##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended March 31,
    2004                                                
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number 000-26124



---

IXYS Corporation

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 77-0140882                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

3540 Bassett Street

Santa Clara, California
95054-2704


(Address of principal executive offices and
zip code)


(408) 982-0700

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) of the Act:

None


(Title of Class)


Securities registered pursuant to
Section 12(g) of the Act:

Common stock, par value $.01 per
share


(Title of Class)


Indicate
by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o

Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report
on Form 10-K or any amendments to this Annual Report on
Form 10-K.     Yes o          No þ

Indicate
by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the
Act).     Yes þ          No o

The
aggregate market value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the
last sale price on the Nasdaq National Market on
September 30, 2003, was approximately $234,457,020. The
number of shares of the Registrants Common Stock
outstanding as of May 15, 2004 was 32,924,821.



---






---










IXYS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31,
2004


TABLE OF CONTENTS

|             |          |  |                                                                                                                       |      |  |    | 
|------------ | -------- |  | --------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|             |          |  |                                                                                                                       | Page
|             |          |  |                                                                                                                       |     
|Part I       |          |  | 2                                                                                                                     |     
|             | Item 1.  |  | IXYS Business                                                                                                         |      |  | 2  | 
|             | Item 2.  |  | Properties                                                                                                            |      |  | 13 | 
|             | Item 3.  |  | Legal Proceedings                                                                                                     |      |  | 13 | 
|             | Item 4.  |  | Submission of Matters to a
    Vote of Security Holders                                                               |      |  | 14 | 
|Part II      |          |  | 15                                                                                                                    |     
|             | Item 5.  |  | Market for Registrants
    Common Equity, Related Stockholders Matters and Issuer Purchases
    of Equity Securities |      |  | 15 | 
|             | Item 6.  |  | Selected Financial Data                                                                                               |      |  | 15 | 
|             | Item 7.  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                             |      |  | 17 | 
|             | Item 7A. |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                        |      |  | 35 | 
|             | Item 8.  |  | Financial Statements and
    Supplementary Data                                                                       |      |  | 37 | 
|             | Item 9.  |  | Changes In and Disagreements
    With Accountants on Accounting and Financial Disclosure                              |      |  | 67 | 
|             | Item 9A. |  | Controls and Procedures                                                                                               |      |  | 67 | 
|Part III     |          |  | 69                                                                                                                    |     
|             | Item 10. |  | Directors and Executive
    Officers of the Registrant                                                                |      |  | 69 | 
|             | Item 11. |  | Executive Compensation                                                                                                |      |  | 71 | 
|             | Item 12. |  | Security Ownership of
    Certain Beneficial Owners and Management                                                    |      |  | 74 | 
|             | Item 13. |  | Certain Relationships and
    Related Transactions                                                                    |      |  | 75 | 
|             | Item 14. |  | Principal Accounting Fees
    and Services                                                                            |      |  | 76 | 
|Part IV      |          |  | 76                                                                                                                    |     
|             | Item 15. |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                  |      |  | 76 | 
|EXHIBIT 10.1
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1



1



---



##### Table of Contents



FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains
forward-looking statements that include, but are not limited to,
statements concerning projected revenues, expenses, gross profit
and income, the need for additional capital and the outcome of
pending litigation. These forward-looking statements are based
on our current expectations, estimates and projections about our
industry, managements beliefs, and certain assumptions
made by us. In some cases, these statements may be identified by
terminology such as may, will,
should, expects, plans,
anticipates, believes,
estimates, predicts,
potential, or continue or the negative
of such terms and other comparable expressions. These statements
involve known and unknown risks and uncertainties that may cause
our results, levels of activity, performance or achievements or
our industry to be materially different than those expressed or
implied by the forward-looking statements. Factors that may
cause or contribute to such differences include, but are not
limited to, our ability to compete successfully in our industry,
to continue to develop new products on a timely basis,
cancellation of customer orders, and other factors discussed
below and under the caption Risk Factors in
Item 7. We disclaim any obligation to update any of the
forward-looking statements contained in this report to reflect
any future events or developments.




PART I






|        |              
|------- | -------------
|Item 1. | IXYS Business

We are a leading multi-market integrated
semiconductor company. We specialize in the development,
manufacture and marketing of high performance power
semiconductors and advanced mixed signal integrated circuits, or
ICs. Our power semiconductors improve system efficiency and
reliability by converting electricity at relatively high voltage
and current levels into the finely regulated power required by
electronic products. We focus on the market for power
semiconductors that are capable of processing greater than 500
watts of power.

Our power semiconductor products have
historically been divided into two primary categories, power
MOS, or metal oxide silicon, and power bipolar products. Our
power semiconductors are sold as individual units and are also
packaged in high power modules that frequently consist of
multiple semiconductor die. In fiscal 2004, power semiconductors
constituted approximately 72.6% of our revenues, which included
31.4% from power MOS transistors and 41.2% from bipolar products.

We design and sell integrated circuits, or ICs,
that have applications in telecommunications, display products,
and power management. In fiscal 2004, ICs constituted
approximately 17.6% of our revenues.

We also design and sell RF power, or radio
frequency power, devices that switch electricity at the high
rates required by circuitry that generates radio frequencies.

IXYSs power semiconductor products are used
primarily to control electricity in:



| |   |                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | power conversion systems, including
    uninterruptible power supplies, or UPS, and switch mode power
    supplies, or SMPS, for communications infrastructure
    applications such as wireless base stations, network servers and
    telecommunication switching stations;
|
| |  | motor drives for industrial applications such as
    industrial transportation, robotics, automation, and process
    control equipment;                                                                                                                                     
|
| |  | plasma display panels;                                                                                                                                                                                                                                                       
|
| |  | medical electronics for sophisticated
    applications, such as defibrillators and MRI and CT
    equipment; and                                                                                                                                                             
|
| |  | renewable energy sources like wind turbines and
    solar systems.                                                                                                                                                                                                           

Our mixed signal ICs are used in
telecommunications products, central office switching equipment,
customer premises equipment, set top boxes, remote meter reading
equipment, security systems, organic light emitting diode, or
OLED, and advanced liquid crystal displays, medical electronics
and defense aerospace

2



---



##### Table of Contents



systems. Our RF power devices are used in
wireless infrastructure, industrial RF applications, medical
systems and defense and space electronics.


We design our products primarily for industrial
and business applications, rather than for use in personal
computers, or mobile phones. In fiscal 2004, we sold our
products to over 2,000 customers worldwide. Our major customers
include ABB, Astec, Delta Electronics, Eupec, General Electric,
Guidant, Huawei, LG, Medtronics, Samsung, Siemens and Still. In
many cases, our customers incorporate our products into systems
sold to their own customers, which include Ericsson, General
Electric, Hewlett-Packard, IBM, Motorola and Sun Microsystems.

We are organized as a Delaware corporation. Our
predecessor was incorporated in 1983.

Background

The worldwide demand for electrical energy is
currently increasing due to:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | proliferation of technology driven products that
    require electricity, including computers, telecommunications
    equipment and the infrastructure to support portable electronics;
|
| |  | increased use of electronic content in
    traditional products such as airplanes, automobiles and home
    appliances;                                                                
|
| |  | increased use of automation and electrical
    processes in industry and mass transit systems; and                                                                                     
|
| |  | penetration of technology into developing
    countries.                                                                                                                               

Not only is demand increasing, but the
requirements for electricity are also changing. Electronic
products in all markets are becoming increasingly sophisticated,
offering more intelligence through the use of
microprocessors and additional components. The increasing
complexity of such products requires more precisely regulated
power quality and greater power reliability. In addition, the
increasing costs of electricity, coupled with governmental
regulations and environmental concerns, have caused an increased
demand for energy efficiency.

Power semiconductors are used to provide the
precisely regulated power required by sophisticated electronic
products and equipment and address the growing demand for energy
efficiency. In most cases, power semiconductors:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | convert or rectify alternating
    current, or AC, power delivered by electrical utilities to
    direct current, or DC, power which is required by most
    electronic equipment;
|
| |  | convert DC power at a certain voltage level to DC
    power at a different voltage level to meet the specific voltage
    requirement for an application;                           
|
| |  | invert DC power to high frequency AC power to
    permit the processing of power using substantially smaller
    electronic components; or                                          
|
| |  | rectify high frequency AC power from switch-mode
    power supplies to meet the specific DC voltage required by an
    application.                                                 

The more sophisticated the end product, the
greater the need for specially formatted, finely regulated
power, and the greater the need for a high performance power
semiconductor.

Power semiconductors improve system efficiency
and reliability by processing and converting electrical energy
into more usable, higher quality power. Specifically, power
semiconductors are used primarily in controlling energy in power
conversion systems, including switch mode power supplies, or
SMPS, and uninterruptible power supplies, or UPS, and motor
drive controls. Switch mode power supplies efficiently convert
power to meet the specific voltage requirements of an
application, such as communications equipment. Uninterruptible
power supplies provide a short term backup of electricity in the
event of power failure. Motor drive controls regulate the
voltage, current and frequency of power to a motor.

3



---



##### Table of Contents



With the growth in telecommunications, data
communications and wireless communications, the demand for
analog and mixed signal ICs and RF power semiconductors has
grown. Our mixed signal ICs address the interface between
telecommunication and data communication components, both in the
central office and in gateway applications, especially with the
increased use of the Internet protocol, or IP. Our RF power
semiconductors are used in wireless infrastructure and in other
microwave communication applications. Technical advancement in
the communication industries is expected to drive the demand for
higher performance semiconductors.

Market Size And Trends

The primary markets we serve are characterized by
complex technological development and higher power level
requirements. We believe the following key trends are driving
the demand for our products:

Growth in communications devices and
infrastructure.The worldwide
communications industry has experienced rapid growth in the last
decade, fueled largely by growth in the Internet and in wireless
communication, deregulation, competition, privatization and
technological advances, including the convergence of voice,
video and data communication. The proliferation of electronic
devices and the infrastructure to support them is resulting in
increasing power level requirements and the demand for greater
power reliability, as well as the need for efficient solid state
analog and mixed signal devices that address the interface
between telecommunication and data communication components.

Increased demand for energy efficiency in
motor drives.Electronic motors
consume approximately one-half of the worlds electricity.
Due to costs and complexity, motor controls that permit variable
speed operation, which in turn reduce energy consumption, have
been predominantly used only in higher end applications.
However, recent advancements in power management enable more
cost effective, variable speed motor controls, which enhance
energy efficiency and improve performance in a wide range of
industrial and commercial applications, such as heating,
ventilation and air conditioning systems.

Emergence of new applications in medical
electronics.Continued advancements in
medical technologies are resulting in more sophisticated medical
electronic devices. Power semiconductors can greatly reduce the
size of equipment and improve the precision of medical
measurements and functionality. Power semiconductors have
enabled cardiac defibrillators to become much smaller and more
portable, improving the ability to install these devices in more
non-medical establishments, such as airplanes and office
buildings. Medical imaging systems, such as ultrasound and MRI,
require high performance mixed signal ICs and RF power
semiconductors to meet the technical requirements of the
marketplace.

Development of new technologies for power
management.New technologies, such as
the use of RF for nontraditional power applications, are opening
new markets for power semiconductors. For example, RF based
semiconductor production equipment is migrating to high
frequency power MOS transistors from traditional RF tubes.
Additionally, material science developments, such as gallium
arsenide, are enabling the production of higher power density
power management products, such as those required for wireless
base stations.

Demand for increasing power
density.The need for higher levels of
power in end use applications is causing purchasers of power
semiconductors to demand more power for their applications from
the same physical space. In the communications industry, the
growth in bandwidth demands is requiring communications
equipment providers to add more equipment or more powerful
equipment to confined spaces in highly populated areas. As a
result, power semiconductor manufacturers are being required to
design and produce products that enable their customers to
expand power levels without expanding product footprints, or
maintaining levels of power while shrinking product footprints.

Demand for new display
technologies.The demand for flat
televisions and brighter and energy efficient displays for
portable equipment drives the demand for our power MOS devices
and display control ICs.

IXYSs Strategy

We focus on meeting the needs of the high power,
high performance segment of the power semiconductor market,
serving it with our advanced power and IC technologies. We have
diversified our business to introduce

4



---



##### Table of Contents



products into new markets, with an objective to
achieve faster revenue growth than our competitors, while
stabilizing the business and providing sustained growth. We
intend to continue building a leading position within our
targeted segments of these markets by pursuing the following
strategies:


Maintain technological focus on high power,
high performance markets.Our
technological expertise enables us to focus on the high power,
high performance markets. Due to technological complexities,
fewer industry players compete in these markets, resulting in a
more favorable competitive environment for us. We believe our
technological expertise differentiates us from most of our
competitors. This expertise encompasses a wide range of
scientific disciplines and technical capabilities, including
physics, mechanical engineering, chemistry, circuit design,
material science and packaging. Using our technological
expertise, we continually strive to introduce innovative
products.

Target rapid growth.We select the specific markets where we intend to compete by
evaluating their potential growth, our ability to establish an
advantage based upon our technological capabilities and the
performance of competing products. For example, to capitalize on
the power density and switching speed of our products, we
entered the data communications segments of the communications
infrastructure market. These segments include applications for
wireless base stations, internet servers, storage area networks
and plasma display products.

Focus on niche
markets.We focus on niche markets
that are not adequately addressed by our larger competitors. Our
larger competitors are often not flexible enough to address
niche markets and smaller customers. We focus on these markets
and customers, providing them with products configured to meet
their specific needs.

Continue to diversify markets, customers and
products.We believe that diversifying
the markets and customers we serve and the products we produce
enables us to minimize the traditional cyclical effects of the
semiconductor industry on our business. We have a significant
market presence in Europe, North America and Asia, the three
principal geographic markets for high performance power
semiconductors. Moreover, our products are used in a broad range
of applications, from communications infrastructure to
industrial automation to medical electronics, thereby reducing
our reliance on customers from any particular industry. Our
product line spans a broad range of functionality and price,
which allows us to provide an appropriate solution to most of
our customers power semiconductor needs.

Pursue selective acquisition and investment
strategy.We seek to access additional
technological capabilities and complementary product lines
through selective acquisitions and strategic investments. For
example through the acquisition of Clare, Inc., we expanded our
product offerings into the semiconductor segment of the market
that replaces electromagnetic relays, or EMRs, with solid state
relays, or SSRs. Clares semiconductor products are capable
of integrating a number of functions previously provided by
discrete components into one package and including product
applications such as modem interfaces to the Internet, cable set
top boxes, and voice over Internet protocol, or VOIP,
applications. Our Micronix subsidiary has developed mixed-signal
ASICs for the medical and military markets and for emerging flat
panel displays based on OLEDs. Microwave Technology, our most
recent acquisition, substantially increases our RF power
products, with a product line of gallium arsenide devices that
are useful in the amplification or reception of RF in wireless,
medical, defense and space applications.

Collaborate with select companies on product
development.We seek to enter into
collaborative arrangements with existing and potential customers
in attractive end user markets in order to optimize our products
for their use. For example, we partnered with manufacturers of
portable defibrillators at an early stage in the development of
this market, and we have become a leading supplier of power
semiconductors for these devices.

Optimize mix between internal and external
manufacturing.We intend to continue
using both internal wafer fabrication facilities and our
external foundry relationships. We also seek to balance our
product assembly through multiple sourcing relationships. We
believe these strategies enable us to maximize our manufacturing
efficiency and flexibility. We also believe that our internal
manufacturing capabilities enable us to lower our manufacturing
cost with respect to certain products, bring products to market
more quickly than

5



---



##### Table of Contents



would be possible if we were required to rely
exclusively on external foundries, retain certain proprietary
aspects of our process technology and more quickly introduce new
process and product innovations through close collaboration
between our design and process engineers. Our alliances with
external foundries and assembly subcontractors allow us to
substantially reduce capital spending and manufacturing overhead
expenses, obtain competitive pricing and technologies and expand
manufacturing capacity more rapidly than could be achieved with
internal facilities alone.


Power Semiconductors

Our power semiconductor products have
historically been divided into two primary categories, power MOS
transistors and bipolar products. Our power semiconductors are
sold separately and are also packaged in high power modules that
frequently consist of multiple semiconductor dies. In fiscal
year 2004, power semiconductors constituted approximately 72.6%
of our revenues, which included about 31.4% from power MOS
transistors and about 41.2% from bipolar products. In fiscal
2003, power semiconductors constituted approximately 78.2% of
our revenues, which included about 29.7% from power MOS
transistors and about 48.5% from bipolar products. In fiscal
2002, power semiconductors constituted approximately 94.5% of
our revenues, which included about 39.2% from power MOS
transistors and about 55.3% from bipolar products.



| |                       
| | ----------------------
| | Power MOS Transistors.

Power MOS transistors offer significant
price/performance benefits over traditional bipolar transistors.
Power MOS transistors operate at much greater switching speeds,
allowing the design of smaller and less costly end products,
primarily due to the smaller and less expensive peripheral
components required at higher switching frequencies. Power MOS
transistors are activated by voltage rather than current, so
they require less external circuitry to operate, making them
more compatible with ICs controls. Power MOS transistors also
offer more reliable long term performance and are more rugged
than traditional bipolar transistors, permitting them to better
withstand adverse operating conditions. Our power MOS
transistors consist of power MOSFETs and IGBTs.



| |               
| | --------------
| | Power MOSFETs.

A power MOSFET, or metal oxide silicon field
effect transistor, is a switch controlled by voltage at the
gate. Power MOSFETs are used in combination with passive
components to vary the amperage and frequency of electricity by
switching on and off at high frequency.

Our power MOSFETs are used primarily in power
conversion systems and are focused on higher voltage
applications ranging from 60 to 1,700 volts. Our power MOSFETs
have on state resistance among the lowest available for a given
die size and voltage. Lower on state resistance results in
increased efficiency of a power semiconductor device. We believe
that as the power requirements of workstations, servers and
other computers increase as the result of larger and more
powerful processors and memory systems, the designers of power
supplies will increasingly demand higher power density. MOSFETs
accommodate this need by providing higher power with higher
efficiency and by reducing the physical size of the power
supplies incorporated into such equipment.



| |       
| | ------
| | IGBTs.

IGBTs, or insulated gate bipolar transistors,
also are used as switches. IGBTs have achieved many of the
advantages of power MOSFETs and of traditional bipolar
technology by combining the voltage controlled switching
features of power MOSFETs with the superior conductivity and
energy efficiency of bipolar transistors. For a given
semiconductor die size, IGBTs can operate at higher currents and
voltages, making them a more cost effective device for high
energy applications than power MOSFETs.

Since inception, we have been a leader in the
development of IGBTs for high voltage applications. Our current
products are focused on voltage applications ranging from 300
volts to 2,500 volts. Our IGBTs are used principally in AC motor
drives, power systems and defibrillators.

6



---



##### Table of Contents





| |                  
| | -----------------
| | Bipolar Products.

Bipolar products are also used to process
electricity, but are activated by current rather than voltage.
Bipolar products are capable of switching electricity at
substantially higher power levels than power MOS transistors.
However, switching speeds of bipolar products are slower than
those of power MOS transistors, and as a result, bipolar
products are preferred where very high power is required. Our
bipolar products consist of rectifiers and thyristors.



| |            
| | -----------
| | Rectifiers.

Rectifiers convert AC power to DC power and are
used primarily in input and output rectification and inverters.
Our rectifiers are used in DC and AC motor drives, power
supplies, lighting and heating controls and welding equipment.

A subset of our rectifier product group is a very
fast switching device known as a FRED, or fast recovery
epitaxial diode. FREDs limit spikes in voltage across the power
switch to reduce power dissipation and electromagnetic
interference. Our FREDs are used principally in AC motor drives
and power supplies.



| |            
| | -----------
| | Thyristors.

Thyristors are switches that can be turned on by
a controlled signal and turned off only when the output current
is reduced to zero, which occurs in the flow of AC power.
Thyristors are preferred over power MOSFETs and IGBTs in high
voltage, low frequency AC applications because their on state
resistance is lower than the on state resistance of power
MOSFETs and IGBTs. Our thyristors are used in motor drives,
defibrillators, power supplies, lighting and heating controls
and welding.



| |                                     
| | ------------------------------------
| | Gallium Arsenide Power
    Products.

Our gallium arsenide, or GaAs, products are
Schottky rectifiers, useful for high power density applications,
such as power supplies for wireless communications base
stations. Gallium arsenide offers higher frequency and higher
temperature operation, enabling substantially greater power
density than silicon-based solutions.

Integrated Circuits

Our integrated circuits address the demand for
analog and mixed signal interface solutions in the communication
and other industries, mixed signal application specific ICs
designed for specific customers as well as standard products,
and power management and control. ICs accounted for 1.4% of our
revenues in fiscal 2002, 19.3% in fiscal 2003 and 17.6% in
fiscal 2004.



| |                    
| | -------------------
| | Solid State Relays.

We manufacture solid state relays, or SSRs, that
isolate the low current communication signal from the higher
power circuit, while also switching to control the flow of
current. Our SSRs, which include high voltage analog components,
optocouplers and integrated packages, are utilized principally
in telecommunication and video and data communication
applications, as well as instrumentation, industrial control,
and aerospace and automotive applications.



| |                                  
| | ---------------------------------
| | DAA and LCAS integrated products.

Data access arrangements, or DAAs, integrate a
number of discrete components and are principally used in analog
data communications that interface with telephone network
applications. Our LitelinkTM products are DAAs for
applications such as VOIP, wired communication lines and set top
boxes. A line card access switch, or LCAS, is a solid state
solution for a switching function traditionally performed by
electromagnetic devices. Our LCAS products are used in central
office switching applications to enable data and voice telephony.

7



---



##### Table of Contents





| |                                              
| | ---------------------------------------------
| | Application Specific Integrated
    Circuits.

We design high voltage, analog and mixed signal
application specific integrated circuits, or ASICs, for a
variety of applications. Applying our technological expertise in
ASICs, we also design and sell application specific standard
products. In this regard, we have developed a family of
integrated circuit column and row drivers for the organic light
emitting diode, or OLED, display market.



| |                                  
| | ---------------------------------
| | Power Management and Control ICs.

We also design and sell power management and
control ICs, such as current regulators, motion controllers,
digital power modulators and drivers for power MOSFETs and
IGBTs. These ICs typically manage, control or regulate power
semiconductors and the circuits and subassemblies that
incorporate them.

RF Power

Our RF power devices switch electricity at the
high rates necessary to enable the amplification or reception of
radio frequencies. Our products include field effect
transistors, or FETs, pseudomorphic high electron mobility
transistors, or PHEMTs and Gunn diodes. These products are
principally gallium arsenide devices, which remain efficient at
the high heat and energy levels inherent in RF applications.

Other Products

We manufacture our proprietary direct copper
bond, or DCB, substrates for use in our own semiconductor
products as well as for sale to a variety of customers,
including those in the power semiconductor industry. DCB
technology cost effectively provides excellent thermal transfer
while maintaining high electrical isolation. This technology
addresses thermal fatigue and die cracking problems encountered
by manufacturers of power semiconductor modules utilizing
traditional copper base plates. Additionally, we manufacture and
sell laser diode drivers, high voltage pulse generators and
modulators, and high power subsystems that are principally based
on our high power semiconductor devices.

Customers and Applications

Our power semiconductors are used primarily to
control electricity in power conversion systems, motor drives
and medical electronics. Our ICs are used mainly to interface
with telecommunication lines, to control power semiconductors
and to drive medical equipment and displays. Our RF power
semiconductors enable the amplification and reception of radio
frequencies in telecommunication, industrial, defense and space
applications. The following table summarizes the primary
categories of uses for our products, some applications served by
these products and some representative customers.

|                         |  |                                        |  |                                                                                                                  |  |                                                                                   |  | 
|------------------------ |  | -------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | 
|Category                 |  | IXYS Products                          |  | End User Applications                                                                                            |  | Selected Customers                                                               
|                         |  |                                        |  |                                                                                                                  |  |                                                                                  
|Power Conversion Systems |  | FREDIGBTModuleMOSFETRectifierIC Driver |  | SMPS and UPS for:
    Wireless base stations
    Internet facilities
    Storage Area Networks
    RF Generators |  | Delta Electronics
    Emerson Electric
    Tyco
    Power-One
    Schneider Group
|                        
|Motor Drives             |  | FREDIGBTModuleMOSFETThyristorIC Driver |  | Automation
    Robotics
    Process control equipment
    Machine tools
    Electric trains                      |  | ABB
    Eurotherm
    Rockwell International
    Siemens
    GE                  

8



---



##### Table of Contents



|                    |  |                               |  |                                                                                                     |  |                                                       |  | 
|------------------- |  | ----------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- |  | 
|Category            |  | IXYS Products                 |  | End User Applications                                                                               |  | Selected Customers                                   
|                    |  |                               |  |                                                                                                     |  |                                                      
|                   
|Medical Electronics |  | IGBTMOSFETThyristorICGaAs FET |  | Defibrillators
    Medical imaging devices
    Laser power supplies
    Ultrasound
    Hearing aids |  | GE
    Guidant
    Medtronic
    Philips
    St. Jude
|                   
|Telecommunication   |  | SSRLCASGaAs FETDAA            |  | Point of sale terminals
    Modems
    Set top boxes
    Wireless base stations
    Central office  |  | Huawei
    Lucent
    Nortel
    NEC
    Cisco       
|                   
|Display             |  | MOSFETIC driver               |  | Plasma display panels
    OLED displays
    E-books                                                 |  | Samsung
    LG Electronics
    Philips
    Sony      

We also sell our power semiconductor chips and
DCB substrates to other power semiconductor companies for use in
their modules. These customers include Infineon, International
Rectifier, Powersem and Tyco.

Sales and Marketing

We sell our products through a worldwide selling
organization that includes direct sales personnel, independent
representatives and distributors. As of March 31, 2004, we
employed 59 people in sales and marketing and customer support
and service and used 41 sales representative organizations and
11 distributors in North and South America and 103 sales
representative organizations and distributors in the rest of the
world. Sales to distributors accounted for approximately 37% of
net revenues in fiscal 2004, 36% of net revenues in fiscal 2003,
and 41% of net revenues in fiscal 2002.

In fiscal year 2004, United States sales
represented approximately 33.1%, and international sales
represented approximately 66.9%, of our net revenues. Of our
international sales in fiscal year 2004, approximately 56.8%
were derived from sales in Europe and the Middle East,
approximately 38.4% were derived from sales in Asia and
approximately 4.8% were derived from sales in the Americas other
than the United States. No single end customer accounted for
more than 10% of our net revenues in fiscal year 2004. For
financial information about geographic areas for each of our
last three fiscal years, see our Audited Consolidated Financial
Statements, Note 15, Segment and Geographic Information
provided elsewhere in this Annual Report on Form 10-K. We
market our products through advertisements, technical articles
and press releases that appear regularly in a variety of trade
publications, as well as through the dissemination of brochures,
data sheets and technical manuals. Additionally, we participate
in industry trade shows on a regular basis. We also have a
presence on the Internet through a worldwide web page that
enables engineers to access and download technical information
and data sheets.

Research and Development

We believe that we successfully compete in our
markets because of our ability to design, develop and introduce
to the market on a timely basis new products offering
technological improvements. We are a pioneer in technology with
respect to higher power MOSFETs, IGBTs, SSRs, OLED driver ICs
and direct bonded substrates. While the time from initiation of
design to volume production of new semiconductors often takes
18 months or longer, our power semiconductors have a
product lifetime of many years. Our research and development
expenses were approximately $15.8 million in fiscal 2004,
$12.8 million in fiscal 2003 and $5.7 million in
fiscal 2002. As of March 31, 2004, we employed 105 people
in engineering and research and development activities.

9



---



##### Table of Contents



We are engaged in ongoing research and
development efforts focused on enhancements to existing products
and the development of new products. Currently, we are pursuing
research and development projects with respect to:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | developing RF power MOSFETs and GaAs FETs;                         
|
| |  | increasing the operating range of our MOS and
    bipolar products;
|
| |  | developing new gallium arsenide products;                          
|
| |  | developing high efficiency solar cells;                            
|
| |  | developing higher power IGBT modules;                              
|
| |  | developing color OLED driver ICs;                                  
|
| |  | developing power solid state relays; and                           
|
| |  | developing power management ICs based on our HVIC
    technology.  

Research and development activities are conducted
in collaboration with manufacturing activities to help expedite
new products from the development phase to manufacturing and to
more quickly implement new process technologies.

Our research and development efforts also include
participation in technology collaborations with universities and
research institutions. These technology collaborations allow
research and development activities that would otherwise require
potentially cost prohibitive capital expenditures since the
necessary capital equipment is often available at research
institutes and universities. Through these technology
collaborations, we believe we are able to maximize our range of
research and development activities without diffusing the focus
of our internal research and development work.

Patents

As of March 31, 2004, we held 124 issued
patents, of which 80 were issued in the U.S. and 44 were issued
in international jurisdictions. As of March 31, 2004, we
also held 124 pending patents, of which 59 were pending in the
U.S. and 65 were pending in international jurisdictions. We rely
on a combination of patent rights, copyrights and trade secrets
to protect the proprietary elements of our products. Our policy
is to file patent applications to protect technology, inventions
and improvements that are important to our business. We also
seek to protect our trade secrets and proprietary technology, in
part, through confidentiality agreements with employees,
consultants and other parties.

While we believe that our intellectual property
rights are valuable, we also believe that other factors, such as
innovative skills, technical expertise, the ability to adapt
quickly to new technologies and evolving customer requirements,
product support and customer relations, are of greater
competitive significance.

Manufacturing and Facilities

The production of our products is a highly
complex and precise process. We manufacture our products in our
own manufacturing facilities and by utilizing external wafer
foundries and subcontract assembly facilities. We divide our
manufacturing operations into three key areas, wafer
fabrication, assembly and test.



| |                   
| | ------------------
| | Wafer Fabrication.

We own an approximately 170,000 square foot
facility in Lampertheim, Germany at which we fabricate all of
our bipolar products. We also have an approximately
100,000 square foot facility in Chippenham, England where
we fabricate the majority of our very high power devices; an
approximately 83,000 square foot facility in Beverly,
Massachusetts, capable of manufacturing high voltage silicon on
insulator ICs, where we fabricate our SSR, DAA and LCAS
products; and an approximately 30,000 square foot facility
in Fremont, California, where we manufacture our gallium
arsenide RF power semiconductors. We believe that our internal
fabrication capabilities enable us to lower our manufacturing
cost with respect to certain products,

10



---



##### Table of Contents



bring products to the market more quickly than
would be possible if we were required to rely exclusively on
external foundries, retain certain proprietary aspects of our
process technology and more quickly introduce new process
innovations.


In addition to maintaining our own fabrication
facilities, we have established alliances with selected
foundries for wafer fabrication. This approach allows us to
reduce substantial capital spending and manufacturing overhead
expenses, obtain competitive pricing and technologies and expand
manufacturing capacity more rapidly than could be achieved with
internal foundries alone. We retain the flexibility to shift the
production of our products to different or additional foundries
for cost or performance reasons. Our product designs enable the
production of our devices at multiple foundries using well
established and cost effective processes.

Measured in dollars, we relied on external
foundries for approximately 41.4% of our wafer fabrication
requirements in fiscal year 2004, and our utilization of
external foundries is expected to grow. We have arrangements
with eight external wafer foundries, three of which provide the
wafers for power semiconductors that we purchase from external
foundries. Our principal external foundry is Samsung
Electronicss facility located in Kiheung, South Korea. Our
relationship with Samsung Electronics extends almost two
decades. We provide our foundries forecasts for wafer
fabrication six months in advance and make firm purchase
commitments one to two months in advance of delivery. Other than
these firm commitments, we do not have any obligations to order
any minimum quantities.

Wafer fabrication of power semiconductors
generally employs process technology and equipment already
proven in IC manufacturing. Power semiconductors are
manufactured using fabrication equipment that is one or more
generations behind the equipment used to fabricate leading edge
ICs. Used fabrication equipment can be obtained at prices
substantially less than the original cost of such equipment or
the cost of current equipment applying the latest technology.
Consequently, the fabrication of power semiconductors is less
capital intensive than the fabrication of leading edge ICs.



| |          
| | ---------
| | Assembly.

Packaging or assembly is the sequence of
production steps that divide the wafer into individual chips and
enclose the chips in external structures, termed packages, that
make them useable in a circuit. Discrete manufacturing involves
the assembly and packaging of single die devices. Module
manufacturing involves the assembly of multiple devices within a
single package. SSR products involve multiple chip assembly on a
specialized lead frame. The resulting packages vary in
configuration, but all have leads that are used to mount the
package through holes in the customers printed circuit
boards.

Most of our wafers are sent to independent
subcontract assembly facilities. We have equipment at, or
manufacturing supply arrangements with, assembly subcontractors
located in Asia and Europe in order to take advantage of low
assembly costs. Measured in dollars, approximately 56.7% of our
products are assembled at external assembly facilities, and the
remainder are assembled in our Lampertheim, Chippenham and
Fremont facilities.



| |      
| | -----
| | Test.

Generally, each die on our wafers is electrically
tested for performance after wafer fabrication. Following
assembly, our products are typically returned to our facilities
for testing and final inspection prior to shipment to customers.

