##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from             to

Commission file number 000-50857

Volterra Semiconductor Corporation

(Exact name of registrant as specified
in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3251865                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

47467 Fremont Blvd.

Fremont, CA 94538

(Address of principal executive offices)

Registrants telephone number, including area code: (510) 743-1200

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

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
 ̈    No  ̈

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 ̈                                 
                               Accelerated filer
x

Non-accelerated filer
 ̈(Do not check if a smaller reporting company)        Smaller reporting company  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No x

As of April 26,
2011, the registrant had 24,558,382 shares of common stock outstanding.



---

##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q
contains forward-looking statements that involve many risks and uncertainties. These statements relate to future events and our future performance and are based on current expectations, estimates, forecasts and projections about the industries in
which we operate and the beliefs and assumptions of our management. In some cases, you can identify forward-looking statements by terms such as would, could, may, will, should,
expect, intend, plan, anticipate, believe, estimate, predict, potential, targets, seek, or continue, the negative of
these terms or other variations of such terms. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characterizations of future events or circumstances
are forward-looking statements. These statements are only predictions based upon assumptions made that are believed to be reasonable at the time, and are subject to risk and uncertainties. Therefore, actual events or results may differ materially
and adversely from those expressed in any forward-looking statement. In evaluating these statements, you should specifically consider the risks described under Risk Factors in Item 1A of Part II and elsewhere in this Form 10-Q.
These factors may cause our actual results to differ materially from any forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.



2



---

##### Table of Contents

Volterra Semiconductor Corporation and Subsidiaries



|                                                                                              |  |                                                                                                    |    |      |   | 
|--------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                                                                              |  |                                                                                                    |    | Page |  
|PART I. FINANCIAL INFORMATION                                                                 |  |                                                                                                    | 4  |     
|Item 1. Financial Statements                                                                  |  |                                                                                                    | 4  |     
|                                                                                              |  | Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010                   |    |      | 4 | 
|                                                                                              |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 |    |      | 5 | 
|                                                                                              |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 |    |      | 6 | 
|                                                                                              |  | Notes to the Condensed Consolidated Financial Statements                                           |    |      | 7 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                    | 14 |     
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                    | 19 |     
|Item 4. Controls and Procedures                                                               |  |                                                                                                    | 19 |     
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |                                                                                                    | 20 |     
|Item 1. Legal Proceedings                                                                     |  |                                                                                                    | 20 |     
|Item 1A. Risk Factors                                                                         |  |                                                                                                    | 20 |     
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  |                                                                                                    | 35 |     
|Item 6. Exhibits                                                                              |  |                                                                                                    | 36 |     
|SIGNATURES                                                                                    |  |                                                                                                    | 37 |     
|                                                                                              |  |                                                                                                   
|                                                                                              |  | EXHIBIT 31.1                                                                                       |    |      |   | 
|                                                                                              |  | EXHIBIT 31.2                                                                                       |    |      |   | 
|                                                                                              |  | EXHIBIT 32.1                                                                                       |    |      |   | 
|                                                                                              |  | EXHIBIT 32.2                                                                                       |    |      |   | 



3



---

##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

VOLTERRA SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- |  | ---------------- | - | -------- | 
|                                                                                                                                                          |  | March 31,2011 |          |  | December 31,2010 |  
|                                                                                                                                                          |  |              
|Assets                                                                                                                                                    |  |               |          |  |                  |   |          | 
|Current assets:                                                                                                                                           |  |               |          |  |                  |   |          | 
|Cash and cash equivalents                                                                                                                                 |  | $             | 89,592   |  |                  | $ | 86,931   | 
|Short-term investments                                                                                                                                    |  |               | 15,995   |  |                  |   | 12,896   | 
|Accounts receivable, net of allowances of $2,374 and $2,239, respectively                                                                                 |  |               | 18,237   |  |                  |   | 19,437   | 
|Inventories                                                                                                                                               |  |               | 14,486   |  |                  |   | 15,391   | 
|Prepaid expenses and other current assets                                                                                                                 |  |               | 2,683    |  |                  |   | 2,693    | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total current assets                                                                                                                                      |  |               | 140,993  |  |                  |   | 137,348  | 
|Property and equipment, net                                                                                                                               |  |               | 7,178    |  |                  |   | 7,125    | 
|Other assets                                                                                                                                              |  |               | 1,659    |  |                  |   | 1,734    | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total assets                                                                                                                                              |  | $             | 149,830  |  |                  | $ | 146,207  | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Liabilities and Stockholders Equity                                                                                                                      |  |               |          |  |                  |   |          | 
|Current liabilities:                                                                                                                                      |  |               |          |  |                  |   |          | 
|Accounts payable                                                                                                                                          |  | $             | 4,786    |  |                  | $ | 4,107    | 
|Accrued liabilities                                                                                                                                       |  |               | 8,272    |  |                  |   | 11,826   | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total current liabilities                                                                                                                                 |  |               | 13,058   |  |                  |   | 15,933   | 
|Lease incentive                                                                                                                                           |  |               | 481      |  |                  |   | 528      | 
|Other long-term liabilities                                                                                                                               |  |               | 1,370    |  |                  |   | 1,337    | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total liabilities                                                                                                                                         |  |               | 14,909   |  |                  |   | 17,798   | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|Stockholders equity:                                                                                                                                     |  |               |          |  |                  |   |          | 
|Preferred stock, $0.001 par value; 5,000 shares authorized; none issued and outstanding                                                                   |  |               |         |  |                  |   |         | 
|Common stock, $0.001 par value; 200,000 shares authorized;27,189 and 27,038 shares issued, respectively24,534 and 24,383
shares outstanding, respectively |  |               | 27       |  |                  |   | 27       | 
|Additional paid-in capital                                                                                                                                |  |               | 138,488  |  |                  |   | 134,656  | 
|Retained earnings                                                                                                                                         |  |               | 25,242   |  |                  |   | 22,562   | 
|Treasury stock at cost, 2,655 and 2,655 shares, respectively                                                                                              |  |               | (28,836) |  |                  |   | (28,836) | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total stockholders equity                                                                                                                                |  |               | 134,921  |  |                  |   | 128,409  | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 
|                                                                                                                                                          |  |              
|Total liabilities and stockholders equity                                                                                                                |  | $             | 149,830  |  |                  | $ | 146,207  | 
|                                                                                                                                                          |  |               |          |  |                  |   |          | 

