UNITED
      STATES
              SECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C.  20549FORM
      10-Q(MARK
      ONE)(x)    Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended December 27, 2008or(  )   Transition
      Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act
      of 1934    (No Fee Required)Commission
      File No. 0-12718SUPERTEX,
      INC.(Exact
      name of Registrant as specified in its Charter)California
            94-2328535(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification #)1235
      Bordeaux DriveSunnyvale,
      California 94089(Address
      of principal executive offices)Registrant's
      Telephone Number, Including Area Code:  (408)
      222-8888Indicate
      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  [
      X ]
            No  [    ]Indicate
      by check mark whether the registrant is an accelerated filer (as defined
      in Rule 12b-2 of the Act). Check one.
              Large
      accelerated filer [   ] Accelerated filer [ X ]
      Non-accelerated filer [  ] Smaller Reporting
      Company[   ]Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act).
              Yes  [   ]                                                                                No  [
      X ]Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.Class
            Outstanding at January 30,
    2009Common
      Stock, no par value
            12,869,095Exhibit
      index is on Page 35Total
      number of pages: 36







1




SUPERTEX, INC.




QUARTERLY
REPORT - FORM 10Q




Table of
      Contents
            
            Page
      No.PART
      I – FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements (Unaudited)Condensed Consolidated Statements of
      Income
            3Condensed Consolidated Balance
      Sheets
            4Condensed Consolidated Statements of Cash
      Flows
            5Notes to Condensed Consolidated Financial
      Statements
            6Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            20Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            33Item
      4.
            Controls and Procedures
            34PART
      II – OTHER INFORMATIONItem
      1.
            Legal Proceedings
            34Item
      1A.
            Risk Factors
            34Item
      2.
            Unregistered Sales of Equity Securities and Use
      of Proceeds
            35Item
      3.
            Defaults Upon Senior Securities
            35Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            35Item
      5.
            Other Information
            35Item
      6.
            Exhibits
            35Signature
            
            36







2
 Table of
Contents




PART
I - FINANCIAL INFORMATION




Item
1.  Financial Statements




SUPERTEX, INC.


CONDENSED CONSOLIDATED STATEMENTS OF
INCOME


(unaudited)


(in
thousands, except per share amounts)





Three
      Months Ended
            
            
            Nine
      Months EndedDecember
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007Net
      sales
            
            $
            17,596
            
            
            $
            20,147
            
            
            $
            63,800
            
            
            $
            62,938Cost
      of sales(1)
            
            
            8,076
            
            
            
            8,915
            
            
            
            28,240
            
            
            
            26,011Gross
      profit
            
            
            9,520
            
            
            
            11,232
            
            
            
            35,560
            
            
            
            36,927Research
      and development(1)
            
            
            3,467
            
            
            
            3,358
            
            
            
            11,306
            
            
            
            10,981Selling,
      general and administrative(1)
            
            
            3,157
            
            
            
            3,888
            
            
            
            10,853
            
            
            
            11,726Total
      operating expenses
            
            
            6,624
            
            
            
            7,246
            
            
            
            22,159
            
            
            
            22,707Income
      from operations
            
            
            2,896
            
            
            
            3,986
            
            
            
            13,401
            
            
            
            14,220Interest
      income
            
            
            881
            
            
            
            1,664
            
            
            
            2,763
            
            
            
            4,485Other
      expense, net
            
            
            (1,025
            )
            
            
            (332
            )
            
            
            (1,218
            )
            
            
            (59
            )Income
      before provision for income taxes
            
            
            2,752
            
            
            
            5,318
            
            
            
            14,946
            
            
            
            18,646Provision
      for income taxes
            
            
            140
            
            
            
            1,641
            
            
            
            3,345
            
            
            
            5,995Net
      income
            
            $
            2,612
            
            
            $
            3,677
            
            
            $
            11,601
            
            
            $
            12,651Net
      income per share:Basic
            
            $
            0.20
            
            
            $
            0.27
            
            
            $
            0.90
            
            
            $
            0.92Diluted
            
            $
            0.20
            
            
            $
            0.26
            
            
            $
            0.90
            
            
            $
            0.91Shares
      used in per share computation:Basic
            
            
            12,854
            
            
            
            13,685
            
            
            
            12,824
            
            
            
            13,700Diluted
            
            
            12,925
            
            
            
            13,912
            
            
            
            12,923
            
            
            
            13,929(1)Includes amortization of employee stock-based
      compensation   as follows.  See Note
      6 for more information:Cost
      of sales
            
            $
            157
            
            
            $
            127
            
            
            $
            402
            
            
            $
            401Research
      and development
            
            $
            279
            
            
            $
            198
            
            
            $
            898
            
            
            $
            663Selling,
      general and administrative
            
            $
            259
            
            
            $
            210
            
            
            $
            739
            
            
            $
            631





See accompanying Notes to Unaudited Condensed Consolidated
Financial Statements.









3
 
 Table of Contents




SUPERTEX, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(unaudited,
in thousands)





December
      27, 2008
            
            
            March
      29, 2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            50,755
            
            
            $
            17,902Short-term
      investments
            
            
            5,930
            
            
            
            6,827Trade
      accounts receivable, net
            
            
            9,698
            
            
            
            13,197Inventories,
      net
            
            
            17,361
            
            
            
            17,036Prepaid
      expenses and other current assets
            
            
            1,294
            
            
            
            3,647Deferred
      income taxes
            
            
            9,401
            
            
            
            9,401Total
      current assets
            
            
            94,439
            
            
            
            68,010Long-term
      investment, net
            
            
            79,000
            
            
            
            96,531Property,
      plant and equipment, net
            
            
            9,242
            
            
            
            9,916Other
      assets
            
            
            374
            
            
            
            373Deferred
      income taxes
            
            
            6,112
            
            
            
            2,521TOTAL
      ASSETS
            
            $
            189,167
            
            
            $
            177,351LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent Liabilities:Trade
      accounts payable
            
            $
            2,467
            
            
            $
            3,280Accrued
      salaries and employee benefits
            
            
            10,681
            
            
            
            12,146Other
      accrued liabilities
            
            
            1,431
            
            
            
            1,741Deferred
      revenue
            
            
            4,778
            
            
            
            4,349Total
      current liabilities
            
            
            19,357
            
            
            
            21,516Income
      taxes payable, noncurrent
            
            
            4,181
            
            
            
            3,960TOTAL
      LIABILITIES
            
            
            23,538
            
            
            
            25,476Commitments
      and contingencies (Note 9)Shareholders’
      equity:Preferred
      stock, no par value -- 10,000 shares authorized, none
      outstanding
            
            
            -
            
            
            
            -Common
      stock, no par value -- 30,000 shares authorized; issued and outstanding
      12,868 shares and 12,749 shares
            
            
            58,817
            
            
            
            54,968Accumulated
      other comprehensive loss
            
            
            (5,765
            )
            
            
            (4,069
            )Retained
      earnings
            
            
            112,577
            
            
            
            100,976TOTAL
      SHAREHOLDERS’ EQUITY
            
            
            165,629
            
            
            
            151,875TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            189,167
            
            
            $
            177,351





See accompanying Notes to Unaudited
Condensed Consolidated Financial Statements.






4
 
 Table of Contents






SUPERTEX, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited,
in thousands)





Nine
      Months EndedCASH
      FLOWS FROM OPERATING ACTIVITIES
            
            December
      27, 2008
            
            
            December
      29, 2007Net
      income
            
            $
            11,601
            
            
            $
            12,651Non-cash
      adjustments to net income:Depreciation
            
            
            2,479
            
            
            
            2,226Provision
      for doubtful accounts and sales returns
            
            
            468
            
            
            
            1,064Provision
      for excess and obsolete inventories
            
            
            1,969
            
            
            
            2,085Stock-based
      compensation expense
            
            
            2,039
            
            
            
            1,695Tax
      benefit related to stock-based compensation plans
            
            
            203
            
            
            
            462Excess
      tax benefit related to stock-based compensation plans
            
            
            (57
            )
            
            
            (238
            )Unrealized
      loss on short-term investment, categorized as trading
            
            
            1,273
            
            
            
            191Gain
      on disposal of property, plant and equipment
            
            
            -
            
            
            
            (200
            )Deferred
      income taxes
            
            
            94
            
            
            
            (669
            )Changes
      in operating assets and liabilities:Trade
      accounts receivable
            
            
            3,031
            
            
            
            (1,177
            )Inventories
            
            
            (2,294
            )
            
            
            (5,358
            )Prepaid
      expenses and other assets
            
            
            2,352
            
            
            
            (257
            )Trade
      accounts payable and accrued expenses
            
            
            (2,590
            )
            
            
            (251
            )Deferred
      revenue
            
            
            429
            
            
            
            723Income
      taxes payable
            
            
            221
            
            
            
            1,978Net
      cash provided by operating activities
            
            
            21,218
            
            
            
            14,925CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property, plant and equipment
            
            
            (1,803
            )
            
            
            (3,795
            )Proceeds
      from disposal of property and equipment
            
            
            -
            
            
            
            200Purchases
      of short-term investments
            
            
            (540
            )
            
            
            (88,350
            )Sales
      of short-term investments
            
            
            12,314
            
            
            
            86,704Net
      cash provided by (used in) investing activities
            
            
            9,971
            
            
            
            (5,241
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from exercise of stock options and employee stock purchase
      plan
            
            
            1,607
            
            
            
            2,033Repurchase
      of common stock
            
            
            -
            
            
            
            (10,628
            )Excess
      tax benefit related to stock-based compensation plans
            
            
            57
            
            
            
            238Net
      cash provided by (used in) financing activities
            
            
            1,664
            
            
            
            (8,357
            )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            32,853
            
            
            
            1,327CASH
      AND CASH EQUIVALENTS:Beginning
      of period
            
            
            17,902
            
            
            
            22,652End
      of period
            
            $
            50,755
            
            
            $
            23,979Supplemental
      cash flow disclosures:Income
      taxes paid, net of refunds
            
            $
            1,941
            
            
            $
            4,701Supplemental
      disclosure of non-cash activities:Additions
      to property, plant and equipment included in accounts payable and accrued
      expenses
            
            $
            2
            
            
            $
            71





See
accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.


5
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)




Note 1 – Organization and Basis of Presentation




The
accompanying unaudited condensed consolidated financial statements of Supertex,
Inc. and its subsidiary have been prepared in accordance with generally accepted
accounting principles (“GAAP”) in the United States of America.  This
financial information reflects all adjustments, which are, in the opinion of the
Company’s management, of normal recurring nature and necessary to state fairly
the statements of financial position as of December 27, 2008 and March 29, 2008,
results of operations for the three and nine months ended December 27, 2008 and
December 29, 2007, and cash flows for the nine months ended December 27, 2008
and December 29, 2007.  The March 29, 2008 balance sheet was derived
from the audited financial statements included in the fiscal 2008 Annual Report
on Form 10-K, but does not include all disclosures required by GAAP in the
United States of America.  All significant intercompany transactions
and balances have been eliminated.




The
condensed consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote
disclosures normally included in these financial statements have been condensed
or omitted pursuant to such rules and regulations, although the Company believes
the disclosures which are made are adequate to make the information presented
not misleading.  These financial statements should be read in
conjunction with the audited consolidated financial statements of Supertex, Inc.
for the fiscal year ended March 29, 2008, which were included in the fiscal 2008
Annual Report on Form 10-K.




Interim
results are not necessarily indicative of results for the full fiscal
year.  The preparation of financial statements in conformity with GAAP
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates, and such
differences may be material to the financial statements. The results of
operations for the three and nine months ended December 27, 2008 are not
necessarily indicative of the results to be expected for any future
periods.




The
Company reports on a fiscal year basis and it operates and reports based on
quarterly periods ending on the Saturday nearest the end of the applicable
calendar quarter, except in a 53-week fiscal year, in which case the additional
week falls into the fourth quarter of the fiscal year.  Fiscal 2009
will be a 52-week year.  The three months ended December 27, 2008,
September 27, 2008, and December 29, 2007, all consist of thirteen
weeks.