11



---



##### Table of Contents



Competition

The semiconductor industry is intensely
competitive and is characterized by price competition,
technological change, limited fabrication capacity,
international competition and manufacturing yield problems. The
competitive factors in the market for our products include:



| |   |                                              
| | - | ---------------------------------------------
| |  | product quality, reliability and performance;
|
| |  | product features;                            
|
| |  | timely delivery of products;                 
|
| |  | price;                                       
|
| |  | breadth of product line;                     
|
| |  | design and introduction of new products; and 
|
| |  | technical support and service.               

We believe that we are one of a limited group of
companies focused on the development and marketing of high
power, high performance semiconductors capable of performing all
of the basic functions of power semiconductor design and
manufacture. Our primary power semiconductor competitors include
Advanced Power Technology, Fairchild Semiconductor, Fuji,
International Rectifier, Infineon, On Semiconductor, Powerex,
Semikron International, STMicroelectronics, Siemens and Toshiba.
Our IC products compete principally with those of Agere, Legacy,
NEC and Silicon Labs.

Backlog

Our trade sales are made primarily pursuant to
standard purchase orders that are booked months in advance of
delivery. Generally, prices and quantities are fixed at the time
of booking. Backlog as of a given date consists of existing
orders and forecasted demands from our customers. Backlog is
influenced by several factors including market demand, pricing
and customer order patterns in reaction to product lead times.

In the semiconductor industry, backlog quantities
and shipment schedules under outstanding purchase orders are
frequently revised to reflect changes in customer needs.
Agreements calling for the sale of specific quantities are
either contractually subject to quantity revisions or, as a
matter of industry practice, are often not enforced. Therefore,
a significant portion of our order backlog may be cancelable.
For these reasons, the amount of backlog as of any particular
date may not be an accurate indicator of future results.

We sell products to key customers pursuant to
contracts that allow us to schedule production capacity in
advance and allow the customers to manage their inventory levels
consistent with just-in-time principles while shortening the
cycle times required to produce ordered product. However, these
contracts are typically amended to reflect changes in customer
demands and periodic price renegotiations.

At March 31, 2004, our backlog of orders was
approximately $77.3 million, as compared with
$49.8 million at March 31, 2003. Backlog represents
firm orders expected to be shipped within the 12 months
following March 31, 2004.

Employees

At March 31, 2004, we employed 860
employees, of whom 105 were primarily engaged in engineering and
research and development activities, 59 in marketing, sales and
customer support, 637 in manufacturing and 59 in administration
and finance. Of these employees, 116 hold engineering or science
degrees, including 19 Ph.D.s. Certain employees at our
Lampertheim and Chippenham facilities are subject to collective
bargaining agreements. There have been no work stoppages at any
of our facilities to date. We believe that our employee
relations are good.

12



---



##### Table of Contents



Available Information

We currently make available through our website
at http://www.IXYS.com, free of charge, copies of these reports
as soon as reasonably practicable after submitting the
information to the SEC. None of the information posted on our
website is incorporated by reference into this Annual Report.
You can also request free copies of such documents by contacting
us at 408-982-0700 or by sending an e-mail to admins@IXYS.net.






|        |           
|------- | ----------
|Item 2. | Properties

Our principal facilities are described below:

|                        |  |             |         |                  |  |     |                |   |  |                                                                                           
|----------------------- |  | ----------- | ------- | ---------------- |  | --- | -------------- | - |  | ------------------------------------------------------------------------------------------
|                        |  | Approximate |         |                  |  |    
|                        |  | Square      |         |                  |  |    
|Principal Facilities    |  | Footage     |         | Lease Expiration |  | Use
|                        |  |             |         |                  |  |    
|Aliso Viejo, California |  |             | 27,000  |                  |  |     | April 2006     |   |  | Research and development, sales and distribution                                          
|Beverly, Massachusetts  |  |             | 83,000  |                  |  |     | September 2011 |   |  | Research and development, manufacturing, sales
    and distribution                       
|Chippenham, England     |  |             | 100,000 |                  |  |     | December 2022  |   |  | Research and development, manufacturing, sales
    and distribution                       
|Fremont, California     |  |             | 30,000  |                  |  |     | November 2008  |   |  | Research and development, manufacturing, sales
    and distribution                       
|Lampertheim, Germany    |  |             | 170,000 |                  |  |     | (1             | ) |  | European headquarters, research and development,
    manufacturing, sales and distribution
|Santa Clara, California |  |             | 20,000  |                  |  |     | January 2009   |   |  | Corporate headquarters, research and development,
    sales and distribution              



---



|    |                   
|--- | ------------------
|(1) | Owned, not leased.

We believe that our current facilities will be
adequate through at least fiscal year 2004 and that suitable
additional or replacement space will be available in the future
as needed on commercially reasonably terms.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We currently are involved in a variety of legal
matters that arise in the normal course of business. Based on
information currently available, management does not believe
that the ultimate resolution of these matters, including the
matters described in the next paragraphs, will have a material
adverse effect on our financial condition, results of operations
or cash flows. Were an unfavorable ruling to occur, there exists
the possibility of a material adverse impact on the results of
operations of the period in which the ruling occurs.

On June 22, 2000, International Rectifier
Corporation filed an action for patent infringement against us
in the United States District Court for the Central District of
California, alleging that certain of our products sold in the
United States infringe U.S. patents owned by International
Rectifier. International Rectifiers complaint against us
contended that our alleged infringement of International
Rectifiers patents has been and continues to be willful
and deliberate. Subsequently, the U.S. District Court
decided that certain of our power MOSFETs and IGBTs infringe
certain claims of each of three International Rectifier
U.S. patents.

In 2002, the U.S. District Court entered a
permanent injunction barring us from making, using, offering to
sell or selling in, or importing into, the United States,
MOSFETs (including IGBTs) covered by the subject patents and
ruled that International Rectifier should be awarded damages of
$9.1 million for our alleged infringement of International
Rectifiers patents. In addition, the U.S. District
Court ruled that we had been

13



---



##### Table of Contents



guilty of willful infringement. Subsequently, the
U.S. District Court increased the damages to a total of
$27.2 million, plus attorney fees.


We appealed and on March 19, 2004 the United
States Court of Appeals for the Federal Circuit reversed or
vacated all findings of patent infringement previously issued
against us by the U.S. District Court. The Federal Circuit
also vacated the final judgment in those proceedings upon which
the U.S. District Courts earlier damages award and
injunction were based. The Federal Circuits actions meant
that the U.S. District Courts award of
$27.2 million and attorneys fees in damages and the
injunction against us were vacated as a matter of law. The
Federal Circuit remanded the case to the U.S. District
Court for further action consistent with its opinion.

We believe our defenses to the various remaining
claims made by International Rectifier are meritorious. However,
there can be no assurance of a favorable outcome. In the event
of an adverse outcome, damages or injunctions awarded by the
U.S. District Court would be materially adverse to our
financial condition and results of operations. Management has
not accrued any amounts in the accompanying balance sheets for
the International Rectifier matter described above.

International Rectifier also contended that our
importation into the United States of certain IXYS-designed
MOSFET products manufactured for us by Samsung Electronics Co.,
Ltd. was in violation of a consent decree and injunction entered
against Samsung in another lawsuit to which we were not a party.
International Rectifier sought enforcement of the Samsung
injunction against us and Samsung, a contempt citation and a
fine. In 2002, the U.S. District Court decided, among other
things, that we were bound by, and our devices were not excepted
from, the Samsung injunction and that Samsung was in contempt of
the injunction. On July 7, 2003 it issued an order awarding
International Rectifier monetary damages for contempt and
attorneys fees of $350,000. Under the order, if we were found to
infringe, Samsung was liable for a net amount equal to
$2.5 million. On March 19, 2004, the Federal Circuit
reversed the contempt order against Samsung and vacated any
factual findings contrary to the basis for the ruling. The
Federal Circuits action meant that the award of
$2.5 million in damages was vacated as a matter of law. The
Federal Circuits actions in the Samsung matter were a
final adjudication of the contempt proceedings.

In August 2002, we filed an action for patent
infringement against Advanced Power Technology, Inc., or APT, in
the United States District Court for the Northern District of
California, claiming that APT is infringing two of our patents.
APT has denied our claim of infringement, has asserted several
affirmative defenses and has filed a counterclaim against us,
claiming that we are infringing one of APTs patents. The
case is currently scheduled for trial in July 2004.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matter was submitted to a vote of our
stockholders during the fourth quarter of fiscal 2004.

14



---



##### Table of Contents






PART II






|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholders Matters and Issuer Purchases of Equity
    Securities

The following table presents, for the periods
indicated, the high and low sale prices per share of our common
stock as reported by The Nasdaq National Market:

|                                      |                |      |   |       |  |  |   |      | 
|------------------------------------- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|                                      |                | High |   | Low  
|                                      |                |      |   |      
|Fiscal year ending March 31,
    2004 |                |      |   |       |  |  |   |     
|                                      | First Quarter  |      | $ | 8.70  |  |  | $ | 5.16 | 
|                                      | Second Quarter |      | $ | 11.44 |  |  | $ | 6.02 | 
|                                      | Third Quarter  |      | $ | 10.55 |  |  | $ | 7.05 | 
|                                      | Fourth Quarter |      | $ | 11.55 |  |  | $ | 8.02 | 
|Fiscal year ending March 31,
    2003 |                |      |   |       |  |  |   |     
|                                      | First Quarter  |      | $ | 12.00 |  |  | $ | 4.68 | 
|                                      | Second Quarter |      | $ | 5.78  |  |  | $ | 4.00 | 
|                                      | Third Quarter  |      | $ | 7.70  |  |  | $ | 4.01 | 
|                                      | Fourth Quarter |      | $ | 7.38  |  |  | $ | 5.07 | 

The number of record holders of our common stock
as of May 15, 2004 was 406.

Dividends

To date, we have never declared or paid cash
dividends.

Securities Authorized for Issuance under IXYS
Equity Compensation Plans

The information in the following table is as of
March 31, 2004:

|                                                               |  |                         |           |                      |  |                          |      |  |  |  |           | 
|-------------------------------------------------------------- |  | ----------------------- | --------- | -------------------- |  | ------------------------ | ---- |  |  |  | --------- | 
|                                                               |  | (a)                     |           | (b)                  |  | (c)                     
|                                                               |  |                         |           |                      |  |                         
|                                                               |  |                         |           |                      |  | Number of Securities    
|                                                               |  | Number of Securities    |           |                      |  | Remaining Available for 
|                                                               |  | to be Issued upon       |           | Weighted-Average     |  | Issuance under Equity   
|                                                               |  | Exercise of Outstanding |           | Exercise Price of    |  | Compensation Plans      
|                                                               |  | Options, Warrants and   |           | Outstanding Options, |  | (excluding Securities   
|Plan Category                                                  |  | Rights                  |           | Warrants and Rights  |  | Reflected in Column (a))
|                                                               |  |                         |           |                      |  |                         
|Equity compensation plans approved by security
    holders     |  |                         | 5,248,449 | (1)                  |  | $                        | 6.28 |  |  |  | 3,169,118 | 
|Equity compensation plans not approved by
    security holders |  |                         |          |                      |  |                          |     |  |  |  |          | 
|                                                               |  |                         |           |                      |  |                          |      |  |  |  |           | 
|Total                                                          |  |                         | 5,248,449 |                      |  | $                        | 6.28 |  |  |  | 3,169,118 | 
|                                                               |  |                         |           |                      |  |                          |      |  |  |  |           | 



---



|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes options to
    purchase 439,275 shares of our common stock with a
    weighted average exercise price of $12.08 that were assumed in
    business combinations. It is our understanding that the
    stockholders of the acquired companies approved the plans from
    which these options were granted.

On September 5, 2003, we consummated the
acquisition of Microwave Technology, Inc. by merger. In exchange
for the capital stock of Microwave Technology, Inc. we issued
approximately 767,000 shares of our common stock and
assumed options exercisable for approximately 26,000 shares
of our common stock. The merger was exempt from registration
pursuant to Section 3(a)(10) of the Securities Act of 1933.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
information should be read in conjunction with our Consolidated
Financial Statements and related notes and Managements
Discussion and Analysis of Financial

15



---



##### Table of Contents



Condition and Results of Operations included
elsewhere in this Annual Report on Form 10-K. The
consolidated statements of operations data for the years ended
March 31, 2004, 2003 and 2002 and the balance sheet data as
of March 31, 2004 and 2003 are derived from our
consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. The statements of operations
data for the years ended March 31, 2001 and 2000 and the
balance sheet data as of March 31, 2002, 2001 and 2000 are
derived from our consolidated financial statements that are not
included in this Annual Report on Form 10-K. Historical
results are not necessarily indicative of results to be expected
in any future period.


|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |        |        | 
|----------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------- | ------- | ------- | ------ | ------- | ------- | ------- | ------- | ---- | ------ | ------ | ----- | - | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                |                                                                     |                                         
|                                                |                                                                     | Year Ended March 31,                    
|                                                |                                                                     |                                         
|                                                |                                                                     | 2004                                     |         | 2003(1) |        | 2002(2) |         | 2001    |         | 2000
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |     
|                                                |                                                                     |                                         
|                                                |                                                                     | (In thousands, except per share amounts)
|Statement of Operations Data:                   |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|Net revenues                                    |                                                                     | $                                        | 187,442 |         |        | $       | 136,111 |         |         | $    | 82,821 |        |       | $ | 111,389 |        |        | $ | 76,627 |       
|Cost of goods sold                              |                                                                     |                                          | 143,948 |         |        |         | 107,371 |         |         |      | 56,918 |        |       |   | 69,967  |        |        |   | 49,290 |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Gross profit                                                        |                                          |         | 43,494  |        |         |         | 28,740  |         |      |        | 25,903 |       |   |         | 41,422 |        |   |        | 27,337 |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|Operating expenses:                             |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Research, development and engineering                               |                                          |         | 15,811  |        |         |         | 12,846  |         |      |        | 5,728  |       |   |         | 6,081  |        |   |        | 4,668  |       
|                                                | Selling, general and administrative                                 |                                          |         | 29,707  |        |         |         | 27,721  |         |      |        | 12,884 |       |   |         | 13,959 |        |   |        | 11,450 |       
|                                                | Restructuring charge                                                |                                          |         |        |        |         |         | 750     |         |      |        |       |       |   |         |       |        |   |        |       |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|Total operating expenses                        |                                                                     |                                          | 45,518  |         |        |         | 41,317  |         |         |      | 18,612 |        |       |   | 20,040  |        |        |   | 16,118 |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                |                                                                     | Operating income (loss)                  |         |         | (2,024 | )       |         |         | (12,577 | )    |        |        | 7,291 |   |         |        | 21,382 |   |        |        | 11,219 | 
|Other income (expense):                         |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Interest income (expense), net                                      |                                          |         | 310     |        |         |         | 720     |         |      |        | 1,318  |       |   |         | 1,030  |        |   |        | (417   | )     
|                                                | Gain (loss) on foreign currency transactions                        |                                          |         | (821    | )      |         |         | (1,249  | )       |      |        | (46    | )     |   |         | 119    |        |   |        | 184    |       
|                                                | Litigation and associated expense                                   |                                          |         | (2,843  | )      |         |         | (4,716  | )       |      |        | (4,635 | )     |   |         | (738   | )      |   |        |       |       
|                                                | Other income (expense), net                                         |                                          |         | (695    | )      |         |         | (39     | )       |      |        | (806   | )     |   |         | 115    |        |   |        | (199   | )     
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|Income (loss) before provision for income taxes |                                                                     |                                          | (6,073  | )       |        |         | (17,861 | )       |         |      | 3,122  |        |       |   | 21,908  |        |        |   | 10,787 |       
|Benefit from (provision for) income taxes       |                                                                     |                                          | 1,641   |         |        |         | 5,716   |         |         |      | (1,184 | )      |       |   | (8,321  | )      |        |   | (3,888 | )     
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Net income (loss)                                                   |                                          | $       | (4,432  | )      |         | $       | (12,145 | )       |      | $      | 1,938  |       |   | $       | 13,587 |        |   | $      | 6,899  |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Net income (loss) per share  basic                                 |                                          | $       | (0.14   | )      |         | $       | (0.39   | )       |      | $      | 0.07   |       |   | $       | 0.54   |        |   | $      | 0.29   |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Weighted average shares used in per share
    calculation basic     |                                          |         | 32,434  |        |         |         | 30,889  |         |      |        | 26,745 |       |   |         | 25,239 |        |   |        | 23,970 |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Net income (loss) per share  diluted                               |                                          | $       | (0.14   | )      |         | $       | (0.39   | )       |      | $      | 0.07   |       |   | $       | 0.49   |        |   | $      | 0.28   |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       
|                                                | Weighted average shares used in per share
    calculation  diluted |                                          |         | 32,434  |        |         |         | 30,889  |         |      |        | 29,004 |       |   |         | 27,774 |        |   |        | 24,826 |       
|                                                |                                                                     |                                          |         |         |        |         |         |         |         |      |        |        |       |   |         |        |        |   |        |       



---



|    |                                                                                      
|--- | -------------------------------------------------------------------------------------
|(1) | During fiscal 2003, we completed our acquisition
    of Clare, Inc.                  
|   
|(2) | During fiscal 2002, we completed our acquisition
    of Westcode Semiconductors, Ltd.

16



---



##### Table of Contents



|                         |                               |                      |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |        |  
|------------------------ | ----------------------------- | -------------------- | - | ------- | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|                         |                               |                     
|                         |                               | Year Ended March 31,
|                         |                               |                     
|                         |                               | 2004                 |   | 2003    |   | 2002 |   | 2001    |   | 2000
|                         |                               |                      |   |         |   |      |   |         |   |     
|                         |                               |                     
|                         |                               | (In thousands)      
|Selected Operating Data: |                               |                      |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |       
|                         | Gross profit margin           |                      |   | 23.2    | % |      |   | 21.1    | % |      |   | 31.3    | % |  |   | 37.2    | % |  |   | 35.7   | %
|                         | Depreciation and amortization |                      | $ | 11,186  |   |      | $ | 9,297   |   |      | $ | 5,835   |   |  | $ | 3,409   |   |  | $ | 3,352  |  
|Balance Sheet Data:      |                               |                      |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |       
|                         | Cash and cash equivalents     |                      |   | 42,058  |   |      |   | 40,094  |   |      |   | 32,111  |   |  |   | 44,795  |   |  |   | 9,455  |  
|                         | Working capital               |                      |   | 96,246  |   |      |   | 95,425  |   |      |   | 81,399  |   |  |   | 82,007  |   |  |   | 30,345 |  
|                         | Total assets                  |                      |   | 198,269 |   |      |   | 183,057 |   |      |   | 124,560 |   |  |   | 127,414 |   |  |   | 63,045 |  
|                         | Total long-term debt          |                      |   | 157     |   |      |   | 155     |   |      |   | 118     |   |  |   |        |   |  |   | 5,544  |  
|                         | Total stockholders equity    |                      |   | 145,531 |   |      |   | 138,809 |   |      |   | 95,219  |   |  |   | 92,724  |   |  |   | 30,897 |  






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

For an understanding of the significant
factors that influenced our performance during the past three
years, the following discussion should be read in conjunction
with the consolidated financial statements and the other
information appearing elsewhere in this report.

Overview

We are a leading company in the design,
development, manufacture and marketing of high power, high
performance power semiconductors. Our power semiconductors
improve system efficiency and reliability by converting
electricity at relatively high voltage and current levels into
the finely regulated power required by electronic products. We
focus on the market for power semiconductors that are capable of
processing greater than 500 watts of power.

We design, manufacture and sell integrated
circuits for a variety of applications. Our analog and mixed
signal ICs are at the interface of telecommunication components
in the network and at the gateway to the network. Our mixed
signal ASICs address the medical imaging equipment and display
markets. Our power management and control ICs are used in
conjunction with our power semiconductors.

Our RF power products enable circuitry that
amplifies or receives radio frequencies in wireless and other
microwave communication applications, medical imaging
applications and defense and space applications.

In fiscal year 2004, United States sales
represented approximately 33.1% and international sales
represented approximately 66.9%, of our net revenues. Of our
international sales, approximately 56.8% were derived from sales
in Europe and the Middle East, approximately 38.4% were derived
from sales in Asia and approximately 4.8% were derived from
sales in the Americas other than the United States. No single
end customer accounted for more than 10% of our net revenues in
fiscal year 2004.

In September 2003, we acquired Microwave
Technology, Inc., a manufacturer of gallium arsenide RF power
semiconductors. We issued approximately 767,000 shares and
assumed options exercisable for approximately
26,000 shares. The products of Microwave Technology
substantially increase our offerings and presence in RF power
semiconductors.

Critical Accounting Policies and Significant
Management Estimates

The discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent
assets and liabilities. On an ongoing basis, management
evaluates its estimates. Management bases its estimates on
historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making

17



---



##### Table of Contents



judgments about the carrying values of assets and
liabilities that are not readily available from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.


We believe the following critical accounting
policies affect our more significant judgments and estimates
used in preparing our consolidated financial statements.

Allowance for sales
returns.We maintain allowances for
sales returns for estimated product returns by our customers. We
estimate our allowance for sales returns based on our historical
return experience, current economic trends, changes in customer
demand, known returns we have not received and other
assumptions. If we make different judgments or utilize different
estimates, the amount and timing of our revenue could be
materially different. Given that our revenues consist of a high
volume of relatively similar products, our actual returns and
allowances do not fluctuate significantly from period to period,
and our returns provisions have historically been reasonably
accurate.

Allowance for doubtful
accounts.We maintain allowance for
doubtful accounts for estimated losses from the inability of our
customers to make required payments. We evaluate our allowance
for doubtful accounts based on the aging of our accounts
receivable, the financial condition of our customers and their
payment history, our historical write-off experience and other
assumptions. If we were to make different judgments of the
financial condition of our customers or the financial condition
of our customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be
required.

Inventories.Inventories are recorded at the lower of standard cost, which
approximates actual cost on a first-in-first-out basis, or
market value. We typically plan our production and inventory
levels based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially. The value
of our inventory is dependent on our estimate of future demand
as it relates to historical sale, and, if our projected demand
is over estimated, we may be required to adjust our inventory
value. Our inventories include high technology parts and
components that are specialized in nature or subject to
technological obsolescence. We regularly review inventory
quantities on hand and record a provision for excess and
obsolete inventory based primarily on our historical sales. We
perform an analysis of inventory and compare the sales for the
preceding year(s). To the extent we have inventory in excess of
a pre-determined number of years, generally not more than
2 years, we recognize a write down for excess and obsolete
inventory. Our allowance for excess and obsolete inventories
includes an allowance for our on hand finished goods inventory
with a date of manufacture of greater than three years old.
Actual demand and market conditions may be different from those
projected by our management. This could have a material effect
on our operating results and financial position. If we make
different judgments or utilize different estimates, the amount
and timing of our inventory write downs may be materially
different.

Warranty.Our
products are generally subject to warranty and we provide for
the estimated future costs of repair, replacement or customer
accommodation upon shipment of the product in the accompanying
statements of operations. Our warranty accrual is estimated
based on historical claims compared to historical revenues and
assumes that we have to replace products subject to a claim. For
new products, we use our historical percentage for the
appropriate class of product. Should actual product failure
rates differ from our estimates, revisions to the estimated
warranty liability would be required.

Valuation of Property, Plant, Equipment, and
Intangible Assets.We regularly
evaluate the recoverability of our property, plant and equipment
and intangible assets in accordance with Statement of Financial
Accounting Standards No. 144, or SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. The standard retains the previously existing
accounting requirements related to the recognition and
measurement of the impairment of long-lived assets to be held
and used while expanding the measurement requirements of
long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously
existing reporting requirements for discontinued operations to
include a component of an entity that either has been disposed
of or is classified as held for sale. Actual useful lives and
cash flows could be different from those estimated by our
management. This could have a material effect on our operating
results and financial position.

18



---



##### Table of Contents



Revenue Recognition.We recognize revenue from product sales upon shipment provided
that we have received an executed purchase order, the price is
fixed, title has transferred, collection of resulting
receivables is reasonably assured, there are no customer
acceptance requirements, and there are no remaining significant
obligations. Reserves for sales returns and allowances are
recorded at the time of shipment. Our management must make
estimates of potential future product returns and allowance for
so called ship and debit transactions related to
current period product revenue. Our management analyzes
historical returns discounts and ship and debit transactions,
current economic trends and changes in customer demand and
acceptance of our products when evaluating the adequacy of the
sales returns and other allowances. Significant management
judgments and estimates must be made and used in connection with
establishing the sales returns and other allowances in any
accounting period. Material differences may result in the amount
and timing of our revenue for any period if management made
different judgments or utilized different estimates.

For our nonrecurring engineering, or NRE, related
to engineering work performed by our Micronix division to design
chip prototypes that will later be used to produce required
units, customers enter into arrangements with Micronix to
perform engineering work for a fixed fee. Micronix records
fixed-fee payments during the development phase from customers
in accordance with Emerging Issues Task Force, or EITF,
Abstracts 99-5, Accounting for Pre-production Costs
Related to Long-term Supply Arrangements. Micronix records
research and development costs as expenses are incurred.
Micronix then credits research and development expenses for
payments made by the customer. Up-front payments made by the
customer are initially recorded as customer deposits and are
charged to the statement of income as expenses for the project
as costs are incurred.

Legal Contingencies.We are subject to various legal proceedings and claims, the
outcomes of which are subject to significant uncertainty.
SFAS No. 5, Accounting for Contingencies,
requires that an estimated loss from a loss contingency should
be accrued by a charge to income if it is probable that an asset
has been impaired or a liability has been incurred and the
amount of the loss can be reasonably estimated. Disclosure of a
contingency is required if there is at least a reasonable
possibility that a loss has been incurred. We evaluate, among
other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the
amount of loss. Changes in these factors could materially impact
our financial position or our results of operations.

Goodwill.We
regularly evaluate whether events and circumstances have
occurred that indicate a possible impairment of goodwill. In
determining whether there is an impairment of goodwill, we
calculate the estimated fair value of our company based on the
closing sales price of our common stock and projected discounted
cash flows as of the date we perform the impairment tests. We
allocate a portion of the total fair value to different
reporting units based on discounted cash flows. We then compare
the resulting fair values of our reporting units to their
respective net book values, including goodwill. If the net book
value of our company exceeds its fair value, we measure the
amount of the impairment loss by comparing the implied fair
value of our goodwill with the carrying amount of that goodwill.
To the extent that the carrying amount of a reporting
units goodwill exceeds its implied fair value, we
recognized a goodwill impairment loss. We perform this
impairment test annually and whenever facts and circumstances
indicate that there is a possible impairment of goodwill. We
completed the required annual impairment test, which resulted in
no impairment for fiscal year 2004. We believe the methodology
we use in testing impairment of goodwill provides us with a
reasonable basis in determining whether an impairment charge
should be taken. To date, our goodwill has not been considered
to be impaired based on the results of this first step.

Income Taxes.As
part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each
of the jurisdictions in which we operate. A valuation allowance
is required to reduce our deferred tax assets to the amount that
is more likely than not to be realized. In determining the
amount of the valuation allowance, we consider estimated future
taxable income as well as feasible tax planning strategies in
each taxing jurisdiction in which we operate. If we determine
that we will not realize all or a portion of our remaining
deferred tax assets, we will increase our valuation allowance
with a charge to income tax expense. Conversely, if we determine
that we will ultimately be able to utilize all or a portion of
the deferred tax assets for which a valuation allowance has been
provided, the related portion of the valuation allowance will be
released to income as a credit to income tax expense.
Significant management

19



---



##### Table of Contents



judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and
any valuation allowance recorded against our net deferred tax
assets. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may
need to establish a valuation allowance which could materially
impact our financial position and results of operations. Our
ability to utilize our deferred tax assets and the continuing
need for a related valuation allowance are monitored on an
ongoing basis.


Defined Benefit
Plans.We maintain pension plans
covering certain of our employees. For financial reporting
purposes, net periodic pension costs are calculated based upon a
number of actuarial assumptions, including a discount rate for
plan obligations, assumed rate of return on pension plan assets
and assumed rate of compensation increase for plan employees.
All of these assumptions are based upon managements
judgment, considering all known trends and uncertainties. Actual
results that differ from these assumptions would impact the
future expense recognition and cash funding requirements of our
pension plans.

Results of Operations

The following table sets forth selected
consolidated statements of operations data for the fiscal years
indicated and the percentage change in such data from year to
year.

|                    |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |        |        | 
|------------------- | ------------------------------------- | ------------------------ | ------- | --------------- | ------ | ---- | ---- | --------------- | ---- | ---- | ------- | ------ | ------ |  | ---- | ----- | ----- | - | ------ | ------ | ------ | 
|                    |                                       |                         
|                    |                                       | Years Ended March 31,   
|                    |                                       |                         
|                    |                                       |                          |         | % Increase from |        |      |      | % Increase from |      |     
|                    |                                       | 2004                     |         | 2003 to 2004    |        | 2003 |      | 2002 to 2003    |      | 2002
|                    |                                       |                          |         |                 |        |      |      |                 |      |     
|Net revenues        |                                       | $                        | 187,442 |                 |        |      | 37.7 |                 |      | $    | 136,111 |        |        |  | 64.3 |       |       | $ | 82,821 |       
|Cost of goods sold  |                                       |                          | 143,948 |                 |        |      | 34.1 |                 |      |      | 107,371 |        |        |  | 88.6 |       |       |   | 56,918 |       
|                    |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |       
|                    | Gross profit                          |                          |         | 43,494          |        |      |      | 51.3            |      |      |         | 28,740 |        |  |      | 11.0  |       |   |        | 25,903 |       
|                    |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |       
|Operating expenses: |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |       
|                    | Research, development and engineering |                          |         | 15,811          |        |      |      | 23.1            |      |      |         | 12,846 |        |  |      | 124.3 |       |   |        | 5,728  |       
|                    | Selling, general and administrative   |                          |         | 29,707          |        |      |      | 7.2             |      |      |         | 27,721 |        |  |      | 115.2 |       |   |        | 12,884 |       
|                    | Restructuring charge                  |                          |         |                |        |      |      | NM              |      |      |         | 750    |        |  |      | NM    |       |   |        |       |       
|                    |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |       
|                    |                                       | Total operating expenses |         |                 | 45,518 |      |      |                 | 10.2 |      |         |        | 41,317 |  |      |       | 122.0 |   |        |        | 18,612 | 
|                    |                                       |                          |         |                 |        |      |      |                 |      |      |         |        |        |  |      |       |       |   |        |       



---

NM indicates not meaningful.

20



---



##### Table of Contents



The following table sets forth certain financial
data as a percentage of net revenues for the fiscal years
indicated. These historical operating results may not be
indicative of the results for any future period.

|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |      |      | 
|--------------------------------------- | ---------------------------------------------------------------- | ------------------------ | ----- | -------- | ---- | -------- | ----- | ----- | ---- |  | ----- | ---- | ---- | 
|                                        |                                                                  |                         
|                                        |                                                                  | Years Ending March 31,  
|                                        |                                                                  |                         
|                                        |                                                                  | 2004                     |       | 2003     |      | 2002    
|                                        |                                                                  | % of Net                 |       | % of Net |      | % of Net
|                                        |                                                                  | Revenues                 |       | Revenues |      | Revenues
|                                        |                                                                  |                          |       |          |      |         
|Net revenues                            |                                                                  |                          | 100.0 |          |      |          | 100.0 |       |      |  | 100.0 |     
|Cost of goods sold                      |                                                                  |                          | 76.8  |          |      |          | 78.9  |       |      |  | 68.7  |     
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|                                        | Gross profit                                                     |                          |       | 23.2     |      |          |       | 21.1  |      |  |       | 31.3 |     
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|Operating expenses:                     |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|                                        | Research, development and engineering                            |                          |       | 8.4      |      |          |       | 9.4   |      |  |       | 6.9  |     
|                                        | Selling, general and administrative                              |                          |       | 15.8     |      |          |       | 20.4  |      |  |       | 15.6 |     
|                                        | Restructuring charge                                             |                          |       |         |      |          |       | 0.6   |      |  |       |     |     
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|                                        |                                                                  | Total operating expenses |       |          | 24.2 |          |       |       | 30.4 |  |       |      | 22.5 | 
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|                                        | Operating income (loss)                                          |                          |       | (1.0     | )    |          |       | (9.3  | )    |  |       | 8.8  |     
|Other expense, net                      |                                                                  |                          | (2.2  | )        |      |          | (3.9  | )     |      |  | (5.0  | )   
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|                                        | Income (loss) before provision for (benefit from)
    income tax |                          |       | (3.2     | )    |          |       | (13.2 | )    |  |       | 3.8  |     
|Benefit from (provision for) income tax |                                                                  |                          | 0.9   |          |      |          | 4.2   |       |      |  | (1.4  | )   
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     
|Net income (loss)                       |                                                                  |                          | (2.3  | )        |      |          | (9.0  | )     |      |  | 2.4   |     
|                                        |                                                                  |                          |       |          |      |          |       |       |      |  |       |     



| |          
| | ---------
| | Revenues.