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



4



---

##### Table of Contents

VOLTERRA SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                     |  |                             |        |  |      |   |        | 
|------------------------------------ |  | --------------------------- | ------ |  | ---- | - | ------ | 
|                                     |  | Three Months EndedMarch 31, |       
|                                     |  | 2011                        |        |  | 2010 |  
|                                     |  |                            
|Net revenue                          |  | $                           | 34,157 |  |      | $ | 36,293 | 
|Cost of revenue                      |  |                             | 14,479 |  |      |   | 13,982 | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Gross margin                         |  |                             | 19,678 |  |      |   | 22,311 | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Operating expenses:                  |  |                             |        |  |      |   |        | 
|Research and development             |  |                             | 9,114  |  |      |   | 7,337  | 
|Selling, general and administrative  |  |                             | 6,564  |  |      |   | 5,659  | 
|Litigation                           |  |                             | 1,273  |  |      |   | 1,535  | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Total operating expenses             |  |                             | 16,951 |  |      |   | 14,531 | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Income from operations               |  |                             | 2,727  |  |      |   | 7,780  | 
|Non-operating expense, net           |  |                             | 11     |  |      |   | 5      | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Income before income taxes           |  |                             | 2,716  |  |      |   | 7,775  | 
|Income tax expense                   |  |                             | 36     |  |      |   | 111    | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Net income                           |  |                             | 2,680  |  |      |   | 7,664  | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Net income per share:                |  |                             |        |  |      |   |        | 
|Basic                                |  | $                           | 0.11   |  |      | $ | 0.32   | 
|                                     |  |                            
|Diluted                              |  | $                           | 0.10   |  |      | $ | 0.30   | 
|                                     |  |                            
|Weighted average shares outstanding: |  |                             |        |  |      |   |        | 
|Basic                                |  |                             | 24,454 |  |      |   | 23,609 | 
|                                     |  |                             |        |  |      |   |        | 
|                                     |  |                            
|Diluted                              |  |                             | 26,075 |  |      |   | 25,648 | 
|                                     |  |                             |        |  |      |   |        | 