Reclassification




For
presentation purposes, certain prior period amounts have been reclassified to
conform to the reporting in the current period financial statements. These
reclassifications do not affect the Company’s net income or shareholders’
equity. Specifically, due to the adoption of Financial Accounting Standard No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities”("SFAS 159") in the first
quarter of fiscal year 2009, purchases and sales of trading securities were
reclassified from operating cash flows to investing cash flows.




Recent
Accounting Pronouncements




In
October 2008, the Financial Accounting Standards Board ("FASB") issued FSP SFAS
No. 157-3, “Determining the
Fair Value of a Financial Asset When The Market for That Asset Is Not
Active” ("FSP157-3"), to clarify the application of the provision of SFAS
157 in an inactive market and how an entity would determine fair value in an
inactive market. FSP 157-3 is effective immediately and applies to the Company’s
December 27, 2008 financial statements. The application of the provisions of FSP
157-3 did not materially affect the Company’s results of operations or financial
condition, as of and for the period ended December 27, 2008.




6
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 (unaudited)




In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”("SFAS 161"). The new standard is
intended to improve financial reporting of derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008 (March 29,
2009 for the Company).  The Company is currently assessing the
potential impact that the adoption of SFAS 161 will have on its Consolidated
Financial Statements, but does not expect it to have a material
effect.




In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” ("SFAS
160"). SFAS 160 will change the accounting and reporting for minority interests,
which will be re-characterized as non-controlling interests and classified as a
component of equity.  SFAS 160 is effective for both public and
private companies for fiscal years beginning on or after December 15, 2008
(March 29, 2009 for the Company).  SFAS 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS 160 shall be applied prospectively.
The Company is currently assessing the potential effect that the adoption of
SFAS 160 will have on its Consolidated Financial Statements, but does not expect
it to have a material effect.




In
December 2007, the FASB issued Statement of Financial Accounting Standard No.
141 (revised 2007), “Business
Combinations” ("SFAS 141(R)").  The revised standard continues
the movement toward the greater use of fair values in financial reporting. SFAS
141(R) will significantly change how business acquisitions are accounted for and
will affect financial statements both on the acquisition date and in subsequent
periods. SFAS 141(R) is effective for both public and private companies for
fiscal years beginning on or after December 15, 2008 (March 29, 2009 for the
Company).  SFAS 141(R) will be applied prospectively. The Company is
currently assessing the potential effect that the adoption of SFAS 141(R) will
have on its Consolidated Financial Statements, but does not expect it to have a
material effect.




In the
first quarter of fiscal 2009, the Company adopted Statement of Financial
Accounting Standard No. 157, “Fair Value Measurements”
("SFAS 157") for all financial assets and financial liabilities. SFAS 157
defines fair value, establishes a framework for measuring fair value, and
enhances fair value measurement disclosure. The adoption of SFAS 157 did not
have a significant effect on the Company’s Consolidated Financial Statements,
and the resulting fair value calculated under SFAS 157 after adoption did not
significantly differ from the fair values that would have been calculated under
previous guidance. See Note 2to the Company’s Consolidated
Financial Statements for further discussion.




In
February 2008, the FASB issued FSP FAS 157-2 which delayed the effective date of
SFAS 157 for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The FSP partially defers the effective date
of SFAS 157 to fiscal years beginning on or after November 15, 2008 and interim
periods within those fiscal years for items within the scope of this FSP (March
29, 2009 for the Company). The Company is currently assessing the potential
effect that the adoption of FSP FAS 157-2 will have on its Consolidated
Financial Statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities”("SFAS 159"),which permits entities to
elect to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. This
election is irrevocable. The standard requires that unrealized gains and losses
are reported in earnings for items measured using the fair value option. SFAS
159 also requires cash flows from purchases, sales, and maturities of trading
securities to be classified based on the nature and purpose for which the
securities were acquired. SFAS 159 became effective for the Company in first
quarter of fiscal 2009.The Company did not elect the fair value option for any
of its financial assets or liabilities. The Company assessed the nature and the
purpose of its investment in trading securities and reclassified purchases of
trading securities from operating cash flows to investing cash flows based upon
paragraph 16 of SFAS 159. The net cash flows of $376,000 from trading securities
were classified as investing activities for the nine months ended December 27,
2008.






7
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 (unaudited)




Note 2 – Fair Value




In the
first quarter of fiscal year 2009, the Company adopted the provision of SFAS 157
for financial assets and liabilities. SFAS 157 defines fair value, thereby
eliminating inconsistencies in guidance found in various prior accounting
pronouncements, and enhances disclosures surrounding fair value
calculations.




SFAS 157
defines fair value as the price that would be received from selling an asset and
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance.




SFAS 157
establishes a three-tiered fair value hierarchy that prioritizes inputs to
valuation techniques used in fair value calculations. The three levels of inputs
are defined as follows:




Level 1 –
Unadjusted quoted market prices for identical assets or liabilities in active
markets that the Company has the ability to access.




Level 2 –
Quoted prices for similar assets or liabilities in active markets; quoted prices
for identical or similar assets or liabilities in inactive markets; or
valuations based on models where the significant inputs are observable (e.g.,
interest rates, yield curves, prepayment speeds, default rates, loss severities,
etc.) or can be corroborated by observable market data.




Level 3 -
Valuations based on models where significant inputs are not observable. The
unobservable inputs reflect the Company’s own assumptions about the assumptions
that market participants would use.




SFAS 157
requires the Company to maximize the use of observable inputs and minimize the
use of unobservable inputs. If a financial instrument uses input that is
significant to the fair value calculation, the instrument will be categorized
based upon the lowest level of input that is significant to the fair value
calculation.  The Company’s financial assets and liabilities measured
at fair value on a recurring basis include cash equivalents and investment
securities, both short-term and long-term.




Included
in the Company’s long-term investments are auction rate securities (ARS), which
are collateralized by student loans. Due to the lack of availability of
observable market quotes for the Company’s investment portfolio of these ARS,
the fair value was estimated based on a discounted cash flow model and included
a discount factor for illiquidity of the ARS market. The assumptions used in the
discounted cash flow model include estimates for interest rates, timing and
amounts of cash flows, liquidity of the underlying security, expected holding
periods and contractual terms of the security. In light of the current market
condition for ARS, the Company developed different scenarios for the significant
inputs used in the discounted cash flow model, including but not limited to
liquidity discount from 125 to 150 basis points per year for the current ARS
market, and the timing of recovery of the ARS market from two to four years. The
estimated fair value of the Company’s ARS ranges from $76,500,000 to
$82,500,000. We believe this estimated range of fair values of our ARS is
appropriate taking into consideration historical ARS market data, the
possibility of development of a secondary market for ARS, recent market
participant behaviors, and public policy implications associated with the
student loan based ARS market. We have concluded that the fair value of our ARS
was $79,000,000 at December 27, 2008 net of a temporary impairment of
$9,450,000 to par value.




8
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 (unaudited)




The
Company also considered the quality, amount of collateral, and US government
guarantee for the ARS and looked to other marketplace transactions and
information received from other third party brokers in order to assess whether
the fair value based on the discounted cash flow model was reasonable. The
valuation of the Company’s investment portfolio is subject to uncertainties that
are difficult to predict. Factors that may affect the Company’s valuation
include changes to credit ratings of the securities as well as the underlying
assets supporting those securities, rates of default of the underlying assets,
underlying collateral values, discount rates, counterparty risk and ongoing
strength and quality of market credit and liquidity. Significant inputs to the
investment valuations are unobservable in the active markets and therefore the
Company's ARS are classified as Level 3 in the hierarchy.




The
following table summarizes assets measured at fair value on a recurring basis at
December 27, 2008, excluding accrued interest (in thousands):




Fair
      value measurementsAssets
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalMoney
      market funds
            
            $
            -
            
            
            $
            45,246
            
            
            $
            -
            
            
            $
            45,246Equity
      mutual funds
            
            
            5,930
            
            
            
            -
            
            
            
            -
            
            
            
            5,930Long-term
      investments in ARS
            
            
            -
            
            
            
            -
            
            
            
            79,000
            
            
            
            79,000Total
      assets at fair value
            
            $
            5,930
            
            
            $
            45,246
            
            
            $
            79,000
            
            
            $
            130,176





The
following table summarizes the change in fair value of the Company’s level 3
assets (in
thousands):


Fair
      value measurements of assets using level 3 inputs
            
            Short-term
      and long-term investments in ARSBeginning
      balance at March 29, 2008
            
            $
            96,531Unrealized
      gain recorded in "Accumulated other comprehensive loss"
            
            
            451Ending
      balance at June 28, 2008
            
            
            96,982Redemption
      of investments in ARS
            
            
            (11,200
            )Unrealized
      loss recorded in "Accumulated other comprehensive loss"
            
            
            (1,782
            )Ending
      balance at September 27, 2008
            
            
            84,000Redemption
      of investments in ARS
            
            
            (950
            )Unrealized
      loss recorded in "Accumulated other comprehensive loss"
            
            
            (4,050
            )Ending
      balance at December 27, 2008
            
            $
            79,000





During
the nine months ended December 27, 2008, the Company has received $12,150,000
relating to ARS redeemed at par value. See Note 3 for
discussion of the Company’s ARS.




Note 3 – Cash and Cash Equivalents and investments




The
Company’s cash equivalents consist primarily of investments in money market
funds.






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The
Company’s portfolio of long-term available-for-sale investments is as follows
(in
thousands):




December
      27, 2008
            
            
            March
      29, 2008Amortized
            
            
            Net
      Unrealized
            
            
            Carrying
            
            
            Amortized
            
            
            Net
      Unrealized
            
            
            CarryingCost
            
            
            Loss
            
            
            Value
            
            
            Cost
            
            
            Loss
            
            
            ValueLong-term
      investments:Available-for
      sale ARS
            
            $
            88,450
            
            
            $
            (9,450
            )
            
            $
            79,000
            
            
            $
            100,600
            
            
            $
            (4,069
            )
            
            $
            96,531





The
Company’s long-term investments in ARS by contractual maturity are as follows
(in
thousands):




December
      27, 2008
            
            
            March
      29, 2008Long-term
      investments:Available-for-sale
      securities at amortized cost:Due
      after ten years
            
            $
            88,450
            
            
            $
            100,600Unrealized
      loss
            
            
            (9,450
            )
            
            
            (4,069
            )Total
      long-term investments, net
            
            $
            79,000
            
            
            $
            96,531





The
Company’s available-for-sale portfolio as of December 27, 2008 is composed
entirely of ARS, which are investments with contractual maturities between 16
and 32 years. They are in the form of auction rate bonds whose interest
rates had historically been reset every seven to thirty-five days through an
auction process. At the end of each reset period, investors can sell or continue
to hold the securities at par. These ARS held by the Company are backed by pools
of student loans and are primarily guaranteed by the United States Department of
Education. In addition, all the ARS held by the Company are rated by the major
independent rating agencies as either AAA or Aaa.




The
Company’s ARS investments are reported at fair value in accordance with SFAS
115, “Accounting for Certain
Investments in Debt and Equity Securities.” ARS held by the Company
as of December 27, 2008, experienced failed auctions due to sales orders
exceeding purchase orders. The Company’s auction rate securities are considered
illiquid until there is a successful auction or redemption by the issuer. The
ARS fair value of $79,000,000, as of December 27, 2008, was presented as
long-term investments. The unrealized loss as of December 27, 2008 was recorded
in accumulative other comprehensive loss, net of tax, of
$5,765,000.