The increase in net revenues from fiscal 2003 to
fiscal 2004 is primarily related to increased sales to
traditional markets, the inclusion of revenues from acquired
entities and the addition of revenues from new markets,
including the plasma display panel market. The growth in
revenues includes an approximate 27.0% increase in units shipped
in fiscal 2004 in our traditional markets as compared to fiscal
2003, offset in part by an approximate 3.2% decrease in average
selling prices across our traditional markets. The increase in
net revenues from fiscal 2002 to fiscal 2003 is primarily due to
the inclusion of revenues from acquired entities and includes an
approximate 3.4% increase in units shipped in fiscal 2003 in our
traditional markets as compared to fiscal 2002 and an
approximate 4.1% increase in average selling prices across our
traditional markets.



| |              
| | -------------
| | Gross Profit.

Gross profit in terms of dollars increased from
fiscal 2003 to fiscal 2004 primarily as a result of the related
increase in revenues. As a percentage of revenues, margins
improved from fiscal 2003 to fiscal 2004 principally because of
the addition of higher margin RF power product lines, partially
offset by provisions for excess and obsolete inventory and
scrap. In addition, the 2004 gross margin was negatively
impacted by changes in the product mix, since much of our sales
in new markets had lower gross margins. Gross profit increased
from fiscal 2002 to fiscal 2003 primarily due to the addition of
revenue from acquired entities. The decrease in margin from
fiscal 2002 to fiscal 2003 was primarily due to a
$7.3 million write down of excess inventories and an
increase in unabsorbed manufacturing overhead from acquired
entities, offset by an approximate 4.1% increase in average
selling prices across our traditional markets.



| |                                           
| | ------------------------------------------
| | Research, Development and
    Engineering.

From fiscal 2003 to fiscal 2004, research,
development and engineering expenses increased as we funded
additional development projects to support our growth in
revenues, but declined as a percentage of revenues due to our
revenue growth. Although we expect an increase in research,
development and engineering expenses as we fund more development
projects, we do not expect a material increase in such expenses
when

21



---



##### Table of Contents



expressed as a percentage of revenues. In fiscal
2003 as compared to fiscal 2002, the dollar and percentage
increases were due to the addition of the Clare and Westcode
engineering teams.




| |                                         
| | ----------------------------------------
| | Selling, General and
    Administrative.

In fiscal 2004, our selling, general and
administrative expenses increased, principally due to an
increase in sales commissions corresponding to our growth in
revenues, expenses associated with the implementation of
mandated internal controls and writeoffs for vacated offices.
Selling, general and administrative expenses declined as a
percentage of revenues from fiscal 2003 to fiscal 2004
principally as a result of our continuing efforts to control
costs, combined with the impact of our growth in revenues. While
selling, general and administrative expenses may increase in
future periods, we do not expect a material increase in such
expenses when expressed as a percentage of revenue. The dollar
and percentage increases in fiscal 2003 as compared to fiscal
2002 were caused mainly by the acquisition of Clare and Westcode.



| |               
| | --------------
| | Restructuring.

In June 2002, we adopted a corporate
restructuring program to reduce expenses and preserve our cash.
The restructuring mainly related to a reduction in the workforce
designed to eliminate redundant positions at Clare. The
restructuring charge, which consists mainly of involuntary
employee separation costs of $750,000, was recorded in operating
expense during fiscal 2003. The separation cost was for 33
employees worldwide: 5 in sales and marketing, 7 in research and
development, 3 in general and administrative and 9 in operations
functions in the United States; and 8 in sales and marketing and
1 in general and administrative outside the United States.



| |                    
| | -------------------
| | Other Expense, Net.

Other expense, net, including loss on foreign
currency transactions and interest income (expense), in fiscal
2004 was $4.0 million, as compared to $5.3 million in
fiscal 2003 and $4.2 million in fiscal 2002. Other expense,
net decreased in fiscal 2004 due to a decrease in litigation
associated expenses and a decrease in foreign currency
transaction losses. Other expense, net increased in fiscal 2003
primarily due to the fluctuation in the Euro and UK pound
sterling against the US dollar.



| |                                               
| | ----------------------------------------------
| | Benefit from (Provision For) Income
    Taxes.

In fiscal 2004, the benefit from income taxes
reflected an effective tax rate of 27%, as compared to a benefit
from income taxes reflecting an effective tax rate of 32% in
fiscal 2003. The lower tax benefit rate for fiscal 2004, as
compared to 2003, was primarily related to an increase in the
state and foreign tax provisions. The lower tax benefit rate for
fiscal 2003, as compared to fiscal 2002, was primarily related
to income tax allowances related to losses incurred in certain
foreign jurisdictions.

Liquidity and Capital Resources

Cash and Cash
Equivalents.As of March 31,
2004, cash and cash equivalents were $42.1 million, as
compared to $40.1 million at March 31, 2003 and
$32.1 million at March 31, 2002. The increase in cash
and cash equivalents during fiscal 2004 was primarily due to
cash generated by operations. The increase in cash and cash
equivalents during fiscal 2003 was primarily due to cash
received in the acquisition of Clare. Over the past three fiscal
years, the cash generated by our operations has provided
sufficient liquidity for our needs.

Cash flows from operating
activities.Net cash provided by
operating activities in fiscal 2004 was $5.7 million, as
compared to $2.4 million in fiscal 2003 and
$2.2 million in fiscal 2002. The principal working capital
use of cash was to fund accounts receivable. Accounts receivable
increased from March 31, 2003 to March 31, 2004 by
54.3%, primarily due to higher revenues. No one customer
accounted for more than 10% of our revenues during fiscal 2004
or 10% of our receivables at March 31, 2004. Our inventory
at March 31, 2004 was largely unchanged from March 31,
2003, decreasing 2.3% from year to year. During fiscal 2003,
working capital was principally used to fund increases in
receivables and inventory, primarily due to the acquisition of

22



---



##### Table of Contents



Clare and increasing revenues. In fiscal 2002,
working capital was principally used to increase inventory, as
receivables declined with reduced revenues.


Cash flows from investing
activities.We used $3.2 million
in net cash for investing activities during fiscal 2004, as
compared to $2.0 million provided by investing activities
in fiscal 2003 and $15.8 million used for investing
activities in fiscal 2002. During fiscal 2004, we spent
$4.9 million in capital expenditures, as compared to
$5.5 million in 2003 and $7.5 million in 2002. We
expect capital expenditures during fiscal 2005 to continue at
about the same level as it has been for the past three fiscal
years. Our fiscal 2003 cash flows for investing activities
reflected the cash acquired with Clare, while our fiscal 2002
cash flows for investing activities reflected the cash used to
acquire Westcode.

Cash flows from financing
activities.For 2004, net cash used in
financing activities was $1.1 million, as compared to net
cash provided by financing activities of $2.7 million in
fiscal 2003 and $1.1 million in fiscal 2002. During the
three years, we used cash from financing activities principally
to pay capital lease obligations. In fiscal 2004, sources of
cash from financing activities included the exercise of stock
options and proceeds from purchases under the employee stock
purchase plan. In fiscal 2003, the principal sources of cash
from financing activities were proceeds from capital lease
obligations and loans; while in fiscal 2002, the principal
source was proceeds from capital lease obligations.

Lines of credit.Another potential source of liquidity is borrowings under
existing lines of credit. At March 31, 2004, we had
available credit aggregating $4.3 million.

Debt.At
March 31, 2004, our debt, consisting of capital lease
obligations, notes payable to bank and loan payable was
$7.3 million, representing 17.4% of our cash and cash
equivalents and 5.0% of our stockholders equity. Over the past
three fiscal years, satisfying our payment obligations for debt
has not materially affected our ability to fund our operating
needs.

As of March 31, 2004, we had
$42.1 million in cash and cash equivalents. We believe that
these balances, including interest to be earned thereon, and
borrowings available under our credit facilities will be
sufficient to fund our working and other capital requirements,
including potential investments in other companies and other
assets to support the strategic growth of our business, over the
next twelve months. In the ordinary course of business, we
evaluate opportunities to acquire businesses, products and
technologies and we expect to use our cash to fund these types
of activities in the future. In the event additional needs for
cash arise, we may raise additional funds from a combination of
sources including the potential issuance of debt or equity
securities. Additional financing might not be available on terms
favorable to us, or at all, particularly in light of the recent
decline in the capital markets. If adequate funds were not
available or were not available on acceptable terms, our ability
to take advantage of unanticipated opportunities or respond to
competitive pressures could be limited.

Disclosures about Contractual Obligations and
Commercial Commitments

Details of our contractual obligations and
commitments as of March 31, 2004 to make future payments
under contracts are set forth below:

|                            |  |                        |        |           |  |           |        |           |  |         |       |  |  |   |       |  |  |   |        | 
|--------------------------- |  | ---------------------- | ------ | --------- |  | --------- | ------ | --------- |  | ------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                            |  |                       
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |        | Less than |  |           |        | After    
|Contractual Obligations     |  | Total                  |        | 1 Year    |  | 1-3 Years |        | 3-5 Years |  | 5 Years
|                            |  |                        |        |           |  |           |        |           |  |        
|Short Term Debt Obligations |  | $                      | 800    |           |  | $         | 800    |           |  | $       |      |  |  | $ |      |  |  | $ |       | 
|Capital Lease Obligations   |  |                        | 6,351  |           |  |           | 3,447  |           |  |         | 2,818 |  |  |   | 86    |  |  |   |       | 
|Operating Lease Obligations |  |                        | 15,946 |           |  |           | 4,151  |           |  |         | 3,140 |  |  |   | 2,176 |  |  |   | 6,479  | 
|Pension Obligations         |  |                        | 12,059 |           |  |           | 706    |           |  |         | 1,791 |  |  |   | 1,844 |  |  |   | 7,718  | 
|Purchase Obligations        |  |                        | 5,832  |           |  |           | 5,832  |           |  |         |      |  |  |   |      |  |  |   |       | 
|Other Liabilities           |  |                        | 157    |           |  |           |       |           |  |         |      |  |  |   |      |  |  |   | 157    | 
|                            |  |                        |        |           |  |           |        |           |  |         |       |  |  |   |       |  |  |   |        | 
|Total                       |  | $                      | 41,145 |           |  | $         | 14,936 |           |  | $       | 7,749 |  |  | $ | 4,106 |  |  | $ | 14,354 | 
|                            |  |                        |        |           |  |           |        |           |  |         |       |  |  |   |       |  |  |   |        | 

23



---



##### Table of Contents



On September 22, 2000, IXYS Corporation
entered into a guaranty for $5.0 million in favor of
Commerzbank AG to obtain a line of credit granted by Commerzbank
AG to IXYS Semiconductor GmbH. At March 31, 2004, the line
of credit was $5.0 million.

New Accounting Standards

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting of derivative instruments and
hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 149 amends SFAS No. 133 for
decisions made: as part of the Derivatives Implementation Group
process that require amendment to SFAS No. 133; in
connection with other FASB projects dealing with financial
instruments; and in connection with the implementation issues
raised related to the application of the definition of a
derivative. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for
designated hedging relationships after June 30, 2003. We
adopted SFAS No. 149 during 2003. The adoption of
SFAS No. 149 will not have a material impact on our
financial position and results of operations.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity.
SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. We adopted SFAS No. 150 during
2003. The adoption of this standard did not have a material
impact on our financial statements.

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46, or
FIN 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the
first interim or annual period beginning after December 15,
2003. We believe that the adoption of this standard will not
have a material impact on our financial position, results of
operations or cash flows.

In December 2003, the Financial Accounting
Standards Board issued SFAS No. 132 (revised 2003),
Employers Disclosures about Pensions and Other
Postretirement Benefits  an amendment of FASB
Statements No. 87, 88, and 106, effective for fiscal
years beginning after December 15, 2002, subject to certain
exemptions. SFAS 132 (revised 2003) revises employers
disclosures about pension plans and other postretirement benefit
plans. It does not change the measurement or recognition of
those plans required by SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. This Statement retains the disclosure
requirements contained in SFAS No. 132,
Employers Disclosures about Pensions and Other
Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original SFAS 132
about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. The required information should be
provided separately for pension plans and for other
postretirement benefit plans. We adopted SFAS 132 (revised
2003) as of January 1, 2003. The effect of the adoption of
this Statement was not material.

24



---



##### Table of Contents



RISK FACTORS

In addition to the other information in this
Annual Report on Form 10-K, the following risk factors
should be considered carefully in evaluating us and our
business. Additional risks not presently known to us or that we
currently believe are not serious may also impair our business
and its financial condition.

Our operating results fluctuate significantly
because of a number of factors, many of which are beyond our
control.

Given the nature of the markets in which we
participate, we cannot reliably predict future revenues and
profitability, and unexpected changes may cause us to adjust our
operations. A large portion of our costs are fixed, due in part
to our significant sales, research and development and
manufacturing costs. Thus, small declines in revenues could
negatively affect our operating results in any given quarter.
Our operating results may fluctuate significantly. Some of the
factors that may affect our quarterly and annual results are:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | the reduction, rescheduling or cancellation of
    orders by customers;                                                           
|
| |  | fluctuations in timing and amount of customer
    requests for product shipments;                                                 
|
| |  | changes in the mix of products that our customers
    purchase;                                                                   
|
| |  | the cyclical nature of the semiconductor industry;                                                                                
|
| |  | competitive pressures on selling prices;                                                                                          
|
| |  | market acceptance of our products;                                                                                                
|
| |  | fluctuations in our manufacturing yields and
    significant yield losses;                                                        
|
| |  | difficulties in forecasting demand for our
    products and the planning and managing of inventory levels;                        
|
| |  | the availability of production capacity;                                                                                          
|
| |  | the amount and timing of investments in research
    and development;                                                             
|
| |  | changes in our product distribution channels and
    the timeliness of receipt of distributor resale information;                 
|
| |  | the impact of vacation schedules and holidays,
    largely during the second and third fiscal quarters of our
    fiscal year; and
|
| |  | the amount and timing of costs associated with
    product warranties and returns.                                                

As a result of these factors, many of which are
difficult to control or predict, as well as the other risk
factors discussed in this Annual Report on Form 10-K, we
may experience material adverse fluctuations in our future
operating results on a quarterly or annual basis.

We have experienced operating losses, and we
may experience additional declines in revenues and operating
losses in the future.

Our historical financial results have been, and
our future financial results are anticipated to be subject to
substantial fluctuations. We incurred net losses of
$4.4 million and $12.2 million in 2004 and 2003,
respectively. Reduced end-user demand, continued price declines,
excess inventory, underutilization of our manufacturing capacity
and other factors could adversely affect our business in the
near term and we may experience declines in revenue and
operating losses in the future. In order to return to
profitability, we must successfully implement our business plan,
including our cost reduction initiatives. However, we also
currently face an environment of uncertain demand and pricing
pressure in the markets our products address. We cannot assure
you that we will be able to return to profitability or that we
will be able to sustain our profitability, if achieved.

25



---



##### Table of Contents



The semiconductor industry is cyclical, and an
industry downturn could adversely affect our operating
results.

Business conditions in the semiconductor industry
have rapidly changed from periods of strong demand. The industry
is characterized by:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | periods of overcapacity and production shortages;                          
|
| |  | cyclical demand for semiconductors;                                        
|
| |  | changes in product mix in response to changes in
    demand;               
|
| |  | significant price erosion;                                                 
|
| |  | variations in manufacturing costs and yields;                              
|
| |  | rapid technological change and the introduction
    of new products; and   
|
| |  | significant expenditures for capital equipment
    and product development.

These factors could harm our business and cause
our operating results to suffer.

Our gross margin is dependent on a number of
factors, including our level of capacity utilization.

Semiconductor manufacturing requires significant
capital investment, leading to high fixed costs, including
depreciation expense. If we are unable to utilize our
manufacturing and testing facilities at a high level, the fixed
costs associated with these facilities will not be fully
absorbed, resulting in higher average unit costs and lower gross
margins. We have attempted to match production with anticipated
customer demand. As a percentage of revenues, gross margin was
23.2% for 2004, compared to 21.2% for 2003, and 31.3% in 2002.
Increased competition and other factors may lead to price
erosion, lower revenues and lower margins for us in the future.

We may not be successful in our
acquisitions.

We have in the past made, and may in the future
make, acquisitions. These acquisitions involve numerous risks,
including:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | diversion of managements attention during
    the acquisition process;                                                                                                      
|
| |  | disruption of our ongoing business;                                                                                                                                          
|
| |  | the potential strain on our financial and
    managerial controls and reporting systems and procedures;                                                                      
|
| |  | unanticipated expenses and potential delays
    related to integration of an acquired business;                                                                              
|
| |  | failure to successfully integrate the operations
    of an acquired company with our own;                                                                                    
|
| |  | the challenges in achieving strategic objectives,
    cost savings and other benefits from acquisitions;                                                                     
|
| |  | the risk that our markets do not evolve as
    anticipated and that the technologies acquired do not prove to
    be those needed to be successful in those markets;         
|
| |  | the risks of entering new markets in which we
    have limited experience;                                                                                                   
|
| |  | difficulties in expanding our information
    technology systems to accommodate the acquired businesses;                                                                     
|
| |  | failure to retain key personnel of the acquired
    business;                                                                                                                
|
| |  | the challenges inherent in managing an increased
    number of employees and facilities and the need to implement
    appropriate policies, benefits and compliance programs;
|
| |  | customer dissatisfaction or performance problems
    with an acquired company;                                                                                               
|
| |  | the cost associated with acquisitions and the
    integration of acquired operations; and                                                                                    
|
| |  | assumption of known or unknown liabilities or
    other unanticipated events or circumstances.                                                                               

26



---



##### Table of Contents



We cannot assure you that we will be able to
successfully acquire other businesses or product lines or
integrate them into our operations without substantial expense,
delay in implementation or other operational or financial
problems.

IXYS could be harmed by litigation involving
patents and other intellectual property rights.

As a general matter, the semiconductor industry
is characterized by substantial litigation regarding patent and
other intellectual property rights. We have been sued on
occasion for purported patent infringement and are currently
defending against a number of such claims. For example, we have
been sued by International Rectifier for purportedly infringing
some of its patents covering power MOSFETs. After trial, the
U.S. District Court awarded damages to International
Rectifier of $27.2 million plus attorney fees and issued a
permanent injunction against IXYS, effectively barring us from
selling or distributing the allegedly infringing products. The
United States Court of Appeals for the Federal Circuit vacated
these rulings and remanded the litigation to the
U.S. District Court for further action consistent with the
opinion of the Federal Circuit. The litigation is expected to
continue at the U.S. District Court and could result in
another damages award and injunction. We continue to contest
International Rectifiers claims vigorously but the outcome
of this litigation remains uncertain. See Item 3.
Legal Proceedings provided elsewhere in this Annual Report
on Form 10-K.

Additionally, in the future, we could be accused
of infringing the intellectual property rights of International
Rectifier or other third parties. We also have certain
indemnification obligations to customers with respect to the
infringement of third party intellectual property rights by our
products. No assurance can be provided that any future
infringement claims by third parties or claims for
indemnification by customers or end users of our products
resulting from infringement claims will not be asserted or that
assertions of infringement, if proven to be true, will not harm
our business.

In the event of any adverse ruling in any
intellectual property litigation, including the pending power
MOSFET litigation with International Rectifier, we could be
required to pay substantial damages, cease the manufacturing,
use and sale of infringing products, discontinue the use of
certain processes or obtain a license from the third party
claiming infringement with royalty payment obligations by us. An
adverse decision in the International Rectifier power MOSFET
litigation would, and in any other infringement action could,
materially and adversely affect our financial condition and
results of operations.

Any litigation relating to the intellectual
property rights of third parties, whether or not determined in
our favor or settled by us, is costly and may divert the efforts
and attention of our management and technical personnel.

We depend on external foundries to manufacture
many of our products.

Of our revenues in fiscal year 2004, 41.4% came
from wafers manufactured for us by external foundries. Our
dependence on external foundries may grow. We have arrangements
with eight wafer foundries, three of which produce the wafers
for power semiconductors that we purchase from external
foundries. Samsung Electronicss facility in Kiheung, South
Korea is our principal external foundry.

Our relationships with our external foundries do
not guarantee prices, delivery or lead times, or wafer or
product quantities sufficient to satisfy current or expected
demand. These foundries manufacture our products on a purchase
order basis. We provide these foundries with rolling forecasts
of our production requirements; however, the ability of each
foundry to provide wafers to us is limited by the foundrys
available capacity. At any given time, these foundries could
choose to prioritize capacity for their own use or other
customers or reduce or eliminate deliveries to us on short
notice. Accordingly, we cannot be certain that these foundries
will allocate sufficient capacity to satisfy our requirements.
In addition, we cannot be certain that we will continue to do
business with these or other foundries on terms as favorable as
our current terms. If we are not able to obtain additional
foundry capacity as required, our relationships with our
customers could be harmed and our revenues would likely be
reduced. Moreover, even if we are able to secure additional
foundry capacity, we may be required, either contractually or as
a practical business matter, to utilize all of that capacity or
incur penalties or an adverse effect on the business
relationship. The costs related to maintaining foundry capacity

27



---



##### Table of Contents



could be expensive and could harm our operating
results. Other risks associated with our reliance on external
foundries include:




| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | the lack of control over delivery schedules;                                              
|
| |  | the unavailability of, or delays in obtaining
    access to, key process technologies;    
|
| |  | limited control over quality assurance,
    manufacturing yields and production costs; and
|
| |  | potential misappropriation of our intellectual
    property.                              

Our requirements typically represent a small
portion of the total production of the external foundries that
manufacture our wafers and products. We cannot be certain these
external foundries will continue to devote resources to the
production of our wafers and products or continue to advance the
process design technologies on which the manufacturing of our
products is based. These circumstances could harm our ability to
deliver our products on time or increase our costs.

Our success depends on our ability to
manufacture our products efficiently.

We manufacture our products in facilities that
are owned and operated by us, as well as in external wafer
foundries and independent subcontract assembly facilities. The
fabrication of semiconductors is a highly complex and precise
process, and a substantial percentage of wafers could be
rejected or numerous die on each wafer could be nonfunctional as
a result of, among other factors:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | contaminants in the manufacturing environment;             
|
| |  | defects in the masks used to print circuits on a
    wafer;
|
| |  | manufacturing equipment failure; or                        
|
| |  | wafer breakage.                                            

For these and other reasons, we could experience
a decrease in manufacturing yields. Additionally, as we increase
our manufacturing output, we may also experience a decrease in
manufacturing yields. As a result, we may not be able to cost
effectively expand our production capacity in a timely manner.

We may not be able to protect our intellectual
property rights adequately.

Our ability to compete is affected by our ability
to protect our intellectual property rights. We rely on a
combination of patents, trademarks, copyrights, trade secrets,
confidentiality procedures and non-disclosure and licensing
arrangements to protect our intellectual property rights.
Despite these efforts, we cannot be certain that the steps we
take to protect our proprietary information will be adequate to
prevent misappropriation of our technology, or that our
competitors will not independently develop technology that is
substantially similar or superior to our technology. More
specifically, we cannot assure you that our pending patent
applications or any future applications will be approved, or
that any issued patents will provide us with competitive
advantages or will not be challenged by third parties. Nor can
we assure you that, if challenged, our patents will be found to
be valid or enforceable, or that the patents of others will not
have an adverse effect on our ability to do business.
Furthermore, others may independently develop similar products
or processes, duplicate our products or processes or design
their products around any patents that may be issued to us.

Our international operations expose us to
material risks.

During fiscal year 2004, our product sales by
region were approximately 36.3% in North America, approximately
38.0% in Europe and the Middle East and approximately 25.7% in
Asia. We expect revenues from foreign markets to continue to
represent a significant portion of total revenues. IXYS
maintains significant operations in Germany and the United
Kingdom and contracts with suppliers and manufacturers in

28



---



##### Table of Contents



South Korea, Japan and elsewhere in Europe and
Asia. Some of the risks inherent in doing business
internationally are:




| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | foreign currency fluctuations;                                                                                 
|
| |  | changes in the laws, regulations or policies of
    the countries in which we manufacture or sell our products;
|
| |  | trade restrictions;                                                                                            
|
| |  | longer payment cycles;                                                                                         
|
| |  | challenges in collecting accounts receivable;                                                                  
|
| |  | cultural and language differences;                                                                             
|
| |  | employment regulations;                                                                                        
|
| |  | transportation delays;                                                                                         
|
| |  | work stoppages; and                                                                                            
|
| |  | economic or political instability.                                                                             

Our sales of products manufactured in our
Lampertheim, Germany facility and our costs at that facility are
denominated in Euros, and sales of products manufactured in our
Chippenham, U.K. facility and our costs at that facility are
primarily denominated in British pounds and Euros. Fluctuations
in the value of the Euro and the British pound against the
U.S. dollar could have a significant impact on our balance
sheet and results of operations, including our net income. We
generally do not enter into foreign currency hedging
transactions to control or minimize these risks. Fluctuations in
currency exchange rates could cause our products to become more
expensive to customers in a particular country, leading to a
reduction in sales or profitability in that country. If we
expand our international operations or change our pricing
practices to denominate prices in other foreign currencies, we
could be exposed to even greater risks of currency fluctuations.

In addition, the laws of certain foreign
countries may not protect our products or intellectual property
rights to the same extent as do U.S. laws regarding the
manufacture and sale of our products in the U.S. Therefore,
the risk of piracy of our technology and products may be greater
when we manufacture or sell our products in these foreign
countries.

Our revenues are dependent upon our products
being designed into our customers products.

Many of our products are incorporated into
customers products or systems at the design stage. The
value of any design win largely depends upon the customers
decision to manufacture the designed product in production
quantities, the commercial success of the customers
product and the extent to which the design of the
customers electronic system also accommodates
incorporation of components manufactured by our competitors. In
addition, our customers could subsequently redesign their
products or systems so that they no longer require our products.
We may not achieve design wins or our design wins may not result
in future revenues.

Because our products typically have lengthy
sales cycles, we may experience substantial delays between
incurring expenses related to research and development and the
generation of revenues.

The time from initiation of design to volume
production of new semiconductors often takes 18 months or
longer. We first work with customers to achieve a design win,
which may take nine months or longer. Our customers then
complete the design, testing and evaluation process and begin to
ramp up production, a period which may last an additional nine
months or longer. As a result, a significant period of time may
elapse between our research and development efforts and our
realization of revenues, if any, from volume purchasing of our
products by our customers.

29



---



##### Table of Contents



Our backlog may not result in future
revenues.

Customer orders typically can be cancelled or
rescheduled without penalty to the customer. As a result, our
backlog at any particular date is not necessarily indicative of
actual revenues for any succeeding period. A reduction of
backlog during any particular period, or the failure of our
backlog to result in future revenues, could harm our results of
operations.

The markets in which we participate are
intensely competitive.

Certain of our target markets are intensely
competitive. Our ability to compete successfully in our target
markets depends on the following factors:



| |   |                                              
| | - | ---------------------------------------------
| |  | product quality, reliability and performance;
|
| |  | product features;                            
|
| |  | price;                                       
|
| |  | timely delivery of products;                 
|
| |  | breadth of product line;                     
|
| |  | design and introduction of new products; and 
|
| |  | technical support and service.               

In addition, our competitors or customers may
offer new products based on new technologies, industry standards
or end user or customer requirements, including products that
have the potential to replace, or provide lower cost or higher
performance alternatives to, our products. The introduction of
new products by our competitors or customers could render our
existing and future products obsolete or unmarketable.

Our primary power semiconductor competitors
include Advanced Power Technology, Fairchild Semiconductor,
Fuji, International Rectifier, Infineon, On Semiconductor,
Powerex, Semikron International, STMicroelectronics, Siemens and
Toshiba. Our IC products compete principally with those of
Agere, Legacy, NEC and Silicon Labs. Many of our competitors
have greater financial, technical, marketing and management
resources than we have. Some of these competitors may be able to
sell their products at prices below which it would be profitable
for us to sell our products or benefit from established customer
relationships that provide them with a competitive advantage.

We rely on our distributors and sales
representatives to sell many of our products.

A substantial majority of our products are sold
to distributors and through sales representatives. Our
distributors and sales representatives could reduce or
discontinue sales of our products. They may not devote the
resources necessary to sell our products in the volumes and
within the time frames that we expect. In addition, we depend
upon the continued viability and financial resources of these
distributors and sales representatives, some of which are small
organizations with limited working capital. These distributors
and sales representatives, in turn, depend substantially on
general economic conditions and conditions within the
semiconductor industry. We believe that our success will
continue to depend upon these distributors and sales
representatives.

At March 31, 2004, no distributor accounted
for greater than 10% of our outstanding receivables. If this or
any other distributor or sales representative experiences
financial difficulties, or otherwise becomes unable or unwilling
to promote and sell our products, our business could be harmed.

Our future success depends on the continued
service of management and key engineering personnel and our
ability to identify, hire and retain additional
personnel.

Our success depends upon our ability to attract
and retain highly-skilled technical, managerial, marketing and
finance personnel, and to a significant extent, upon the efforts
and abilities of Nathan Zommer, Ph.D., our president and
chief executive officer, and other members of senior management.
The loss of the services of one

30



---



##### Table of Contents



or more of our senior management or other key
employees could adversely affect our business. We do not
maintain key person life insurance on any of our officers,
employees or consultants. There is intense competition for
qualified employees in the semiconductor industry, particularly
for highly skilled design, applications and test engineers.
Competition is especially intense in the Silicon Valley, where
our principal U.S. design facilities for power semiconductors
and RF power semiconductors are located. We may not be able to
continue to attract and retain engineers or other qualified
personnel necessary for the development of our business or to
replace engineers or other qualified individuals who could leave
us at any time in the future. Our anticipated growth is expected
to place increased demands on our resources, and will likely
require the addition of new management and engineering staff as
well as the development of additional expertise by existing
management employees. If we lose the services of or fail to
recruit key engineers or other technical and management
personnel, our business could be harmed.


Our disclosure controls and procedures need
improvement and are not adequately effective.

Our Chief Executive Officer and Chief Financial
Officer concluded that, as of March 31, 2004, our
disclosure controls and procedures needed improvement and were
not adequately effective. Our auditors, PricewaterhouseCoopers
LLP, advised us of a material weakness in our internal control
over financial reporting. See Item 9A. Controls and
Procedures elsewhere in this Form 10-K. The material
weakness in our internal control over financial reporting could
materially adversely affect us.

Periods of rapid growth and expansion could
continue to place a significant strain on our resources,
including our employee base.

To manage our possible future growth effectively,
we will be required to continue to improve our operational,
financial and management systems. In doing so, we will
periodically implement new software and other systems that will
affect our internal operations regionally or globally. The
conversion process from one system to another is complex and
requires, among other things, that data from the existing system
be made compatible with the upgraded system. During any
transition, we could experience errors, delays and other
inefficiencies, which could adversely affect our business.

Future growth will also require us to
successfully hire, train, motivate and manage our employees. In
addition, our continued growth and the evolution of our business
plan will require significant additional management, technical
and administrative resources. We may not be able to effectively
manage the growth and evolution of our current business.

Our stock price is volatile.

The market price of our common stock has
fluctuated significantly to date. See
Item 5  Market for Registrants
Common Equity and Related Stockholders Matters provided
elsewhere in this Annual Report on Form 10-K. The future
market price of our common stock may also fluctuate
significantly due to:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | variations in our actual or expected quarterly
    operating results;                                                                                                                            
|
| |  | announcements or introductions of new products;                                                                                                                                                  
|
| |  | technological innovations by our competitors or
    development setbacks by us;                                                                                                                  
|
| |  | conditions in the communications and
    semiconductor markets;                                                                                                                                  
|
| |  | the commencement or adverse outcome of litigation;                                                                                                                                               
|
| |  | changes in analysts estimates of our
    performance or changes in analysts forecasts regarding our
    industry, competitors or customers;                                                    
|
| |  | announcements of merger or acquisition
    transactions or a failure to achieve the expected benefits of an
    acquisition as rapidly or to the extent anticipated by financial
    analysts; or
|
| |  | general economic and market conditions.                                                                                                                                                          

31



---



##### Table of Contents



In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have
affected the market prices of many high technology companies,
including semiconductor companies. These fluctuations have often
been unrelated or disproportionate to the operating performance
of companies in our industry, and could harm the market price of
our common stock.

Our dependence on independent subcontractors
to assemble and test our products subject us to a number of
risks, including an inadequate supply of products and higher
materials costs.

We depend on independent subcontractors for the
assembly and testing of our products. During fiscal year 2004,
the great majority of our products were assembled by independent
subcontractors located outside of the United States. Our
reliance on these subcontractors involves the following
significant risks:



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | reduced control over delivery schedules and
    quality;                             
|
| |  | the potential lack of adequate capacity during
    periods of excess demand;         
|
| |  | difficulties selecting and integrating new
    subcontractors;                       
|
| |  | limited warranties by subcontractors or other
    vendors on products supplied to us;
|
| |  | potential increases in prices due to capacity
    shortages and other factors;       
|
| |  | potential misappropriation of our intellectual
    property; and                     
|
| |  | economic or political instability in foreign
    countries.                          

These risks may lead to delayed product delivery
or increased costs, which would harm our profitability and
customer relationships.