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



5



---

##### Table of Contents

VOLTERRA SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                             |         |  |      |   |         | 
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- |  | ---- | - | ------- | 
|                                                                                  |  | Three Months
EndedMarch 31, |        
|                                                                                  |  | 2011                        |         |  | 2010 |  
|Cash flows from operating activities:                                             |  |                             |         |  |      |   |         | 
|Net income                                                                        |  | $                           | 2,680   |  |      | $ | 7,664   | 
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |         |  |      |   |         | 
|Stock-based compensation                                                          |  |                             | 1,919   |  |      |   | 1,414   | 
|Depreciation and amortization                                                     |  |                             | 632     |  |      |   | 466     | 
|Accretion of discount on debt securities                                          |  |                             | (2)     |  |      |   | (2)     | 
|Loss on disposal of fixed assets                                                  |  |                             | 1       |  |      |   |        | 
|(Release) provision for doubtful accounts                                         |  |                             | (1)     |  |      |   | 37      | 
|Changes in operating assets and liabilities:                                      |  |                             |         |  |      |   |         | 
|Accounts receivable, net                                                          |  |                             | 1,201   |  |      |   | 832     | 
|Inventories                                                                       |  |                             | 939     |  |      |   | (901)   | 
|Prepaid expenses and other assets                                                 |  |                             | 85      |  |      |   | (482)   | 
|Accounts payable                                                                  |  |                             | 704     |  |      |   | 1,203   | 
|Accrued liabilities                                                               |  |                             | (3,479) |  |      |   | (1,173) | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Net cash provided by operating activities                                         |  |                             | 4,679   |  |      |   | 9,058   | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Cash flows from investing activities:                                             |  |                             |         |  |      |   |         | 
|Purchases of property and equipment                                               |  |                             | (800)   |  |      |   | (897)   | 
|Purchases of short-term investments                                               |  |                             | (8,997) |  |      |   | (4,899) | 
|Proceeds from maturities of short-term investments                                |  |                             | 5,900   |  |      |   | 2,750   | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Net cash used in investing activities                                             |  |                             | (3,897) |  |      |   | (3,046) | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Cash flows from financing activities:                                             |  |                             |         |  |      |   |         | 
|Proceeds from issuance of common stock                                            |  |                             | 1,879   |  |      |   | 5,767   | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Net cash provided by financing activities                                         |  |                             | 1,879   |  |      |   | 5,767   | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Net increase in cash and cash equivalents                                         |  |                             | 2,661   |  |      |   | 11,779  | 
|Cash and cash equivalents, beginning of period                                    |  |                             | 86,931  |  |      |   | 69,227  | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Cash and cash equivalents, end of period                                          |  | $                           | 89,592  |  |      | $ | 81,006  | 
|                                                                                  |  |                             |         |  |      |   |         | 
|                                                                                  |  |                            
|Supplemental disclosure of cash flows:                                            |  |                             |         |  |      |   |         | 
|Cash (paid for) refunds of income taxes                                           |  | $                           | (33)    |  |      | $ | 56      | 

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



6



---

##### Table of Contents

|1. | Description of Business and Significant Accounting Policies
|-- | -----------------------------------------------------------

Volterra Semiconductor Corporation (the Company or Volterra) was incorporated in Delaware in 1996, and its principal offices are located in Fremont, California. The Company
designs, develops and markets proprietary, high-performance analog and mixed-signal power management semiconductors.

Basis of
Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The functional currency of the Company and its significant subsidiaries is the United States dollar. Foreign currency
transaction and translation gains and losses are recorded in income. For all periods presented, there have been no material foreign currency transaction or translation gains or losses.

The Companys accompanying condensed consolidated financial statements have been prepared without audit in accordance with the rules
and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Companys audited consolidated financial statements and notes thereto included in its 2010 annual report
on Form 10-K filed with the SEC on March 8, 2011.

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Companys financial position, results of operations and cash flows for the interim periods presented.
The operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for any other future interim period or full year. The condensed consolidated balance sheet as of
December 31, 2010 is derived from the audited consolidated financial statements as of the year then ended.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.

The accounting estimates that require our most significant, difficult and subjective judgments include:



| |  |  | the valuation of inventories; and
| | - |  | ---------------------------------

| |  |  | the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

Actual results could differ from those estimates.

Concentrations of Credit Risk

The Company sells its products to
international distributors and original equipment manufacturers (and their outsourced suppliers) in the computing, storage, networking, and consumer electronic industries. The Company performs credit evaluations of its customers financial
condition and generally does not require collateral from its customers. An allowance is provided for bad debts when it is probable and estimable that accounts receivable will not be collected.

Financial Instruments



7



---

##### Table of Contents

Financial instruments consist of cash equivalents, short-term investments, accounts
receivable, and accounts payable. The carrying value of the Companys financial instruments approximates the respective fair value due to the relatively short maturities of these instruments. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of investments and trade accounts receivable.

The Company
maintains cash, cash equivalents, and short-term investments with high credit quality financial institutions. Cash equivalents consist of highly liquid investments maturing in 90 days or less from the date of purchase. Short-term investments are
comprised of U.S. Treasury and government agency debt securities with remaining contractual maturities on the date of purchase greater than 90 days but less than one year. Investments in debt securities are classified as held-to-maturity and carried
at amortized cost. The following table reconciles the amortized cost to the fair value of investments:



|                 |  |                      |        |  |                         |   |        | 
|---------------- |  | -------------------- | ------ |  | ----------------------- | - | ------ | 
|                 |  | As of March 
31,2011 |        |  | As of December 
31,2010 |  
|                 |  |                     
|Amortized cost   |  | $                    | 15,995 |  |                         | $ | 12,896 | 
|Unrealized gains |  |                      | 3      |  |                         |   |       | 
|                 |  |                      |        |  |                         |   |        | 
|Fair value       |  | $                    | 15,998 |  |                         | $ | 12,896 | 
|                 |  |                      |        |  |                         |   |        | 

Segment Reporting and Significant Customers

The Company is organized and operates as a single business segment: analog and mixed-signal power management semiconductors. The
Companys chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for the purposes of making operating decisions and assessing financial performance.