The
Company has concluded that the decline in fair value of the ARS
investments, as of December 27, 2008, is considered to be temporary in part
due to the following:




·
              the
      decline in market value is due to unusual general market
      conditions;·
              recently,
      some ARS were redeemed at par value;·
              these
      investments are of high credit quality and a significant portion of them
      are collateralized and are guaranteed by the US Department of
      Education;·
              there
      have been no defaults on the ARS held by the Company as of December 27,
      2008;·
              their
      AAA or Aaa credit ratings have not been reduced as of December 27,
      2008;·
              the
      Company has the intent and ability to hold these investments until the
      anticipated recovery in market liquidity occurs; and·
              the
      Company received a payment of $11,200,000 in July 2008 and a payment of
      $950,000 in December 2008, representing approximately 86% and 19% of its
      holding of two ARS, respectively, both of which were redeemed in part at
      par value.


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If
uncertainties in the credit and capital markets continue or these markets
deteriorate further, the Company may incur additional unrealized losses due to
temporary impairment to the par value of its ARS. In addition, the Company may
be required to record an impairment charge through the statement of income if
the decline in fair value is determined to be other-than-temporary. The Company
will continue to monitor its ARS.





Note
4 – Inventories




The
Company’s inventories consist of high technology semiconductor devices and
integrated circuits that are specialized in nature, subject to rapid
technological obsolescence, and sold in a highly competitive
industry.  Inventory balances at the end of each period are adjusted
to approximate the lower of cost or market value.




Inventories
consist of (in
thousands):




December
      27, 2008
            
            
            March
      29, 2008Raw
      materials
            
            $
            1,099
            
            
            $
            1,075Work-in-process
            
            
            11,318
            
            
            
            11,463Finished
      goods
            
            
            2,961
            
            
            
            2,462Finished
      goods at distributors and at hubs on consignment
            
            
            1,983
            
            
            
            2,036Net
      Inventories
            
            $
            17,361
            
            
            $
            17,036





The
Company wrote down inventory totaling $1,123,000 and $1,969,000 for the three
and nine months ended December 27, 2008, respectively. For the comparable
periods in fiscal 2008, the Company wrote down inventory totaling $1,235,000 and
$2,085,000, respectively.  The Company recorded sales of previously
written-down inventory of $443,000 and $1,125,000 for the three and nine months
ended December 27, 2008, respectively. Such sales were $287,000 and $1,065,000
for the three and nine months ended December 29, 2007,
respectively.




Due to
the uncertainty associated with possible returns and pricing concessions, the
Company defers the recognition of revenue on shipments to all distributors,
domestic and foreign, and the related costs of sales until the distributors have
sold the products to their end-user customers. Sales through the distributors
are made primarily under arrangements allowing limited rights of return, limited
price protection, and the right of stock rotation on merchandise unsold by
distributors.  For inventory at OEM hubs, which the Company owns and
is included in its inventory at cost, revenue is not recognized until the
Company receives a notice from the customer or the customer’s hub operator that
the products have been drawn from the hubs.




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Note
5 - Comprehensive Income




Components
of the Company’s comprehensive income for the three and nine months ended
December 27, 2008 and December 29, 2007, respectively, are as follows (in thousands):




Three
      Months Ended
            
            
            Nine
      Months EndedDecember
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007Net
      income
            
            $
            2,612
            
            
            $
            3,677
            
            
            $
            11,601
            
            
            $
            12,651Unrealized
      loss on available-for-sale investments
            
            
            (365
            )
            
            
            -
            
            
            
            (1,696
            )
            
            
            -Comprehensive
      income
            
            $
            2,247
            
            
            $
            3,677
            
            
            $
            9,905
            
            
            $
            12,651





During
the third quarter of fiscal 2009, the Company identified an error totaling
$2,106,000, related to the prior period recording of the tax effect of
unrealized losses on auction rate securities that was recorded as other
comprehensive loss.  During the quarter and year ended March 29, 2008
comprehensive income was understated by $1,587,000; comprehensive income for the
quarter ended June 28, 2008 was overstated by $176,000; and for the quarter
ended September 27, 2008 it was understated by $695,000. The Company assessed
the materiality of these errors if they were recorded cumulatively as an
adjustment in the quarter ended December 27, 2008, in relation to fiscal 2008;
to the quarters ended March 29, 2008, June 28, 2008, September 27, 2008 and
December 27, 2008; to the six and nine month periods ended September 27, 2008
and December 27, 2008, respectively; and to its expected full year results of
operations for fiscal 2009 and concluded that the errors were not material to
the results of operations or financial condition of the Company in any
period. The Company therefore recorded the cumulative impact of the
correction of these errors as an adjustment to deferred tax assets in the
quarter ended December 27, 2008.




Note 6 - Stock-Based Compensation




Effective
April 2, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment. SFAS
123(R) establishes accounting for stock-based awards exchanged for employee
services. Accordingly, stock-based compensation cost is measured at grant date,
based on the fair value of the award, and is recognized as expense over the
requisite service period of the employee.




The
employee stock-based compensation expense for the three and nine months ended
December 27, 2008 was $695,000 and $2,039,000, respectively. For the comparable
periods in fiscal 2008, the employee stock-based compensation expense was
$535,000 and $1,695,000, respectively.




During
the three and nine months ended December 27, 2008, the Company granted options
with an estimated total grant date fair value of $3,469,000 and $6,253,000,
respectively. For the same periods last fiscal year, the Company granted
options with an estimated grant date fair value of $1,936,000 and $4,482,000,
respectively. As of December 27, 2008, the unrecorded stock-based compensation
cost balance related to stock options was $10,336,000 (net of estimated
forfeitures) and will be recognized over an estimated weighted average
amortization period of approximately 4.8 years.




Under the
Company’s 2001 Stock Option Plan (“Option Plan”), a total of 2,000,000 shares of
Common Stock are authorized for issuance. Under the Option Plan, options have
been typically granted once a quarter (on the first business day of the third
month of each quarter) and valued at the fair value of the Company’s common
stock on the date of grant.  Options generally expire seven to ten
years from grant date or thirty days after termination of service, whichever
occurs first.  Options are generally exercisable beginning one year
from date of grant and generally vest ratably over a five-year
period.  On August 24, 2006, the Company’s board of directors approved
a change in grant policy of the Plan to grant only non-statutory stock options
to better align the Company’s compensation plan to employee incentives and to
company objectives. On August 17, 2007, the Company’s board of directors
approved that all future stock option grants would have a ten-year life, which
is within the guidelines of the Option Plan.




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The
following table summarizes the activities under the Option Plan for the nine
months ended December 27, 2008:




Options
      OutstandingAvailable
      For
            
            
            Number
      of
            
            
            Weighted
      AverageGrant
            
            
            Shares
            
            
            Exercise
      PriceBalance,
      March 29, 2008
            
            
            642,579
            
            
            
            1,100,365
            
            
            $
            28.09Granted
            
            
            (523,100
            )
            
            
            523,100
            
            
            
            23.45Exercised
            
            
            -
            
            
            
            (111,600
            )
            
            
            12.91Canceled
            
            
            71,580
            
            
            
            (71,580
            )
            
            
            29.67Balance,
      December 27, 2008
            
            
            191,059
            
            
            
            1,440,285
            
            
            $
            27.50





The
weighted average fair value of options, as determined under SFAS 123R, granted
under the Option Plan during the three and nine months ended December 27, 2008
were $11.54 and $11.95 per share, compared to $15.90 and $17.18 per share,
respectively, during the same periods last fiscal year.  The total
intrinsic value of options exercised (which is the amount by which the stock
price exceeded the exercise price of the option on the date of the exercise)
during the three and nine months ended December 27, 2008 was $82,000 and
$1,319,000, compared to $462,000 and $1,807,000, respectively, for the same
periods last fiscal year.  During the three and nine months ended
December 27, 2008, the amounts of cash received from employees as a result of
employee stock option exercises were $305,000 and $1,440,000, respectively. For
the same periods last fiscal year, such amounts were $525,000 and $1,866,000,
respectively.




The
options outstanding and exercisable at December 27, 2008, under the Option Plan
are in the following exercise price ranges:




Options
      Outstanding
            
            
            Options
      ExercisableRange
      of Exercise Prices
            
            
            Number
      Outstanding
            
            
            Weighted-Average
      Remaining Contractual Life (Years)
            
            
            Weighted-Average
      Exercise Price
            
            
            Number
      Outstanding
            
            
            Weighted-Average
      Exercise Price$
            11.30
            
            
            
            -
            
            
            $
            19.99
            
            
            
            265,475
            
            
            
            2.26
            
            
            $
            16.92
            
            
            
            216,355
            
            
            $
            16.8420.00
            
            
            
            -
            
            
            
            29.99
            
            
            
            602,300
            
            
            
            9.19
            
            
            
            23.48
            
            
            
            34,300
            
            
            
            25.7630.00
            
            
            
            -
            
            
            
            39.99
            
            
            
            393,560
            
            
            
            6.71
            
            
            
            34.33
            
            
            
            104,165
            
            
            
            34.2540.00
            
            
            
            -
            
            
            
            46.92
            
            
            
            178,950
            
            
            
            4.88
            
            
            
            41.75
            
            
            
            53,750
            
            
            
            42.00$
            11.30
            
            
            
            -
            
            
            $
            46.92
            
            
            
            1,440,285
            
            
            
            6.70
            
            
            $
            27.50
            
            
            
            408,570
            
            
            $
            25.33





The total
intrinsic value of options outstanding and options exercisable as of December
27, 2008 was $2,397,000 and $1,365,000, respectively.




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2000 Employee
Stock Purchase Plan (“ESPP”).Under the ESPP,
eligible employees may elect to withhold up to 20% of their cash compensation to
purchase shares of the Company’s common stock at a price equal to 95% of the
market value of the stock at the time of purchase, which is at the end of the
six-month offering period.  An eligible employee may purchase no more
than 500 shares during any six-month offering period. For the three months ended
December 27, 2008 and December 29, 2007, the amounts of cash received from
employees as a result of ESPP purchase were both $84,000. For the nine months
ended December 27, 2008 and December 29, 2007, such amounts were both
$167,000.




Note
7 – Income Taxes




The
provision for income taxes for the three and nine months ended December 27, 2008
was $140,000 at an effective tax rate of 5% and $3,345,000 at an effective tax
rate of 22%, compared to $1,641,000 at an effective tax rate of 31% and
$5,995,000 at an effective tax rate of 32% for the same periods in the prior
fiscal year, respectively. The decrease in the estimated effective tax rate for
the three months ended December 27, 2008 as compared to same period in the prior
fiscal year is primarily due to the retroactive reinstatement of the federal
research and development credit (“R&D credit”), the expiration of tax
contingencies, and shifts of income among jurisdictions with different tax
rates. The decrease in the effective tax rate for the nine months ended December
27, 2008, as compared to same period in the prior fiscal year, was primarily due
to the reinstatement of the federal R&D credit, the expiration of tax
contingencies, shifts of income among jurisdictions with different tax rates and
a favorable resolution of a prior year tax uncertainty of approximately
$295,000, including interest, recognized by the Company in the first quarter of
fiscal 2009.




The
income tax provision for such interim periods reflects the Company’s computed
estimated annual effective tax rate and differs from the taxes computed at the
federal and state statutory rates primarily due to the effect of foreign rate
differentials, non-deductible stock-based compensation expense, tax exempt
interest income, and research and development tax credits, FASB Interpretation
No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) tax contingencies, and the
domestic production activities deduction.




During
the nine months ended December 27, 2008, the liability for uncertain income tax
positions less accrued interest and penalties increased from $3,941,000 to
$3,999,000. This increase was primarily due to current period recurring FIN48
accruals partially offset by a settlement of an Internal Revenue Service (“IRS”)
examination of the Company’s fiscal 2004 income tax return. Of the total
$3,999,000 of unrecognized tax benefits, $2,637,000 represents the amount that,
if recognized, would favorably affect the Company’s effective income tax rate in
any future period. The Company cannot conclude on the range of cash payments
that will be made within the next twelve months associated with its uncertain
tax positions.