In addition, we use a limited number of
subcontractors to assemble a significant portion of our
products. If one or more of these subcontractors experiences
financial, operational, production or quality assurance
difficulties, we could experience a reduction or interruption in
supply. Although we believe alternative subcontractors are
available, our operating results could temporarily suffer until
we engage one or more of those alternative subcontractors.

Our markets are subject to technological
change and our success depends on our ability to develop and
introduce new products.

The markets for our products are characterized by:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | changing technologies;                                  
|
| |  | changing customer needs;                                
|
| |  | frequent new product introductions and
    enhancements;
|
| |  | increased integration with other
    functions; and     
|
| |  | product obsolescence.                                   

To develop new products for our target markets,
we must develop, gain access to and use leading technologies in
a cost effective and timely manner and continue to expand our
technical and design expertise. Failure to do so could cause us
to lose our competitive position and seriously impact our future
revenues.

Our operating expenses are relatively fixed,
and we may order materials in advance of anticipated customer
demand. Therefore, we have limited ability to reduce expenses
quickly in response to any revenue shortfalls.

Our operating expenses are relatively fixed, and,
therefore, we have limited ability to reduce expenses quickly in
response to any revenue shortfalls. Consequently, our operating
results will be harmed if our revenues do not meet our revenue
projections.

32



---



##### Table of Contents



We also typically plan our production and
inventory levels based on our own expectations for customer
demand. Actual customer demand, however, can be highly
unpredictable and can fluctuate substantially. From time to
time, in response to anticipated long lead times to obtain
inventory and materials from our external suppliers and
foundries, we may order materials or production in advance of
anticipated customer demand. This advance ordering may result in
excess inventory levels or unanticipated inventory write downs
if expected orders fail to materialize.

We may not be able to acquire additional
production capacity to meet the present and future demand for
our products.

The semiconductor industry has been characterized
by periodic limitations on production capacity. Although we may
be able to obtain the capacity necessary to meet present demand,
if we are unable to increase our production capacity to meet
possible future demand, some of our customers may seek other
sources of supply or our future growth may be limited.

We depend on a limited number of suppliers for
our wafers.

We purchase silicon wafers from three vendors
with whom we do not have long term supply agreements. Any of
these suppliers could eliminate or terminate our supply of
wafers at any time. Our reliance on a limited number of
suppliers involves several risks, including potential inability
to obtain an adequate supply of silicon wafers and reduced
control over the price, timely delivery, reliability and quality
of the silicon wafers. We cannot assure that problems will not
occur in the future with suppliers.

Our ability to access capital markets could be
limited.

From time to time we access the capital markets
to obtain long-term financing. Although we believe that we can
continue to access the capital markets on acceptable terms and
conditions, our flexibility with regard to long-term financing
activity could be limited by our existing capital structure, our
credit ratings, and the health of the semiconductor industry. In
addition, many of the factors that affect our ability to access
the capital markets, such as the liquidity of the overall
capital markets and the current state of the economy, are
outside of our control. There can be no assurances that we will
continue to have access to the capital markets on favorable
terms.

Regulations may adversely affect our ability
to sell our products.

Power semiconductors with operating voltages
above 40 volts are subject to regulations intended to address
the safety, reliability and quality of the products. These
regulations relate to processes, design, materials and assembly.
For example, in the United States some high voltage products are
required to pass Underwriters Laboratory recognition for voltage
isolation and fire hazard tests. Sales of power semiconductors
outside of the United States are subject to international
regulatory requirements that vary from country to country. The
process of obtaining and maintaining required regulatory
clearances can be lengthy, expensive and uncertain. The time
required to obtain approval for sale internationally may be
longer than that required for U.S. approval, and the
requirements may differ.

In addition, approximately 14.9% of our revenues
in fiscal year 2004 were derived from the sale of products
included in medical devices that are subject to extensive
regulation by numerous governmental authorities in the United
States and internationally, including the U.S. Food and
Drug Administration, or FDA. The FDA and certain foreign
regulatory authorities impose numerous requirements for medical
device manufacturers to meet, including adherence to Good
Manufacturing Practices, or GMP, regulations and similar
regulations in other countries, which include testing, control
and documentation requirements. Ongoing compliance with GMP and
other applicable regulatory requirements is monitored through
periodic inspections by federal and state agencies, including
the FDA, and by comparable agencies in other countries. Our
failure to comply with applicable regulatory requirements could
prevent our products from being included in approved medical
devices.

33



---



##### Table of Contents



Our business could also be harmed by delays in
receiving or the failure to receive required approvals or
clearances, the loss of previously obtained approvals or
clearances or the failure to comply with existing or future
regulatory requirements.

Business interruptions may damage our
facilities or those of our suppliers.

Our operations are vulnerable to interruption by
fire, earthquake and other natural disasters, as well as power
loss, telecommunications failure and other events beyond our
control. We do not have a detailed disaster recovery plan and do
not have backup generators. Our corporate headquarters in
California is located near major earthquake fault lines and has
experienced earthquakes in the past. California also has been
subject to shortages of electrical power and is subject to power
outages. If power outages occur, our ability to conduct our
operations could be seriously impaired, which could harm our
business, financial condition and results of operations. We
cannot be sure that the insurance we maintain against general
business interruptions will be adequate to cover all our losses.

In addition, some of our suppliers are located in
California and are subject to the same earthquake and power
outage risks. A fire, major earthquake or other natural disaster
near one or more of our facilities or those of our major
suppliers could disrupt our operations and those of our
suppliers, which could in turn limit the supply of our products
and harm our business.

We may be affected by environmental laws and
regulations.

We are subject to a variety of laws, rules and
regulations in the United States, England and Germany related to
the use, storage, handling, discharge and disposal of certain
chemicals and gases used in our manufacturing process. Any of
those regulations could require us to acquire expensive
equipment or to incur substantial other expenses to comply with
them. If we incur substantial additional expenses, product costs
could significantly increase. Our failure to comply with present
or future environmental laws, rules and regulations could result
in fines, suspension of production or cessation of operations.

We face the risk of financial exposure to
product liability claims alleging that the use of products that
incorporate our semiconductors resulted in adverse
effects.

Approximately 14.9% of our net revenues in fiscal
year 2004 were derived from sales of products used in medical
devices such as defibrillators. Product liability risks may
exist even for those medical devices that have received
regulatory approval for commercial sale. We do not currently
carry product liability insurance, and any defects in our
products used in these devices, or in any other product, could
result in significant recall or product liability costs to us.

Nathan Zommer, Ph.D. owns a significant
interest in our common stock.

Nathan Zommer, Ph.D., our president and
chief executive officer, beneficially owns, as of May 15,
2004, approximately 20.3% of the outstanding shares of our
common stock. As a result, Dr. Zommer could exercise
significant control over all matters requiring stockholder
approval, including the election of the board of directors. His
holdings could result in a delay of, or serve as a deterrent to,
possible changes in control of IXYS, which may reduce the market
price of our common stock. See Item 12 
Security Ownership of Certain Beneficial Owners and
Management provided elsewhere in this Annual Report on
Form 10-K.

The anti-takeover provisions of our amended
and restated certificate of incorporation and of the Delaware
General Corporation Law may delay, defer or prevent a change of
control.

Our board of directors has the authority to issue
up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences and privileges and restrictions,
including voting rights, of those shares without any further
vote or action by our stockholders. The rights of the holders of
common stock will be subject to, and may be harmed by, the
rights of the holders of any shares of preferred stock that may
be issued in the future. The issuance of preferred stock may
delay, defer or prevent a change in control because the terms of
any issued preferred stock could potentially prohibit our
consummation of any merger, reorganization,

34



---



##### Table of Contents



sale of substantially all of our assets,
liquidation or other extraordinary corporate transaction,
without the approval of the holders of the outstanding shares of
preferred stock. In addition, the issuance of preferred stock
could have a dilutive effect on our stockholders.


Our stockholders must give substantial advance
notice prior to the relevant meeting to nominate a candidate for
director or present a proposal to our stockholders at a meeting.
These notice requirements could inhibit a takeover by delaying
stockholder action. The Delaware anti-takeover law restricts
business combinations with some stockholders once the
stockholder acquires 15% or more of our common stock. The
Delaware statute makes it more difficult for us to be acquired
without the consent of our board of directors and management.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to financial market risks,
including changes in interest rates and foreign currency
exchange rates. To mitigate these risks, we have on occasion
utilized derivative financial instruments. We do not use
derivative financial instruments for speculative or trading
purposes. We place our investment portfolio primarily in debt
instruments of the United States government and high quality
corporate issuers. Investments in both fixed and floating rate
securities have some degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted
by increases in interest rates. Floating rate securities may
product less income than anticipated if interest rates fall. As
a result, changes in interest rates may cause us to incur losses
in principal if we are forced to sell securities that have
declined in market value or may result in lower than anticipated
investment income. Our investment portfolio is categorized as
available-for-sale and accordingly is presented at fair value on
the balance sheet.

We manage our exposure to interest rate, market
and credit risk in the investment portfolio with investment
policies and procedures that limit such things as term, credit
rating and the amount of credit exposure to any one issue,
issuer and type of instrument. We have not used derivative
financial instruments in our investment portfolio.

We are also exposed to short-term fluctuations in
interest rates as our lines of credit have variable interest
rates. An increase in interest rates would have an adverse
impact on our interest expense. However, our cash and marketable
securities greatly exceed the balances that we borrow through
lines of credit and, if necessary to limit the burden of
interest expense, we could reduce our borrowing.

During the year ended March 31, 2004, the
effects of changes in interest rates on the fair market value of
our marketable investment securities and our earnings were
insignificant. The impact on the fair market value of our
securities and our earnings from a hypothetical 100 basis
point adverse change in interest rates as of the end each of
fiscal 2004 and 2003 would not have been significant.

International revenues from our foreign
subsidiaries were approximately 46.2% of total revenues in
fiscal year 2004. These revenues come from our German and UK
subsidiaries and are primarily denominated in Euros and British
pounds, respectively. Our foreign subsidiaries also incur most
of their expenses in the local currency. Certain of our foreign
subsidiaries use their respective local currencies as their
functional currency.

Although we have entered into a limited number of
foreign exchange forward contracts to help manage foreign
currency exchange risk associated with certain of our
operations, we do not generally hedge foreign currency exchange
rates. The foreign exchange forward contracts we have entered
into generally have original maturities ranging from one to
three months. We do not enter into foreign exchange forward
contracts for trading purposes. We do not expect gains or losses
on these contracts to have a material impact on our financial
results.

It is possible that our future financial results
could be directly affected by changes in foreign currency
exchange rates, and the prices of our products would become more
expensive in a particular foreign market if the value of the
U.S. dollar, the Euro or the British pound rises in
comparison to the local currency, which may make it more
difficult to sell our products in that market. We will continue
to face foreign currency exchange risk in the future. Therefore,
our financial results could be directly affected by weak
economic conditions in foreign markets. In addition, a
strengthening of the U.S. dollar, the Euro or the British
pound

35



---



##### Table of Contents



could make our products less competitive in
foreign markets. A hypothetical 10% adverse change in the value
of the Euro against the U.S. dollar and the British pound
against the U.S. dollar would have had the effect of
reducing our annual net income as of the end of each of fiscal
2004 and 2003 by an amount less than $1.0 million.


Because of the operation of the foreign units in
their own functional currencies, this sensitivity analysis was
undertaken by examining the net income or loss of the foreign
units incorporated into our statement of operations and testing
the impact of the hypothetical change in exchange rates on such
income or loss. The hypothetically derived net income or loss of
the foreign units was then calculated with our statement of
operations data to derive the hypothetical impact on our net
income.

36



---



##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Financial Statements

Our financial statements required by this Item
are set forth at the pages indicated in the accompanying index.

IXYS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                 |  |      |    | 
|---------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                 |  | Page
|                                                                                                                 |  |     
|Report of Independent
    Registered Public Accounting Firm                                                      |  |      | 38 | 
|Consolidated Balance Sheets
    as of March 31, 2004 and 2003                                                    |  |      | 39 | 
|Consolidated Statements of
    Operations for the years ended March 31, 2004, 2003 and
    2002                  |  |      | 40 | 
|Consolidated Statements of
    Comprehensive Income (Loss) for the years ended March 31,
    2004, 2003 and 2002 |  |      | 41 | 
|Consolidated Statements of
    Stockholders Equity for the years ended March 31,
    2004, 2003 and 2002        |  |      | 42 | 
|Consolidated Statements of
    Cash Flows for the years ended March 31, 2004, 2003 and
    2002                  |  |      | 43 | 
|Notes to Consolidated
    Financial Statements                                                                   |  |      | 44 | 

37



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Stockholders and Board of Directors of
IXYS Corporation

In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the financial position of
IXYS Corporation and its subsidiaries at March 31,
2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended
March 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Jose, California


May 18, 2004


38



---



##### Table of Contents



IXYS CORPORATION



CONSOLIDATED BALANCE SHEETS


|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |         |     |         | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --- | ------- | ------ | ------- | --- | ------- | 
|                                                          |                                                                                                      |                                                                                                                                                     
|                                                          |                                                                                                      | March 31,                                                                                                                                           
|                                                          |                                                                                                      |                                                                                                                                                     
|                                                          |                                                                                                      | 2004                                                                                                                                                 |                                            | 2003   
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |        
|                                                          |                                                                                                      |                                                                                                                                                     
|                                                          |                                                                                                      | (In thousands, except                                                                                                                               
|                                                          |                                                                                                      | share data)                                                                                                                                         
|ASSETS                                                   
|Current assets:                                           |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          | Cash and cash equivalents                                                                            |                                                                                                                                                      | $                                          | 42,058  |     |         | $      | 40,094  |    
|                                                          | Restricted cash                                                                                      |                                                                                                                                                      |                                            | 1,141   |     |         |        | 2,748   |    
|                                                          | Accounts receivable, net of allowance for
    doubtful accounts of $2,654 in 2004 and $3,169 in 2003 |                                                                                                                                                      |                                            | 33,131  |     |         |        | 21,475  |    
|                                                          | Inventories                                                                                          |                                                                                                                                                      |                                            | 48,055  |     |         |        | 49,162  |    
|                                                          | Prepaid expenses and other current assets                                                            |                                                                                                                                                      |                                            | 1,710   |     |         |        | 943     |    
|                                                          | Deferred income taxes                                                                                |                                                                                                                                                      |                                            | 7,769   |     |         |        | 10,285  |    
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total current assets                       |         |     | 133,864 |        |         |     | 124,707 | 
|Property, plant and equipment, net                        |                                                                                                      |                                                                                                                                                      | 26,369                                     |         |     |         | 28,715 |        
|Other assets                                              |                                                                                                      |                                                                                                                                                      | 7,310                                      |         |     |         | 5,655  |        
|Deferred income taxes                                     |                                                                                                      |                                                                                                                                                      | 9,503                                      |         |     |         | 2,563  |        
|Goodwill                                                  |                                                                                                      |                                                                                                                                                      | 21,223                                     |         |     |         | 21,417 |        
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total assets                               |         | $   | 198,269 |        |         | $   | 183,057 | 
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                         
|LIABILITIES AND STOCKHOLDERS
    EQUITY                 
|Current liabilities:                                      |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          | Current portion of capitalized lease obligations                                                     |                                                                                                                                                      | $                                          | 3,447   |     |         | $      | 3,238   |    
|                                                          | Notes payable to bank                                                                                |                                                                                                                                                      |                                            | 800     |     |         |        | 700     |    
|                                                          | Accounts payable                                                                                     |                                                                                                                                                      |                                            | 15,277  |     |         |        | 11,177  |    
|                                                          | Accrued expenses and other liabilities                                                               |                                                                                                                                                      |                                            | 18,094  |     |         |        | 14,167  |    
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total current liabilities                  |         |     | 37,618  |        |         |     | 29,282  | 
|Capitalized lease obligations, net of current
    portion |                                                                                                      |                                                                                                                                                      | 2,904                                      |         |     |         | 4,887  |        
|Loan payable                                              |                                                                                                      |                                                                                                                                                      | 157                                        |         |     |         | 155    |        
|Pension liabilities                                       |                                                                                                      |                                                                                                                                                      | 12,059                                     |         |     |         | 9,924  |        
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total liabilities                          |         |     | 52,738  |        |         |     | 44,248  | 
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|Commitments and contingencies (Note 8)                    |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|Stockholders Equity                                      |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          | Preferred stock, $0.01 par value:                                                                    |                                                                                                                                                      |                                            |         |     |         |        |         |    
|                                                          |                                                                                                      | Authorized: 5,000,000 shares; none issued
    and outstanding                                                                                        |                                            |         |    |         |        |         |    |        
|                                                          | Common stock, $0.01 par value:                                                                       |                                                                                                                                                      |                                            |         |     |         |        |         |    
|                                                          |                                                                                                      | Authorized: 80,000,000 shares; 33,018,675
    issued and 32,923,373 outstanding in 2004 and 31,957,182 issued
    and 31,861,880 outstanding in 2003 |                                            |         | 331 |         |        |         | 320 |        
|                                                          | Additional paid-in capital                                                                           |                                                                                                                                                      |                                            | 151,074 |     |         |        | 144,835 |    
|                                                          | Deferred compensation                                                                                |                                                                                                                                                      |                                            | (10     | )   |         |        | (26     | )  
|                                                          | Notes receivable from stockholders                                                                   |                                                                                                                                                      |                                            | (1,388  | )   |         |        | (913    | )  
|                                                          | Accumulated deficit                                                                                  |                                                                                                                                                      |                                            | (10,750 | )   |         |        | (6,318  | )  
|                                                          | Accumulated other comprehensive income                                                               |                                                                                                                                                      |                                            | 6,721   |     |         |        | 1,358   |    
|                                                          | Less cost of treasury stock: 95,302 common shares
    in 2004 and 2003                               |                                                                                                                                                      |                                            | (447    | )   |         |        | (447    | )  
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total stockholders equity                 |         |     | 145,531 |        |         |     | 138,809 | 
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        
|                                                          |                                                                                                      |                                                                                                                                                      | Total liabilities and stockholders equity |         | $   | 198,269 |        |         | $   | 183,057 | 
|                                                          |                                                                                                      |                                                                                                                                                      |                                            |         |     |         |        |        

The accompanying notes are an integral part of
these consolidated financial statements.

39



---



##### Table of Contents



IXYS CORPORATION



CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |        |        | 
|------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | - | ------ | ------ | ------ | 
|                                                                    |                                       |                                      
|                                                                    |                                       | Year Ended March 31,                 
|                                                                    |                                       |                                      
|                                                                    |                                       | 2004                                  |         | 2003   |        | 2002
|                                                                    |                                       |                                       |         |        |        |     
|                                                                    |                                       |                                      
|                                                                    |                                       | (In thousands, except per share data)
|Net revenues                                                        |                                       | $                                     | 187,442 |        |        | $    | 136,111 |         |        | $ | 82,821 |       
|Cost of goods sold                                                  |                                       |                                       | 143,948 |        |        |      | 107,371 |         |        |   | 56,918 |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|                                                                    |                                       | Gross profit                          |         |        | 43,494 |      |         |         | 28,740 |   |        |        | 25,903 | 
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Operating expenses:                                                 |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|                                                                    | Research, development and engineering |                                       |         | 15,811 |        |      |         | 12,846  |        |   |        | 5,728  |       
|                                                                    | Selling, general and administrative   |                                       |         | 29,707 |        |      |         | 27,721  |        |   |        | 12,884 |       
|                                                                    | Restructuring                         |                                       |         |       |        |      |         | 750     |        |   |        |       |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|                                                                    |                                       | Total operating expenses              |         |        | 45,518 |      |         |         | 41,317 |   |        |        | 18,612 | 
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|                                                                    | Operating income (loss)               |                                       |         | (2,024 | )      |      |         | (12,577 | )      |   |        | 7,291  |       
|Other income (expense):                                             |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|                                                                    | Interest income                       |                                       |         | 615    |        |      |         | 910     |        |   |        | 1,509  |       
|                                                                    | Interest expense                      |                                       |         | (305   | )      |      |         | (190    | )      |   |        | (191   | )     
|                                                                    | Loss on foreign currency transactions |                                       |         | (821   | )      |      |         | (1,249  | )      |   |        | (46    | )     
|                                                                    | Litigation and associated expense     |                                       |         | (2,843 | )      |      |         | (4,716  | )      |   |        | (4,635 | )     
|                                                                    | Other income (expense)                |                                       |         | (695   | )      |      |         | (39     | )      |   |        | (806   | )     
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Income (loss) before income tax                                     |                                       |                                       | (6,073  | )      |        |      | (17,861 | )       |        |   | 3,122  |       
|Benefit from (provision for) income tax                             |                                       |                                       | 1,641   |        |        |      | 5,716   |         |        |   | (1,184 | )     
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Net income (loss)                                                   |                                       | $                                     | (4,432  | )      |        | $    | (12,145 | )       |        | $ | 1,938  |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Net income (loss) per share  basic                                 |                                       | $                                     | (0.14   | )      |        | $    | (0.39   | )       |        | $ | 0.07   |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Weighted average shares used in per share
    calculation  basic   |                                       |                                       | 32,434  |        |        |      | 30,889  |         |        |   | 26,745 |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Net income (loss) per share  diluted                               |                                       | $                                     | (0.14   | )      |        | $    | (0.39   | )       |        | $ | 0.07   |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       
|Weighted average shares used in per share
    calculation  diluted |                                       |                                       | 32,434  |        |        |      | 30,889  |         |        |   | 29,004 |       
|                                                                    |                                       |                                       |         |        |        |      |         |         |        |   |        |       

The accompanying notes are an integral part of
these consolidated financial statements.

40



---



##### Table of Contents



IXYS CORPORATION



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)


|                                   |                                                          |                      |        |       |  |      |         |       |  |   |       |    | 
|---------------------------------- | -------------------------------------------------------- | -------------------- | ------ | ----- |  | ---- | ------- | ----- |  | - | ----- | -- | 
|                                   |                                                          |                     
|                                   |                                                          | Year Ended March 31,
|                                   |                                                          |                     
|                                   |                                                          | 2004                 |        | 2003  |  | 2002
|                                   |                                                          |                      |        |       |  |     
|                                   |                                                          |                     
|                                   |                                                          | (In thousands)      
|Net income (loss)                  |                                                          | $                    | (4,432 | )     |  | $    | (12,145 | )     |  | $ | 1,938 |   
|Other comprehensive income (loss): |                                                          |                      |        |       |  |      |         |       |  |   |       |   
|                                   | Foreign currency translation adjustments, net of
    tax |                      |        | 3,915 |  |      |         | 2,530 |  |   |       | 81 | 
|                                   |                                                          |                      |        |       |  |      |         |       |  |   |       |   
|Comprehensive income (loss)        |                                                          | $                    | 517    |       |  | $    | (9,615  | )     |  | $ | 2,019 |   
|                                   |                                                          |                      |        |       |  |      |         |       |  |   |       |   

The accompanying notes are an integral part of
these consolidated financial statements.

41



---



##### Table of Contents



IXYS CORPORATION



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |               |         |   |  |   |     |   |  |   |        |   |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------ |  | -------------- | ------ | ------ |  | ---------- | --- | ------------ |  | ------------ | ------- | ------------ |  | ------------- | ------ | -------- |  | ------------- | ------- | - |  | - | --- | - |  | - | ------ | - |  | - | ---- | - |  | - | ------- | -
|                                                                               |  |                |        |        |  |            |     | Notes        |  | Retained     |         |              |  | Accumulated   |        |          |  |              
|                                                                               |  |                |        |        |  | Additional |     | Receivable   |  | Earnings     |         |              |  | Other         |        |          |  | Total        
|                                                                               |  |                |        |        |  | Paid-In    |     | from         |  | (Accumulated |         | Deferred     |  | Comprehensive |        | Treasury |  | Stockholders
|                                                                               |  | Shares         |        | Amount |  | Capital    |     | Stockholders |  | Deficit)     |         | Compensation |  | Loss          |        | Stock    |  | Equity       
|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |              
|                                                                               |  |               
|                                                                               |  | (In thousands)
|Balances, March 31, 2001                                                       |  |                | 26,642 |        |  | $          | 267 |              |  | $            | 91,875  |              |  | $             | (823   | )        |  | $             | 3,889   |   |  | $ |    |   |  | $ | (2,482 | ) |  | $ | (2   | ) |  | $ | 92,724  |  
|Exercise of stock options                                                      |  |                | 196    |        |  |            | 2   |              |  |              | 598     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 600     |  
|Issuance of common stock under Employee Stock
    Purchase Plan                |  |                | 44     |        |  |            | 1   |              |  |              | 312     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 313     |  
|Repurchase of common stock                                                     |  |                | (75    | )      |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   | (445 | ) |  |   | (445    | )
|Issuance of notes receivable                                                   |  |                |       |        |  |            |    |              |  |              |        |              |  |               | (30    | )        |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | (30     | )
|Foreign currency translation adjustments                                       |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   | 119    |   |  |   |     |   |  |   | 119     |  
|Net income                                                                     |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               | 1,938   |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 1,938   |  
|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |               |         |   |  |   |     |   |  |   |        |   |  |   |      |   |  |   |         |  
|Balances, March 31, 2002                                                       |  |                | 26,807 |        |  |            | 270 |              |  |              | 92,785  |              |  |               | (853   | )        |  |               | 5,827   |   |  |   |    |   |  |   | (2,363 | ) |  |   | (447 | ) |  |   | 95,219  |  
|Exercise of stock options                                                      |  |                | 130    |        |  |            | 1   |              |  |              | 443     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 444     |  
|Issuance of common stock under Employee Stock
    Purchase Plan                |  |                | 31     |        |  |            |    |              |  |              | 207     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 207     |  
|Issuance of common stock for the acquisition of
    Clare, Inc.                |  |                | 4,894  |        |  |            | 49  |              |  |              | 51,350  |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 51,399  |  
|Interest accrued on notes receivable                                           |  |                |       |        |  |            |    |              |  |              |        |              |  |               | (60    | )        |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | (60     | )
|Deferred compensation                                                          |  |                |       |        |  |            |    |              |  |              | 50      |              |  |               |       |          |  |               |        |   |  |   | (50 | ) |  |   |       |   |  |   |     |   |  |   |        |  
|Amortization of deferred compensation                                          |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   | 24  |   |  |   |       |   |  |   |     |   |  |   | 24      |  
|Foreign currency translation adjustments                                       |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   | 3,721  |   |  |   |     |   |  |   | 3,721   |  
|Net loss                                                                       |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               | (12,145 | ) |  |   |    |   |  |   |       |   |  |   |     |   |  |   | (12,145 | )
|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |               |         |   |  |   |     |   |  |   |        |   |  |   |      |   |  |   |         |  
|Balances, March 31, 2003                                                       |  |                | 31,862 |        |  |            | 320 |              |  |              | 144,835 |              |  |               | (913   | )        |  |               | (6,318  | ) |  |   | (26 | ) |  |   | 1,358  |   |  |   | (447 | ) |  |   | 138,809 |  
|Exercise of stock options                                                      |  |                | 233    |        |  |            | 2   |              |  |              | 841     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 843     |  
|Issuance of common stock under Employee Stock
    Purchase Plan                |  |                | 62     |        |  |            | 1   |              |  |              | 561     |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 562     |  
|Issuance of common stock for the acquisition of
    Microwave Technology, Inc. |  |                | 767    |        |  |            | 8   |              |  |              | 4,348   |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   |       |   |  |   |     |   |  |   | 4,356   |  
|Interest accrued on notes receivable                                           |  |                |       |        |  |            |    |              |  |              | 475     |              |  |               | (475   | )        |  |               |        |   |  |   |     |   |  |   |       |   |  |   |     |   |  |   |        |  
|Deferred compensation                                                          |  |                |       |        |  |            |    |              |  |              | 14      |              |  |               |       |          |  |               |        |   |  |   | (14 | ) |  |   |       |   |  |   |     |   |  |   |        |  
|Amortization of deferred compensation                                          |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   | 30  |   |  |   |       |   |  |   |     |   |  |   | 30      |  
|Foreign currency translation adjustments                                       |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               |        |   |  |   |    |   |  |   | 5,363  |   |  |   |     |   |  |   | 5,363   |  
|Net loss                                                                       |  |                |       |        |  |            |    |              |  |              |        |              |  |               |       |          |  |               | (4,432  | ) |  |   |    |   |  |   |       |   |  |   |     |   |  |   | (4,432  | )
|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |               |         |   |  |   |     |   |  |   |        |   |  |   |      |   |  |   |         |  
|Balances, March 31, 2004                                                       |  |                | 32,924 |        |  | $          | 331 |              |  | $            | 151,074 |              |  | $             | (1,388 | )        |  | $             | (10,750 | ) |  | $ | (10 | ) |  | $ | 6,721  |   |  | $ | (447 | ) |  | $ | 145,531 |  
|                                                                               |  |                |        |        |  |            |     |              |  |              |         |              |  |               |        |          |  |               |         |   |  |   |     |   |  |   |        |   |  |   |      |   |  |   |         |  

The accompanying notes are an integral part of
these consolidated financial statements.

42



---



##### Table of Contents






IXYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |        |         |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------- | ---- | ------ | ------- | ------ | - | ------- | ------ | ------- | -
|                                                                              |                                                                                       |                                                        
|                                                                              |                                                                                       | Year Ended March 31,                                   
|                                                                              |                                                                                       |                                                        
|                                                                              |                                                                                       | 2004                                                    |        | 2003   |         | 2002
|                                                                              |                                                                                       |                                                         |        |        |         |     
|                                                                              |                                                                                       |                                                        
|                                                                              |                                                                                       | (In thousands)                                         
|Cash flows from operating activities:                                         |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              | Net income (loss)                                                                     |                                                         | $      | (4,432 | )       |      | $      | (12,145 | )      |   | $       | 1,938  |        
|                                                                              | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                         |        |        |         |      |        |         |        |   |         |        |        
|                                                                              |                                                                                       | Depreciation and amortization                           |        |        | 11,186  |      |        |         | 9,297  |   |         |        | 5,835   |  
|                                                                              |                                                                                       | Provision for accounts receivable                       |        |        | 1,433   |      |        |         | 8,024  |   |         |        | 7,029   |  
|                                                                              |                                                                                       | Provision for excess and obsolete inventories           |        |        | 2,057   |      |        |         | 7,258  |   |         |        | 790     |  
|                                                                              |                                                                                       | (Gain) loss on disposal of fixed assets                 |        |        | 4       |      |        |         | 240    |   |         |        | 287     |  
|                                                                              |                                                                                       | (Loss) gain on foreign currency transactions            |        |        | 670     |      |        |         | (1,713 | ) |         |        | (318    | )
|                                                                              |                                                                                       | Deferred income taxes                                   |        |        | (4,424  | )    |        |         | (3,067 | ) |         |        | 861     |  
|                                                                              | Changes in operating assets and liabilities:                                          |                                                         |        |        |         |      |        |         |        |   |         |        |        
|                                                                              |                                                                                       | Accounts receivable                                     |        |        | (10,434 | )    |        |         | (6,799 | ) |         |        | 6,445   |  
|                                                                              |                                                                                       | Inventories                                             |        |        | 2,253   |      |        |         | 2,987  |   |         |        | (8,574  | )
|                                                                              |                                                                                       | Prepaid expenses and other current assets               |        |        | 144     |      |        |         | 89     |   |         |        | (71     | )
|                                                                              |                                                                                       | Other assets                                            |        |        | (618    | )    |        |         | (1,742 | ) |         |        | 1,140   |  
|                                                                              |                                                                                       | Accounts payable                                        |        |        | 2,096   |      |        |         | (527   | ) |         |        | (7,356  | )
|                                                                              |                                                                                       | Accrued expenses and other liabilities                  |        |        | 4,828   |      |        |         | 379    |   |         |        | (5,603  | )
|                                                                              |                                                                                       | Pension liabilities                                     |        |        | 916     |      |        |         | 123    |   |         |        | (252    | )
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              |                                                                                       | Net cash provided by operating activities               |        |        | 5,679   |      |        |         | 2,404  |   |         |        | 2,151   |  
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Cash flows from investing activities:                                         |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              | Restricted cash decrease (increase)                                                   |                                                         |        | 1,607  |         |      |        | (321    | )      |   |         | 182    |        
|                                                                              | Purchases of plant and equipment                                                      |                                                         |        | (4,901 | )       |      |        | (5,491  | )      |   |         | (7,502 | )      
|                                                                              | Acquisition of Microwave Technology, Inc., net of
    cash acquired                   |                                                         |        | 143    |         |      |        |        |        |   |         |       |        
|                                                                              | Acquisition of Westcode Semiconductor, Ltd., net
    of cash acquired                 |                                                         |        |       |         |      |        |        |        |   |         | (8,529 | )      
|                                                                              | Acquisition of Clare, Inc., net of cash acquired                                      |                                                         |        |       |         |      |        | 7,843   |        |   |         |        |        
|                                                                              | Other                                                                                 |                                                         |        |       |         |      |        |        |        |   |         | 6      |        
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              |                                                                                       | Net cash provided by (used in) investing
    activities |        |        | (3,151  | )    |        |         | 2,031  |   |         |        | (15,843 | )
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Cash flows from financing activities:                                         |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              | Proceeds from capital lease obligations                                               |                                                         |        | 1,222  |         |      |        | 2,981   |        |   |         | 4,249  |        
|                                                                              | Principal payments on capital lease obligations                                       |                                                         |        | (3,918 | )       |      |        | (2,928  | )      |   |         | (2,734 | )      
|                                                                              | Repayment of notes payable to bank                                                    |                                                         |        | (10    | )       |      |        |        |        |   |         | (54    | )      
|                                                                              | Issuance of loans                                                                     |                                                         |        |       |         |      |        |        |        |   |         | (926   | )      
|                                                                              | Proceeds from notes receivables                                                       |                                                         |        | 212    |         |      |        |        |        |   |         | 99     |        
|                                                                              | Proceeds from loans                                                                   |                                                         |        |       |         |      |        | 1,931   |        |   |         |       |        
|                                                                              | Proceeds from issuance of common stock under the
    employee stock purchase plan     |                                                         |        | 562    |         |      |        | 207     |        |   |         | 313    |        
|                                                                              | Proceeds from exercise of stock options                                               |                                                         |        | 843    |         |      |        | 506     |        |   |         | 600    |        
|                                                                              | Purchase of treasury stock                                                            |                                                         |        |       |         |      |        |        |        |   |         | (445   | )      
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              |                                                                                       | Net cash provided by (used in) financing
    activities |        |        | (1,089  | )    |        |         | 2,697  |   |         |        | 1,102   |  
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Effect of foreign exchange rate fluctuations on
    cash and cash equivalents |                                                                                       |                                                         | 525    |        |         |      | 851    |         |        |   | (94     | )     
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Net increase (decrease) in cash and cash
    equivalents                      |                                                                                       |                                                         | 1,964  |        |         |      | 7,983  |         |        |   | (12,684 | )     
|Cash and cash equivalents at beginning of year                                |                                                                                       |                                                         | 40,094 |        |         |      | 32,111 |         |        |   | 44,795  |       
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Cash and cash equivalents at end of year                                      |                                                                                       | $                                                       | 42,058 |        |         | $    | 40,094 |         |        | $ | 32,111  |       
|                                                                              |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|Supplemental Disclosures of Cash Flow
    Information:                        |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              | Cash paid during the period for interest                                              |                                                         | $      | 138    |         |      | $      |        |        |   | $       | 191    |        
|                                                                              | Cash paid during the period for income taxes                                          |                                                         | $      | 108    |         |      | $      | 1,256   |        |   | $       | 3,694  |        
|                                                                              | Accrued interest on notes receivable                                                  |                                                         | $      | 476    |         |      | $      | 60      |        |   | $       |       |        
|Supplemental Schedule of Noncash Investing and
    Financing Activities:      |                                                                                       |                                                         |        |        |         |      |        |         |        |   |         |       
|                                                                              | Purchase of fixed assets under capital lease                                          |                                                         | $      | 683    |         |      | $      | 116     |        |   | $       | 621    |        
|                                                                              | Common stock issued for Microwave Technology,
    Inc. net assets                     |                                                         | $      | 4,356  |         |      |        |        |        |   | $       |       |        
|                                                                              | Common stock issued for Clare, Inc. net assets                                        |                                                         | $      |       |         |      | $      | 51,399  |        |   | $       |       |        

The accompanying notes are an integral part of
these consolidated financial statements.