Significant customers are those customers directly accounting for more than 10% of the Companys net revenue or accounts receivable.
The following customers represented more than 10% of net revenue and accounts receivable:



|         |  |                    |     |  |                                    |  |     |      |  |  |      |  |  |  |     | 
|-------- |  | ------------------ | --- |  | ---------------------------------- |  | --- | ---- |  |  | ---- |  |  |  | --- | 
|         |  | Net Revenue        |     |  | Accounts Receivable                | 
|         |  | Three Months Ended |     |  | As of                              | 
|         |  | March 31,          |     |  | March 31,            December 
31, | 
|Customer |  | 2011               |     |  | 2010                               |  |     | 2011 |  |  | 2010 | 
|         |  |                    |     | 
|A        |  |                    | 30% |  |                                    |  | 33% |      |  |  | 27%  |  |  |  | 31% | 
|B        |  |                    | 21% |  |                                    |  | *   |      |  |  | 23%  |  |  |  | 18% | 
|C        |  |                    | 13% |  |                                    |  | *   |      |  |  | 16%  |  |  |  | *   | 
|D        |  |                    | *   |  |                                    |  | 15% |      |  |  | *    |  |  |  | *   | 

* Less than 10%

The Company reports its net revenue by geographic areas according to the destination to which the product was shipped. The geographic
area to which a product was shipped is not necessarily the same location in which the product is ultimately used. In all periods, substantially all of the Companys net revenue was denominated in U.S. dollars. Net revenue by geographic
area was as follows:



8



---

##### Table of Contents

|              |  |                    |       |  |      |  |       | 
|------------- |  | ------------------ | ----- |  | ---- |  | ----- | 
|              |  | Three Months Ended |      
|              |  | March 31,          |      
|              |  | 2011               |       |  | 2010 | 
|              |  |                   
|China         |  |                    | 49 %  |  |      |  | 48 %  | 
|Singapore     |  |                    | 36    |  |      |  | 42    | 
|Japan         |  |                    | 8     |  |      |  | 2     | 
|Taiwan        |  |                    | 3     |  |      |  | 3     | 
|United States |  |                    | 2     |  |      |  | 2     | 
|Other         |  |                    | 2     |  |      |  | 3     | 
|              |  |                    |       |  |      |  |       | 
|              |  |                    | 100 % |  |      |  | 100 % | 
|              |  |                    |       |  |      |  |       | 

Revenue Recognition

Revenue from the sale of semiconductor products is recognized upon shipment when title transfers to the customer provided that persuasive evidence of an arrangement exists, the price is fixed or
determinable, and collection of the resulting receivable is reasonably assured. An allowance is recorded at the time of sale to provide for estimated future sales returns. The allowance is based upon historical experience, current trends, and the
Companys expectations regarding future return activity. Sales returns must be authorized by Volterra and are generally limited to instances of product failure under the Companys warranty that generally provides that products will be free
from defects for a limited period of time, generally not longer than twelve months following shipment.

Volterras sales
to distributors are made under agreements that do not provide for price adjustments after purchase and provide limited return rights under the Companys standard warranty. Revenue on these sales is recognized upon shipment when title passes to
the distributor. Volterra estimates future distributor sales returns based on historical data and current business expectations and reduces revenue for estimated future returns through the allowance for sales returns.

Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

Stock-Based Compensation

The cost of stock-based compensation is measured at the date of grant based on the fair value of the award that is ultimately expected to vest and is recognized as an expense over the requisite service
period.

The effect of stock-based compensation was as follows:



9



---

##### Table of Contents

|                                       |  |                                  |       |  |      |   |       | 
|-------------------------------------- |  | -------------------------------- | ----- |  | ---- | - | ----- | 
|                                       |  | Three Months Ended    March 
31, |      
|                                       |  | 2011                             |       |  | 2010 |  
|Stock-based compensation expense:      |  |                                  |       |  |      |   |       | 
|Cost of revenue                        |  | $                                | 165   |  |      | $ | 148   | 
|Research and development               |  |                                  | 763   |  |      |   | 676   | 
|Sales, general and administrative      |  |                                  | 991   |  |      |   | 590   | 
|                                       |  |                                  |       |  |      |   |       | 
|                                       |  |                                 
|Total stock-based compensation expense |  |                                  | 1,919 |  |      |   | 1,414 | 
|Tax effect of stock-based compensation |  |                                  |      |  |      |   |      | 
|                                       |  |                                  |       |  |      |   |       | 
|                                       |  |                                 
|Effect on net income                   |  | $                                | 1,919 |  |      | $ | 1,414 | 
|                                       |  |                                  |       |  |      |   |       | 
|                                       |  |                                 
|Effect on basic net income per share   |  | $                                | 0.08  |  |      | $ | 0.06  | 
|                                       |  |                                  |       |  |      |   |       | 
|                                       |  |                                 
|Effect on diluted net income per share |  | $                                | 0.07  |  |      | $ | 0.06  | 
|                                       |  |                                  |       |  |      |   |       | 

The Company has not recognized any tax benefit related to stock-based compensation expense as a result of the full valuation
allowance of its net domestic deferred tax assets.