The
Company records interest and penalties related to unrecognized tax benefits in
income tax expense. On December 27, 2008, the Company had approximately $232,000
accrued for estimated interest and $401,000 for estimated penalties related to
uncertain tax positions. For the nine months ended December 27, 2008, the
Company recorded estimated interest of $96,000 and estimated penalties of
$25,000.




Included
in the balance of income tax benefits, accrued interest and accrued penalties on
December 27, 2008 were approximately $461,000 related to tax positions for
which it is reasonably possible that the statute of limitations will expire in
various jurisdictions within the next twelve months.




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




14
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 (unaudited)




The
California 2008-2009 Budget Bill ("AB 1452"), enacted on September 30, 2008,
resulted in two temporary changes to the Company's projected 2008 California
income tax.  First, the bill suspends the use of Net Operating Loss (“NOL”)
carryovers for two years, fiscal years 2009 and 2010.  Second, the bill
limits the use of R&D credit carryovers to no more than 50% of the tax
liability before credits.  The Company does not expect this change in the
California law will result in a significant impact on its provision for income
taxes for fiscal year 2009.




The
Company and its subsidiaries are subject to taxation in various jurisdictions,
including federal, state and foreign.  The Company’s federal and state
income tax returns are generally not subject to examination by taxing
authorities for fiscal years before 2003.




Note
8 - Net Income per Share




Basic
earnings per share (“EPS”) is computed as net income divided by the weighted
average number of common shares outstanding for the period.  Diluted
EPS reflects the potential dilution that could occur from common shares that may
be issued through stock options and ESPP only, since the Company does not have
warrants or other convertible securities outstanding.  A
reconciliation of the numerator and denominator of basic and diluted earnings
per share is provided as follows (in thousands, except per share
amounts):




Three
      Months Ended
            
            
            Nine
      Months EndedDecember
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007BASIC:Net
      income
            
            $
            2,612
            
            
            $
            3,677
            
            
            $
            11,601
            
            
            $
            12,651Weighted
      average shares outstanding for the period
            
            
            12,854
            
            
            
            13,685
            
            
            
            12,824
            
            
            
            13,700Net
      income per share
            
            $
            0.20
            
            
            $
            0.27
            
            
            $
            0.90
            
            
            $
            0.92DILUTED:Net
      income
            
            $
            2,612
            
            
            $
            3,677
            
            
            $
            11,601
            
            
            $
            12,651Weighted
      average shares outstanding for the period
            
            
            12,854
            
            
            
            13,685
            
            
            
            12,824
            
            
            
            13,700Effect
      of dilutive securities: stock options and ESPP
            
            
            71
            
            
            
            227
            
            
            
            99
            
            
            
            229Total
            
            
            12,925
            
            
            
            13,912
            
            
            
            12,923
            
            
            
            13,929Net
      income per share
            
            $
            0.20
            
            
            $
            0.26
            
            
            $
            0.90
            
            
            $
            0.91





Options
to purchase 972,964 shares of the Company’s common stock at an average price of
$33.99 per share, and 839,816 shares at an average price of $33.33 per share for
the three and nine months ended December 27, 2008, respectively, were
outstanding but were not included in the computation of diluted earnings per
share because their effect would have been anti-dilutive.




For the
three and nine months ended December 29, 2007, options to purchase 555,539
shares of the Company’s common stock at an average price of $37.08 per share,
and 516,778 shares at an average price of $38.07 per share, respectively, were
not included in the computation of diluted earnings per share because their
effect would have been anti-dilutive.




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Note 9 – Commitments and Contingencies




Indemnification




As is
customary in the Company’s industry, the Company has agreed to defend certain
customers, distributors, suppliers, and subcontractors against certain claims,
which third parties may assert that its products allegedly infringe certain of
their intellectual property rights, including patents, trademarks, trade
secrets, or copyrights.  The Company has agreed to pay certain amounts
of any resulting damage awards and typically has the option to replace any
infringing product with non-infringing product.  The terms of these
indemnification obligations are generally perpetual from the effective date of
the agreement.  In certain cases, there are limits on and exceptions
to the Company’s potential liability for indemnification relating to
intellectual property infringement claims.  The Company cannot
estimate the amount of potential future payments, if any, that it might be
required to make as a result of these agreements.  To date, the
Company has not paid any damage awards nor has it been required to defend any
claims related to its indemnification obligations, and accordingly, it has not
accrued any amounts for indemnification obligations.  However, there
can be no assurance that the Company will not have any financial exposure under
those indemnification obligations in the future.




Legal
Proceedings




From time
to time the Company is subject to possible claims or assessments from third
parties arising in the normal course of business.  Management has
reviewed such possible claims and assessments with the Company’s legal counsel
and believes that it is unlikely that they will result in any material adverse
effect on the Company’s financial condition, results of operations or cash
flow.  The Company is not currently involved in any legal proceeding
that it believes will materially and adversely affect its business or financial
condition.




Product
Return Reserve




The
Company’s policy is to replace defective products at its own expense for a
period of 90 days from date of shipment. This period may be extended in certain
cases. This liability is limited to replacement of the product, freight and
delivery costs or refund or credit of the purchase price.  On certain
occasions, the Company may pay for rework.  The Company usually
provides a replaced/reworked product at resale value rather than a refund or
credit to meet the warranty obligations.  This policy is necessary to
protect the Company’s distributors, to improve customer satisfaction, and for
competitive reasons.  Additionally, it is the custom in Japan and
Europe to provide this benefit.




The
Company records a reduction to revenue for estimated product returns, including
warranty related returns, in the same period as the related revenues are
recorded.  These estimates are based on historical experience,
analyses of outstanding Return Material Authorization and Allowance
Authorization data and any other form of notification received of pending
returns.Actual
warranty charges are treated as sales returns. Neither historical warranty
charges nor the accrual for warranty costs is material for any periods
presented.




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 (unaudited)


The reductions to revenue for estimated
product returns for the three and nine months ended December 27, 2008 and
December 29, 2007 are as follows(in
thousands):




Description
            
            Balance
      at Beginning of Period
            
            
            Charge(1)
            
            
            Deductions
      and Other(2)
            
            
            Balance
      at End of PeriodThree
      months ended December 27, 2008Allowance
      for sales returns
            
            $
            403
            
            
            $
            195
            
            
            $
            (193
            )
            
            $
            405Three
      months ended December 29, 2007Allowance
      for sales returns
            
            $
            144
            
            
            $
            476
            
            
            $
            (228
            )
            
            $
            392Nine
      months ended December 27, 2008Allowance
      for sales returns
            
            $
            483
            
            
            $
            563
            
            
            $
            (641
            )
            
            $
            405Nine
      months ended December 29, 2007Allowance
      for sales returns
            
            $
            199
            
            
            $
            989
            
            
            $
            (796
            )
            
            $
            392





___________________


(1)Allowances for sales returns are recorded as a reduction of
revenue.


(2)
Represents payments and other amounts charged to the allowance for sales
returns.




While the
Company’s sales returns are historically within the expectations and the
allowance established, it cannot guarantee that it will continue to experience
the same return rates that it has had in the past.  Any significant
increase in product failure rates and the resulting sales returns could have a
material adverse effect on the operating results for the period or periods in
which such returns materialize.




Operating
Lease Obligations




The
Company’s future minimum lease payments and sublease income under non-cancelable
operating leases at December 27, 2008 are as follows (in thousands):





Payment
      Due by Year
            
            Operating
      Lease
            
            
            Estimated
      Sublease IncomeLess
      than 1 year
            
            $
            1,157
            
            
            $
            172
      years
            
            
            1,044
            
            
            
            -3
      years
            
            
            359
            
            
            
            -$
            2,560
            
            
            $
            17





The
Company leases facilities under non-cancelable lease agreements expiring at
various times through September 2011.  Rental expense net of sublease
income for the three and nine months ended December 27, 2008 amounted to
$307,000 and $859,000, respectively. For the same periods of last fiscal year,
such expenses were $233,000 and $693,000, respectively.




17
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 (unaudited)


Note
10 – Common Stock Repurchase




There
were no shares repurchased during the three and nine months ended December 27,
2008. Share repurchase activity for the three and nine months ended December 29,
2007 is as follows:




Three
      Months Ended
            
            
            Nine
      Months EndedDecember
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007Number
      of shares repurchased
            
            
            -
            
            
            
            212,560
            
            
            
            -
            
            
            
            317,360Cost
      of shares repurchased
            
            
            -
            
            
            $
            7,379,000
            
            
            
            -
            
            
            $
            10,628,000Average
      price per share
            
            
            -
            
            
            $
            34.71
            
            
            
            -
            
            
            $
            33.49





Since the
inception of the repurchase program in 1992 through December 27, 2008, the
Company has repurchased a total of 2,344,000 shares of common stock for an
aggregate cost of $36,551,000.  Upon their repurchase, shares are
restored to the status of authorized but un-issued shares.  As of
December 27, 2008, a total of 556,000 shares remained authorized for repurchase
under the program.




Note
11 – Segment Information




The
Company operates in one business segment comprising the design, development,
manufacturing and marketing of high voltage semiconductor devices including
analog and mixed signal integrated circuits.  The Company's principal
markets are in Asia, the United States, and Europe.  The Company’s
chief operating decision maker, who is currently the Company’s Chief Executive
Officer, reviews financial information presented on a consolidated basis for
purposes of making operating decisions and assessing financial
performance.




Below is
a summary of sales by major geographic area (in thousands):




Three
      Months Ended
            
            
            Nine
      Months EndedNet
      Sales
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007United
      States
            
            $
            7,105
            
            
            $
            7,266
            
            
            $
            23,019
            
            
            $
            22,070Asia
      (excluding China)
            
            
            4,457
            
            
            
            4,808
            
            
            
            17,865
            
            
            
            17,032China
            
            
            4,195
            
            
            
            5,402
            
            
            
            13,907
            
            
            
            15,292Europe
            
            
            1,557
            
            
            
            2,376
            
            
            
            8,296
            
            
            
            7,881Other
            
            
            282
            
            
            
            295
            
            
            
            713
            
            
            
            663Net
      Sales
            
            $
            17,596
            
            
            $
            20,147
            
            
            $
            63,800
            
            
            $
            62,938





Net
property, plant and equipment by country are as follows (in thousands):




Country
            
            December
      27, 2008
            
            
            March
      29, 2008United
      States
            
            $
            7,583
            
            
            $
            8,334Hong
      Kong
            
            
            1,659
            
            
            
            1,582$
            9,242
            
            
            $
            9,916




18
 Table of Contents
 SUPERTEX,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 (unaudited)




Note
12 – Significant Customers




The
Company sells its products to OEMs through its direct sales and marketing
personnel, and through its independent sales representative and distributors.
Revenue from sales to distributors and its related cost of sales are recognized
upon resale to end-user customers.




For the
three months ended December 27, 2008, a major medical instrumentation company
accounted for approximately 14% of net sales. For the three months ended
December 29, 2007, the same medical instrument company and a communications
company accounted for approximately 12% and 16% of sales, respectively. Nearly
all of the sales to the medical instrumentation company were through
distributors and contract manufacturers. For the nine months ended December 27,
2008, the same major medical instrumentation company accounted for approximately
14% of net sales. For the nine months ended December 29, 2007, the same major
medical instrumentation company and the same communications company each
accounted for approximately 14% of net sales. There were no other customers that
the Company believes accounted for more than 10% of the Company’s net sales for
the three or nine months ended December 27, 2008 or December 29,
2007.









19
 
 Table of Contents


Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations




The
following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and related Notes thereto contained
elsewhere in this Report.  The information contained in this quarterly
report on Form 10-Q is not a complete description of our business or the risks
associated with an investment in our common stock.  You are urged to
carefully review and consider the various disclosures we made in this Report and
in other reports filed with the SEC, including the annual report on Form 10-K
for the year-ended March 29, 2008.