43



---



##### Table of Contents



IXYS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                
|-- | -------------------------------
|1. | Formation and Business of IXYS:

IXYS Corporation (IXYS or the
Company) designs, develops, manufactures and markets
power semiconductors and digital and analog integrated circuits
(ICs). Power semiconductors are used primarily in
controlling energy in motor drives, power conversion (including
uninterruptible power supplies (UPS) and switch mode
power supplies (SMPS)) and medical electronics.
IXYSs power semiconductors convert electricity at
relatively high voltage and current levels to create efficient
power as required by a specific application. IXYSs target
market includes segments of the power semiconductor market that
require medium to high power semiconductors, with a particular
emphasis on high power semiconductors. IXYSs power
semiconductors include power metal oxide silicon field effect
transistors (Power MOSFETs), insulated gate bipolar
transistors (IGBTs), thyristors and rectifiers,
including fast recovery epitaxial diodes (FREDs).
IXYSs ICs include solid state relays (SSRs)
for telecommunications applications and power management and
control ICs, such as current regulators, motion controllers,
digital power modulators and power MOSFET and IGBT drivers.



|   |                                                
|-- | -----------------------------------------------
|2. | Summary of Significant Accounting
    Policies:



| |                             
| | ----------------------------
| | Principles of Consolidation:

The consolidated financial statements include the
accounts of IXYS and its wholly owned subsidiaries after
elimination of all significant intercompany balances and
transactions.



| |                  
| | -----------------
| | Use of Estimates:

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
materially differ from IXYSs estimates.



| |                              
| | -----------------------------
| | Foreign Currency Translation:

The local currency is considered to be the
functional currency of IXYSs wholly owned international
subsidiaries, IXYS Semiconductor GmbH (IXYS GmbH),
IXYS Berlin GmbH (IXYS Berlin) and Westcode
Semiconductors Limited (Westcode). Accordingly,
assets and liabilities are translated at the exchange rate in
effect at year-end and revenues and expenses are translated at
average rates during the year. Adjustments resulting from the
translation of the accounts of IXYS GmbH, IXYS Berlin and
Westcode into U.S. dollars are included in accumulated
other comprehensive income, a separate component of
stockholders equity. Foreign currency transaction gains
and losses are included as a component of non-operating income
and expense.



| |                  
| | -----------------
| | Cash Equivalents:

IXYS considers all highly liquid investments with
original maturities of three months or less at the time of
purchase to be cash equivalents.



| |                   
| | ------------------
| | Reclassifications:

Certain reclassifications have been made to the
prior years consolidated financial statements to conform
to the current years presentation. Such reclassifications
had no effect on previously reported results of operations or
stockholders equity.

44



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |             
| | ------------
| | Inventories:

Inventories, consisting primarily of wafers,
bipolar devices, transistors, diodes and integrated circuits,
are stated at the lower of cost or market value. Inventory cost
is computed on a currently adjusted standard basis (which
approximates actual cost on a first-in, first-out basis). Work
in process and finished goods inventory are determined to be
saleable based on a demand forecast within a specific time
horizon, generally 12 to 24 months. Inventories in excess
of saleable amounts are not valued.



| |                                   
| | ----------------------------------
| | Property, Plant and
    Equipment:

Property, plant and equipment, including
equipment under capital leases, is stated at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over estimated useful lives of three to
five years for equipment and twenty years for plant. Upon
disposal, the assets and related accumulated depreciation are
removed from IXYSs accounts and the resulting gains or
losses are reflected in the statements of operations.

IXYS evaluates the recoverability of the carrying
amount of its property, plant and equipment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. Impairment is assessed when
the undiscounted expected cash flows derived for an asset are
less than its carrying amount. Impairment losses are measured as
the amount by which the carrying value of an asset exceeds its
fair value and are recognized in operating results. Judgment is
used when applying these impairment rules to determine the
timing of the impairment test, the undiscounted expected cash
flows used to assess impairments and the fair value of an
impaired asset. The dynamic economic environment in which IXYS
operates and the resulting assumptions used to estimate future
cash flows impact the outcome of these impairment tests.



| |                                          
| | -----------------------------------------
| | Goodwill and Other Intangible
    Assets:

Goodwill represents the excess of the purchase
price over the estimated fair value of the net assets acquired.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, IXYS is required to perform an annual
impairment test for goodwill. SFAS No. 142 requires
IXYS to compare the fair value of the Company to its carrying
amount on an annual basis to determine if there is a potential
impairment. If the fair value of the Company is less than its
carrying value, an impairment loss is recorded to the extent
that the fair value of the goodwill within the reporting unit is
less than the carrying value. The fair value for goodwill is
determined based on discounted cash flows.

Other intangible assets are recorded at cost and
amortized over periods ranging from 3 months to
6 years.



| |                     
| | --------------------
| | Revenue Recognition:

Revenue from power semiconductor and IC product
sales is recognized upon shipment, provided that a signed
purchase order was received, the price is fixed, title has
transferred, collection of resulting receivables is reasonably
assured, and there are no remaining significant obligations.
Reserves for sales returns and allowances, including allowances
for so called ship and debit transactions, are
recorded at the time of shipment, based on historical returns
and discounts, current economic trends and changes in customer
demand. Transactions with sale terms of FOB shipping point are
recognized when the products are shipped and transactions with
sale terms of FOB destination are recognized upon arrival.
Reserves for warranties are recorded at the time of shipment for
amounts necessary to replace or repair products during the
warranty period, which is generally one year.

Revenue from nonrecurring engineering, or NRE,
relating to engineering work performed for a fixed fee to design
chip prototypes that will later be used to produce required
units, is recognized in accordance with Emerging Issues Task
Force (EITF) Abstracts 99-5, Accounting for
Pre-production Costs Related to

45



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Long-term Supply Arrangements. The Company
records research and development costs as expenses are incurred
and then credits research and development expenses for payments
made by the customer. Up-front payments made by the customer are
initially recorded as customer deposits and are charged to the
statement of income as expenses for the project as costs are
incurred.



| |                            
| | ---------------------------
| | Foreign Exchange Contracts:

Although the majority of IXYSs transactions
are in U.S. Dollars, IXYS enters into currency forward
contracts to manage foreign currency exchange risk associated
with its operations. From time to time, IXYS purchases
short-term, forward exchange contracts to hedge the impact of
foreign currency fluctuations on certain underlying assets,
liabilities and commitments for operating expenses denominated
in foreign currencies. The purpose of entering into these hedge
transactions is to minimize the impact of foreign currency
fluctuations on the results of operations. The contracts
generally have maturity dates that do not exceed three months.
IXYS does not purchase short-term forward exchange contracts for
trading purposes. The Company elected not to designate these
forward exchange contracts as accounting hedges and any changes
in fair value have been recorded through the results of
operations.



| |          
| | ---------
| | Warranty:

IXYS accrues for estimated warranty costs upon
shipment of products in accordance with SFAS No. 5,
Accounting for Contingencies. Actual warranty costs
incurred have not materially differed from those accrued.
IXYSs warranty policy is effective for shipped products
which are considered defective or fail to meet the product
specifications. IXYS analyzes historical claims compared to
historical revenue in evaluating the adequacy of the warranty
allowance. Warranty costs are reflected in the income statement
as a cost of revenues. A reconciliation of the changes in the
warranty liability for the years ended March 31, 2004 and
2003 follows (in thousands):

|                                               |  |           |      |      |  |   |      |  
|---------------------------------------------- |  | --------- | ---- | ---- |  | - | ---- | -
|                                               |  |          
|                                               |  | March 31,
|                                               |  |          
|                                               |  | 2004      |      | 2003
|                                               |  |           |      |     
|Warranty accrual at the beginning of the year  |  | $         | 600  |      |  | $ | 600  |  
|Accruals for warranties issued during the year |  |           | 816  |      |  |   | 567  |  
|Settlements made during the year               |  |           | (638 | )    |  |   | (480 | )
|Translation adjustment                         |  |           | 78   |      |  |   | (87  | )
|                                               |  |           |      |      |  |   |      |  
|Warranty accrual at the end of the year        |  | $         | 856  |      |  | $ | 600  |  
|                                               |  |           |      |      |  |   |      |  



| |                       
| | ----------------------
| | Defined Benefit Plans:

IXYS maintains pension plans covering certain of
its employees. For financial reporting purposes, net periodic
pension costs are calculated based upon a number of actuarial
assumptions, including a discount rate for plan obligations,
assumed rate of return on pension plan assets and assumed rate
of compensation increases for plan employees. All of these
assumptions are based upon managements judgment,
considering all known trends and uncertainties.



| |             
| | ------------
| | Advertising:

IXYS expenses advertising as the costs are
incurred. Advertising expense for the years ended March 31,
2004, 2003 and 2002 was $408,000, $657,000 and $299,000,
respectively.

46



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                          
| | -------------------------
| | Research and Development:

Research and development costs are charged to
operations as incurred.



| |              
| | -------------
| | Income Taxes:

IXYSs provision for income taxes is
comprised of its current tax liability and the change in
deferred tax assets and liabilities. Deferred tax assets and
liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A
valuation allowance is required to reduce our deferred tax
assets to the amount that is more likely than not to be
realized. In determining the amount of the valuation allowance,
we consider estimated future taxable income as well as feasible
tax planning strategies in each taxing jurisdiction in which we
operate. If we determine that we will not realize all or a
portion of our remaining deferred tax assets, we will increase
our valuation allowance with a charge to income tax expense.
Conversely, if we determine that we will ultimately be able to
utilize all or a portion of the deferred tax assets for which a
valuation allowance has been provided, the related portion of
the valuation allowance will be released to income as a credit
to income tax expense. Significant management judgment is
required in determining our provision for income taxes, our
deferred tax assets and liabilities and any valuation allowance
recorded against our net deferred tax assets. In the event that
actual results differ from these estimates or we adjust these
estimates in future periods, we may need to establish a
valuation allowance which could materially impact our financial
position and results of operations. Our ability to utilize our
deferred tax assets and the continuing need for a related
valuation allowance are monitored on an ongoing basis.



| |                          
| | -------------------------
| | Other Income and Expense:

Other income and expense primarily consists of
legal expenses, gains and losses on foreign currency
transactions, interest income and expense and gains and losses
on sales of fixed assets.



| |                             
| | ----------------------------
| | Net Income (Loss) Per Share:

Basic earnings per share is computed by dividing
net income (loss) by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution from the exercise of options
into common stock. The calculation of dilutive net income (loss)
per share excludes potential shares if their effect is
anti-dilutive; that is, when the exercise price of the option
exceeds the market price. Potential shares consist of
incremental common shares issuable upon the exercise of stock
options.



| |                                      
| | -------------------------------------
| | Recent Accounting
    Pronouncements:

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting of derivative instruments and
hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 149 amends SFAS No. 133 for
decisions made: (a) as part of the Derivatives
Implementation Group process that require amendment to
SFAS No. 133; (b) in connection with other FASB
projects dealing with financial instruments; and (c) in
connection with the implementation issues raised related to the
application of the definition of a derivative.
SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003 and for designated hedging
relationships after June 30, 2003. We adopted
SFAS No. 149 during 2003. The adoption of
SFAS No. 149 did not have a material impact on our
financial position and results of operations.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 establishes standards

47



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer
classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted
SFAS No. 150 during 2003. The adoption of this
standard did not have a material impact on our financial
statements.

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46, or
FIN 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the
first interim or annual period beginning after December 15,
2003. The Company believes that the adoption of this standard
will not have a material impact on its financial position,
results of operations or cash flows.

In December 2003, the Financial Accounting
Standards Board issued SFAS No. 132 (revised 2003),
Employers Disclosures about Pensions and Other
Postretirement Benefits  an amendment of FASB
Statements No. 87, 88, and 106, effective for fiscal
years beginning after December 15, 2003, subject to certain
exemptions. SFAS 132 (revised 2003) revises employers
disclosures about pension plans and other postretirement benefit
plans. It does not change the measurement or recognition of
those plans required by SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. This Statement retains the disclosure
requirements contained in SFAS No. 132,
Employers Disclosures about Pensions and Other
Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original SFAS 132
about the assets, obligations, cash flows, and net periodic
benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. The required information should be
provided separately for pension plans and for other
postretirement benefit plans. The Company believes that the
adoption of this standard will not have a material impact on the
statement of operations.



| |                      
| | ---------------------
| | Comprehensive Income:

IXYSs foreign currency translation
adjustments represent the only component of comprehensive income
that is excluded from net income (loss) for 2004 and prior years.



| |                
| | ---------------
| | Business Risks:



| |                                                                    
| | -------------------------------------------------------------------
| | Dependence on Third Parties for Wafer
    Fabrication and Assembly:

IXYS manufactures approximately 59% of its
wafers, an integral component of its products, in its wholly
owned facilities in Germany, the UK, Massachusetts and
California. There can be no assurance that material disruptions
in supply will not occur in the future. In such event, IXYS may
have to identify and secure additional foundry capacity and may
be unable to identify or secure sufficient foundry capacity to
meet demand. Even if such capacity is available from another
manufacturer, the qualification process could take six months or
longer. If IXYS were unable to qualify alternative manufacturing
sources for existing or new products in a timely manner or if
such sources were unable to produce semiconductor devices with
acceptable manufacturing yields and at acceptable prices,
IXYSs business, financial condition and results of
operations would be materially and adversely affected.

48



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Dependence on Suppliers:

IXYS purchases silicon wafers from three vendors
with whom IXYS does not have long term supply agreements. Any of
these suppliers could terminate their relationship with IXYS at
any time. IXYSs reliance on a limited number of suppliers
involves several risks, including potential inability to obtain
an adequate supply of silicon wafers and reduced control over
the price, timely delivery, reliability and quality of the
silicon wafers. There can be no assurance that problems will not
occur in the future with suppliers.



| |                              
| | -----------------------------
| | Concentration of Credit Risk:

IXYS invests its excess cash primarily in
short-term time deposit accounts with a major German bank and
money market accounts with a U.S. bank. Additionally, IXYS
invests in commercial paper with financial institutions that
management believes to be creditworthy. These securities mature
within ninety days or less and bear minimal credit risk. IXYS
has not experienced any losses on such investments.

IXYS sells its products primarily to distributors
and original equipment manufacturers. IXYS performs ongoing
credit evaluations of its customers and generally does not
require collateral. An allowance for potential credit losses is
maintained by IXYS and such losses have not been material.

At March 31, 2004 and 2003, no customer
accounted for greater than 10% of accounts receivable.

Financial instruments that potentially subject
IXYS to credit risk comprise principally cash, investments and
trade accounts receivable. IXYS invests its excess cash in
accordance with its investment policy that has been approved by
the Board of Directors and is reviewed periodically by
management to minimize credit risk. The policy authorizes the
investment of excess cash in government securities, tax exempt
municipal securities, Eurodollar notes and bonds, time deposits,
certificates of deposit, commercial paper rated Aa or better and
other specific money market accounts and corporate instruments
of similar liquidity and credit quality.



| |                                         
| | ----------------------------------------
| | Fair Value of Financial
    Instruments:

Carrying amounts of certain of IXYSs
financial instruments including cash and cash equivalents,
accounts receivable and accounts payable approximate fair value
due to their short maturities. Based on borrowing rates
currently available to IXYS for loans with similar terms, the
carrying value of notes payable to bank, loans payable and notes
receivable from shareholders approximate fair value.



| |                                    
| | -----------------------------------
| | Stock-Based Compensation
    Plans:

IXYS accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles
Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. Under APB No. 25,
compensation cost is measured as the excess, if any, of the
quoted market price of IXYSs stock at the date of grant
over the exercise price of the option granted. Compensation cost
for stock options, if any, is recognized ratably over the
vesting period. IXYSs policy is to grant options with an
exercise price equal to the quoted market price of IXYSs
stock on the grant date. Accordingly, no compensation has been
recognized for its stock option plans. IXYS provides additional
pro forma disclosures as required under SFAS No. 123,
Accounting for Stock-Based Compensation.

Had compensation cost for its stock plans been
determined based on the fair value at the grant date for awards
in fiscal years 2004, 2003 and 2002 consistent with the
provisions of SFAS No. 123, IXYSs net

49



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

income (loss) and net income (loss) per share for
fiscal years 2004, 2003 and 2002 would have decreased to the pro
forma amounts indicated below (in thousands, except per share
amounts):

|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                               |  |                     
|                                                                                                                               |  | Year Ended March 31,
|                                                                                                                               |  |                     
|                                                                                                                               |  | 2004                 |        | 2003 |  | 2002
|                                                                                                                               |  |                      |        |      |  |     
|Net income (loss)                                                                                                              |  | $                    | (4,432 | )    |  | $    | (12,145 | ) |  | $ | 1,938  |  
|Less: Total stock-based compensation determined
    under fair value based methods for all awards to employees, net
    of tax |  |                      | (2,580 | )    |  |      | (2,366  | ) |  |   | (1,719 | )
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|Pro forma net income (loss)                                                                                                    |  | $                    | (7,012 | )    |  | $    | (14,511 | ) |  | $ | 219    |  
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|As reported net income (loss) per
    share  basic                                                                            |  | $                    | (0.14  | )    |  | $    | (0.39   | ) |  | $ | 0.07   |  
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|Pro forma net income (loss) per share 
    basic                                                                              |  | $                    | (0.22  | )    |  | $    | (0.47   | ) |  | $ | 0.01   |  
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|As reported net income (loss) per
    share  diluted                                                                          |  | $                    | (0.14  | )    |  | $    | (0.39   | ) |  | $ | 0.07   |  
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  
|Pro forma net income (loss) per share 
    diluted                                                                            |  | $                    | (0.22  | )    |  | $    | (0.47   | ) |  | $ | 0.01   |  
|                                                                                                                               |  |                      |        |      |  |      |         |   |  |   |        |  



|   |             
|-- | ------------
|3. | Acquisitions



| |                            
| | ---------------------------
| | Microwave Technology, Inc.:

On September 5, 2003, IXYS completed its
acquisition of Microwave Technology, Inc. (MwT), a
manufacturer of discrete gallium arsenide field effect
transistors (FETS) based in the United States. The
acquisition of MwT expanded the Companys line of radio
frequency, or RF, products by adding MwTs gallium arsenide
semiconductor products. In connection with the acquisition,
(a) approximately 767,000 shares of IXYS common stock
were issued, and (b) options exercisable for approximately
26,000 shares of IXYS common stock were assumed. The
estimated total purchase price is as follows (in thousands):

|                                  |                      |   |       |       | 
|--------------------------------- | -------------------- | - | ----- | ----- | 
|Value of IXYS common stock issued |                      | $ | 4,189 |      
|Value of IXYS options issued      |                      |   | 167   |      
|Estimated direct merger cost      |                      |   | 321   |      
|                                  |                      |   |       |      
|                                  | Total purchase price |   | $     | 4,677 | 
|                                  |                      |   |       |      

50



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

IXYS has finalized the fair values of
identifiable intangible assets acquired. IXYS has allocated the
purchase price to identifiable intangible assets, tangible
assets, liabilities assumed and goodwill as follows (in
thousands):

|                                        |                                  |  |       |       |  |  |  |  | 
|--------------------------------------- | -------------------------------- |  | ----- | ----- |  |  |  |  | 
|Fair value of tangible assets acquired: |                                  |  |       |       |  |  |  | 
|                                        | Current assets                   |  | $     | 2,182 |  |  |  |  | 
|                                        | Deferred tax assets  short term |  |       | 559   |  |  |  |  | 
|                                        | Plant and equipment              |  |       | 91    |  |  |  |  | 
|                                        |                                  |  |       |       |  |  |  | 
|                                        |                                  |  | 2,832 |       |  |  |  | 

|                                  |                                               |  |        |       |  |                        |              
|--------------------------------- | --------------------------------------------- |  | ------ | ----- |  | ---------------------- | -------------
|Amortizable intangible assets:    |                                               |  |        |       |  | Estimated useful lives
|                                  |                                               |  |        |       |  |                       
|                                  | Core technology                               |  |        | 300   |  |                        | 5 to 6 years 
|                                  | Existing technology                           |  |        | 1,300 |  |                        | 5 to 6 years 
|                                  | Contract and related customers relationships |  |        | 400   |  |                        | 5 to 6 years 
|                                  | Tradename                                     |  |        | 200   |  |                        | 5 to 6 years 
|                                  | Backlog                                       |  |        | 200   |  |                        | 3 to 6 months
|                                  |                                               |  |        |       |  |                       
|                                  |                                               |  | 2,400  |       |  |                       
|Total assets acquired             |                                               |  | 5,232  |       |  |                       
|Fair value of liabilities assumed |                                               |  | (2,415 | )     |  |                       
|                                  |                                               |  |        |       |  |                       
|                                  | Net assets acquired                           |  |        | 2,817 |  |                        |              
|Goodwill                          |                                               |  | 1,860  |       |  |                       
|                                  |                                               |  |        |       |  |                       
|                                  | Total purchase price                          |  | $      | 4,677 |  |                        |              
|                                  |                                               |  |        |       |  |                       

Pro Forma Disclosure (in thousands, except per
share data):

The following unaudited pro forma combined
amounts give effect to the acquisition of MwT as if the
acquisition had occurred on April 1, 2003. On a pro forma
basis, the results of operations of MwT for the year ended
March 31, 2004 are consolidated with IXYS results for the
same periods. The pro forma amounts do not purport to be
indicative of what would have occurred had the acquisition been
made as of the beginning of the period, or of results which may
occur in the future.

|                                                                    |  |           |         |  
|------------------------------------------------------------------- |  | --------- | ------- | -
|                                                                    |  | Year     
|                                                                    |  | Ended    
|                                                                    |  | March 31,
|                                                                    |  |          
|                                                                    |  | 2004     
|                                                                    |  |          
|Net revenue                                                         |  | $         | 189,826 |  
|Net loss                                                            |  | $         | (6,627  | )
|Net loss per share  basic                                          |  | $         | (0.20   | )
|Net loss per share  diluted                                        |  | $         | (0.20   | )
|Weighted-average shares used in per share
    calculation  basic   |  |           | 32,753  |  
|Weighted-average shares used in per share
    calculation  diluted |  |           | 32,753  |  



| |             
| | ------------
| | Clare, Inc.:

On June 10, 2002, IXYS completed its
acquisition of Clare, Inc. (Clare). The acquisition
of Clare was intended to allow the combined organization to be
more competitive and to achieve greater financial strength,
operational efficiencies, access to capital and growth potential
than either company could separately achieve. In connection with
the acquisition, (a) each outstanding share of Clare common
stock was converted into the

51



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

right to receive 0.49147 of a share of IXYS
common stock, which resulted in the issuance of approximately
4.9 million shares of IXYS common stock, and (b) each
option to purchase Clare common stock outstanding immediately
prior to the consummation of the acquisition was converted into
an option to purchase 0.49147 of a share of IXYS common stock,
resulting in the assumption of options exercisable for
approximately 1.0 million shares of IXYS common stock. The
total purchase price is as follows (in thousands):

|                                         |                      |   |        |        | 
|---------------------------------------- | -------------------- | - | ------ | ------ | 
|Value of IXYS common stock issued        |                      | $ | 47,658 |       
|Value of Clares options assumed by IXYS |                      |   | 3,741  |       
|Merger cost                              |                      |   | 1,676  |       
|                                         |                      |   |        |       
|                                         | Total purchase price |   | $      | 53,075 | 
|                                         |                      |   |        |       

IXYS has finalized the fair values of
identifiable intangible assets acquired and plant and equipment.
Replacement cost has been used to determine the fair value of
the plant and equipment acquired. IXYS has allocated the
purchase price to identifiable intangible assets, tangible
assets, liabilities assumed and goodwill as follows (in
thousands):

|                                        |                                  |  |        |        |  |  |  |  | 
|--------------------------------------- | -------------------------------- |  | ------ | ------ |  |  |  |  | 
|Fair Value of tangible assets acquired: |                                  |  |        |        |  |  |  | 
|                                        | Current assets                   |  | $      | 24,861 |  |  |  |  | 
|                                        | Deferred tax assets  short term |  |        | 4,796  |  |  |  |  | 
|                                        | Plant and equipment              |  |        | 10,271 |  |  |  |  | 
|                                        | Other assets                     |  |        | 111    |  |  |  |  | 
|                                        |                                  |  |        |        |  |  |  | 
|                                        |                                  |  | 40,039 |        |  |  |  | 

|                                  |                      |                      |        |       |        |                        |                     | 
|--------------------------------- | -------------------- | -------------------- | ------ | ----- | ------ | ---------------------- | ------------------- | 
|Amortizable intangible assets:    |                      |                      |        |       |        | Estimated useful lives
|                                  |                      |                      |        |       |        |                       
|                                  | Core technology      |                      |        | 2,700 |        |                        | 5 to 6 years       
|                                  | Tradename/trademarks |                      |        | 900   |        |                        | 3 years            
|                                  | Other                |                      |        | 715   |        |                        | 3 months to 6 years
|                                  |                      |                      |        |       |        |                       
|                                  |                      |                      | 4,315  |       |        |                       
|Total assets acquired             |                      |                      | 44,354 |       |        |                       
|Fair value of liabilities assumed |                      |                      | (8,746 | )     |        |                       
|                                  |                      |                      |        |       |        |                       
|Net assets acquired               |                      |                      | 35,608 |       |        |                       
|Goodwill                          |                      |                      | 17,467 |       |        |                       
|                                  |                      |                      |        |       |        |                       
|                                  |                      | Total purchase price |        | $     | 53,075 |                        |                     | 
|                                  |                      |                      |        |       |        |                       

Pro Forma Disclosure (in thousands, except per
share data):

The following unaudited pro forma combined
amounts give effect to the acquisition of Clare as if the
acquisition had occurred on April 1, 2002. On a pro forma
basis, the results of operations of Clare for the year ended
March 31, 2003 are consolidated with IXYS results for the
same periods. The pro forma amounts do

52



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

not purport to be indicative of what would have
occurred had the acquisition been made as of the beginning of
each period or of results that may occur in the future.

|                                                          |  |                      |         |  
|--------------------------------------------------------- |  | -------------------- | ------- | -
|                                                          |  | Year Ended March 31,
|                                                          |  |                     
|                                                          |  | 2003                
|                                                          |  |                     
|                                                          |  | (Unaudited)         
|Net revenue                                               |  | $                    | 142,568 |  
|Net loss                                                  |  | $                    | (19,938 | )
|Net loss per share  basic                                |  | $                    | (0.63   | )
|Net loss per share  diluted                              |  | $                    | (0.63   | )
|Weighted-average shares used in per share
    calculation |  |                      | 31,845  |  



| |                                     
| | ------------------------------------
| | Westcode Semiconductors
    Limited:

On January 22, 2002, IXYS completed its
acquisition of Westcode, a power semiconductor manufacturer
based in the United Kingdom. Westcode manufactures high voltage
power semiconductors. The primary reason for IXYS acquiring
Westcode was to provide IXYS with access to higher voltage
market segments, especially in Europe, and to acquire a skilled
manufacturing workforce. The acquisition has been accounted for
as a purchase with a total cost of $9,260,000, which consisted
of cash consideration of $9,000,000 and $260,000 of direct
transaction costs. In connection with the acquisition, IXYS also
assumed liabilities of $7,482,000. Intangible assets acquired
were not material. The assets and liabilities acquired were
recorded based on their fair values as of the date of
acquisition. The excess of fair value of net assets acquired
over costs has been allocated to proportionately reduce the fair
values of plant and equipment. The effects of the acquisition on
IXYSs financial statements are not material.



|   |               
|-- | --------------
|4. | Restructuring:

In June 2002, the Company adopted a corporate
restructuring program to reduce expenses and preserve the
Companys cash. The restructuring mainly relates to a
reduction in the workforce designed to eliminate redundant
positions at Clare. The restructuring charge, which consists
mainly of involuntary employee separation costs of $750,000, was
recorded in operating expense for the year ended March 31,
2003. The separation cost is for 33 employees worldwide: 5 in
sales and marketing, 7 in research and development, 3 in general
and administrative and 9 in operations functions in the United
States; and 8 in sales and marketing and 1 in general and
administrative outside the United States.

|                                |  |                |      |  
|------------------------------- |  | -------------- | ---- | -
|                                |  | March 31, 2003
|                                |  |               
|Accruals for restructuring cost |  | $              | 750  |  
|Less: Amount paid               |  |                | (750 | )
|                                |  |                |      |  
|Balance, March 31, 2003         |  | $              |     |  
|                                |  |                |      |  



|   |                                
|-- | -------------------------------
|5. | Goodwill and Intangible Assets:

Effective as of the beginning of the first
quarter of fiscal year 2003, the Company completed the adoption
of SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting. As required by SFAS
No, 142, the Company discontinued amortizing the remaining
balance of goodwill as of the beginning of the Companys
fiscal year 2003. The effect of this accounting change was
reflected prospectively and was not material to the results of
operations in 2004 and 2003. All remaining and future acquired
goodwill will be subject to impairment tests annually, or
earlier if indicators of potential impairment exist, using a
fair-value-based-approach. All other intangible assets will
continue to be amortized over their estimated useful lives and
assessed for impairment under SFAS No. 144,