Provision for Income Taxes

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

As of March 31, 2011 and December 31, 2010,
the total amount of unrecognized tax benefits were $6,349 and $6,145, of which $5,448 and $5,275 would affect the effective tax rate if recognized.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Cumulative interest and penalties for all periods presented are immaterial.

The Company files U.S. federal, state and foreign income tax returns and is subject to examination in these jurisdictions for all tax
years since inception. Although timing of the resolution or closure on audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

Earnings Per Share

Basic net income per share is calculated by dividing net income by the weighted average shares of common stock outstanding during the period. Diluted net income per share is calculated by dividing the net
income by the weighted average shares outstanding of common stock and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of dilutive shares issuable upon the exercise of outstanding stock options
and the vesting of outstanding restricted stock units, computed using the treasury stock method.

The following table sets
forth for all periods presented the computation of basic and diluted net income per share, including the reconciliation of the numerator and denominator used in the calculation:



10



---

##### Table of Contents

|                                             |  |                                  |        |  |      |   |        | 
|-------------------------------------------- |  | -------------------------------- | ------ |  | ---- | - | ------ | 
|                                             |  | Three Months Ended    March 
31, |       
|                                             |  | 2011                             |        |  | 2010 |  
|                                             |  |                                 
|Numerator:                                   |  |                                  |        |  |      |   |        | 
|Net income                                   |  | $                                | 2,680  |  |      | $ | 7,664  | 
|                                             |  |                                  |        |  |      |   |        | 
|                                             |  |                                 
|Denominator:                                 |  |                                  |        |  |      |   |        | 
|Weighted average shares outstanding, basic   |  |                                  | 24,454 |  |      |   | 23,609 | 
|                                             |  |                                  |        |  |      |   |        | 
|Effect of dilutive securities:               |  |                                  |        |  |      |   |        | 
|Stock options and restricted stock units     |  |                                  | 1,621  |  |      |   | 2,039  | 
|                                             |  |                                  |        |  |      |   |        | 
|Weighted average shares outstanding, diluted |  |                                  | 26,075 |  |      |   | 25,648 | 
|                                             |  |                                  |        |  |      |   |        | 
|                                             |  |                                 
|Basic net income per share                   |  | $                                | 0.11   |  |      | $ | 0.32   | 
|                                             |  |                                  |        |  |      |   |        | 
|                                             |  |                                 
|Diluted net income per share                 |  | $                                | 0.10   |  |      | $ | 0.30   | 
|                                             |  |                                  |        |  |      |   |        | 

Stock options and restricted stock units outstanding in the amount of 1,167 and 895 shares for the three
months ended March 31, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per share because they were anti-dilutive in the period. These securities could dilute net income per share in the future.

Accounting for Lease Incentives

As part of the Companys existing leased facilities, the Company has received various lease incentives which take the form of a fixed allowance towards lease improvements on the facility. The
Company used the allowance to make leasehold improvements which will be depreciated over the useful life of the assets or the lease term, whichever is shorter. The lease incentives liability is amortized over the term of the lease as an offset to
rent expense.



|2. | Inventories
|-- | -----------

Inventories
consisted of the following:



|                |  |                   |        |  |                  |   |        | 
|--------------- |  | ----------------- | ------ |  | ---------------- | - | ------ | 
|                |  | March 31,    2011 |        |  | December 31,2010 |  
|                |  |                  
|Work-in-process |  | $                 | 7,294  |  |                  | $ | 8,447  | 
|Finished goods  |  |                   | 7,192  |  |                  |   | 6,944  | 
|                |  |                   |        |  |                  |   |        | 
|                |  |                  
|                |  | $                 | 14,486 |  |                  | $ | 15,391 | 
|                |  |                   |        |  |                  |   |        | 



|3. | Property and Equipment
|-- | ----------------------



11



---

##### Table of Contents

Property and equipment consisted of the following:



|                                               |  |                   |          |  |                  |   |          | 
|---------------------------------------------- |  | ----------------- | -------- |  | ---------------- | - | -------- | 
|                                               |  | March 31,    2011 |          |  | December 31,2010 |  
|                                               |  |                  
|Computer hardware                              |  | $                 | 2,080    |  |                  | $ | 2,078    | 
|Computer software                              |  |                   | 5,449    |  |                  |   | 5,291    | 
|Equipment and furniture                        |  |                   | 9,476    |  |                  |   | 9,081    | 
|Leasehold improvements                         |  |                   | 3,359    |  |                  |   | 3,247    | 
|                                               |  |                   |          |  |                  |   |          | 
|                                               |  |                  
|                                               |  |                   | 20,364   |  |                  |   | 19,697   | 
|Less accumulated depreciation and amortization |  |                   | (13,186) |  |                  |   | (12,572) | 
|                                               |  |                   |          |  |                  |   |          | 
|                                               |  |                  
|                                               |  | $                 | 7,178    |  |                  | $ | 7,125    | 
|                                               |  |                   |          |  |                  |   |          | 



|4. | Stock Repurchase Program
|-- | ------------------------

The Company did not repurchase any shares of its common stock during the three months ended March 31, 2011 and 2010. As of
March 31, 2011, the dollar value of shares that may be purchased under the program was approximately $16,163.



|5. | Fair Value Measurements
|-- | -----------------------

The accounting
standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. The Company defines fair value as the price that would be received from selling an asset or 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, which are required to be recorded at fair value, the Company considers
the principal or most advantageous market in which the Company would transact. The accounting standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes
the three levels of inputs required as well as the assets and liabilities that we value using those levels of inputs.

The
Company currently has only cash and cash equivalents and short-term investments held and used in the ordinary course of business that must be measured at fair value on a recurring basis. The Company does not have other non-financial assets or
non-financial liabilities that are required to be measured at fair value either on a recurring or non-recurring basis. The Companys cash and cash equivalents and short-term investments are measured using inputs from Level 1 of the fair value
hierarchy. The Company does not currently have any Level 2 or Level 3 investments and has historically never had any Level 3 investments. Level 1, Level 2 and Level 3 are described as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the
measurement date.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with
observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the
valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

Based on the nature
of cash and cash equivalents and the underlying securities, there are no material realized or unrealized gains and losses recorded from holding these assets.



12



---

##### Table of Contents

Short-term investments have remaining contractual maturities on the date of purchase greater
than 90 days but less than one year. Investments in debt securities are classified as held-to-maturity. Unrealized gain and losses were not material at March 31, 2011 and December 31, 2010.

The fair value of financial assets measured at fair value on a recurring basis was determined using the following inputs:



|                       |  |                                                 |             |  |                                                                      |  |                       |                                                 |  |  |                                           |  |  |  |                      | 
|---------------------- |  | ----------------------------------------------- | ----------- |  | -------------------------------------------------------------------- |  | --------------------- | ----------------------------------------------- |  |  | ----------------------------------------- |  |  |  | -------------------- | 
|                       |  | March 31, 2011                                  |            
|                       |  | Fair value measurements at reporting date using |            
|                       |  | Total                                           |             |  | Quoted prices in    active markets for    
identical assets(Level 1) |  |                       | Significant other    observable inputs(Level 2) |  |  | Significant  unobservable inputs(Level 3) | 
|Money market funds     |  |                                                 | $    82,052 |  |                                                                      |  | $              82,052 |                                                 |  |  | $                                        |  |  |  | $                   | 
|US treasury securities |  |                                                 | 18,995      |  |                                                                      |  | 18,995                |                                                 |  |  |                                          |  |  |  |                     | 
|                       |  |                                                 |             |  |                                                                      |  |                       |                                                 |  |  |                                           | 
|Total                  |  |                                                 | $  101,047  |  |                                                                      |  | $            101,047  |                                                 |  |  | $                                        |  |  |  | $                   | 
|                       |  |                                                 |             |  |                                                                      |  |                       |                                                 |  |  |                                           | 
|                       | 
|                       |  | December 31, 2010                               |            
|                       |  | Fair value measurements at reporting date using |            
|                       |  | Total                                           |             |  | Quoted prices inactive markets foridentical assets(Level 1)          |  |                       | Significant otherobservable
inputs(Level 2)     |  |  | Significantunobservableinputs
(Level 3)   | 
|Money market funds     |  |                                                 | $    78,930 |  |                                                                      |  | $              78,930 |                                                 |  |  | $                                        |  |  |  | $                   | 
|US treasury securities |  |                                                 | 12,896      |  |                                                                      |  | 12,896                |                                                 |  |  |                                          |  |  |  |                     | 
|                       |  |                                                 |             |  |                                                                      |  |                       |                                                 |  |  |                                           | 
|Total                  |  |                                                 | $91,826     |  |                                                                      |  | $              91,826 |                                                 |  |  | $                                        |  |  |  | $                   | 
|                       |  |                                                 |             |  |                                                                      |  |                       |                                                 |  |  |                                           | 



|6. | Litigation
|-- | ----------

As initially
disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2008, we filed a lawsuit in November 2008 in the United States District Court in the Northern District of California against Primarion, Inc., Infineon
Technologies AG and Infineon Technologies North America Corporation (collectively, the Defendants) for infringement of several of our patents, seeking damages, enhanced damages for willful infringement and injunctive relief. As updated
in subsequent public filings, this case has progressed through several substantive and procedural phases, and our trial related to our integrated power stage patents (U.S. Patent Nos. 6,278,264 and 6,462,522) is scheduled to begin on May 9,
2011.