Cautionary
Statement Regarding Forward Looking Statements




This
Quarterly Report on Form 10-Q includes forward-looking
statements.  These forward-looking statements are not historical
facts, and are based on current expectations, estimates, and projections about
our industry, our beliefs, our assumptions, and our goals and
objectives.  Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," and "estimates " and variations of these words and
similar expressions, are intended to identify forward-looking
statements.  Examples of the kinds of forward-looking statements in
this report include statements regarding the following (1) our belief that sales
of our high voltage analog switches and multiplexers, high voltage pulsers,
high-speed MOSFET drivers, and high voltage MOSFETs to this market will continue
to increase if and when the overall market recovers and as the medical
ultrasound market continues to expand globally; (2) our expectation that we will
introduce more new integrated pulser ICs as well as ultrasound receiver blocks;
(3) our belief that custom and standard high voltage pulsers and analog switches
and multiplexers will contribute to our revenue growth if and when the market
recovers; (4) our expectation that there will be a sequential quarterly decrease
in sales in EL inverter ICs and printer ICs due to overall weak demand; (5) our
expectation that sales of our LED driver ICs for general lighting applications
will resume growth if and when the overall economy recovers; and our expectation
that sales of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs
will begin to ramp in the fourth quarter of fiscal 2009 and will grow in fiscal
2010; (6) our expectation that backlighting module prices are expected to drop
to a level competitive with CCFL BLU prices; (7) our current growth strategy to
successfully transition our new products, and continuously and successfully
introduce and market new technology and innovative products that meet our
customers’ requirements; (8) our expectation that R&D expenses as a
percentage of net sales may fluctuate; (9) our expectation that our tax rate
will be  moderately higher in the fourth quarter of fiscal 2009; (10)
our expectation that we will spend approximately $2,200,000 for capital
acquisitions in fiscal 2009; (11) our belief that we have substantial production
capacity in place to handle our projected business in fiscal 2009; (12) our
belief that existing cash, cash equivalents together with cash flow from
operations, will be sufficient to meet our liquidity and capital requirements
through the next twelve months; (13) our belief that the estimated range of fair
values of our ARS is appropriate; that the credit risk of our auction rate
securities is very low; that we will receive the principal associated with these
auction-rate securities; that the auction failures will not materially affect
our ability to fund our working capital needs, capital expenditures, or other
business requirements; and that declines in our ARS fair values are temporary;
(14) our belief that our exposure to foreign currency risk is relatively small;
and (15) our belief that it is unlikely that any legal claims will result in a
material adverse effect on our financial position, results of operations or cash
flows.




These
statements are only predictions, are not guarantees of future performance, and
are subject to risks, uncertainties, and other factors, some of which are beyond
our control and are difficult to predict, and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements.  These risks and uncertainties include material adverse
changes in the demand for our customer’s products in which the Company’s
products are used; that competition to supply semiconductor devices in the
markets in which the Company competes increases and causes price erosion; that
demand does not materialize and increase for recently released customer products
incorporating the Company’s products; that we have delays in developing and
releasing into production our planned new products, that there could be
unexpected manufacturing issues as production ramps up; that the demand for the
Company’s products or results of its product development changes such that it
would be unwise not to decrease research and development; that the IRS will
determine that more US income was realized than the Company claimed or that
fewer expenses were allowable; that some of the Company’s equipment will be
unexpectedly damaged or become obsolete, thereby requiring replacement; and that
the credit crisis will not further affect our auction rate securities; as well
as those described in "Factors Which May Affect Operating Results" under Item 1A
of Part I , “Risk Factors” in the Company’s  annual report of Form
10-K for the fiscal year ended March 29, 2008.  The information
included in this Form 10-Q is provided as of the filing date with the SEC and
future events or circumstances could differ significantly from the
forward-looking statements included herein.  Accordingly, the readers
are cautioned not to place undue reliance on such statements. Except as required
by law, the Company undertakes no obligation to update any forward-looking
statement as a result of new information, future events, or
otherwise.




20
 
 Table of Contents




Critical
Accounting Policies




Our
critical accounting policies are those that both (1) are most important to the
portrayal of the financial condition and results of operations and (2) require
management’s most difficult, subjective, or complex judgments, often requiring
estimates about matters that are inherently uncertain. There have been no
material changes from the methodology applied by management for critical
accounting estimates previously disclosed in our fiscal 2008 Annual Report on
Form 10-K.




Overview




We
design, develop, manufacture, and market integrated circuits (ICs), including
analog and mixed signal devices utilizing state-of-the-art high voltage DMOS,
HVCMOS and HVBiCMOS analog and mixed signal technologies.  We supply
standard and custom high voltage interface products primarily for use in the
imaging, medical electronics, telecommunications (telecom), LED driver ICs, and
industrial/other markets. We also supply custom integrated circuits for our
customers using customer-owned designs and mask toolings with our process
technologies.




Results
of Operations




Net
Sales




We
operate in one business segment comprising the design, development,
manufacturing and marketing of high voltage semiconductor devices including
analog and mixed signal ICs and specialty metal-oxide-field-effect-transistors
(MOSFETs) . We have a broad customer base, which in some cases manufacture
electronic end products and equipment spanning multiple markets. As such, the
assignment of revenue to the aforementioned markets requires the use of
estimates, judgment, and extrapolation. Actual results may differ slightly from
those reported here.




Net sales
for the three months ended December 27, 2008 were $17,596,000, a 13% decrease
compared to $20,147,000 for the same period of the prior fiscal year. This
year-over-year decrease in net sales resulted primarily from the current weak
global economy affecting nearly all of our markets, one of our customers of EL
inverter ICs for cell phones losing market share, and reduced shipments to
telecom due to lower demand for driver ICs for a military radio
application. Net sales decreased 25% from $23,453,000 when compared to the
quarter ended September 27, 2008, primarily due to the weak global economy
affecting nearly all of our target markets. However, sales of LED backlighting
drivers increased, as demand increased from a tier-one flat screen TV OEM due to
ramping of a new line of LCD TVs.




Net sales
for the nine months ended December 27, 2008 were $63,800,000, a1% increase compared to
$62,938,000 for the same period of fiscal 2008. This resulted from increases
during the first half of fiscal 2009 in sales of our medical electronics
products, custom processing services and industrial products. This was partially
offset by reductions in our sales in most markets due to the weak global economy
and reductions in EL driver ICs, due to reduced demand from a
communications customer for legacy products, while our new multi-segment EL
driver ICs sales increased.




21
 
 Table of Contents




The table
below shows our estimate of the breakdown of net sales to customers by end
market for the three and nine months ended December 27, 2008, December 29, 2007,
and the three months ended September 27, 2008, as well as year-over-year and
quarterly sequential percentage changes (in thousandsexcept percentages):




Three
      Months Ended
            
            
            Nine
      Months EndedNet
      Sales
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            Sequential
      Change
            
            
            Year-Over-Year
      Change
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            Year-Over-Year
      ChangeMedical
      Electronics
            
            $
            7,527
            
            
            $
            9,912
            
            
            $
            7,590
            
            
            
            -24
            %
            
            
            -1
            %
            
            $
            26,967
            
            
            $
            23,790
            
            
            
            13
            %Imaging
            
            
            4,649
            
            
            
            6,514
            
            
            
            6,804
            
            
            
            -29
            %
            
            
            -32
            %
            
            
            17,470
            
            
            
            20,413
            
            
            
            -14
            %Industrial/
      Other
            
            
            3,299
            
            
            
            4,189
            
            
            
            2,867
            
            
            
            -21
            %
            
            
            15
            %
            
            
            10,386
            
            
            
            9,760
            
            
            
            6
            %Telecom
            
            
            1,215
            
            
            
            2,101
            
            
            
            2,380
            
            
            
            -42
            %
            
            
            -49
            %
            
            
            5,981
            
            
            
            6,103
            
            
            
            -2
            %LED
      Lighting
            
            
            906
            
            
            
            737
            
            
            
            506
            
            
            
            23
            %
            
            
            79
            %
            
            
            2,996
            
            
            
            2,872
            
            
            
            4
            %Net
      Sales
            
            $
            17,596
            
            
            $
            23,453
            
            
            $
            20,147
            
            
            
            -25
            %
            
            
            -13
            %
            
            $
            63,800
            
            
            $
            62,938
            
            
            
            1
            %





Three
      Months Ended
            
            
            Nine
      Months EndedNet
      Sales
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007Medical
      Electronics
            
            
            43
            %
            
            
            42
            %
            
            
            38
            %
            
            
            42
            %
            
            
            38
            %Imaging
            
            
            26
            %
            
            
            28
            %
            
            
            34
            %
            
            
            28
            %
            
            
            32
            %Industrial/Other
            
            
            19
            %
            
            
            18
            %
            
            
            14
            %
            
            
            16
            %
            
            
            15
            %Telecom
            
            
            7
            %
            
            
            9
            %
            
            
            12
            %
            
            
            9
            %
            
            
            10
            %LED
      Lighting
            
            
            5
            %
            
            
            3
            %
            
            
            2
            %
            
            
            5
            %
            
            
            5
            %Net
      Sales
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %





Our
medical electronics product family accounted for the largest sales of all of our
five focus markets for the three and nine months ended December 27, 2008 and
December 29, 2007, and for the three months ended September 27, 2008. Sales to
the medical electronics market for the three months ended December 27, 2008 were
$7,527,000, which wereessentially flat
withthe same
period of the prior fiscalyear. Sales to the
medical electronics market decreased 24% sequentially due the weak global
economy, normal seasonal decline in demand for our analog switches, high voltage
pulser circuits and chipsets, and reduced custom processing
services.




For the
nine months ended December 27, 2008, our medical electronics sales were $26,967,000, an
increase of $3,177,000, or 13%, compared
to the same period in the prior fiscal year. The year-over-year increase in the
net sales is due to higher demand in the first half of fiscal 2009 reflected in
strong shipments of our high voltage pulser circuits and chipsets, and our
analog switches and multiplexers.




In recent
years, the medical ultrasound systems market has experienced significant growth
in the transportable and hand-carried units. These high-performance, portable,
low-cost systems are also accelerating the proliferation of ultrasound imaging
applications in the medical disciplines other than the traditional clinical
prenatal applications, such as cardiovascular and organ
scans.  Geographically, our market has expanded as well, as China,
Korea and India are designing and producing medical ultrasound imaging
machines.  We believe that sales of our high voltage analog switches
and multiplexers, high voltage pulsers, high-speed MOSFET drivers, and high
voltage MOSFETs to this market will continue to increase if and when the overall
market recovers and as the medical ultrasound market continues to expand
globally.  We are heavily investing in product development for this
market and we expect to introduce more new integrated pulser ICs as well as
ultrasound receiver building blocks.  Custom and standard high voltage
pulsers and analog switches and multiplexers are projected to contribute to our
revenue growth if and when the market recovers.




22
 
 Table of Contents




Sales in
the imaging market for the three and nine months ended December 27, 2008 were $4,649,000 and
$17,470,000, a
decrease of 32% and
14%,respectively, when
compared to the same periods in the last fiscal year.  These sales
decreases were due to a decline in shipments of our legacy EL inverter ICs due
to reduced demand for these products from a handset customer as that
customer’s products continued to lose market share. The year-to-date decrease
was partially offset by the production ramp-up in the first half of fiscal 2009
of our multi-segment EL inverter ICs to two cell phone customers. Sales for the
three months ended December 27, 2008, when compared to the prior fiscal quarter,
were 29% lower
due primarily to a decline in shipments of our EL inverter ICs for cell phones,
as one of our customers lost market share. We expect a sequential quarterly
decrease in sales of EL inverter ICs and printer ICs primarily due to
overall weak demand.




Sales in
the industrial and other markets for the three and nine months ended December
27, 2008 were $3,299,000 and $10,386,000, respectively, or increases of 15% and
6%, respectively, as compared with the same periods of the prior fiscal year,
primarily due to increased shipments of a driver for automatic test equipment.
Sales in the third fiscal quarter were lower by $890,000 sequentially, primarily
due to a reduction in demand for that product.




