecom market decreased 49% and 56%, respectively, to $1,074,000 and $2,094,000 during the three and six months ended September 26, 2009. The year-over-year decreases were 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. Sales to the telecom market increased 5% sequentially.

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 geographic 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                                                                   Six Months Ended
                            September                            September                                                            September        September
Net Sales                    26, 2009       June 27, 2009         27, 2008       Sequential Change       Year-Over-Year Change         26, 2009         27, 2008       Year-Over-Year Change
China                    $      5,331     $         4,095     $      5,352                      30 %                         0 %   $      9,426     $      9,712                          -3 %
United States                   5,077               5,133            8,214                      -1 %                       -38 %         10,210           15,914                         -36 %
Asia (excluding China)          3,839               3,085            6,086                      24 %                       -37 %          6,924           13,408                         -48 %
Europe                          1,595               1,177            3,544                      36 %                       -55 %          2,772            6,739                         -59 %
Other                              33                  65              257                     -49 %                       -87 %             98              431                         -77 %
Net Sales                $     15,875     $        13,555     $     23,453                      17 %                       -32 %   $     29,430     $     46,204                         -36 %

International Sales      $     10,798     $         8,422     $     15,239                      28 %                       -29 %   $     19,220     $     30,290                         -37 %
Domestic Sales                  5,077               5,133            8,214                      -1 %                       -38 %         10,210           15,914                         -36 %
Net Sales                $     15,875     $        13,555     $     23,453                      17 %                       -32 %   $     29,430     $     46,204                         -36 %

Net sales to international customers for the three and six months ended September 26, 2009 were $10,798,000 or 68% of net sales, and $19,220,000 or 65% of net sales, respectively, as compared to $15,239,000 or 65% of net sales, and $30,290,000 or 66% of net sales, respectively, for the same periods of the prior fiscal year and $8,422,000 or 62% for the three months ended June 27, 2009. Sales to international customers for the three and six months ended September 26, 2009 decreased 29% and 37%, respectively, compared to the same periods last year primarily due to the weak global economy and reduced demand for EL inverter ICs due to weak sales of our major OEM's products. The increase in sequential international sales of 28% resulted from higher shipments of our driver for LED lighting and backlighting products, the improvement in demand for our ICs for medical ultrasound products, and sales to a cell phone handset customer for a new family of products.

Net sales to domestic customers for the three and six months ended September 26, 2009 decreased 38% and 36%, respectively, compared to the same periods of the prior fiscal year. The year-over-year decreases in domestic sales were primarily due to a reduction in demand for driver ICs for a military radio application and lower custom processing services. Compared to the prior quarter, net sales to domestic customers for the quarter ended September 26, 2009 remained essentially flat.

Our assets are primarily located in the United States.

Cost of Sales and Gross Profit

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

                                       Three Months Ended                                  Six Months Ended
(Dollars in                                     June 27,     September 27,      September 26,
thousands)              September 26, 2009          2009              2008               2009         September 27, 2008
Gross Margin
Percentage                              47 %          53 %              57 %               49 %                       56 %
Included in Gross
Margin Percentage
Above
Gross Margin Benefit
from Cost of
Previously Written
Down Inventory Sold    $               362     $     287     $         356     $          649       $                682
Percentage of Net
Sales                                    2 %           2 %               2 %                2 %                        1 %

Gross profit for the three and six months ended September 26, 2009 was $7,401,000 and $14,531,000, respectively compared to $13,289,000 and $26,040,000 for the same periods of fiscal 2009. The year-over-year decreases in gross profit were primarily attributable to decreased sales and lower wafer fab capacity utilization. Gross profit for the three months ended September 26, 2009, increased $271,000 compared to the prior quarter due to higher sales and a decrease in charges for inventory excess and obsolescence.

As a percentage of net sales, gross margin was 47% and 49%, respectively, for the three and six months ended September 26, 2009 compared to 57% and 56% for the same periods of the prior fiscal year. The year-over-year quarterly and year-to-date decreases in gross margin were primarily attributable to reduced wafer fab capacity utilization, unfavorable product mix, and higher charges for inventory excess and obsolescence.

Sequentially, gross margin in the three months ended September 26, 2009 was lower by six percentage points due to non-linear loading of our wafer fab and back end operations, overall reduced factory utilization, and unfavorable product mix.

We wrote down inventory totaling $1,155,000 and $2,697,000, respectively, for the three and six months ended September 26, 2009, and $316,000 and $846,000, respectively, for the same periods ended September 27, 2008.

Research and Development ("R&D") Expenses

                                                                  Three Months Ended                                                                   Six Months Ended
                             September       June 27,         September                                                              September         September
(Dollars in thousands)        26, 2009           2009          27, 2008        Sequential Change       Year-Over-Year Change          26, 2009          27, 2008       Year-Over-Year Change
R&D Expenses              $      3,604      $   4,005      $      3,802                      -10 %                        -5 %    $      7,609      $      7,839                          -3 %
Percentage of Net Sales             23 %           30 %              16 %                                                                   26 %              17 %

R&D expenses include payroll and benefits, processing costs, and depreciation. We also expense prototype wafers and mask sets related to new product development as R&D expenses.

Expenditures for R&D were $3,604,000 and $7,609,000 for the three and six months ended September 26, 2009, as compared to $3,802,000 and $7,839,000 for the same periods in the prior year and $4,005,000 in the prior quarter. Compared to last fiscal year, the quarterly and year-to-date decreases in expenses are primarily due to reductions in payroll and benefits of $174,000 and $401,000, respectively. The sequential decrease is primarily due to a reduction in payroll and benefits of $308,000.

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                                                                       Six Months Ended
(Dollars in           September                              September                                                               September         September
thousands)             26, 2009        June 27, 2009          27, 2008        Sequential Change        Year-Over-Year Change          26, 2009          27, 2008        Year-Over-Year Change
SG&A Expenses      $      3,158      $         2,790      $      3,900                       13 %                        -19 %    $      5,948      $      7,696                          -23 %
Percentage of
Net Sales                    20 %                 21 %              17 %                                                                    20 %              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 and six months ended September 26, 2009 were $3,158,000 and $5,948,000, respectively, or decreases of $742,000 and $1,748,000 when compared to the same periods last year. These decreases were primarily due to reduced professional services and audit fees of $528,000 and $832,000, lower commission expense of $214,000 and $610,000, and lower payroll and profit sharing costs of $304,000 and $597,000, respectively. These decreases were partially offset by higher expenses associated with greater increases in the fair value of investments held by our NQDCP of $370,000 and $730,000, respectively.

Compared to the three months ended June 27, 2009, SG&A expenses for the three months ended September 26, 2009 increased $368,000, primarily due to increased commission and sales incentives expenses of $302,000, higher payroll and benefits of $180,000, and higher deferred compensation plan expenses of $97,000. These increases were partially offset by lower professional services expenses of $156,000.

Interest Income and Other Income (Expense), Net

. . .