As initially disclosed in the Companys Annual Report on Form 10-K for the year ended December 2009 and as updated
in subsequent public filings, Infineon Technologies AG filed a lawsuit against us in January 2010 in the United States District Court for the District of Delaware for infringement of four patents assigned to Infineon, seeking damages, enhanced
damages for willful infringement and injunctive relief. On January 13, 2011, the Delaware Court ordered a stay of the Delaware proceedings, pending final resolution of the California action.

While we believe in the strength of our positions, we are unable to assess the ultimate outcome or possible losses relating to these
cases, and there is no guarantee that any such proceedings would be successful on its merits or that we will receive monetary damages awards or recoup our legal expenses.



13



---

##### Table of Contents

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

The following discussion should be read in conjunction with our condensed consolidated financial
statements and the related notes contained elsewhere in this quarterly report on Form 10-Q. All statements in the following discussion that are not reports of historical information or descriptions of current accounting policy are forward-looking
statements. Please see the Cautionary Note Regarding Forward-Looking Statements at the beginning of this quarterly report and consider our forward-looking statements in light of the factors that may affect operating results set forth
herein.

Overview

We design, develop, and market proprietary, high-performance analog and mixed-signal power management semiconductors. We sell integrated voltage regulator semiconductors, integrated power protection and
distribution semiconductors and scalable voltage regulator semiconductor chipsets in the computing, storage, networking, and consumer markets, primarily to original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, contract
equipment manufacturers, or CEMs, or merchant power supply manufacturers.

Our net revenue was $104.9 million and $153.6
million in 2009 and 2010, respectively, and $34.2 million for the three months ending March 31, 2011. We generated net income of $10.9 million and $28.4 million in 2009 and 2010, respectively, and $2.7 million in the three months ending
March 31, 2011. As of March 31, 2011, we had retained earnings of $25.2 million.

Our net revenue consists primarily
of sales of our power management semiconductor products. When evaluating our net revenue, we categorize our sales into three major market segments: servers and storage; networking and communications; and consumer and portable. As disclosed in our
annual report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC on March 8, 2011, we have simplified the number of markets we use to evaluate net revenue, and sales in the previously reported desktop and
workstation market are now reported in our consumer and portable market. The electronics manufacturing industry is complex and disaggregated, and electronic system producers typically utilize distributors and outsourced suppliers to provide
procurement, manufacturing, design, and other supply chain related services within the industry. We attempt to quantify the amount of sales within the major markets identified above, but such quantified amounts are approximations only, as we must
rely upon estimates and assumptions regarding the incorporation of our products sold to distributors or other outsourced suppliers into the systems of the OEMs, ODMs, CEMs, or merchant power supply manufacturers for each particular market. In the
first quarter of 2011, we estimate that 61% of our net revenue was derived from sales in the server and storage market, 8% from the networking and communications market, and 31% from the consumer and portable market. We believe that the most
significant portion of our revenues in the upcoming fiscal year will continue to be derived from sales in the server and storage market.

Our sales and accounts receivable are currently concentrated with a small group of customers, and we expect this to continue in the future. In the first quarter of 2011, three customers each accounted for
more than 10% of our net revenue, and collectively accounted for 64% of our net revenue. In the first quarter of 2010, two customers each accounted for over 10% of our net revenue, and collectively accounted for 48% of our net revenue. While we
report revenue for direct sales to particular customers, our sales data may not accurately reflect the additional indirect demand from distributors and outsourced suppliers who purchase our products pursuant to their business
relationships with these same customers. Because we have less visibility into and are not able to quantify this indirect demand, we are unable to determine how much additional revenue these customers may generate. In addition, our sales
data also may not identify customers who do not directly account for 10% of our net revenue, but may be significant in that such customers also generate substantial indirect demand from distributors and outsourced suppliers. If any such
customer were to stop incorporating our products or third party products containing our components into its designs, we would not only lose the direct revenue we receive from the customer, but we could also lose a portion of the indirect revenue
from third parties who do business with such customer. If we were to



14



---

##### Table of Contents

lose or experience a significant reduction in demand from one or more of our key customers either to which we sell directly or which generates indirect demand or if we were to fail to
collect our accounts receivable from one or more of our key customers, our operating results and financial position would be materially adversely impacted.