Sales to
the telecom market decreased 49% during the three
months ended December 27, 2008 to $1,215,000 compared
to the same period a year ago and decreased 42%
sequentially.  These year-over-year and sequential decreases were
due to the weak global economy, lower shipments of driver ICs for a military
radio application and reduced demand for high voltage MEMS driver ICs for
optical-to-optical switching applications.




For the
nine months ended December 27, 2008, sales to the telecom market decreased $122,000, or 2%, to
$5,981,000 compared to the same period of last fiscal year.




Sales of
LED driver ICs for lighting and backlighting were $906,000 for the three months
ended December 27, 2008 compared to $506,000 for the same period last year and
$737,000 for the prior quarter. The quarterly year-over-year and sequential
increases in sales were primarily due to increased shipments of our high voltage
LED driver ICs for backlighting a new line of LCD TVs going into volume
production at a tier-one OEM.




For the
nine months ended December 27, 2008, sales to the LED lighting and backlighting
market were $2,996,000 compared to $2,872,000 for the same period of last fiscal
year, as sales of LED drivers for general lighting were significantly higher
during this period of fiscal 2009, while sales of LED driver ICs for the LED
backlighting unit (BLU) for LCD TVs were lower. This was due to the sales trend
during the first half of fiscal 2009 compared to the prior year, as sales of LED
drivers for general lighting applications were significantly higher, while sales
of LED driver ICs for the LED backlighting unit (BLU) for LCD TVs declined
steeply. However, in the third quarter of fiscal 2009, sales of LED driver ICs
for backlighting LCD TVs resumed growth and demand for LED drivers for general
lighting reduced slightly. We expect that sales of our driver ICs for general
lighting applications will resume growth if and when the overall economy
recovers. We also expect that sales of LED driver ICs for the LED backlighting
unit (BLU) for LCD TVs will begin to ramp in the fourth quarter of fiscal 2009
and will grow in fiscal 2010 when LED BLU prices are expected to drop to a level
competitive with CCFL BLU prices, while the LED BLU offers far superior contrast
ratio and power consumption.





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


23
 
 Table of Contents


Our
principal markets are in Asia, the United States, and Europe.  Sales
by geography as well as year-over-year and sequential percentage changes were as
follows, where international sales include sales to the U.S. based customers if
the products are delivered to their contract manufacturers outside the U.S.
(in thousands except
percentages):




Three
      Months Ended
            
            
            Nine
      Months EndedNet
      Sales
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            Sequential
      Change
            
            
            Year-Over-Year
      Change
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            Year-Over-Year
      ChangeUnited
      States
            
            $
            7,105
            
            
            $
            8,214
            
            
            $
            7,266
            
            
            
            -14
            %
            
            
            -2
            %
            
            $
            23,019
            
            
            $
            22,070
            
            
            
            4
            %Asia
      (excluding China)
            
            
            4,457
            
            
            
            6,086
            
            
            
            4,808
            
            
            
            -27
            %
            
            
            -7
            %
            
            
            17,865
            
            
            
            17,032
            
            
            
            5
            %China
            
            
            4,195
            
            
            
            5,352
            
            
            
            5,402
            
            
            
            -22
            %
            
            
            -22
            %
            
            
            13,907
            
            
            
            15,292
            
            
            
            -9
            %Europe
            
            
            1,557
            
            
            
            3,544
            
            
            
            2,376
            
            
            
            -56
            %
            
            
            -34
            %
            
            
            8,296
            
            
            
            7,881
            
            
            
            5
            %Other
            
            
            282
            
            
            
            257
            
            
            
            295
            
            
            
            10
            %
            
            
            -4
            %
            
            
            713
            
            
            
            663
            
            
            
            8
            %Net
      Sales
            
            $
            17,596
            
            
            $
            23,453
            
            
            $
            20,147
            
            
            
            -25
            %
            
            
            -13
            %
            
            $
            63,800
            
            
            $
            62,938
            
            
            
            1
            %International
      Sales
            
            $
            10,491
            
            
            $
            15,239
            
            
            $
            12,881
            
            
            
            -31
            %
            
            
            -19
            %
            
            $
            40,781
            
            
            $
            40,868
            
            
            
            0
            %Domestic
      Sales
            
            
            7,105
            
            
            
            8,214
            
            
            
            7,266
            
            
            
            -14
            %
            
            
            -2
            %
            
            
            23,019
            
            
            
            22,070
            
            
            
            4
            %Net
      Sales
            
            $
            17,596
            
            
            $
            23,453
            
            
            $
            20,147
            
            
            
            -25
            %
            
            
            -13
            %
            
            $
            63,800
            
            
            $
            62,938
            
            
            
            1
            %





Net sales
to international customers for the three months ended December 27, 2008 were
$10,491,000 or 60% of net sales as compared to $12,881,000, or 64% of net sales
for the same period of the prior fiscal year and $15,239,000 or 65% for the
three months ended September 27, 2008. Sales to international customers for the
three months ended December 27, 2008 decreased 19% compared to the same period
last year and decreased 31% sequentially, primarily due to the weak global
economy and reduced demand for EL inverter ICs.




For the
nine months ended December 27, 2008, net sales to international customers were
$40,781,000 or 64% of net sales, as compared to $40,868,000 or 65% of net
sales for the same period of the prior fiscal year.




Net sales
to domestic customers for the three months ended December 27, 2008 decreased 2%
compared to the same period of the prior fiscal year and 14% sequentially. The
sequential decrease in domestic sales is primarily due to lower custom
processing services. For the nine months ended December 27, 2008, net sales to
domestic customers increased 4% compared to the same period of the prior fiscal
year.




Our
assets are primarily located in the United States.




24
 
 Table of Contents


Cost
of Sales and Gross Profit




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




Three
      Months Ended
            
            
            Nine
      Months Ended(
      in thousands except percentages)
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      27, 2008
            
            
            December
      29, 2007Gross
      Margin Percentage
            
            
            54
            %
            
            
            57
            %
            
            
            56
            %
            
            
            56
            %
            
            
            59
            %Included
      in Gross Margin Percentage AboveGross
      Margin Benefit from Sale of Previously Written Down
    Inventory
            
            $
            443
            
            
            $
            356
            
            
            $
            287
            
            
            $
            1,125
            
            
            $
            1,065Percentage
      of Net Sales
            
            
            3
            %
            
            
            2
            %
            
            
            1
            %
            
            
            2
            %
            
            
            2
            %





Gross
profit for the quarter ended December 27, 2008 was $9,520,000, compared to
$11,232,000 for the same period of fiscal 2008, and $13,289,000 for the prior
quarter. The year-over-year quarterly decrease in gross profit was primarily
attributable to decreased sales. The $3,769,000 sequential decrease in gross
profit resulted primarily from reduced sales, unfavorable product mix, and
increased charges for inventory excess and obsolescence. For the nine months
ended December 27, 2008, gross profit was $35,560,000 compared to $36,927,000
for the same period of last fiscal year. The decrease in gross profit was
primarily attributable to lower use of fab capacity for research and development
wafer processing and reduction in average selling prices on certain
products.




Gross
margin, which is gross profit as a percent of net sales, was 54% for the three
months ended December 27, 2008 compared to 56% for the same period of the prior
fiscal year and 57% for the prior quarter.  The year-over-year
quarterly decrease in gross margin was primarily attributable to reduced
absorption of factory costs during the period and by a decline in average
selling prices on certain products.  The sequential decline in gross
margin was primarily due to unfavorable product mix and increased charges for
inventory excess and obsolescence. For the nine months ended December 27, 2008,
gross margin was 56% compared to 59% for the same period of the prior fiscal
year. The decrease in gross margin was primarily due to lower use of fab
capacity for research and development wafer processing and reduction in average
selling prices on certain products.




We wrote
down inventory totaling $1,123,000 and $1,969,000 for the three and nine months
ended December 27, 2008, respectively. For the comparable periods in fiscal
2008, we wrote down inventory totaling $1,235,000 and $2,085,000, respectively.
We recorded revenue from sales of previously written-down inventory of $443,000
and $1,125,000 for the three and nine months ended December 27, 2008,
respectively. Such amounts were $287,000 and $1,065,000 for the three and nine
months ended December 29, 2007, respectively.




Research
and Development (R&D) Expenses




Three
      Months Ended
            
            
            Nine
      Months Ended(
      in thousands except percentages)
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            Sequential
      Change
            
            
            Year-Over-Year
      Change
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            Year-Over-Year
      ChangeR&D
      Expenses
            
            $
            3,467
            
            
            $
            3,802
            
            
            $
            3,358
            
            
            
            -9
            %
            
            
            3
            %
            
            $
            11,306
            
            
            $
            10,981
            
            
            
            3
            %Percentage
      of Net Sales
            
            
            20
            %
            
            
            16
            %
            
            
            17
            %
            
            
            
            
            
            
            
            
            
            
            18
            %
            
            
            17
            %




25
 
 Table of Contents


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




Expenditures
for R&D were $3,467,000 for the three months ended December 27, 2008, as
compared to $3,358,000 and $3,802,000 for the three months ended December 29,
2007 and September 27, 2008, respectively. The net increase of $109,000 for the
third fiscal quarter compared to the same period in the prior year primarily
resulted from an increase in payroll expense partially offset by a reduction in
benefits resulting from a decline in fair value of our Supplemental Employee
Retirement Plan (“SERP”). Compared to the prior quarter, R&D expenses were
$335,000 lower due to a reduction in payroll and benefits of $356,000 primarily
resulting from a decline in fair value of our SERP.




For the
nine months ended December 27, 2008, R&D expenses increased $325,000 to
$11,306,000, compared to $10,981,000 for the same period of the prior fiscal
year. The increase was due to higher payroll expense of $1,316,000, partially
offset by a reduction in usage of fab services for wafer processing development
of $931,000.




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




Selling,
General and Administrative (SG&A) Expenses




Three
      Months Ended
            
            
            Nine
      Months Ended(
      in thousands except percentages)
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            Sequential
      Change
            
            
            Year-Over-Year
      Change
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            Year-Over-Year
      ChangeSG&A
      Expenses
            
            $
            3,157
            
            
            $
            3,900
            
            
            $
            3,888
            
            
            
            -19
            %
            
            
            -19
            %
            
            $
            10,853
            
            
            $
            11,726
            
            
            
            -7
            %Percentage
      of Net Sales
            
            
            18
            %
            
            
            17
            %
            
            
            19
            %
            
            
            
            
            
            
            
            
            
            
            17
            %
            
            
            19
            %





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




SG&A
expenses for the three months ended December 27, 2008 were $3,157,000, a
decrease of $731,000 when compared to $3,888,000 for the same period last year.
The year-over-year decrease is primarily due to lower payroll and benefit
expenses of $314,000, lower commissions of $217,000, and lower bad debt expense
of $158,000. SG&A expenses decreased $743,000 from $3,900,000 when compared
to the prior quarter. The sequential decrease was primarily due to lower benefit
expense of $424,000 resulting from a decline in fair value of SERP, lower
professional service expense of $192,000, and lower commission expense of
$100,000.




SG&A
expenses for the first nine months of fiscal 2009 were $10,853,000, a reduction
of $873,000 from $11,726,000 for the same period of last fiscal year. This
decrease was due to a reduction in payroll and benefit expenses of $535,000
resulting primarily from a decline in fair value of our SERP, a reduction in
commissions and salesman incentives of $490,000, a reduction in bad debt expense
of $172,000, and a reduction in travel and entertainment expenses of $108,000,
partially offset by higher tax and other consulting expenses of
$424,000.