53



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accounting for the Impairment or Disposal
of Long-Lived Assets. The Company continues to assess the
value of its long-lived assets, which could result in an
impairment charge in the future. The Company completed a
goodwill impairment review in fiscal year 2004 and found no
impairment. Had SFAS No. 142 been retroactively
applied, the effect of excluding goodwill amortization expense
would have been as follows (in thousands, except per share
amounts):

|                                |                                         |           |       |      | 
|------------------------------- | --------------------------------------- | --------- | ----- | ---- | 
|                                |                                         | Year     
|                                |                                         | Ended    
|                                |                                         | March 31,
|                                |                                         |          
|                                |                                         | 2002     
|                                |                                         |          
|Reported net income             |                                         | $         | 1,938 |     
|Add back: Goodwill amortization |                                         |           | 235   |     
|                                |                                         |           |       |     
|Adjusted net income             |                                         | $         | 2,173 |     
|                                |                                         |           |       |     
|Basic earnings per share:       |                                         |           |       |     
|                                | Reported net income per share  basic   |           | $     | 0.07 | 
|                                | Goodwill amortization                   |           |       | 0.01 | 
|                                |                                         |           |       |     
|                                |                                         | $         | 0.08  |     
|                                |                                         |           |       |     
|Diluted earnings per share:     |                                         |           |       |     
|                                | Reported net income per share  diluted |           | $     | 0.07 | 
|                                | Goodwill amortization                   |           |       | 0.01 | 
|                                |                                         |           |       |     
|                                |                                         | $         | 0.08  |     
|                                |                                         |           |       |     



|   |                       
|-- | ----------------------
|6. | Balance Sheet Details:



| |                                                             
| | ------------------------------------------------------------
| | Allowance for Doubtful
    Accounts Movement (in thousands):

|                                |                           |            |   |           |  |            |   |             |  |            |   |        |   |  |   |    |   |  |   |       | 
|------------------------------- | ------------------------- | ---------- | - | --------- |  | ---------- | - | ----------- |  | ---------- | - | ------ | - |  | - | -- | - |  | - | ----- | 
|                                |                           | Balance at |   |           |  |            |   |             |  | Balance at
|                                |                           | Beginning  |   |           |  |            |   | Translation |  | End of    
|                                |                           | of Period  |   | Additions |  | Deductions |   | Adjustments |  | Period    
|                                |                           |            |   |           |  |            |   |             |  |           
|Allowance for doubtful accounts |                           |            |   |           |  |            |   |             |  |            |   |        |   |  |   |    |   |  |   |      
|                                | Year ended March 31, 2004 |            | $ | 3,169     |  |            | $ | 1,433       |  |            | $ | (2,021 | ) |  | $ | 73 |   |  | $ | 2,654 | 
|                                | Year ended March 31, 2003 |            | $ | 1,045     |  |            | $ | 8,024       |  |            | $ | (5,982 | ) |  | $ | 82 |   |  | $ | 3,169 | 
|                                | Year ended March 31, 2002 |            | $ | 2,823     |  |            | $ | 7,029       |  |            | $ | (8,805 | ) |  | $ | (2 | ) |  | $ | 1,045 | 



| |             
| | ------------
| | Inventories:

Inventories consist of the following (in
thousands):

|                |  |           |        |      |  |   |        | 
|--------------- |  | --------- | ------ | ---- |  | - | ------ | 
|                |  |          
|                |  | March 31,
|                |  |          
|                |  | 2004      |        | 2003
|                |  |           |        |     
|Raw materials   |  | $         | 12,117 |      |  | $ | 8,575  | 
|Work in process |  |           | 26,729 |      |  |   | 31,982 | 
|Finished goods  |  |           | 9,209  |      |  |   | 8,605  | 
|                |  |           |        |      |  |   |        | 
|                |  | $         | 48,055 |      |  | $ | 49,162 | 
|                |  |           |        |      |  |   |        | 

54



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | Property, Plant and
    Equipment:

Property, plant and equipment consists of the
following (in thousands):

|                                                         |  |           |         |      |  |   |         |  
|-------------------------------------------------------- |  | --------- | ------- | ---- |  | - | ------- | -
|                                                         |  |          
|                                                         |  | March 31,
|                                                         |  |          
|                                                         |  | 2004      |         | 2003
|                                                         |  |           |         |     
|Property and plant                                       |  | $         | 6,390   |      |  | $ | 4,297   |  
|Equipment owned                                          |  |           | 48,267  |      |  |   | 33,995  |  
|Equipment capital leases                                 |  |           | 17,679  |      |  |   | 22,606  |  
|Leasehold improvements                                   |  |           | 2,954   |      |  |   | 2,060   |  
|                                                         |  |           |         |      |  |   |         |  
|                                                         |  |           | 75,290  |      |  |   | 62,958  |  
|Accumulated depreciation  owned plant
    and equipment |  |           | (37,599 | )    |  |   | (19,573 | )
|Accumulated amortization  capital
    leases            |  |           | (11,322 | )    |  |   | (14,670 | )
|                                                         |  |           |         |      |  |   |         |  
|                                                         |  | $         | 26,369  |      |  | $ | 28,715  |  
|                                                         |  |           |         |      |  |   |         |  

Depreciation and amortization expense for fiscal
years ended March 31, 2004, 2003 and 2002 amounted to
$11.2 million, $9.3 million and $5.8 million,
respectively.



| |              
| | -------------
| | Other Assets:

Other assets consists of the following (in
thousands):

|            |  |           |       |      |  |   |       | 
|----------- |  | --------- | ----- | ---- |  | - | ----- | 
|            |  |          
|            |  | March 31,
|            |  |          
|            |  | 2004      |       | 2003
|            |  |           |       |     
|Intangibles |  | $         | 4,273 |      |  | $ | 2,982 | 
|Loans       |  |           | 351   |      |  |   | 1,327 | 
|Other       |  |           | 2,686 |      |  |   | 1,346 | 
|            |  |           |       |      |  |   |       | 
|            |  | $         | 7,310 |      |  | $ | 5,655 | 
|            |  |           |       |      |  |   |       | 



| |                                            
| | -------------------------------------------
| | Accrued Expenses and Other
    Liabilities:

Accrued expenses and other liabilities consist of
the following (in thousands):

|                                 |  |           |        |      |  |   |        | 
|-------------------------------- |  | --------- | ------ | ---- |  | - | ------ | 
|                                 |  |          
|                                 |  | March 31,
|                                 |  |          
|                                 |  | 2004      |        | 2003
|                                 |  |           |        |     
|Accrued compensation             |  | $         | 2,834  |      |  | $ | 2,519  | 
|Warranty                         |  |           | 856    |      |  |   | 600    | 
|Income taxes                     |  |           | 7,247  |      |  |   | 4,384  | 
|Other accrued goods and services |  |           | 7,157  |      |  |   | 6,664  | 
|                                 |  |           |        |      |  |   |        | 
|                                 |  | $         | 18,094 |      |  | $ | 14,167 | 
|                                 |  |           |        |      |  |   |        | 



|   |                        
|-- | -----------------------
|7. | Borrowing Arrangements:

IXYS entered into a loan and security agreement
with a U.S. bank to borrow up to an aggregate amount not to
exceed $5.0 million. The loan bears interest at the
banks prime rate, 4.00% at March 31, 2004, payable
monthly, and matures in September 2004. The loan is
collateralized by certain assets and contains certain general
and financial covenants, including a requirement that IXYS
remain solvent and able to pay its debts as they become due. At
March 31, 2004, IXYS has drawn $700,000 against the loan.
IXYS has another line of credit with a U.S. bank that
consists of a $100,000 commitment, which has been drawn down.
The line bears

55



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

interest at a rate of 3.54%. The line is
collateralized by a $100,000 certificate of deposit that it has
with the bank.

IXYS obtained a $5.0 million line of credit
with a German bank. This line supports a letter of credit
facility. At March 31, 2004 there are no amounts
outstanding under this line.

A German bank issued to IXYS a commitment letter
for a (EUR) 3.8 million equipment lease facility. The
equipment lease facility provides financing at varying pricing
for periods up to 48 months. In addition to the rights to
the equipment, the bank holds a security interest in the general
assets of IXYS Semiconductor GmbH and unrestricted amounts
deposited with the bank.

In the same commitment letter discussed above,
the bank also committed to issue a credit line to IXYS of up to
(EUR) 5.1 million for a wafer fabrication facility in
Germany, including leasehold improvements, clean room
construction and computer and office equipment. At
March 31, 2004, IXYS had drawn (EUR) 204,000 under
this commitment. The security interest of the bank under the
equipment lease facility also collateralizes this line.

IXYS entered into a term loan with a Swiss bank
in the amount of SFR 200,000. The loan bears interest of 5.25%
and is due in November 2006.



|   |                               
|-- | ------------------------------
|8. | Commitments and Contingencies:



| |             
| | ------------
| | Commitments:

IXYS leases certain equipment under capital lease
arrangements expiring through fiscal year 2008 at interest rates
of 6.5% to 13.7%.

IXYS rents certain of its facilities under
operating leases which expire in 2011. IXYS is responsible for
insurance and property taxes.

Future minimum lease payments under capital and
operating leases are (in thousands):

|                                  |            |         |        |           |  |   |        |       | 
|--------------------------------- | ---------- | ------- | ------ | --------- |  | - | ------ | ----- | 
|                                  |            | Capital |        | Operating
|                                  |            | Leases  |        | Leases   
|                                  |            |         |        |          
|Fiscal year ending March 31, 2005 |            | $       | 3,755  |           |  | $ | 4,151  |      
|                                  | 2006       |         |        | 2,120     |  |   |        | 3,140 | 
|                                  | 2007       |         |        | 858       |  |   |        | 2,176 | 
|                                  | 2008       |         |        | 84        |  |   |        | 2,105 | 
|                                  | Thereafter |         |        |          |  |   |        | 4,374 | 
|                                  |            |         |        |           |  |   |        |      
|Total Minimum Payments            |            |         | 6,817  |           |  | $ | 15,946 |      
|                                  |            |         |        |           |  |   |        |      
|Less: Interest                    |            |         | (466   | )         |  |   |        |      
|                                  |            |         |        |           |  |   |        |      
|                                  |            |         | 6,351  |           |  |   |        |      
|Less: Current Portion             |            |         | (3,447 | )         |  |   |        |      
|                                  |            |         |        |           |  |   |        |      
|                                  |            | $       | 2,904  |           |  |   |        |      
|                                  |            |         |        |           |  |   |        |      

Rent expense for fiscal years ended
March 31, 2004, 2003 and 2002 amounted to $2,509,000,
$2,128,000 and $438,000, respectively.

As of March 31, 2004 and 2003, IXYS had cash
deposits with financial institutions of $1,141,000 and
$2,748,000, respectively, which were restricted as to use and
represent compensating balances for current or future discounted
acceptances and letters of credit. These balances are included
in restricted cash on the Companys balance sheets.

56



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of March 31, 2004, IXYS is committed to
purchase $5.8 million of inventory from suppliers of IXYS.

IXYS Corporation guarantees the
$5.0 million line of credit in favor of Commerzbank AG for
IXYS Semiconductor GmbH. At March 31, 2004, there are no
amounts outstanding under this line.



| |                   
| | ------------------
| | Legal Proceedings:

IXYS is currently involved in a variety of legal
matters that arise in the normal course of business. Based on
information currently available, management does not believe
that the ultimate resolution of these matters, including the
matters described in the next paragraphs, will have a material
adverse effect on our financial condition, results of operations
or cash flows. Were an unfavorable ruling to occur, there exists
the possibility of a material adverse impact on the results of
operations of the period in which the ruling occurs.

On June 22, 2000, International Rectifier
Corporation filed an action for patent infringement against IXYS
in the United States District Court for the Central District of
California, alleging that certain of IXYSs products sold
in the United States infringe U.S. patents owned by
International Rectifier. International Rectifiers
complaint against IXYS contended that IXYSs alleged
infringement of International Rectifiers patents has been
and continues to be willful and deliberate. Subsequently, the
U.S. District Court decided that certain of IXYSs
power MOSFETs and IGBTs infringe certain claims of each of three
International Rectifier U.S. patents.

In 2002, the U.S. District Court entered a
permanent injunction barring IXYS from making, using, offering
to sell or selling in, or importing into, the United States,
MOSFETs (including IGBTs) covered by the subject patents and
ruled that International Rectifier should be awarded damages of
$9.1 million for IXYSs alleged infringement of
International Rectifiers patents. In addition, the
U.S. District Court ruled that IXYS had been guilty of
willful infringement. Subsequently, the U.S. District Court
increased the damages to a total of $27.2 million, plus
attorney fees.

IXYS appealed and on March 19, 2004 the
United States Court of Appeals for the Federal Circuit reversed
or vacated all findings of patent infringement previously issued
against IXYS by the U.S. District Court. The Federal
Circuit also vacated the final judgment in those proceedings
upon which the U.S. District Courts earlier damages
award and injunction were based. The Federal Circuits
actions meant that the U.S. District Courts award of
$27.2 million and attorneys fees in damages and the
injunction against IXYS were vacated as a matter of law. The
Federal Circuit remanded the case to the U.S. District
Court for further action consistent with its opinion.

IXYS believes its defenses to the various
remaining claims made by International Rectifier are
meritorious. However, there can be no assurance of a favorable
outcome. In the event of an adverse outcome, damages or
injunctions awarded by the U.S. District Court would be
materially adverse to IXYSs financial condition and
results of operations. Management has not accrued any amounts in
the accompanying balance sheets for the International Rectifier
matter described above.

International Rectifier also contended that
IXYSs importation into the United States of certain
IXYS-designed MOSFET products manufactured for IXYS by Samsung
Electronics Co., Ltd. was in violation of a consent decree and
injunction entered against Samsung in another lawsuit to which
IXYS was not a party. International Rectifier sought enforcement
of the Samsung injunction against IXYS and Samsung, a contempt
citation and a fine. In 2002, the U.S. District Court
decided, among other things, that IXYS was bound by, and
IXYSs devices were not excepted from, the Samsung
injunction and that Samsung was in contempt of the injunction.
On July 7, 2003 it issued an order awarding International
Rectifier monetary damages for contempt and attorneys fees of
$350,000. Under the order, if IXYS were found to infringe,
Samsung was liable for a net amount equal to $2.5 million.
On March 19, 2004, the Federal Circuit reversed the
contempt order against Samsung and vacated any factual findings
contrary to the basis for the ruling. The

57



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Federal Circuits action meant that the
award of $2.5 million in damages was vacated as a matter of
law. The Federal Circuits actions in the Samsung matter
were a final adjudication of the contempt proceedings.

In August 2002, IXYS filed an action for patent
infringement against Advanced Power Technology, Inc., or APT, in
the United States District Court for the Northern District of
California, claiming that APT is infringing two of IXYSs
patents. APT has denied IXYSs claim of infringement, has
asserted several affirmative defenses and has filed a
counterclaim against IXYS, claiming that IXYS is infringing one
of APTs patents. The case is currently scheduled for trial
in July 2004.



|   |                      
|-- | ---------------------
|9. | Stockholders Equity:



| |                                           
| | ------------------------------------------
| | Stock Purchase and Stock Option
    Plans:

IXYS has the 1999 Non-Employee Directors
Equity Incentive Plan and the 1999 Equity Incentive Plan (the
Plans) under which incentive stock options may be
granted for not less than 85% of fair market value at the time
of grant. The options, once granted, expire ten years from the
date of grant. The Board of Directors has the full power to
determine the provisions of each option issued under the Plans.
The 1994 Stock Option Plan was terminated in May 1999.

Stock option activity under the Plans is
summarized below (in thousands, except share data):

|                         |                   |               |           |                     |   |                |           |          |   |       |                |   |        |        |   |   |      |       | 
|------------------------ | ----------------- | ------------- | --------- | ------------------- | - | -------------- | --------- | -------- | - | ----- | -------------- | - | ------ | ------ | - | - | ---- | ----- | 
|                         |                   |               |           |                     |   |               
|                         |                   |               |           | Options Outstanding |   | Weighted      
|                         |                   | Shares        |           |                     |   | Average       
|                         |                   | Available for |           | Number of           |   |                |           | Exercise
|                         |                   | Grant         |           | Shares              |   | Exercise Price |           | Total    |   | Price
|                         |                   |               |           |                     |   |                |           |          |   |      
|Balances, March 31, 2001 |                   |               | 2,616,349 |                     |   |                | 3,185,398 |          |   |       |                | $ | 14,023 |        |   | $ | 4.40 |      
|                         | New authorized    |               |           | 901,621             |   |                |           |          |   |       |                |   |        |        |   |   |      |       | 
|                         | Options granted   |               |           | (782,800            | ) |                |           | 782,800  |   |       | $6.60-$15.48   |   | $      | 4,878  |   |   | $    | 7.14  | 
|                         | Options exercised |               |           |                     |   |                |           | (195,513 | ) |       | $0.0085-$3.625 |   | $      | (600   | ) |   | $    | 3.12  | 
|                         | Options canceled  |               |           | 14,106              |   |                |           | (14,106  | ) |       | $19.00         |   | $      | (268   | ) |   | $    | 19.00 | 
|                         |                   |               |           |                     |   |                |           |          |   |       |                |   |        |        |   |   |      |      
|Balances, March 31, 2002 |                   |               | 2,749,276 |                     |   |                | 3,758,579 |          |   |       |                | $ | 18,033 |        |   | $ | 4.80 |      
|                         | Options assumed   |               |           |                     |   |                |           | 992,128  |   |       | $1.91-$50.10   |   | $      | 14,127 |   |   | $    | 14.24 | 
|                         | New authorized    |               |           | 899,991             |   |                |           |          |   |       |                |   |        |        |   |   |      |       | 
|                         | Options granted   |               |           | (888,750            | ) |                |           | 888,750  |   |       | $4.64-$7.79    |   | $      | 4,992  |   |   | $    | 5.62  | 
|                         | Options exercised |               |           |                     |   |                |           | (130,224 | ) |       | $0.08-$5.23    |   | $      | (506   | ) |   | $    | 3.89  | 
|                         | Options cancelled |               |           | (58,725             | ) |                |           | (584,462 | ) |       | $3.625-$50.10  |   | $      | (7,713 | ) |   | $    | 13.20 | 
|                         | Options expired   |               |           |                     |   |                |           | (1,875   | ) |       | $17.35         |   | $      | (33    | ) |   | $    | 17.60 | 
|                         |                   |               |           |                     |   |                |           |          |   |       |                |   |        |        |   |   |      |      
|Balances, March 31, 2003 |                   |               | 2,701,792 |                     |   |                | 4,922,896 |          |   |       |                | $ | 28,900 |        |   | $ | 6.07 |      
|                         | Options assumed   |               |           |                     |   |                |           | 25,741   |   |       | $1.83-$3.66    |   | $      | 87     |   |   | $    | 3.37  | 
|                         | New authorized    |               |           | 1,000,000           |   |                |           |          |   |       |                |   |        |        |   |   |      |       | 
|                         | Options granted   |               |           | (746,000            | ) |                |           | 746,000  |   |       | $6.75-$10.63   |   | $      | 6,313  |   |   | $    | 8.46  | 
|                         | Options exercised |               |           |                     |   |                |           | (232,862 | ) |       | $1.02-$7.73    |   | $      | (843   | ) |   | $    | 3.62  | 
|                         | Options cancelled |               |           | 185,676             |   |                |           | (185,676 | ) |       | $3.63-$31.54   |   | $      | (2,314 | ) |   | $    | 12.46 | 
|                         | Options expired   |               |           | 27,650              |   |                |           | (27,650  | ) |       | $3.63-$29.50   |   | $      | (309   | ) |   | $    | 11.19 | 
|                         |                   |               |           |                     |   |                |           |          |   |       |                |   |        |        |   |   |      |      
|Balances, March 31, 2004 |                   |               | 3,169,118 |                     |   |                | 5,248,449 |          |   |       |                | $ | 31,834 |        |   | $ | 6.28 |      
|                         |                   |               |           |                     |   |                |           |          |   |       |                |   |        |        |   |   |      |      

58



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding at March 31, 2004:

|                    |  |                     |           |                  |  |                  |     |                  |  |                |       |  |  |  |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | ---------------- | --- | ---------------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                    |  |                    
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  |                     |           | Weighted        
|                    |  | Number of           |           | Weighted Average |  | Weighted Average |     |                  |  | Average       
|Exercise Price      |  | Shares              |           | Contractual Life |  | Exercise Price   |     | Number of Shares |  | Exercise Price
|                    |  |                     |           |                  |  |                  |     |                  |  |               
|$1.69-2.34          |  |                     | 956,151   |                  |  |                  | 5.5 |                  |  | $              | 2.19  |  |  |  | 953,054   |  |  | $ | 2.19  | 
|$3.46-4.88          |  |                     | 1,845,085 |                  |  |                  | 5.6 |                  |  | $              | 3.79  |  |  |  | 1,659,173 |  |  | $ | 3.70  | 
|$5.23-7.79          |  |                     | 1,403,040 |                  |  |                  | 8.3 |                  |  | $              | 7.04  |  |  |  | 414,340   |  |  | $ | 6.94  | 
|$8.01-8.28          |  |                     | 582,591   |                  |  |                  | 6.1 |                  |  | $              | 6.21  |  |  |  | 72,091    |  |  | $ | 2.99  | 
|$13.23-19.00        |  |                     | 237,519   |                  |  |                  | 3.8 |                  |  | $              | 9.82  |  |  |  | 227,019   |  |  | $ | 28.02 | 
|$20.86-29.50        |  |                     | 125,744   |                  |  |                  | 3.2 |                  |  | $              | 10.25 |  |  |  | 106,214   |  |  | $ | 9.08  | 
|$31.54-36.24        |  |                     | 98,319    |                  |  |                  | 4.6 |                  |  | $              | 25.56 |  |  |  | 89,069    |  |  | $ | 27.05 | 
|                    |  |                     |           |                  |  |                  |     |                  |  |                |       |  |  |  |           |  |  |   |       | 
|                    |  |                     | 5,248,449 |                  |  |                  | 6.7 |                  |  | $              | 6.28  |  |  |  | 3,520,960 |  |  | $ | 5.55  | 
|                    |  |                     |           |                  |  |                  |     |                  |  |                |       |  |  |  |           |  |  |   |       | 

The fair value of option grants has been
estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:

|                        |  |                      |  |                |  |               
|----------------------- |  | -------------------- |  | -------------- |  | --------------
|                        |  |                     
|                        |  | Year Ended March 31,
|                        |  |                     
|                        |  | 2004                 |  | 2003           |  | 2002          
|                        |  |                      |  |                |  |               
|Risk-free interest rate |  | 1.72% to 3.22%       |  | 2.74% to 4.33% |  | 3.60% to 4.69%
|Expected term           |  | 4 years              |  | 4 years        |  | 4 years       
|Volatility              |  | 100%                 |  | 104%           |  | 103%          
|Dividend yield          |  | 0%                   |  | 0%             |  | 0%            

No dividend yield is assumed as IXYS has not paid
dividends and has no plans to do so.

The weighted average expected term was calculated
based on the vesting period and the expected life at the date of
the grant. The risk free interest rate was calculated based on
rates prevailing during grant periods and the expected life of
the options at the date of grants. The weighted average fair
values of options granted to employees during the fiscal years
ended March 31, 2004, 2003 and 2002 were $8.46, $4.41 and
$5.13, respectively.

IXYS has sold 6,750,395 shares of common
stock to certain members of IXYSs management. The shares
were purchased through recourse promissory notes at a purchase
price of $0.11 per share. Interest is due on the notes at a
rate of 5.79% per annum through September 15, 2000 and
6.25% per annum after that date, with the balance
outstanding due in full September 2005.

IXYS sold 8,250 shares of common stock to a
director. The shares were purchased through a recourse
promissory note at a purchase price of $3.625 per share.
Interest is due on the note at a rate of 6.75% per annum, with
the balance outstanding due in full in August 2006.

In May 1999, IXYS approved the 1999 Employee
Stock Purchase Plan (Purchase Plan) and terminated
all prior Paradigm employee stock purchase plans. Under the
Purchase Plan, substantially all employees may purchase the
Companys common stock at a price equal to 85.0% of the
lower of the fair market value at the beginning or the end of
each specified six-month offering period. Stock purchases are
limited to 15.0% of an employees eligible compensation.
There are 500,000 shares of common stock reserved for
issuance under the Purchase Plan. During the year ended
March 31, 2004, there were 61,594 shares purchased
under the Purchase Plan.

59



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value for the purchase rights issued
under the Purchase Plan using the Black-Scholes valuation model
with the following weighted average assumptions:

|                        |  |                      |  |           |  |          
|----------------------- |  | -------------------- |  | --------- |  | ---------
|                        |  |                     
|                        |  | Year Ended March 31,
|                        |  |                     
|                        |  | 2004                 |  | 2003      |  | 2002     
|                        |  |                      |  |           |  |          
|Risk-free interest rate |  | 1.02%                |  | 1.22%     |  | 2.52%    
|Expected life           |  | 0.5 years            |  | 0.5 years |  | 0.5 years
|Volatility              |  | 100%                 |  | 104%      |  | 103%     
|Dividend yield          |  | 0%                   |  | 0%        |  | 0%       

The weighted average fair value per share of
those purchase rights granted in 2004, 2003 and 2002 was $6.16,
$2.70 and $3.15, respectively.



|    |                                          
|--- | -----------------------------------------
|10. | Employee Savings and Retirement
    Plan:

IXYS has a 401(k) plan, known as the
IXYS Corporation and Subsidiary Employee Savings and
Retirement Plan. Eligibility to participate in the plan is
subject to certain minimum service requirements. Employees may
voluntarily contribute up to 20% of yearly compensation and IXYS
may make matching contributions as determined by the Board of
Directors in a resolution on or before the end of the fiscal
year. Employees are 100% vested immediately in any contributions
by IXYS. For the years ended March 31, 2004, 2003 and 2002,
IXYS contributed $378,000, $424,000 and $136,000, respectively.



|    |                            
|--- | ---------------------------
|11. | Related Party Transactions:

ABB is a principal stockholder of IXYS. In fiscal
years 2004, 2003 and 2002, IXYS generated revenues of
$2,693,000, $2,711,000 and $808,000, respectively, from sales of
products to ABB and ABBs affiliates for use as components
in their products.



|    |               
|--- | --------------
|12. | Pension Plans:

Employees of IXYS GmbH, Westcode and Clare, Inc.
foreign subsidiaries participate in a number of employee
retirement plans, including a defined benefit pension plan, the
benefits for which will be paid out of the general assets of
IXYS GmbH, Westcode and Clare, Inc. foreign subsidiaries, as
well as other government sponsored retirement plans to which
IXYS GmbH, Westcode and Clare, Inc. foreign subsidiaries and
eligible employees are required to contribute. These retirement
plans conform to local practice in terms of providing minimum
benefits mandated by law, collective agreements or customary
practice.

In addition to providing income at retirement,
many of these plans also provide survivor, termination and
disability benefits. The defined benefits pension plan covers
substantially all employees and benefits are based on years of
service and the employees compensation.

60



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Net Period Pension Cost:

The net periodic pension expense includes the
following components:

|                                              |  |                      |       |      |  |      |       |   |  |   |      |  
|--------------------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                              |  |                     
|                                              |  | Year Ended March 31,
|                                              |  |                     
|                                              |  | 2004                 |       | 2003 |  | 2002
|                                              |  |                      |       |      |  |     
|                                              |  |                     
|                                              |  | (In thousands)      
|Service cost                                  |  | $                    | 750   |      |  | $    | 750   |   |  | $ | 214  |  
|Interest cost on projected benefit obligation |  |                      | 1,397 |      |  |      | 1,245 |   |  |   | 424  |  
|Expected return on plan assets                |  |                      | (762  | )    |  |      | (957  | ) |  |   | 46   |  
|Recognized actuarial loss (gain)              |  |                      | 181   |      |  |      | 63    |   |  |   | (280 | )
|                                              |  |                      |       |      |  |      |       |   |  |   |      |  
|Net periodic pension expense                  |  | $                    | 1,566 |      |  | $    | 1,101 |   |  | $ | 404  |  
|                                              |  |                      |       |      |  |      |       |   |  |   |      |  



| |               
| | --------------
| | Funded Status:

|                             |                                                            |                |   |        |   |  |   |        |  
|---------------------------- | ---------------------------------------------------------- | -------------- | - | ------ | - |  | - | ------ | -
|                             |                                                            |               
|                             |                                                            | March 31,     
|                             |                                                            |               
|                             |                                                            | 2004           |   | 2003  
|                             |                                                            |                |   |       
|                             |                                                            |               
|                             |                                                            | (In thousands)
|Change in benefit obligation |                                                            |                |   |        |   |  |   |       
|                             | Benefit obligation at the beginning of the year            |                | $ | 24,469 |   |  | $ | 19,612 |  
|                             | Additional benefit obligation acquired during the
    year |                |   |       |   |  |   | 86     |  
|                             | Service cost                                               |                |   | 750    |   |  |   | 750    |  
|                             | Interest cost                                              |                |   | 1,397  |   |  |   | 1,245  |  
|                             | Plan participants contribution                             |                |   | 294    |   |  |   | 131    |  
|                             | Actuarial loss (gain)                                      |                |   | 1,915  |   |  |   | 539    |  
|                             | Benefits paid                                              |                |   | (646   | ) |  |   | (656   | )
|                             | Foreign currency translation adjustment                    |                |   | 2,320  |   |  |   | 2,762  |  
|                             |                                                            |                |   |        |   |  |   |       
|                             | Benefit obligation at the end of the year                  |                | $ | 30,499 |   |  | $ | 24,469 |  
|                             |                                                            |                |   |        |   |  |   |       

|                      |                                                            |                |   |        |   |  |   |        |  
|--------------------- | ---------------------------------------------------------- | -------------- | - | ------ | - |  | - | ------ | -
|                      |                                                            |               
|                      |                                                            | March 31,     
|                      |                                                            |               
|                      |                                                            | 2004           |   | 2003  
|                      |                                                            |                |   |       
|                      |                                                            |               
|                      |                                                            | (In thousands)
|Change in plan assets |                                                            |                |   |        |   |  |   |       
|                      | Fair value of plan assets at the beginning of the
    year |                | $ | 10,480 |   |  | $ | 11,975 |  
|                      | Actual return on plan assets                               |                |   | 2,559  |   |  |   | (3,085 | )
|                      | Employer contribution                                      |                |   | 938    |   |  |   | 667    |  
|                      | Plan participant contribution                              |                |   | 294    |   |  |   | 131    |  
|                      | Benefits paid                                              |                |   | (322   | ) |  |   | (438   | )
|                      | Foreign currency translation adjustment                    |                |   | (497   | ) |  |   | 1,230  |  
|                      |                                                            |                |   |        |   |  |   |       
|                      | Fair value of plan assets at the end of the year           |                | $ | 13,452 |   |  | $ | 10,480 |  
|                      |                                                            |                |   |        |   |  |   |       

61



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|               |                                           |                |   |         |   |  |   |         |  
|-------------- | ----------------------------------------- | -------------- | - | ------- | - |  | - | ------- | -
|               |                                           |               
|               |                                           | March 31,     
|               |                                           |               
|               |                                           | 2004           |   | 2003   
|               |                                           |                |   |        
|               |                                           |               
|               |                                           | (In thousands)
|Status of plan |                                           |                |   |         |   |  |   |        
|               | Plan obligations in excess of plan assets |                | $ | (17,047 | ) |  | $ | (13,989 | )
|               | Unrecognized actuarial loss               |                |   | 3,784   |   |  |   | 3,885   |  
|               | Net loss                                  |                |   | 1,204   |   |  |   | 180     |  
|               |                                           |                |   |         |   |  |   |        
|               | Accrued benefit                           |                | $ | (12,059 | ) |  | $ | (9,924  | )
|               |                                           |                |   |         |   |  |   |        

|                                |                                                           |                |   |         |   |  |   |        |  
|------------------------------- | --------------------------------------------------------- | -------------- | - | ------- | - |  | - | ------ | -
|                                |                                                           |               
|                                |                                                           | March 31,     
|                                |                                                           |               
|                                |                                                           | 2004           |   | 2003   
|                                |                                                           |                |   |        
|                                |                                                           |               
|                                |                                                           | (In thousands)
|Reconciliation of funded status |                                                           |                |   |         |   |  |   |       
|                                | Accrued pension cost at the beginning of the year         |                | $ | (9,924  | ) |  | $ | (7,373 | )
|                                | Additional pension liability acquired during the
    year |                |   |        |   |  |   | (86    | )
|                                | Net period pension cost                                   |                |   | (1,760  | ) |  |   | (1,126 | )
|                                | Cash contribution                                         |                |   | 938     |   |  |   | 621    |  
|                                | Benefits paid                                             |                |   | 325     |   |  |   | 341    |  
|                                | Foreign currency translation adjustment                   |                |   | (1,638  | ) |  |   | (2,301 | )
|                                |                                                           |                |   |         |   |  |   |       
|                                | Accrued pension cost at the end of the year               |                | $ | (12,059 | ) |  | $ | (9,924 | )
|                                |                                                           |                |   |         |   |  |   |       

|            |                                             |           |  |            |   |  |  |            |  
|----------- | ------------------------------------------- | --------- |  | ---------- | - |  |  | ---------- | -
|            |                                             |          
|            |                                             | March 31,
|            |                                             |          
|            |                                             | 2004      |  | 2003      
|            |                                             |           |  |           
|Assumptions |                                             |           |  |            |   |  |  |           
|            | Discount rate                               |           |  | 5.50       | % |  |  | 5.00- 5.75 | %
|            | Expected long-term rate of return on assets |           |  | 4.20- 7.40 | % |  |  | 4.60- 7.20 | %
|            | Salary scale                                |           |  | 2.20- 4.40 | % |  |  | 2.40- 4.00 | %



|    |              
|--- | -------------
|13. | Income Taxes:

Income (loss) before income tax provision
(benefit) consists of the following (in thousands):

|              |  |                      |         |      |  |      |         |   |  |   |        |  
|------------- |  | -------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|              |  |                     
|              |  | Year Ended March 31,
|              |  |                     
|              |  | 2004                 |         | 2003 |  | 2002
|              |  |                      |         |      |  |     
|Domestic      |  | $                    | (10,810 | )    |  | $    | (17,322 | ) |  | $ | 4,764  |  
|International |  |                      | 4,737   |      |  |      | (539    | ) |  |   | (1,642 | )
|              |  |                      |         |      |  |      |         |   |  |   |        |  
|              |  | $                    | (6,073  | )    |  | $    | (17,861 | ) |  | $ | 3,122  |  
|              |  |                      |         |      |  |      |         |   |  |   |        |  

62



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

IXYSs provision for (benefit from) income
taxes consists of the following (in thousands):

|          |         |                                      |      |        |        |      |        |        |        |   |     |       |       | 
|--------- | ------- | ------------------------------------ | ---- | ------ | ------ | ---- | ------ | ------ | ------ | - | --- | ----- | ----- | 
|          |         |                                     
|          |         | Year Ended March 31,                
|          |         |                                     
|          |         | 2004                                 |      | 2003   |        | 2002
|          |         |                                      |      |        |        |     
|Current:  |         |                                      |      |        |        |      |        |        |        |   |     |      
|          | Federal |                                      | $    | (1,653 | )      |      | $      |       |        |   | $   | 429   |      
|          | State   |                                      |      | 25     |        |      |        | 30     |        |   |     | 87    |      
|          | Foreign |                                      |      | 961    |        |      |        | 819    |        |   |     | (193  | )    
|          |         |                                      |      |        |        |      |        |        |        |   |     |      
|          |         |                                      | (667 | )      |        |      | 849    |        |        |   | 323 |      
|          |         |                                      |      |        |        |      |        |        |        |   |     |      
|Deferred: |         |                                      |      |        |        |      |        |        |        |   |     |      
|          | Federal |                                      |      | (1,740 | )      |      |        | (6,458 | )      |   |     | 1,103 |      
|          | State   |                                      |      | 98     |        |      |        | (546   | )      |   |     | 176   |      
|          | Foreign |                                      |      | 668    |        |      |        | 439    |        |   |     | (418  | )    
|          |         |                                      |      |        |        |      |        |        |        |   |     |      
|          |         |                                      | (974 | )      |        |      | (6,565 | )      |        |   | 861 |      
|          |         |                                      |      |        |        |      |        |        |        |   |     |      
|          |         | Total income tax provision (benefit) |      | $      | (1,641 | )    |        | $      | (5,716 | ) |     | $     | 1,184 | 
|          |         |                                      |      |        |        |      |        |        |        |   |     |      

IXYSs effective tax rate differed from the
statutory federal income tax rate for the years ended
March 31, 2004, 2003 and 2002 as shown in the following
table:

|                                            |  |                      |     |      |  |      |     |    |  |  |    |  
|------------------------------------------- |  | -------------------- | --- | ---- |  | ---- | --- | -- |  |  | -- | -
|                                            |  |                     
|                                            |  | Year Ended March 31,
|                                            |  |                     
|                                            |  | 2004                 |     | 2003 |  | 2002
|                                            |  |                      |     |      |  |     
|Statutory federal income tax (benefit) rate |  |                      | (35 | )%   |  |      | (35 | )% |  |  | 35 | %
|State taxes, net of federal tax benefit     |  |                      | 2   |      |  |      | (4  | )  |  |  | 4  |  
|Foreign earnings taxed at different rates   |  |                      | 6   |      |  |      | 7   |    |  |  |   |  
|Other                                       |  |                      |    |      |  |      |    |    |  |  | (1 | )
|                                            |  |                      |     |      |  |      |     |    |  |  |    |  
|Effective tax rate                          |  |                      | (27 | )%   |  |      | (32 | )% |  |  | 38 | %
|                                            |  |                      |     |      |  |      |     |    |  |  |    |  

The components of net deferred income tax assets
are as follows (in thousands):

|                     |                                       |                                      |   |        |        |  |   |        |        | 
|-------------------- | ------------------------------------- | ------------------------------------ | - | ------ | ------ |  | - | ------ | ------ | 
|                     |                                       |                                     
|                     |                                       | March 31,                           
|                     |                                       |                                     
|                     |                                       | 2004                                 |   | 2003  
|                     |                                       |                                      |   |       
|Deferred tax assets: |                                       |                                      |   |        |        |  |   |       
|                     | Reserves                              |                                      | $ | 4,698  |        |  | $ | 5,871  |       
|                     | Other liabilities and accruals        |                                      |   | 3,237  |        |  |   | 4,414  |       
|                     |                                       |                                      |   |        |        |  |   |       
|                     |                                       | Total short term deferred tax assets |   |        | 7,935  |  |   |        | 10,285 | 
|                     | Depreciable assets                    |                                      |   | 169    |        |  |   | 747    |       
|                     | Net operating loss carried forward    |                                      |   | 11,341 |        |  |   | 3,392  |       
|                     | Intangibles arising from acquisitions |                                      |   | (2,173 | )      |  |   | (1,576 | )     
|                     |                                       |                                      |   |        |        |  |   |       
|                     |                                       | Net deferred tax asset               |   | $      | 17,272 |  |   | $      | 12,848 | 
|                     |                                       |                                      |   |        |        |  |   |       

As of March 31, 2004, the Company had net
operating loss carryforwards of approximately $20.6 million
and $2.2 million for federal and state, respectively, in
the U.S. and $9.0 million in the UK available to reduce its
future taxable income. The US net operating losses begin to
expire in 2012 and 2014 for federal and state respectively,
while the UK net operating losses can be carried forward
indefinitely.

63



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Currently, management has determined that no
valuation allowance is required against its deferred tax assets
as it is more likely than not that the deferred tax assets can
be realized. A valuation allowance is required to reduce our
deferred tax assets to the amount that is more likely than not
to be realized. In determining the amount of the valuation
allowance, we consider estimated future taxable income as well
as feasible tax planning strategies in each taxing jurisdiction
in which we operate. If we determine that we will not realize
all or a portion of our remaining deferred tax assets, we will
increase our valuation allowance with a charge to income tax
expense. Conversely, if we determine that we will ultimately be
able to utilize all or a portion of the deferred tax assets for
which a valuation allowance has been provided, the related
portion of the valuation allowance will be released to income as
a credit to income tax expense. Significant management judgment
is required in determining our provision for income taxes, our
deferred tax assets and liabilities and any valuation allowance
recorded against our net deferred tax assets. In the event that
actual results differ from these estimates or we adjust these
estimates in future periods, we may need to establish a
valuation allowance which could materially impact our financial
position and results of operations. Our ability to utilize our
deferred tax assets and the continuing need for a related
valuation allowance are monitored on an ongoing basis.

Under the Tax Reform Act of 1986, the amounts of
and benefits from net operating loss carryforwards and credit
carryforwards may be impaired or limited in certain
circumstances. Events which may restrict utilization of a
companys net operating loss and credit carryforwards
include, but are not limited to, certain ownership change
limitations and continuity of business requirements as defined
in Internal Revenue Code Section 382 and similar state
provisions. In the event the Company has had a change of
ownership, defined as a cumulative ownership change of more than
50% over a three-year period, utilization of carryforwards could
be restricted to an annual limitation. The annual limitation may
result in the expiration of net operating loss carryforwards and
credit carryforwards before utilization.

The Company files income tax returns with the
taxing authorities in the various jurisdictions in which it
operates. Certain of these income tax returns remain subject to
audit by the local tax authorities. Management believes that the
resolution of any issues raised by such taxing authorities,
including application of any related determinations to
subsequent open years, will not have an adverse effect on the
Companys financial condition or results of operations.



|    |                                                
|--- | -----------------------------------------------
|14. | Computation of Net Income (Loss) Per
    Share:

Basic and diluted earnings per share are
calculated as follows (in thousands, except per share amounts):

|         |                                                              |                      |   |        |   |      |   |         |   |  |   |        | 
|-------- | ------------------------------------------------------------ | -------------------- | - | ------ | - | ---- | - | ------- | - |  | - | ------ | 
|         |                                                              |                     
|         |                                                              | Year Ended March 31,
|         |                                                              |                     
|         |                                                              | 2004                 |   | 2003   |   | 2002
|         |                                                              |                      |   |        |   |     
|Basic:   |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Weighted-average shares                                      |                      |   | 32,434 |   |      |   | 30,889  |   |  |   | 26,745 | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Net income (loss)                                            |                      | $ | (4,432 | ) |      | $ | (12,145 | ) |  | $ | 1,938  | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Net income (loss) per share                                  |                      | $ | (0.14  | ) |      | $ | (0.39   | ) |  | $ | 0.07   | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|Diluted: |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Weighted-average shares                                      |                      |   | 32,434 |   |      |   | 30,889  |   |  |   | 26,745 | 
|         | Common equivalent shares from stock options and
    warrants |                      |   |       |   |      |   |        |   |  |   | 2,259  | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Shares used in per share calculation                         |                      |   | 32,434 |   |      |   | 30,889  |   |  |   | 29,004 | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Net income (loss)                                            |                      | $ | (4,432 | ) |      | $ | (12,145 | ) |  | $ | 1,938  | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       
|         | Net income (loss) per share                                  |                      | $ | (0.14  | ) |      | $ | (0.39   | ) |  | $ | 0.07   | 
|         |                                                              |                      |   |        |   |      |   |         |   |  |   |       

64



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2004 and 2003, there were outstanding options
to purchase 5,248,449 and 4,922,896 shares at weighted
average prices of $6.28 and $6.07, respectively, that were not
included in the computation of net loss per share because their
effect was anti-dilutive. In 2002, there were outstanding
options to purchase 207,800 shares at a weighted
average price of $22.92 that were not included in the
computation of dilutive net income per share since the exercise
prices of the options exceeded the market price of the common
stock. These options could dilute earnings per share in future
periods.



|    |                                    
|--- | -----------------------------------
|15. | Segment and Geographic Information:

IXYS operates in a single industry segment
comprising power semiconductors and integrated circuits used
primarily in controlling energy in motor drives, power
conversion (including uninterruptible power supplies and switch
mode power supplies) and medical electronics. IXYS sales
by major geographic area (based on destination) were as follows:

|                           |       |                      |        |         |  |      |        |         |  |   |        |        | 
|-------------------------- | ----- | -------------------- | ------ | ------- |  | ---- | ------ | ------- |  | - | ------ | ------ | 
|                           |       |                     
|                           |       | Year Ended March 31,
|                           |       |                     
|                           |       | 2004                 |        | 2003    |  | 2002
|                           |       |                      |        |         |  |     
|North America              |       | $                    | 68,046 |         |  | $    | 57,495 |         |  | $ | 27,224 |       
|Europe and the Middle East |       |                      | 71,274 |         |  |      | 53,569 |         |  |   | 43,291 |       
|Japan                      |       |                      | 4,782  |         |  |      | 4,003  |         |  |   | 1,284  |       
|Asia Pacific               |       |                      | 43,340 |         |  |      | 21,044 |         |  |   | 11,022 |       
|                           |       |                      |        |         |  |      |        |         |  |   |        |       
|                           | Total |                      | $      | 187,442 |  |      | $      | 136,111 |  |   | $      | 82,821 | 
|                           |       |                      |        |         |  |      |        |         |  |   |        |       

There was no single end customer providing more
than 10% of IXYSs sales for the years ended March 31,
2004, 2003 and 2002.

Sales in North America consist primarily of sales
in the U.S. Sales in Europe and the Middle East consist
primarily of sales in Germany, the United Kingdom and Italy.
Sales in Asia Pacific consist primarily of sales in China and
Korea.

IXYSs foreign operations consist of those
of its subsidiaries, IXYS GmbH and IXYS Berlin in Germany, IXYS
CH in Switzerland and Westcode in the United Kingdom. The
following table summarizes the net revenues, net income (loss)
and long-lived assets of IXYSs U.S. and foreign operations
(in thousands):

|                  |           |                      |         |         |   |      |         |         |   |   |        |        |  
|----------------- | --------- | -------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|                  |           |                     
|                  |           | Year Ended March 31,
|                  |           |                     
|                  |           | 2004                 |         | 2003    |   | 2002
|                  |           |                      |         |         |   |     
|Net Revenues:     |           |                      |         |         |   |      |         |         |   |   |        |       
|                  | Foreign   |                      | $       | 86,533  |   |      | $       | 64,977  |   |   | $      | 55,597 |  
|                  | IXYS U.S. |                      |         | 100,909 |   |      |         | 71,134  |   |   |        | 27,224 |  
|                  |           |                      |         |         |   |      |         |         |   |   |        |       
|                  |           | $                    | 187,442 |         |   | $    | 136,111 |         |   | $ | 82,821 |       
|                  |           |                      |         |         |   |      |         |         |   |   |        |       
|Net Income(loss): |           |                      |         |         |   |      |         |         |   |   |        |       
|                  | Foreign   |                      | $       | 3,206   |   |      | $       | (925    | ) |   | $      | (311   | )
|                  | IXYS U.S. |                      |         | (7,638  | ) |      |         | (11,220 | ) |   |        | 2,249  |  
|                  |           |                      |         |         |   |      |         |         |   |   |        |       
|                  |           | $                    | (4,432  | )       |   | $    | (12,145 | )       |   | $ | 1,938  |       
|                  |           |                      |         |         |   |      |         |         |   |   |        |       

65



---



##### Table of Contents



IXYS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |                |           |        |        |  |   |        |        | 
|------------------ | -------------- | --------- | ------ | ------ |  | - | ------ | ------ | 
|                   |                |          
|                   |                | March 31,
|                   |                |          
|                   |                | 2004      |        | 2003  
|                   |                |           |        |       
|Long Lived Assets: |                |           |        |        |  |   |        |       
|                   | Germany        |           | $      | 14,040 |  |   | $      | 14,771 | 
|                   | Switzerland    |           |        | 2,804  |  |   |        | 1,657  | 
|                   | IXYS U.S.      |           |        | 8,151  |  |   |        | 10,934 | 
|                   | United Kingdom |           |        | 4,411  |  |   |        | 4,026  | 
|                   |                |           |        |        |  |   |        |       
|                   |                | $         | 29,406 |        |  | $ | 31,388 |       
|                   |                |           |        |        |  |   |        |       

66



---



##### Table of Contents



Selected Quarterly Financial Data
(unaudited)

Fiscal Year
Ended March 31, 2004

|                                                                          |         |                                          |        |              |  |               |        |          |  |   |        |        |  |   |        |        | 
|------------------------------------------------------------------------- | ------- | ---------------------------------------- | ------ | ------------ |  | ------------- | ------ | -------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                          |         |                                         
|                                                                          |         | Three Months Ended                      
|                                                                          |         |                                         
|                                                                          |         | March 31,                                |        | December 31, |  | September 30, |        | June 30,
|                                                                          |         | 2004                                     |        | 2003         |  | 2003          |        | 2003    
|                                                                          |         |                                          |        |              |  |               |        |         
|                                                                          |         |                                         
|                                                                          |         | (In thousands, except per share amounts)
|Net revenues                                                              |         | $                                        | 53,676 |              |  | $             | 50,744 |          |  | $ | 42,926 |        |  | $ | 40,096 |       
|Gross profit                                                              |         |                                          | 7,871  |              |  |               | 12,045 |          |  |   | 11,237 |        |  |   | 12,341 |       
|Operating income (loss)                                                   |         |                                          | (5,296 | )            |  |               | 898    |          |  |   | 557    |        |  |   | 1,817  |       
|Net income (loss)                                                         |         | $                                        | (5,152 | )            |  | $             | 386    |          |  | $ | (109   | )      |  | $ | 443    |       
|Basic net income (loss) per share applicable to
    common stockholder    |         | $                                        | (0.16  | )            |  | $             | 0.01   |          |  | $ | 0.00   |        |  | $ | 0.01   |       
|Diluted net income (loss) per share applicable to
    common stockholders |         | $                                        | (0.16  | )            |  | $             | 0.01   |          |  | $ | 0.00   |        |  | $ | 0.01   |       
|Weighted average shares used in per share
    calculation                 |         |                                          |        |              |  |               |        |          |  |   |        |        |  |   |        |       
|                                                                          | Basic   |                                          |        | 32,858       |  |               |        | 32,772   |  |   |        | 32,213 |  |   |        | 31,972 | 
|                                                                          | Diluted |                                          |        | 32,858       |  |               |        | 34,805   |  |   |        | 32,213 |  |   |        | 33,116 | 

Fiscal Year
Ended March 31, 2003

|                                                                |         |                                          |        |              |  |               |        |          |  |   |        |        |  |   |        |        | 
|--------------------------------------------------------------- | ------- | ---------------------------------------- | ------ | ------------ |  | ------------- | ------ | -------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                |         |                                         
|                                                                |         | Three Months Ended                      
|                                                                |         |                                         
|                                                                |         | March 31,                                |        | December 31, |  | September 30, |        | June 30,
|                                                                |         | 2003                                     |        | 2002         |  | 2002          |        | 2002    
|                                                                |         |                                          |        |              |  |               |        |         
|                                                                |         |                                         
|                                                                |         | (In thousands, except per share amounts)
|Net revenues                                                    |         | $                                        | 37,819 |              |  | $             | 35,544 |          |  | $ | 35,311 |        |  | $ | 27,437 |       
|Gross profit                                                    |         |                                          | 4,329  |              |  |               | 8,803  |          |  |   | 9,232  |        |  |   | 6,376  |       
|Operating loss                                                  |         |                                          | (7,072 | )            |  |               | (1,826 | )        |  |   | (2,664 | )      |  |   | (1,015 | )     
|Net loss                                                        |         |                                          | (5,505 | )            |  |               | (1,787 | )        |  |   | (3,435 | )      |  |   | (1,418 | )     
|Basic net loss per share applicable to common
    stockholder   |         | $                                        | (0.17  | )            |  | $             | (0.06  | )        |  | $ | (0.11  | )      |  | $ | (0.05  | )     
|Diluted net loss per share applicable to common
    stockholder |         | $                                        | (0.17  | )            |  | $             | (0.06  | )        |  | $ | (0.11  | )      |  | $ | (0.05  | )     
|Weighted average shares used in per share
    calculation       |         |                                          |        |              |  |               |        |          |  |   |        |        |  |   |        |       
|                                                                | Basic   |                                          |        | 31,918       |  |               |        | 31,797   |  |   |        | 31,842 |  |   |        | 27,999 | 
|                                                                | Diluted |                                          |        | 31,918       |  |               |        | 31,797   |  |   |        | 31,842 |  |   |        | 27,999 | 






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

An evaluation was carried out under the
supervision and with the participation of our Chief Executive
Officer and our Chief Financial Officer of the effectiveness of
our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) as of March 31,
2004. This evaluation included various processes that were
carried out in an effort to ensure that information required to
be disclosed in our SEC reports is recorded, processed,
summarized and reported within the time periods specified by the
SEC. This evaluation also included consideration of certain
aspects of our internal controls and procedures for the
preparation of our financial statements.

67



---



##### Table of Contents



In evaluating these internal controls we sought
to determine whether there were any significant
deficiencies and in particular whether there were any
material weaknesses. Under the applicable accounting
literature, significant deficiencies are referred to
as reportable conditions, which are control issues
that could have a significant adverse effect on our ability to
record, process, summarize and report financial data in the
financial statements. A material weakness is defined
as a particularly serious reportable condition where the
internal control does not reduce to a relatively low level the
risk that misstatements caused by the error may occur in amounts
that would be material in relation to the financial statements
and that such misstatements would not be detected timely by
employees in the normal course of performing their assigned
functions.

Our auditors, PricewaterhouseCoopers LLP, or PwC,
as a result of their audit of the results of our year ended
March 31, 2004 have informed us of a material weakness. In
the planning and performance of the review, PwC considered the
internal controls in order to complete its review of the
financial statements and not to provide assurance on internal
controls. Had PwC performed an attestation engagement of the
internal controls as of March 31, 2004, reportable
conditions and/or other material weaknesses may have come to the
attention of PwC. The material weakness identified as a result
of the PwC audit procedures related to inventory accounting.
Certain of our inventory processes were not reviewed by a
supervisor in sufficient detail, resulting in inaccurate
adjustments. PwC also observed a lack of procedures to track
inventory transactions related to cut-off issues.

Our Chief Executive Officer, Chief Financial
Officer, and audit committee are aware of these conditions. The
following factors contributed to the aforementioned control
conditions:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | rapid growth of the company through acquisitions
    and market conditions;
|
| |  | turnover of key finance personnel; and,                                    
|
| |  | integration of legacy accounting and information
    systems.              

The material weakness may also constitute a
deficiency in our disclosure controls. In light of the material
weakness and the requirements enacted in the Sarbanes-Oxley Act
of 2002 and the related rules and regulations adopted by the
SEC, our Chief Executive Officer and Chief Financial Officer
concluded that, as of March 31, 2004, our disclosure
controls and procedures needed improvement and were not
adequately effective.

We intend to implement changes to our internal
controls in the future to address the material weakness. We will
consider implementation of the following, as well as other
additional procedures:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | designing and implementing procedures to
    strengthen our internal controls;                                                                                                                                                                                                        
|
| |  | reviewing our accounting systems with a view
    towards upgrading them; and                                                                                                                                                                                                          
|
| |  | formalizing the consolidated enterprises
    internal controls and procedures for financial reporting in
    accordance with the SECs rules implementing the internal
    control report requirements included in Section 404 of the
    Sarbanes-Oxley Act of 2002, or Section 404.

To this end, during fiscal 2004, we commenced our
efforts to comply with the SECs rules for the internal
control requirements included in Section 404. Changes have
been made and will be made to our internal controls as a result
of these efforts.

We have committed significant resources to
address the internal control deficiencies identified to date.
However, certain of the procedures and actions deemed desirable
by management have not been fully implemented to date. It will
take additional time to complete implementation and realize the
benefits of our actions. Management intends to continue to work
towards a resolution of the control deficiencies.

We have no reason to believe that the financial
statements included in this report are not fairly stated in all
material respects. However, new problems could be identified in
the future. We expect to continue to improve our controls in a
multi-period effort to achieve disclosure controls and
procedures and internal controls satisfactory for a company of
our size in the semiconductor industry.

68



---



##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Our board of directors is currently comprised of
five directors. Our directors and executive officers, their ages
and positions at IXYS, as well as certain biographical
information of these individuals, are set forth below. The ages
of the individuals are provided as of March 31, 2004.

|                   |  |     |    |             |  |                                                                                    
|------------------ |  | --- | -- | ----------- |  | -----------------------------------------------------------------------------------
|Name               |  | Age |    | Position(s)
|                   |  |     |    |            
|Nathan Zommer      |  |     | 56 |             |  | Chairman of the Board, President and Chief
    Executive Officer                   
|Arnold P. Agbayani |  |     | 58 |             |  | Senior Vice President, Finance, Chief Financial
    Officer, Secretary and Director
|Donald L. Feucht   |  |     | 70 |             |  | Director                                                                           
|Samuel Kory        |  |     | 60 |             |  | Director                                                                           
|S. Joon Lee        |  |     | 64 |             |  | Director                                                                           
|Peter H. Ingram    |  |     | 55 |             |  | President of European Operations                                                   
|Kevin McDonough    |  |     | 52 |             |  | President of U.S. Operations                                                       

Nathan Zommer.Dr. Zommer, our founder, has served as a Director since our
inception in 1983, and has served as Chairman of the Board,
President and Chief Executive Officer since 1993. From 1984 to
1993, Dr. Zommer served as our Executive Vice President.
Prior to founding IXYS, Dr. Zommer served in a variety of
positions with Intersil, Hewlett Packard and General Electric,
including as a scientist in the Hewlett Packard Laboratories and
Director of the Power MOS Division for Intersil/General
Electric. Dr. Zommer received his B.S. and M.S. degrees in
Physical Chemistry from Tel Aviv University and a Ph.D. in
Electrical Engineering from Carnegie Mellon University.

Arnold P. Agbayani.Mr. Agbayani has served as our Senior Vice President,
Finance, Chief Financial Officer, Secretary and Director since
1993. From 1989 to 1993, he served as our Controller. Prior to
joining us, Mr. Agbayani held various financial positions
with National Semiconductor, Fairchild Camera and Instruments,
ATARI and Frito-Lay. Mr. Agbayani received his B.S. in
Finance and an M.B.A. from Roosevelt University of Chicago.

Donald L. Feucht.Dr. Feucht has served as Director since July 2000. From
1992 until his retirement in 1998, Dr. Feucht served as
Vice President for Operations for Associated Western
Universities. He was employed as a Program Management Specialist
for EG&G Rocky Flats, Inc. from 1990 until 1992. Prior to
1990, Dr. Feucht served in several positions with the
National Renewable Energy Laboratory, or NREL, including Deputy
Director. Prior to joining NREL, he served as Professor of
Electrical Engineering and Associate Dean at Carnegie-Mellon
University. Dr. Feucht received his B.S. degree in
Electrical Engineering from Valparaiso University and his M.S.
and Ph.D. degrees in Electrical Engineering from Carnegie-Mellon
University.

Samuel Kory.Mr. Kory has served as a Director since November 1999. In
1988, he founded Samuel Kory Associates, a management consulting
firm. Since founding the firm, Mr. Kory has served as the
firms sole proprietor and principal as well as a
consultant for the firm. Mr. Kory received his B.S.M.E.
from Pennsylvania State University in 1965.

S. Joon Lee.Dr. Lee has served as a Director since July 2000. Since
1990, Dr. Lee has served as President of Omni Electronics,
a sales representative company. Dr. Lee also served as
President of Adaptive Logic, a semiconductor company, from 1991
until 1996. Previously, Dr. Lee served as President of
Samsung Semiconductor. Dr. Lee received his B.S., M.S. and
Ph.D. degrees in Electrical Engineering from the University of
Minnesota.

Peter H. Ingram.Mr. Ingram has served as our President of European
Operations since 2000. From 1994 to 2000, he served as our Vice
President of European Operations. From 1989 to 1994, he served
as our Director of Wafer Fab Operations. Mr. Ingram worked
with the semiconductor operations of ABB from 1982

69



---



##### Table of Contents



until we acquired those operations in 1989.
Mr. Ingram received an Honors degree in Chemistry from the
University of Nottingham.


Kevin McDonough.Mr. McDonough has served as our President of
U.S. Operations since 2001. From 1999 to 2000, he served as
our Vice President of U.S. Operations. From 1998 to 1999,
he served as our Director of Quality Assurance and Product
Engineering, and from 1990 to 1994, he served as our Director of
Operations and Quality Assurance. From 1995 to 1998,
Mr. McDonough served as Manager of Wafer Fab Foundries for
Advanced Micro Devices. Mr. McDonough received his B.S. in
Zoology from the University of California at Davis and his
M.B.A. from Oregon State University.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities and Exchange
Act of 1934 requires our directors and executive officers and
persons who own more than ten percent of a registered class of
our equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock
and other of our equity securities. Officers, directors and
greater than ten percent stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a)
forms they file.

To our knowledge, based solely on a review of the
copies of such reports furnished to us during or with respect to
the fiscal year ended March 31, 2004, all
Section 16(a) filing requirements applicable to our
officers, directors and greater than ten percent beneficial
owners were complied with, except that Messrs. Feucht,
Kory, Lee, McDonough and Zommer each did not file on a timely
basis a Form 4 reporting a single grant of an option to
purchase shares of our common stock and Mr. Ingram did not
file on a timely basis a Form 4 reporting a single grant of
an option and a single exercise of an option to purchase our
common stock. Messrs. Feucht, Ingram, Kory, Lee, McDonough
and Zommer each have filed the required Form 4.

Audit Committee

Our Board of Directors has an Audit Committee,
consisting of Messrs. Feucht, Kory and Lee.
Messrs. Feucht and Lee are financially sophisticated under
the rules of Nasdaq, but the Audit Committee does not have a
financial expert under the rules of the Securities and Exchange
Commission, or SEC. Dr. Feucht was the chief operating
officer of a not-for-profit organization. Dr. Lee was the
chief executive officer of two companies that designed,
manufactured or sold semiconductors. In light of their
backgrounds, our board of directors believes that the
incremental compensation expense necessary to add to the Audit
Committee and the Board of Directors an individual solely for
the purpose of satisfying the SEC standard for a financial
expert is not an appropriate expenditure of the companys
resources.

Code of Ethics

We have adopted a code of ethics that applies to
our principal executive officer and principal financial and
accounting officer. Our code of ethics is posted on our Website,
www.ixys.com, and may be found by clicking on Code of
Ethics under the heading Investor Relations.
We intend to satisfy the disclosure requirement under
Form 8-K regarding any amendment to, or waiver from, a
provision of this code of ethics by posting such information on
our website, at the address and location specified above.

70



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The following table presents a summary of the
compensation paid by IXYS during the fiscal years ended
March 31, 2004, March 31, 2003 and March 31, 2002
to our President and Chief Executive Officer and to our other
executive officers whose annual salary and bonus exceeded
$100,000 for services rendered to us in all capacities during
such years.

|                            |                            |      |      |            |  |           |         |              |  |             |         |                  |  |  |        |        |  |  |         |         |  |  |       |        | 
|--------------------------- | -------------------------- | ---- | ---- | ---------- |  | --------- | ------- | ------------ |  | ----------- | ------- | ---------------- |  |  | ------ | ------ |  |  | ------- | ------- |  |  | ----- | ------ | 
|                            |                            |      |      |            |  |           |         | Other Annual |  | Securities  |         |                 
|                            |                            |      |      |            |  |           |         | Compensation |  | Underlying  |         | All other       
|Name and Principal Position |                            | Year |      | Salary ($) |  | Bonus ($) |         | ($)(1)       |  | Options (#) |         | Compensation ($)
|                            |                            |      |      |            |  |           |         |              |  |             |         |                 
|Nathan Zommer               |                            |      | 2004 |            |  |           | 386,154 |              |  |             | 250,320 |                  |  |  | 16,705 |        |  |  | 150,000 |         |  |  | 8,633 | (2)   
|                            | President and Chief        |      |      | 2003       |  |           |         | 400,000      |  |             |         | 275,000          |  |  |        | 24,946 |  |  |         | 280,000 |  |  |       | 9,260  | 
|                            | Executive Officer          |      |      | 2002       |  |           |         | 315,962      |  |             |         | 300,000          |  |  |        | 32,217 |  |  |         | 160,000 |  |  |       | 13,083 | 
|Arnold P. Agbayani          |                            |      | 2004 |            |  |           | 212,385 |              |  |             | 122,400 |                  |  |  | 15,798 |        |  |  |        |         |  |  | 2,830 | (3)   
|                            | Senior Vice President,     |      |      | 2003       |  |           |         | 220,000      |  |             |         | 100,000          |  |  |        | 28,875 |  |  |         | 125,000 |  |  |       | 2,830  | 
|                            | Finance, and Chief         |      |      | 2002       |  |           |         | 176,154      |  |             |         | 110,000          |  |  |        | 32,217 |  |  |         | 95,000  |  |  |       | 2,830  | 
|                            | Financial Officer          |      |      |            |  |           |         |              |  |             |         |                  |  |  |        |        |  |  |         |         |  |  |       |        | 
|Peter H. Ingram             |                            |      | 2004 |            |  |           | 211,987 |              |  |             |        |                  |  |  | 6,338  |        |  |  | 28,000  |         |  |  |      |       
|                            | President, European        |      |      | 2003       |  |           |         | 178,895      |  |             |         |                 |  |  |        | 5,260  |  |  |         | 100,000 |  |  |       |       | 
|                            | Operations                 |      |      | 2002       |  |           |         | 159,253      |  |             |         | 34,502           |  |  |        | 4,444  |  |  |         | 10,000  |  |  |       |       | 
|Kevin McDonough             |                            |      | 2004 |            |  |           | 167,534 |              |  |             |        |                  |  |  | 7,200  |        |  |  | 20,000  |         |  |  | 6,349 | (4)   
|                            | President, U.S. Operations |      |      | 2003       |  |           |         | 168,031      |  |             |         | 270              |  |  |        | 7,200  |  |  |         | 40,000  |  |  |       | 8,426  | 
|                            |                            |      |      | 2002       |  |           |         | 146,454      |  |             |         |                 |  |  |        | 7,200  |  |  |         | 50,000  |  |  |       | 7,893  | 



---



|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes car expense or allowance, and for
    Dr. Zommer and Mr. Agbayani, tax equalization payments
    and tax planning and preparation fees.
|   
|(2) | Includes $6,523 in 401(k) matching contributions
    and $2,110 in premiums paid for term life insurance.                                       
|   
|(3) | Represents premiums paid for term life insurance.                                                                                               
|   
|(4) | Represents 401(k) matching contributions.                                                                                                       

Option Grants in Last Fiscal Year

The following table presents information for the
fiscal year ended March 31, 2004 with respect to each grant
of stock options to the executive officers named in the summary
compensation table above.

|                |                                       |                 |         |                |  |           |      |            |  |                               |       |     |  |  |          |  |  |   |           |  |  |   |           |  | 
|--------------- | ------------------------------------- | --------------- | ------- | -------------- |  | --------- | ---- | ---------- |  | ----------------------------- | ----- | --- |  |  | -------- |  |  | - | --------- |  |  | - | --------- |  | 
|                |                                       |                 |         |                |  |           |      |            |  |                              
|                |                                       |                 |         |                |  |           |      |            |  | Potential Realizable Value at
|                |                                       |                 |         |                |  |           |      |            |  | Assumed Annual Rates of      
|                |                                       | # of Securities |         | % of Total     |  |           |      |            |  | Stock Price Appreciation     
|                |                                       | Underlying      |         | Options        |  | Exercise  |      |            |  | for Term(3)                  
|                |                                       | Options         |         | Granted in     |  | Price Per |      | Expiration |  |                              
|Name            |                                       | Granted(1)      |         | Fiscal Year(2) |  | Share ($) |      | Date       |  | 5%                            |       | 10%
|                |                                       |                 |         |                |  |           |      |            |  |                               |       |    
|Nathan Zommer   |                                       |                 | 150,000 |                |  |           | 20.1 |            |  |                               | 10.63 |     |  |  | 02/19/14 |  |  | $ | 1,002,772 |  |  | $ | 2,541,222 | 
|                | President and Chief Executive Officer |                 |         |                |  |           |      |            |  |                               |       |     |  |  |          |  |  |   |           |  |  |   |           |  | 
|Peter H. Ingram |                                       |                 | 28,000  |                |  |           | 3.8  |            |  |                               | 6.75  |     |  |  | 08/07/13 |  |  |   | 118,861   |  |  |   | 301,217   | 
|                | President, European Operations        |                 |         |                |  |           |      |            |  |                               |       |     |  |  |          |  |  |   |           |  |  |   |           |  | 
|Kevin McDonough |                                       |                 | 20,000  |                |  |           | 2.7  |            |  |                               | 6.75  |     |  |  | 08/07/13 |  |  |   | 84,901    |  |  |   | 215,155   | 
|                | President, U.S. Operations            |                 |         |                |  |           |      |            |  |                               |       |     |  |  |          |  |  |   |           |  |  |   |           |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options granted to each individual were granted
    pursuant to the IXYS 1999 Equity Incentive Plan and are subject
    to the terms of such plan. Exercise prices for these options are
    equal to the closing price of IXYSs common stock on the
    Nasdaq National Market on the date of grant, except
    Dr. Zommers options were priced 10% above such
    closing price.
|   
|(2) | Based on an aggregate of 746,000 options granted
    to employees and consultants of IXYS in fiscal year 2004
    including the named executive officers.                                                                                                                                                                                                                           

71



---



##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The potential realizable value is calculated
    based on the term of the option at its time of grant
    (10) years and is calculated by assuming that the stock
    price on the date of grant appreciates at the indicated annual
    rate compounded annually for the entire term of the option and
    that the option is exercised and sold on the last day of its
    term for the appreciated price. The 5% and 10% assumed rates of
    appreciation are derived from the rules of the Securities and
    Exchange Commission and do not represent IXYS estimate or
    projection of the future price of its common stock.