26
 
 Table of Contents





Interest
Income and Other Income, Net




Three
      Months Ended
            
            
            Nine
      Months Ended(
      in thousands except percentages)
            
            December
      27, 2008
            
            
            September
      27, 2008
            
            
            December
      29, 2007
            
            
            Sequential
      Change
            
            
            Year-Over-Year
      Change
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            Year-Over-Year
      ChangeInterest
      Income and Other Income (Expense), Net
            
            $
            (144
            )
            
            $
            714
            
            
            $
            1,332
            
            
            
            -120
            %
            
            
            -111
            %
            
            $
            1,545
            
            
            $
            4,426
            
            
            
            -65
            %Percentage
      of Net Sales
            
            
            -1
            %
            
            
            3
            %
            
            
            7
            %
            
            
            
            
            
            
            
            
            
            
            2
            %
            
            
            7
            %





Interest
income, which consists primarily of interest income from our cash, cash
equivalents and short-term and long-term investments, was $881,000 and
$2,763,000 for the three and nine months ended December 27, 2008, respectively,
compared to $1,664,000 and $4,485,000, respectively, for the same periods of the
prior fiscal year. The year-over-year decreases in interest income resulted
primarily from lower investment yields. Interest income increased $40,000 from
$841,000 for the prior quarter.  The sequential increase was primarily
driven by higher cash and investment balance, partially offset by lower
investment yields.




Other
expense, net, for the three and nine months ended December 27, 2008 was
$1,025,000 and $1,218,000, respectively, compared to $332,000 and $59,000 for
the same periods in the prior fiscal year, respectively, and $127,000 for the
prior quarter. The year-over-year and sequential differences were primarily due
to a decline in fair value of investments held by our SERP.




Provision
for Income Taxes




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




The
provision for income taxes for the three months ended December 27, 2008 was
$140,000 on income before tax of $2,752,000 at the effective tax rate of 5%,
compared to $1,641,000 on income before tax of $5,318,000 at the effective tax
rate of 31% for the same period in the prior fiscal year, and $1,752,000 on
income before tax of $6,301,000 at the effective tax rate of 28% for the prior
quarter.The
provision for income taxes for the nine months ended December 27, 2008 was
$3,345,000 on income before tax of $14,946,000 at the effective tax rate of 22%
compared to $5,995,000 on income before tax of $18,646,000 at the effective tax
rate of 32%. The year-over-year decreases in the estimated effective tax rate
for the three and six months ended December 27, 2008 compared to same periods in
the prior fiscal year were primarily due to the retroactive reinstatement of the
federal R&D credit, the expiration of tax contingencies, shifts of income
among jurisdictions with different tax rates, and a favorable resolution of a
prior year tax uncertainty of approximately $295,000, including interest,
recognized by the Company in the first quarter of fiscal 2009. Also, because of
the retroactive reinstatement of the R&D credit and the expiration of tax
contingencies, the effective tax rate in third quarter of fiscal 2009 was
sequentially lower. We estimate our tax rate to be moderately higher in the
fourth quarter of fiscal 2009.




27
 
 Table of Contents




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




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




Financial
Condition




Overview




We ended
the third quarter of fiscal 2009 with $135,685,000 in cash, cash equivalents,
short-term and long-term investments.  This represents an increase of
$14,425,000 when compared with the amount of $121,260,000 on March 29,
2008.  As of December 27, 2008, working capital was $75,082,000, an
increase of $28,588,000 from $46,494,000 as of March 29,
2008.  Working capital is defined as current assets less current
liabilities.  The increase in working capital was primarily the result
of cash generated from operations and partial redemptions of our ARS in July and
December 2008.




Liquidity
and Capital Resources




In summary, our cash flows were as
follows:





Nine
      Months Ended(
      in thousands)
            
            December
      27, 2008
            
            
            December
      29, 2007Net
      cash provided by operating activities
            
            $
            21,218
            
            
            $
            14,925Net
      cash provided by (used in) investing activities
            
            
            9,971
            
            
            
            (5,241
            )Net
      cash provided by (used in) financing activities
            
            
            1,664
            
            
            
            (8,357
            )Net
      increase in cash and cash equivalents
            
            $
            32,853
            
            
            $
            1,327





Operating
Activities




Net cash
provided by operating activities is net income adjusted for certain non-cash
items and changes in assets and liabilities. For the nine months ended December
27, 2008, net cash provided by operating activities was $21,218,000. This
increase in cash resulted primarily from net income of $11,601,000, adjusted for
non-cash items of $8,468,000. Additionally, trade accounts receivable reduced by
$3,031,000 due to a reduction in sales in the third quarter of fiscal 2009
compared to the fourth fiscal quarter of last year, and prepaid expenses and
other assets reduced by $2,352,000 due to a reduction in interest receivable
resulting from timing of interest payments received and lower yields, and income
taxes receivable reduced due to a settlement of an IRS examination of the
Company’s fiscal 2004 income tax return. These increases in cash were partially
offset by uses of cash resulting from a reduction in trade accounts payable and
accrued expenses of $2,590,000, as accounts payable reduced due to lower
production activity and our SERP assets decreased due to a reduction in
valuation resulting from the recent economic downturn, and due to increased
inventories of $2,294,000, as the decline in shipments was greater than the
decline of wafer fab production during the nine month period ended December 27,
2009.




28
 
 Table of Contents




For the
nine months ended December 29, 2007, net cash provided by operating activities
was $14,925,000. This increase in cash was primarily attributable to net income
of $12,651,000, adjusted for non-cash items of $6,616,000, resulting in part
from an inventory reserve established for a discontinued product ramp-up, and
from an increase in income taxes payable of $1,978,000. This was partially
offset by an increase in inventories of $5,358,000 resulting from an increase in
higher valued inventory in our back-end test facility, and due to an increase in
trade accounts receivable of $1,177,000.




Investing
Activities




Investing
cash flows consist typically of capital expenditures and purchases of short-term
and long-term investments, partially offset by sales of short-term investments.
Cash provided by investing activities for the nine months ended December 27,
2008 was $9,971,000. This increase of cash included partial auction rate
security redemptions at par value of $12,150,000, partially offset by capital
expenditures of $1,803,000, such as for adding production testing capacity and
for wafer fab equipment upgrades, and by $540,000 for purchase of trading
securities under our SERP during the first three quarters of fiscal
2009.




We expect
to spend approximately $2,200,000 for capital acquisitions in fiscal 2009, of
which we have spent $1,803,000 during the nine months ended December 27, 2008.
We believe that we have substantial production capacity in place to handle our
projected business in fiscal 2009.  Most of our property, plant and
equipment, net, of $9,242,000 are located in the United States. We also believe
that existing cash and cash equivalents together with cash flow from operations
will be sufficient to meet our liquidity and capital requirements through the
next twelve months.




Cash used
in investing activities for the nine months ended December 29, 2007 was
$5,241,000, primarily due to the timing of purchases and sales of short-term
investments and capital expenditures of $3,795,000.




Our
investment portfolio is primarily comprised of auction rate securities (ARS) and
money market funds. As of December 27, 2008, the ARS we held had a par value of
$88,450,000 and had contractual maturities between 16 and 32 years. They
are in the form of auction rate bonds backed by a pool of student loans, whose
interest rates were reset every seven to thirty-five days through an auction
process. At the end of each reset period, investors can sell or continue to hold
the securities at par.




Since the
fourth quarter of fiscal 2008, the ARS auction market has experienced
failures. In general, for each unsuccessful auction, the interest rate
moves to a maximum rate defined for each ARS, unless the interest earned reaches
the maximum amount stipulated by the prospectus. The principal associated with
failed auctions will not be accessible until successful auctions occur, a buyer
is found outside of the auction process, the issuers establish a different form
of financing to replace these securities, or final payments come due according
to contractual maturities ranging from 16 to 32 years.  Although no
assurance can be given, we expect that we will receive the full principal
associated with these auction-rate securities through one of the means described
above. We received a payment of $11,200,000 in July 2008, representing
approximately 86% of our holding of one ARS, and another payment of $950,000 in
December 2008, representing 19% of our holding of another ARS, both parts of
which were redeemed at par value. We continue to believe that the credit quality
of the ARS we hold is high, as they are backed by student loans and are
primarily guaranteed by the US Department of Education and continue to be rated
by the major independent rating agencies as either AAA or Aaa.




While the
recent auction failures will limit our ability to liquidate these investments
for some period of time and we have, as a result, reclassified our ARS
investments as long-term, we do not believe the auction failures will materially
affect our ability to fund our working capital needs, capital expenditures, or
other business requirements. As of December 27, 2008, we had approximately
$75,082,000 of working capital, including $50,755,000 of cash and cash
equivalents, and we have generated cash from our operations for the past several
years.




29
 Table of Contents




As of
December 27, 2008, due to the lack of availability of observable market quotes
on our investment portfolio of ARS, all of our investments in ARS were
classified as Level 3 and the fair value was estimated based on a discounted
cash flow model and included a discount factor for illiquidity of the ARS
market. This Level 3 fair value of $79,000,000 represents approximately 61% of
total assets measured at fair value. The assumptions used in the discounted cash
flow model include estimates for interest rates, timing and amounts of cash
flows, liquidity of the underlying security, expected holding periods and
contractual terms of the ARS.




Using
this discounted cash flow model, we determined that there was a temporary
impairment of $9,450,000 to par value of our ARS as of December 27, 2008. This
unrealized loss reflects the decline in the estimated fair value of these ARS in
accordance with SFAS 115. We concluded that the impairment losses were temporary
in part due to the following:




·
              the
      decline in market value is due to unusual general market
      conditions;·
              recently,
      some ARS were redeemed at par value;·
              these
      investments are of high credit quality and a significant portion of them
      are collateralized and are guaranteed by the US Department of
      Education;·
              there
      have been no defaults on the ARS we held as of December 27,
      2008;·
              their
      AAA or Aaa credit ratings have not been reduced as of December 27,
      2008;·
              we
      have the intent and ability to hold these investments until the
      anticipated recovery in market value occurs; and·
              we
      received a payment of $11,200,000 in July 2008 and a payment of $950,000
      in December 2008, representing approximately 86% and 19% of our holding of
      two ARS, respectively, both of which were partially redeemed at par
      value.




Financing
Activities




Financing
cash flows consist primarily of proceeds from the exercise of stock options
under the 1991 and 2001 Plans and sale of stock through the ESPP,
reclassification of non-cash excess tax benefit from operating into financing
activities as required by SFAS 123R, and of repurchases of stock on the open
market. Net cash provided by financing activities for the nine months ended
December 27, 2008 was $1,664,000 primarily due to the proceeds from the exercise
of stock options and stock purchases under the ESPP of $1,607,000 and excess tax
benefit of $57,000 related to stock based compensation.




Net cash
used by financing activities for the nine months ended December 29, 2007 was
$8,357,000, which resulted primarily from the repurchase of 317,360 shares of
our common stock for $10,628,000. This was partially offset by proceeds from the
exercise of stock options and stock purchases under the ESPP totaling $2,033,000
and excess tax benefit of $238,000 related to stock based
compensation.




Off-Balance
Sheet Arrangements




We do not
have nor have we ever had any off-balance sheet arrangements that have, or are
likely to have, a current or future material effect on our financial condition,
sales, expenses, results of operations, liquidity, capital expenditures, or
capital resources.




30
 
 Table of Contents




Contractual
Obligations




We
purchase products from a variety of suppliers and use several contract
assemblers to provide manufacturing services for our products. During the normal
course of business, in order to manage manufacturing lead times and help assure
adequate component supply, we enter into agreements with contract assemblers and
suppliers that either allow them to procure inventory based upon criteria as
defined by us or establish the parameters defining our requirements. In certain
instances, these agreements allow us the option to cancel, reschedule, and
adjust our requirements based on our business needs prior to firm orders being
placed. Consequently, only a portion of our reported purchase commitments,
arising from these agreements, are firm, non-cancelable, and unconditional
commitments.




The
following table summarizes our significant contractual cash obligations at
December 27, 2008, and the effects such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):




Payment
      Due by YearContractual
      Obligations
            
            Total
            
            
            Less
      than 1 Year
            
            
            1-2
      Years
            
            
            2-3
      YearsOperating
      lease obligations (1)
            
            $
            2,560
            
            
            $
            1,157
            
            
            $
            1,044
            
            
            $
            359Purchase
      obligations
            
            
            7,103
            
            
            
            6,053
            
            
            
            999
            
            
            
            51Total
      contractual cash obligations
            
            $
            9,663
            
            
            $
            7,210
            
            
            $
            2,043
            
            
            $
            410




(1) We
lease facilities under non-cancelable lease agreements expiring at various times
through September 2011.  Rental expense net of sublease income for the
three and nine months ended December 27, 2008 amounted to $307,000 and $859,000,
respectively.




Effective
April 1, 2007, we adopted the provisions of FIN 48 (see Note 7).  As
of December 27, 2008, the liability for uncertain tax positions, net of
offsetting tax benefits associated with the correlative effects of potential
transfer pricing adjustments, state income taxes, interest deductions, and other
receivables was
$2,637,000. As of December 27, 2008, we have accrued $232,000 of interest
and $401,000 of penalties associated with our uncertain tax positions. We
did not include these obligations in the table above as we cannot determine the
timing of cash payments that will be made associated with these uncertain tax
positions.




Recent
Accounting Pronouncements




In
October 2008, the Financial Accounting Standards Board ("FASB") issued FSP SFAS
No. 157-3, “Determining the
Fair Value of a Financial Asset When The Market for That Asset Is Not
Active” ("FSP157-3"), to clarify the application of the provision of SFAS
157 in an inactive market and how an entity would determine fair value in an
inactive market. FSP 157-3 is effective immediately and applies our December 27,
2008 financial statements. The application of the provisions of FSP 157-3 did
not materially affect our results of operations or financial condition, as of
and for the period ended December 27, 2008.




In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”("SFAS 161"). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008 (March 29,
2009 for us).  We are currently assessing the potential impact that
the adoption of SFAS 161 will have on our Consolidated Financial Statements, but
do not expect it to have a material effect.




31
 
 Table of Contents




In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS
160"). SFAS 160 will change the accounting and reporting for minority interests,
which will be re-characterized as non-controlling interests and classified as a
component of equity.  SFAS 160 is effective for both public and
private companies for fiscal years beginning on or after December 15, 2008
(March 29, 2009 for us).  SFAS 160 requires retroactive adoption of
the presentation and disclosure requirements for existing minority interests.
All other requirements of SFAS 160 shall be applied prospectively. We are
currently assessing the potential effect that the adoption of SFAS 160 will have
on our Consolidated Financial Statements, but do not expect it to have a
material effect.




In
December 2007, the FASB issued Statement of Financial Accounting Standard No.
141 (revised 2007), “Business
Combinations” ("SFAS 141(R)").  The revised standard continues
the movement toward the greater use of fair values in financial reporting. SFAS
141(R) will significantly change how business acquisitions are accounted for and
will affect financial statements both on the acquisition date and in subsequent
periods. SFAS 141(R) is effective for both public and private companies for
fiscal years beginning on or after December 15, 2008 (March 29, 2009 for
us).  SFAS 141(R) will be applied prospectively, meaning in our case
it will apply to acquisitions occurring on or after March 29, 2009. We are
currently assessing the potential effect that the adoption of SFAS 141(R) will
have on our Consolidated Financial Statements, but do not expect it to have a
material effect.




In the
first quarter of fiscal 2009, we adopted Statement of Financial Accounting
Standard No. 157 “Fair Value Measurements” ("SFAS 157") for all financial assets
and financial liabilities. SFAS 157 defines fair value, establishes a framework
for measuring fair value, and enhances fair value measurement disclosure. The
adoption of SFAS 157 did not have a significant effect on our Consolidated
Financial Statements, and the resulting fair value calculated under SFAS 157
after adoption did not significantly differ from the fair values that would have
been calculated under previous guidance. See Note 2 to the
Consolidated Financial Statements for further discussion.




In
February 2008, the FASB issued FSP FAS 157-2 which delayed the effective date of
SFAS 157 for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The FSP partially defers the effective date
of SFAS 157 to fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years for items within the scope of this FSP (March
29, 2009 for us). We are currently assessing the potential effect that the
adoption of FSP FAS 157-2 will have on our Consolidated Financial
Statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities”("SFAS 159"),which permits entities to
elect to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. This
election is irrevocable. The standard requires that unrealized gains and losses
are reported in earnings for items measured using the fair value option. SFAS
159 also requires cash flows from purchases, sales, and maturities of trading
securities to be classified based on the nature and purpose for which the
securities were acquired. SFAS 159 became effective for Supertex in first
quarter of fiscal 2009.We did not elect the fair value option for any of our
financial assets or liabilities. We assessed the nature and the purpose of our
investment in trading securities and reclassified purchases of trading
securities from operating cash flow to investing cash flow based upon paragraph
16 of SFAS 159. The cash flows of $376,000 from trading securities were
classified as investing activities for the nine months ended December 27,
2008.




Available
Information




We file
electronically with the SEC our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments, if any, to those
reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934.  The SEC maintains an Internet site at http://www.sec.gov
that contains these reports, proxy and information statements and other
information regarding Supertex, Inc. We make available free of charge and
through our Internet website at www.supertex.com
copies of these reports as soon as reasonably practicable after filing or
furnishing the information to the SEC.  Copies of such documents may
be requested by contacting our Investor Relations department at (408)
222-4295.




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Item 3.  Quantitative and Qualitative Disclosures about
Market Risk




Interest
Rate Risk




We are
exposed to financial market risks due primarily to changes in interest
rates.  We do not use derivatives to alter the interest
characteristics of the investment securities.  We have no holdings of
derivative or commodity instruments.  Our investment portfolio is
primarily comprised of auction rate securities ("ARS") and money market
funds.  Investments and cash and cash equivalents generated interest
income of $881,000 and $2,763,000 in the three and nine months ended December
27, 2008, respectively.  Based on our investment and cash and cash
equivalent balance as of December 27, 2008, one percentage point change in
interest rates would cause change in our quarterly interest income in an amount
of approximately $348,000.




As of
December 27, 2008, we had no long-term debt outstanding.




ARS are
subject to the risk that the secondary market might fail to provide the
liquidity opportunity at the rate reset points. This risk, which we have
recently encountered with regard to our ARS, manifests itself in sponsoring
broker-dealers withdrawing from the auction process that provides the rate reset
and liquidity. We believe the declines in our ARS fair values due to the lack of
liquidity to be temporary. Due to this temporary impairment in value of our ARS,
we recorded an unrealized loss of $9,450,000 to par value as of December 27,
2008.




As of
December 27, 2008, the ARS we held had a total par value of $88,450,000 and had
contractual maturities between 16 and 32 years. In the three months ended
December 27, 2008, we recorded an additional $4,050,000 decline to par value of
our ARS resulting from the recent fluctuation in bond rates.




Our ARS
are in the form of auction rate bonds whose interest rates were reset every
seven to thirty-five days through an auction process. At the end of each reset
period, investors can sell or continue to hold the securities at par. The ARS we
hold are backed by student loans and also are primarily guaranteed by the US
Department of Education. In addition, all the ARS we hold are rated by the major
independent rating agencies as either AAA or Aaa. As a result, we believe the
credit risk is very low.




Under the
contractual terms, the issuer is obligated to pay penalty rates should an
auction fail. In the event we need to access the funds associated with failed
auctions, they are not expected to be available until one of the following
occurs: a successful auction occurs, the issuer redeems the issue, a buyer is
found outside of the auction process or the underlying security has
matured.




If the
issuer of the ARS is unable to successfully close future auctions or does not
redeem the ARS, or the US government fails to support its guaranty of its
obligations, we may be required to adjust the carrying value of these ARS and
record other-than-temporary impairment charges in future periods, which could
materially affect our financial condition. However, we expect that we will
receive the principal associated with these ARS through one of the means
described above.




Foreign
Currency Exchange Risks




We do not
hedge any potential risk from any foreign currency exposure. With our operations
in Hong Kong, we face exposure to an adverse change in the exchange rate of the
Hong Kong dollar.  We believe that our exposure is relatively small,
thus we do not employ hedging techniques designed to mitigate this foreign
currency exposure.  Likewise, we could experience unanticipated
currency gains or losses.  As the level of activity at this operation
changes over time, actual currency gains or losses could have an adverse effect
to our consolidated financial statements.




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Item
4.  Controls and Procedures




(a)
Disclosure Controls and Procedures.




Disclosure
Controls and Procedures.  Our disclosure
controls and procedures are designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, including, without limitation, that such
information is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosures.




Limitations
on the Effectiveness of Disclosure Controls.  In designing and
evaluating our disclosure controls and procedures, we recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met.  Additionally, in designing
disclosure controls and procedures, we necessarily were required to apply our
judgment in evaluating the cost-benefit relationship of possible disclosure
controls and procedures.  The design of any disclosure controls and
procedures also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.




Evaluation
of Disclosure Controls and Procedures.  Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) as of December 27, 2008, and have
determined that they are effective at the reasonable assurance
level.




(b)
Internal Control over Financial Reporting.




Our
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding
the reliability of our financial reporting and preparation of financial
statements for external purposes in accordance with GAAP.   There
were no changes in our internal control over financial reporting that occurred
during the third quarter of fiscal 2009 that have materially affected, or are
reasonably likely to materially affect such control.




PART
II - OTHER INFORMATION




Item 1.  Legal Proceedings




From time
to time we are subject to possible claims or assessments from third parties
arising in the normal course of business.  We have reviewed such
possible claims and assessments with legal counsel and believe that it is
unlikely that they will result in a material adverse effect on our financial
position, results of operations or cash flows.




Item 1A.  Risk Factors




Set forth
below is a material addition to the risk factors discussed in our Annual Report
on Form 10-K for the year ended March 29, 2008. Otherwise, there have been
no material changes to the risk factors disclosed in Item 1A of Part I of our
Form 10-K for the fiscal year ended March 29, 2008, filed on June 12, 2008,
which risk factors are hereby incorporated by reference.




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Adverse
and uncertain global economic conditions make forecasting demand difficult and
may harm our business.




Unfavorable
global economic conditions, including the recession and recent disruptions to
the credit and financial markets, could cause consumer and capital spending to
continue to slow down, which may decrease demand for our customers’ products and
hence our products and our revenues would be adversely affected. In addition,
during challenging economic times, our customers may face issues gaining timely
access to sufficient credit, which may impair the ability of our customers to
pay for products they have purchased which could cause us to increase our
allowance for doubtful accounts and write-offs of accounts receivable.
Furthermore, the uncertainty in when our economy will recover means uncertain
demand for our products which make it more difficult to manage inventories so
that we can timely respond to our customers if and when their demand for our
products increases and may lead to greater write-offs of inventory. In addition,
such uncertainty in demand make planning more difficult and subject to error
which could impact our decision-making and have a material adverse effect on our
business, results of operations, financial condition and cash
flows.




Item 2.Unregistered
Sales of Equity Securities and Use of Proceeds




None




Item 3.  Defaults Upon Senior
Securities




None




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




None




Item 5.  Other Information




None




Item 6.  Exhibits




Exhibit
      31.1 & 31.2 - Certification of Chief Executive Officer and of Chief
      Financial Officer pursuant to Securities and Exchange Act Rules 13a-14(a)
      and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.




Exhibit
      32.1 & 32.2 - Certification of Chief Executive Officer and of Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of
  2002.






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SIGNATURE


Pursuant
to the requirements 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.








SUPERTEX,
      INC.(Registrant)Dated:  February
      4, 2009By:/s/PHILLIP A.
      KAGELPhillip
      A. KagelVice
      President, Finance and Chief Financial Officer(Principal
      Financial and Accounting Officer)









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