Aggregated Option Exercises in Last Fiscal
Year and Last Fiscal Year-End Option Values

The following table sets forth information with
respect to the number of securities underlying unexercised
options held by the named executive officers as of
March 31, 2004 and the value of unexercised in-the-money
options as of March 31, 2004.

|                   |                                                                |           |   |          |  |                           |   |                          |  |             |         |               |  |  |         |  |  |   |           |  |  |   |         |  | 
|------------------ | -------------------------------------------------------------- | --------- | - | -------- |  | ------------------------- | - | ------------------------ |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | --------- |  |  | - | ------- |  | 
|                   |                                                                |           |   |          |  |                           |   |                          |  |            
|                   |                                                                |           |   |          |  | Number of Securities      |   |                         
|                   |                                                                | Number    |   |          |  | Underlying Unexercised    |   | Value of Unexercised In-
|                   |                                                                | of Shares |   |          |  | Options at March 31, 2004 |   | The Money Options at    
|                   |                                                                | Acquired  |   | Value    |  | (#)                       |   | March 31, 2004 ($)(2)   
|                   |                                                                | on        |   | Realized |  |                           |   |                         
|Name               |                                                                | Exercise  |   | ($)(1)   |  | Exercisable               |   | Unexercisable            |  | Exercisable |         | Unexercisable
|                   |                                                                |           |   |          |  |                           |   |                          |  |             |         |              
|Nathan Zommer      |                                                                |           |  |          |  |                           |  |                          |  |             | 867,626 |               |  |  | 458,500 |  |  | $ | 5,094,721 |  |  | $ | 531,840 | 
|                   | President and Chief Executive Officer                          |           |   |          |  |                           |   |                          |  |             |         |               |  |  |         |  |  |   |           |  |  |   |         |  | 
|Arnold P. Agbayani |                                                                |           |  |          |  |                           |  |                          |  |             | 222,676 |               |  |  | 145,750 |  |  |   | 1,167,053 |  |  |   | 368,596 | 
|                   | Senior Vice President, Finance and Chief
    Financial Officer |           |   |          |  |                           |   |                          |  |             |         |               |  |  |         |  |  |   |           |  |  |   |         |  | 
|Peter H. Ingram    |                                                                |           |  |          |  |                           |  |                          |  |             | 246,226 |               |  |  | 107,000 |  |  |   | 1,466,186 |  |  |   | 362,360 | 
|                   | President, European Operations                                 |           |   |          |  |                           |   |                          |  |             |         |               |  |  |         |  |  |   |           |  |  |   |         |  | 
|Kevin McDonough    |                                                                |           |  |          |  |                           |  |                          |  |             | 285,600 |               |  |  | 73,000  |  |  |   | 1,684,448 |  |  |   | 256,280 | 
|                   | President, U.S. Operations                                     |           |   |          |  |                           |   |                          |  |             |         |               |  |  |         |  |  |   |           |  |  |   |         |  | 



---



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The value realized is based on the fair market
    value of IXYSs common stock on the date of exercise minus
    the exercise price.               
|   
|(2) | The valuations are based on the fair market value
    of IXYSs common stock on March 31, 2004 of $9.40
    minus the exercise price of the options.

Director Compensation

Each of our non-employee directors receives an
annual retainer of $15,000 as well as $1,000 for each meeting of
the board he attends and $600 for each committee meeting he
attends. In fiscal 2004, the total compensation paid to
non-employee directors was $89,861. Additionally, each of our
directors is reimbursed for certain expenses in connection with
attendance at our board and committee meetings and is reimbursed
for expenses incurred in preparing their personal income tax
returns and estate planning matters. Mr. Andreas Hartmann
of ABB, Ltd., who resigned from our board of directors in July
2003, did not receive compensation or expenses from us for his
service.

Our 1999 Non-Employee Directors Equity
Incentive Plan provides for the grant of options to non-employee
directors pursuant to a discretionary grant mechanism
administered by our board. These options vest over a period of
time, to be determined in each case by the board, so long as the
optionee remains a non-employee director. Each director
currently receives an option to acquire 30,000 shares upon
becoming a member of our board of directors. Prior to
July 29, 2002, each director could receive a loan from us
for up to $100,000, payable in three years from the date of
issuance, for use in exercising his options or paying taxes in
connection with such exercise of options.

During the last fiscal year, we granted options
covering 15,000 shares to each of Messrs. Feucht, Kory
and Lee, at an exercise price per share of $8.61. Each option
had an exercise price equal to the fair market value of

72



---



##### Table of Contents



such common stock on the date of grant (based on
the closing sales price reported on the Nasdaq National Market
for the date of grant). As of March 31, 2004, options had
been exercised under the Directors Plan to
purchase 8,250 shares of Common Stock.


Employment Contracts and Change-In-Control
Arrangements

We entered into an employment agreement, dated as
of January 1, 1995, with Dr. Nathan Zommer, our Chief
Executive Officer. The agreement provides for, among other
things, salaries, bonuses and car allowances as determined by
our board of directors. Under the terms of the agreement, we
agree to maintain term life insurance in the amount of
$1,000,000. In addition, the agreement provides that if we
terminate Dr. Zommers employment without cause,
Dr. Zommer shall be entitled to receive as severance his
monthly salary, incremented one month per year of service to us,
to a maximum of twelve months. The agreement also provides
Dr. Zommer with a paid annual physical exam and the limited
services of a financial advisor.

Dr. Zommers employment agreement was
first amended on July 1, 1998 to extend its term to
January 31, 2004. In the amended agreement,
Dr. Zommers annual bonus was 40% of his base salary,
which was increased to $285,000. Dr. Zommers
employment agreement was amended effective February 1, 2004
to extend its term to January 31, 2007. Under the current
amendment, Dr. Zommers salary is $480,000 and his
bonus, if any, for fiscal 2005 and thereafter is to be
determined by the Board of Directors. In addition, he is
eligible for an incentive bonus of three times his annual base
salary in the event of a transaction resulting in a change of
control of the company. If his employment terminates within a
year after a change of control event, Dr. Zommer is
entitled to receive severance equal to three times his average
annual compensation less any change of control bonus previously
paid, continued benefits for 18 months and accelerated
vesting of all option shares.

We entered into an employment agreement, dated as
of January 1, 1995, with Mr. Arnold P. Agbayani, our
Chief Financial Officer. The agreement provided for, among other
things, salaries, bonuses and car allowances as determined by
our board of directors. Under the terms of the agreement, we
agreed to maintain term life insurance in the amount of
$1,000,000. In addition, the agreement provided that if we
terminated Mr. Agbayanis employment without cause,
Mr. Agbayani was entitled to receive as severance his
monthly salary, incremented one month per year of service to us,
to a maximum of twelve months. The agreement also provided
Mr. Agbayani with a paid annual physical exam and the
limited services of a financial advisor.

Mr. Agbayanis employment agreement was
amended on July 1, 1998 to extend its term to
January 31, 2004. In the amended agreement,
Mr. Agbayanis annual bonus was 30% of his base
salary, which was increased to $160,000. In addition, he was
eligible for an incentive bonus of three times his annual base
salary in the event of a transaction resulting in a change of
control of the company. If his employment terminated within a
year after a change of control event, Mr. Agbayani was
entitled to receive severance equal to three times his average
annual compensation, continued benefits for 18 months and
accelerated vesting of all option shares. Effective
January 1, 2003, Mr. Agbayanis base salary was
increased to $220,000. Mr. Agbayanis employment
agreement expired on January 31, 2004.

Compensation Committee Interlocks and Insider
Participation

The members of the Compensation Committee for the
fiscal year ended March 31, 2004 were Messrs. Feucht,
Kory and, prior to his resignation, Hartmann. After the
resignation, Dr. Lee joined the committee. None of these
persons is an employee or officer of the company. Mr. Kory
was, during the 1980s, a Vice President of a predecessor of the
company. None of our executive officers serves as a member of
the board of directors or compensation committee of any other
entity that has one or more executive officers serving on our
Board or Compensation Committee.

73



---



##### Table of Contents








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table presents, as of May 15,
2004, certain information known to IXYS regarding the beneficial
ownership of our common stock by:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | each person who is known by us to be the
    beneficial owner of more than five percent of our outstanding
    shares of common stock;
|
| |  | each of our directors;                                                                                                                
|
| |  | each of the named executive officers; and                                                                                             
|
| |  | directors and executive officers as a group.                                                                                          

Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange
Act of 1934. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person, if, for example,
persons share the power to vote or the power to dispose of the
shares. In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire shares, for
example, upon exercise of an option or warrant, within
60 days of May 15, 2004. In computing the percentage
ownership of any person, the amount of shares is deemed to
include the amount of shares beneficially owned by such person,
and only such person, by reason of such acquisition rights. As a
result, the percentage of outstanding shares of any person as
shown in the following table does not necessarily reflect the
persons actual voting power at any particular date.

The percentage of beneficial ownership for the
following table is based on the 32,924,821 shares of our
common stock outstanding as of May 15, 2004. Unless
otherwise indicated, the address for each listed stockholder is:
c/o IXYS Corporation, 3540 Bassett Street,
Santa Clara, California 95054. To our knowledge, except as
otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all
shares of common stock.

|                                                                         |  |              |           |          |  |  |      |  
|------------------------------------------------------------------------ |  | ------------ | --------- | -------- |  |  | ---- | -
|                                                                         |  |             
|                                                                         |  | Beneficial  
|                                                                         |  | Ownership(1)
|                                                                         |  |             
|                                                                         |  | Number of    |           | Percent 
|Name and Address of Beneficial Owner                                     |  | Shares       |           | of Total
|                                                                         |  |              |           |         
|Directors and Executive Officers                                         |  |              |           |          |  |  |      |  
|Nathan Zommer(2)                                                         |  |              | 7,602,226 |          |  |  | 22.5 | %
|Arnold P. Agbayani(3)                                                    |  |              | 742,890   |          |  |  | 2.2  |  
|Peter H. Ingram(4)                                                       |  |              | 617,610   |          |  |  | 1.9  |  
|Kevin McDonough(5)                                                       |  |              | 297,510   |          |  |  | *    |  
|Donald L. Feucht(6)                                                      |  |              | 76,750    |          |  |  | *    |  
|Samuel Kory(7)                                                           |  |              | 69,550    |          |  |  | *    |  
|S. Joon Lee(8)                                                           |  |              | 76,750    |          |  |  | *    |  
|All directors and executive officers as a group
    (7 persons)(9)       |  |              | 9,485,286 |          |  |  | 27.2 |  
|5% Stockholders                                                          |  |              |           |          |  |  |      |  
|ABB, Ltd.(10)
    Gottlieb-Daimler Strasse 8
    68165 Mannheim, Germany |  |              | 5,161,046 |          |  |  | 15.7 |  



---



| |   |                         
| | - | ------------------------
| | * | Represents less than 1%.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table is based upon information supplied by
    officers, directors and principal stockholders and Schedules 13D
    and 13G filed with the Securities and Exchange Commission.
    Unless otherwise indicated in the footnotes to this table and
    subject to community property laws where applicable, we believe
    that each of the stockholders named in this table has sole
    voting and investment power with respect to the shares indicated
    as beneficially owned.

74



---



##### Table of Contents





|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes an aggregate of 5,200 shares held
    by or on behalf of Dr. Zommers children. Also
    includes 902,626 shares Dr. Zommer has the right to
    acquire pursuant to options exercisable within 60 days of
    May 15, 2004.
|   
|(3) | Includes 240,176 shares Mr. Agbayani
    has the right to acquire pursuant to options exercisable within
    60 days of May 15, 2004.                                                                                                
|   
|(4) | Includes 256,576 shares Mr. Ingram has
    the right to acquire pursuant to options exercisable within
    60 days of May 15, 2004.                                                                                                  
|   
|(5) | Includes 293,850 shares Mr. McDonough
    has the right to acquire pursuant to options exercisable within
    60 days of May 15, 2004.                                                                                               
|   
|(6) | Consists of shares Mr. Feucht has the right
    to acquire pursuant to options exercisable within 60 days
    of May 15, 2004.                                                                                                       
|   
|(7) | Includes 61,300 shares Mr. Kory has the
    right to acquire pursuant to options exercisable within
    60 days of May 15, 2004.                                                                                                     
|   
|(8) | Consists of shares Mr. Lee has the right to
    acquire pursuant to options exercisable within 60 days of
    May 15, 2004.                                                                                                          
|   
|(9) | See footnotes 1 through 8 above.                                                                                                                                                                                                     



|     |                                                                                                 
|---- | ------------------------------------------------------------------------------------------------
|(10) | Based on a Schedule 13D/ A filed by ABB,
    Ltd. and Asea Brown Boveri AG on November 26, 2003.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Related Party Transactions

Stock Purchase
Notes.On November 18, 1995,
Dr. Zommer and Mr. Agbayani purchased shares of common
stock. The shares were paid for with recourse promissory notes
in principal amount of $707,238.83 for Dr. Zommer and
$51,331.85 for Mr. Agbayani. The note terms provide that
quarterly installments of principal and accrued interest are
due, and all principal of the notes, plus accrued interest, is
due and payable September 15, 2005. The notes bear interest
at a rate of 6.25% per annum compounded annually. In the
event that either Dr. Zommer or Mr. Agbayani sell
shares of our common stock currently held by him, a mandatory
prepayment in an amount equal to 30.0% of the net sale proceeds
is due from him. In the event of termination of employment, any
unpaid principal and interest become due and payable. In the
event of a change of control, as defined in the notes, the notes
mature within 12 months, provided the change in control
occurs before September 15, 2004.

Business Relationships with Principal
Stockholders.ABB is one of our
principal stockholders. In fiscal year 2004, we generated
revenues of $2.7 million from sales of products to ABB and
to ABBs affiliates for use as components in their products.

Indemnification Agreements of Directors and
Executive Officers.We have entered
into indemnity agreements with our executive officers and
directors containing provisions that may require us, among other
things, to indemnify them against certain liabilities that may
arise by reason of their status or services as officers or
directors.

75



---



##### Table of Contents








|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The following table represents aggregate fees
billed to us for the fiscal years ended March 31, 2004 and
2003 by PricewaterhouseCoopers LLP, our principal accountant.

|                      |            |      |           |           |  |   |           |           | 
|--------------------- | ---------- | ---- | --------- | --------- |  | - | --------- | --------- | 
|                      |            | 2004 |           | 2003     
|                      |            |      |           |          
|Total Audit Fees(1)   |            | $    | 1,106,040 |           |  | $ | 2,359,745 |          
|Audit-Related Fees(2) |            |      | 350,000   |           |  |   | 13,000    |          
|Tax Fees(3)           |            |      | 558,435   |           |  |   | 566,491   |          
|All Other Fees(4)     |            |      | 20,471    |           |  |   | 325,825   |          
|                      |            |      |           |           |  |   |           |          
|                      | Total Fees |      | $         | 2,034,946 |  |   | $         | 3,265,061 | 
|                      |            |      |           |           |  |   |           |          



---



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes fees for audit and review of quarterly
    and annual financial statements.                                                             
|   
|(2) | Audit-Related Fees consist principally of work
    related to internal control requirements promulgated under the
    Sarbanes-Oxley Act of 2002.
|   
|(3) | Tax Fees include federal, state and international
    tax compliance, tax advice and tax planning.                                               
|   
|(4) | All Other Fees include fees for
    acquisition-related due diligence.                                                                           

Policy on Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent
Auditors

The Audit Committee pre-approves all audit and
permissible non-audit services provided by the independent
auditors. These services may include audit services,
audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific
budget. The independent auditors and management are required to
periodically report to the audit committee regarding the extent
of services provided by the independent auditors in accordance
with this pre-approval, and the fees for the services performed
to date. The Audit Committee may also pre-approve particular
services on a case-by-case basis.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following documents are filed as
part of this report:

(1) Financial Statements



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Report of Independent Registered Public
    Accounting Firm                                         
| | Consolidated Balance Sheets as of March 31,
    2004 and 2003                                       
| | Consolidated Statement of Operations for the
    years ended March 31, 2004, 2003 and 2002          
| | Consolidated Statement of Comprehensive Income
    (Loss) for the years ended March 31, 2004, 2003  
| | and 2002                                                                                            
| | Consolidated Statement of Stockholders
    Equity for the years ended March 31, 2004, 2003 and 2002
| | Consolidated Statements of Cash Flows for the
    years ended March 31, 2004, 2003 and 2002         
| | Notes to Consolidated Financial Statements                                                          

(2) Financial statements schedules. The
schedules required pursuant to this item are included elsewhere
in this Annual Report on Form 10-K as part of the Notes to
Consolidated Financial Statements under
Item 8  Financial Statements.

76



---



##### Table of Contents



(3) Exhibits.

| |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Exhibit Title
| |    |              
| | 3  | .1            |  | Amended and Restated Certificate of Incorporation
    of the Registrant, as filed with the Secretary of State for the
    State of Delaware on March 23, 2001 (filed on June 28,
    2001 as Exhibit 3.1 to the Annual Report on Form 10-K
    (No. 000-26124) and incorporated herein by reference).                                                                                                         
| | 3  | .2            |  | Amended and Restated Bylaws of the Registrant
    (filed on November 14, 2002 as Exhibit 3.2 to the
    Quarterly Report on Form 10-Q (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                              
| | 10 | .1*           |  | Second Amended Executive Employment Agreement,
    dated as of February 1, 2004, by and between
    IXYS Corporation (IXYS) and Nathan Zommer.                                                                                                                                                                                                                                                              
| | 10 | .2            |  | Wafer Foundry Agreement, dated as of
    June 21, 1995, as amended on March 28, 1996 and
    March 13, 1998, by and between IXYS and Samsung Electronics
    Co. (filed on June 29, 1998 as Exhibit 10.3 to
    Amendment No. 1 the Registration Statement on Form S-4
    of Paradigm Technology, Inc. (No. 333-57003)
    (Amendment No. 1 to the Paradigm S-4) and
    incorporated herein by reference).
| | 10 | .3*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Nathan Zommer (filed on
    June 28, 2001 as Exhibit 10.7 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                          
| | 10 | .4*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Arnold Agbayani (filed on
    June 28, 2001 as Exhibit 10.8 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                        
| | 10 | .5*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Samuel Kory (filed on
    June 28, 2001 as Exhibit 10.10 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                           
| | 10 | .6*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Kevin McDonough (filed on
    June 28, 2001 as Exhibit 10.11 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                       
| | 10 | .7*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Peter Ingram (filed on
    June 28, 2001 as Exhibit 10.12 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                          
| | 10 | .8*           |  | Indemnity Agreement, dated August 4, 2000,
    by and between IXYS and Donald L. Feucht (filed on June 28,
    2001 as Exhibit 10.13 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                         
| | 10 | .9*           |  | Indemnity Agreement, dated August 4, 2000,
    by and between IXYS and S. Joon Lee (filed on June 28, 2001
    as Exhibit 10.14 to the Annual Report on Form 10-K
    (No. 000-26124) and incorporated herein by reference).                                                                                                                                                                                  
| | 10 | .10*          |  | The Paradigm 1994 Stock Option Plan, as amended
    (filed on February 16, 1999 as Exhibit 10.2 to the
    Quarterly Report on Form 10-Q (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                           
| | 10 | .11*          |  | The IXYS 1999 Equity Incentive Plan (filed on
    July 8, 1999 as Exhibit 10.10 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                                                                              
| | 10 | .12*          |  | The IXYS 1999 Employee Stock Purchase Plan (filed
    on July 8, 1999 as Exhibit 10.11 to the Annual Report
    on Form 10-K (No. 000-26124) and incorporated herein
    by reference).                                                                                                                                                                                                                       
| | 10 | .13*          |  | The IXYS 1999 Non-Employee Directors Equity
    Incentive Plan (filed on July 8, 1999 as Exhibit 10.12
    to the Annual Report on Form 10-K (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                      
| | 10 | .14*          |  | Amended and Restated Promissory Note, dated
    September 15, 2000, executed by Nathan Zommer and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.1 to Amendment No. 3 to the
    Registration Statement on Form S-3 (No. 333-46028)
    (Amendment No. 3 to the S-3) and incorporated
    herein by reference).                                                        
| | 10 | .15*          |  | Amended and Restated Promissory Note, dated
    September 15, 2000, executed by Arnold P. Agbayani and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.2 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                         

77



---



##### Table of Contents



| |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Exhibit Title
| |    |              
| | 10 | .16*          |  | Amended and Restated Pledge Agreement, dated
    September 15, 2000, by Nathan Zommer and acknowledged and
    agreed to by IXYS (filed on October 23, 2000 as
    Exhibit 10.3 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .17*          |  | Amended and Restated Pledge Agreement, dated
    September 15, 2000, executed by Arnold P. Agbayani and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.4 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                   
| | 10 | .18*          |  | Recourse Promissory Note issued to IXYS by Samuel
    J. Kory, effective as of August 30, 2002 and executed in
    April 2002 (filed on August 14, 2002 as Exhibit 10.29
    to the Quarterly Report on Form 10-Q (No. 000-26124)
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                             
| | 10 | .19*          |  | Stock Pledge Agreement by Samuel J. Kory in favor
    of IXYS, effective as of August 30, 2001 and executed in
    April 2002 (filed on August 14, 2002 as Exhibit 10.30
    to the Quarterly Report on Form 10-Q (No. 000-26124)
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                             
| | 21 | .1            |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 23 | .1            |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 24 | .1            |  | Power of Attorney (included on the signature page)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 31 | .1            |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) of the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 31 | .2            |  | Certification of Chief Financial Officer pursuant
    to the Rule 13a-14(a) of the Securities and Exchange
    Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 32 | .1            |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 (this certification
    accompanies the Annual Report on Form 10-K to
    which it relates, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002, and is not deemed filed with the
    Securities and Exchange Commission and is not to be incorporated
    by reference into any of our filings under the Securities Act or
    the Exchange Act (whether made before or after the date of the
    Annual Report on Form 10-K), irrespective of any general
    incorporation language contained in such filing).



---



|  |                                                             
|- | ------------------------------------------------------------
|* | Management contract or compensation plan or
    arrangement.

(b) Reports on Form 8-K

During the quarter ended March 31, 2004, the
following Forms 8-K were filed:

|                 |  |                |                  |                |  |                  |       |  |  |  |    | 
|---------------- |  | -------------- | ---------------- | -------------- |  | ---------------- | ----- |  |  |  | -- | 
|                 |  |                |                  |                |  | Financial       
|File Date        |  | Date of Report |                  | Items Reported |  | Statements Filed
|                 |  |                |                  |                |  |                 
|January 16, 2004 |  |                | January 13, 2004 |                |  |                  | 7, 12 |  |  |  | No | 
|February 2, 2004 |  |                | February 2, 2004 |                |  |                  | 7, 12 |  |  |  | No | 

78



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                 
| | ----------------
| | IXYS CORPORATION



| |     |                  
| | --- | -----------------
| | By: | /s/ NATHAN ZOMMER

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Nathan Zommer                                      
| | President, Chief Executive Officer and
    Chairman
| | (Principal Executive Officer)                      

Dated: June 14, 2004

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Nathan Zommer and Arnold P. Agbayani, and each or any one of
them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this
Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                         |  |                                                                                                                                    |  |               |  | 
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                         |  |                                                                                                                                    |  |              
|Signature                                |  | Title                                                                                                                              |  | Date         
|                                         |  |                                                                                                                                    |  |              
|                                        
|/s/ NATHAN ZOMMERNathan Zommer           |  | President, Chief Executive Officer and Chairman
    (Principal Executive Officer) and Director                                     |  | June 14, 2004
|                                        
|/s/ ARNOLD P. AGBAYANIArnold P. Agbayani |  | Senior Vice President, Finance and Administration
    and Chief Financial Officer (Principal Financial and Accounting
    Officer) |  | June 14, 2004
|                                        
|/s/ SAMUEL KORYSamuel Kory               |  | Director                                                                                                                           |  | June 14, 2004
|                                        
|/s/ DONALD L. FEUCHTDonald L. Feucht     |  | Director                                                                                                                           |  | June 14, 2004
|                                        
|/s/ S. JOON LEES. Joon Lee               |  | Director                                                                                                                           |  | June 14, 2004

79



---



##### Table of Contents



Exhibit Index

| |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Exhibit Title
| |    |              
| | 3  | .1            |  | Amended and Restated Certificate of Incorporation
    of the Registrant, as filed with the Secretary of State for the
    State of Delaware on March 23, 2001 (filed on June 28,
    2001 as Exhibit 3.1 to the Annual Report on Form 10-K
    (No. 000-26124) and incorporated herein by reference).                                                                                                         
| | 3  | .2            |  | Amended and Restated Bylaws of the Registrant
    (filed on November 14, 2002 as Exhibit 3.2 to the
    Quarterly Report on Form 10-Q (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                              
| | 10 | .1*           |  | Second Amended Executive Employment Agreement,
    dated as of February 1, 2004, by and between
    IXYS Corporation (IXYS) and Nathan Zommer.                                                                                                                                                                                                                                                              
| | 10 | .2            |  | Wafer Foundry Agreement, dated as of
    June 21, 1995, as amended on March 28, 1996 and
    March 13, 1998, by and between IXYS and Samsung Electronics
    Co. (filed on June 29, 1998 as Exhibit 10.3 to
    Amendment No. 1 the Registration Statement on Form S-4
    of Paradigm Technology, Inc. (No. 333-57003)
    (Amendment No. 1 to the Paradigm S-4) and
    incorporated herein by reference).
| | 10 | .3*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Nathan Zommer (filed on
    June 28, 2001 as Exhibit 10.7 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                          
| | 10 | .4*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Arnold Agbayani (filed on
    June 28, 2001 as Exhibit 10.8 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                        
| | 10 | .5*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Samuel Kory (filed on
    June 28, 2001 as Exhibit 10.10 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                           
| | 10 | .6*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Kevin McDonough (filed on
    June 28, 2001 as Exhibit 10.11 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                       
| | 10 | .7*           |  | Indemnity Agreement, dated November 20,
    1999, by and between IXYS and Peter Ingram (filed on
    June 28, 2001 as Exhibit 10.12 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                          
| | 10 | .8*           |  | Indemnity Agreement, dated August 4, 2000,
    by and between IXYS and Donald L. Feucht (filed on June 28,
    2001 as Exhibit 10.13 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                         
| | 10 | .9*           |  | Indemnity Agreement, dated August 4, 2000,
    by and between IXYS and S. Joon Lee (filed on June 28, 2001
    as Exhibit 10.14 to the Annual Report on Form 10-K
    (No. 000-26124) and incorporated herein by reference).                                                                                                                                                                                  
| | 10 | .10*          |  | The Paradigm 1994 Stock Option Plan, as amended
    (filed on February 16, 1999 as Exhibit 10.2 to the
    Quarterly Report on Form 10-Q (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                           
| | 10 | .11*          |  | The IXYS 1999 Equity Incentive Plan (filed on
    July 8, 1999 as Exhibit 10.10 to the Annual Report on
    Form 10-K (No. 000-26124) and incorporated herein by
    reference).                                                                                                                                                                                                                              
| | 10 | .12*          |  | The IXYS 1999 Employee Stock Purchase Plan (filed
    on July 8, 1999 as Exhibit 10.11 to the Annual Report
    on Form 10-K (No. 000-26124) and incorporated herein
    by reference).                                                                                                                                                                                                                       
| | 10 | .13*          |  | The IXYS 1999 Non-Employee Directors Equity
    Incentive Plan (filed on July 8, 1999 as Exhibit 10.12
    to the Annual Report on Form 10-K (No. 000-26124) and
    incorporated herein by reference).                                                                                                                                                                                                      
| | 10 | .14*          |  | Amended and Restated Promissory Note, dated
    September 15, 2000, executed by Nathan Zommer and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.1 to Amendment No. 3 to the
    Registration Statement on Form S-3 (No. 333-46028)
    (Amendment No. 3 to the S-3) and incorporated
    herein by reference).                                                        
| | 10 | .15*          |  | Amended and Restated Promissory Note, dated
    September 15, 2000, executed by Arnold P. Agbayani and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.2 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                         

80



---



##### Table of Contents



| |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Exhibit Title
| |    |              
| | 10 | .16*          |  | Amended and Restated Pledge Agreement, dated
    September 15, 2000, by Nathan Zommer and acknowledged and
    agreed to by IXYS (filed on October 23, 2000 as
    Exhibit 10.3 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                 
| | 10 | .17*          |  | Amended and Restated Pledge Agreement, dated
    September 15, 2000, executed by Arnold P. Agbayani and
    acknowledged and agreed to by IXYS (filed on October 23,
    2000 as Exhibit 10.4 to Amendment No. 3 to the S-3 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                   
| | 10 | .18*          |  | Recourse Promissory Note issued to IXYS by Samuel
    J. Kory, effective as of August 30, 2002 and executed in
    April 2002 (filed on August 14, 2002 as Exhibit 10.29
    to the Quarterly Report on Form 10-Q (No. 000-26124)
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                             
| | 10 | .19*          |  | Stock Pledge Agreement by Samuel J. Kory in favor
    of IXYS, effective as of August 30, 2001 and executed in
    April 2002 (filed on August 14, 2002 as Exhibit 10.30
    to the Quarterly Report on Form 10-Q (No. 000-26124)
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                             
| | 21 | .1            |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 23 | .1            |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 24 | .1            |  | Power of Attorney (included on the signature
    page).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 31 | .1            |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) of the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 31 | .2            |  | Certification of Chief Financial Officer pursuant
    to the Rule 13a-14(a) of the Securities and Exchange
    Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 32 | .1            |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 (this certification
    accompanies the Annual Report on Form 10-K to
    which it relates, pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002, and is not deemed filed with the
    Securities and Exchange Commission and is not to be incorporated
    by reference into any of our filings under the Securities Act or
    the Exchange Act (whether made before or after the date of the
    Annual Report on Form 10-K), irrespective of any general
    incorporation language contained in such filing).



---



|  |                                                             
|- | ------------------------------------------------------------
|* | Management contract or compensation plan or
    arrangement.

81