Because demand for our products is impacted by demand for our customers products, our revenue depends on the timing, size, and speed of commercial introductions of systems that use our products, and
our customers ability to manage their inventories in relationship to such demand. We continue to expect a significant amount of our revenue to come from the commercial introduction of new systems, which is often more difficult to forecast than
ongoing demand for previously introduced systems. A number of our customers applications, particularly in the consumer and portable market, are subject to short product cycles and prone to delays in development and commercial introduction or
significant changes in demand, making it inherently difficult to accurately forecast demand for such applications in any period. A number of our customers, such as ODMs, CEMs, and merchant power supply manufacturers, also are dependent upon the
demand of other companies, which makes sales to such parties more difficult to forecast accurately. These fluctuations in demand could materially affect our operating results on a period by period basis.

We recognize revenue on our sales upon shipment with a provision for estimated sales returns and allowances. A portion of our revenues
come from customer orders that are both received and shipped against within the same quarter, or turns business, which is inherently difficult to forecast. We estimate turns business as a percent of net revenue as the ratio of net
revenue less beginning backlog to net revenue making adjustments for the effect of sales return reserves or other adjustments to net revenue not included in backlog. Turns business was between 15% and 25% in the first quarter of 2011, between 10%
and 20% in the fourth quarter of 2010 and between 15% and 25% the first quarter of 2010. If our turns business increases, forecasting revenue becomes more difficult. Generally, our current sales practice allows customers to, and customers routinely
do, revise and cancel orders and reschedule delivery dates on relatively short notice pursuant to changes in the customers requirements. In addition, in circumstances where we have achieved our objectives in a period and have fulfilled our
customers requirements or when we have limited or insufficient inventories available, we may delay shipment of orders. For these reasons, backlog has limited value as a predictor of future revenues.

We typically sell directly through our internal sales force to customers in North America. We sell both directly and indirectly through
distributors internationally, under agreements that generally do not provide for price adjustments after purchase and provide limited return rights in the event of product failure. We have made no sales to U.S. distributors. During the first quarter
of 2011, sales to international distributors represented 29% of net revenue, compared to 25% in the fourth quarter of 2010 and 35% in the first quarter of 2010. We expect the sales channels we use and the mix of business between distribution and
direct sales to change as our product offerings and customers evolve. Our use of distributors has declined over time as we have expanded our internal service capabilities.

Our cost of revenue consists primarily of purchases of silicon wafers and related costs of our manufacturing and other vendors for assembly, test and shipment of our products, and compensation and related
costs of personnel and equipment associated with production management and quality assurance. Our gross margins have historically varied significantly, and may continue to vary, based on a variety of factors, including changes in the relative mix of
the products we sell, the markets and geographies where we sell, the size and nature of our customers in these markets, the levels of sales to distributors, manufacturing volumes and yields, discounts or other financial incentives to customers and
inventory and overhead costs. Generally, as we introduce new products, we initially incur higher unit production costs, and as the product ramp progresses, our overall unit production costs decrease as manufacturing efficiency improves. In addition,
because our power management products are highly complex and the manufacturing process for our products is technically challenging, previously undetected design defects and minor deviations in the manufacturing process can cause substantial
decreases in yields or quality. Such decreases in yields or quality can impact our gross margins due to a reduction in our revenue as a result of significant product returns, may cause us to incur product replacement costs, and may cause us to
rework or scrap inventory that had been manufactured with the defect. If we are unable to manage these risks, our revenue



15



---

##### Table of Contents

and gross margins and financial position may be materially adversely impacted. Finally, consistent with the overall market for power management solutions, we expect to face price pressure over
time. In order to maintain or improve our gross margins, we will need to introduce new, lower cost products, increase volumes, reduce unit costs or achieve a combination of these objectives.

We purchase our inventories pursuant to standard purchase orders. As lead times at our manufacturing vendors can be up to three months or
more, we typically build inventories based on our sales forecasts rather than customers orders, subjecting us to inventory risk. If, after initial orders are placed, we change certain features of our product to accommodate customer
requirements, we may place orders to manufacture additional inventories that we may not be able to sell. In the event of an inventory write-down either because the inventory exceeds demand, becomes obsolete, or contains previously undetected defects
and must be reworked or scrapped, our gross margins could be materially adversely impacted. On the other hand, because our manufacturing lead times tend to be longer than our order lead times and capacity at our manufacturing vendors may be
constrained, our net revenue and relationship with our customers could be adversely impacted if we do not have adequate inventories available to meet customer demand. Our inventory levels were $14.5 million at the end of the first quarter of 2011,
and inventory turns, calculated as our annualized cost of revenue for the quarter divided by our inventories as of the end of such quarter, increased to 4.0 in the first quarter of 2011 compared to 3.7 turns in fourth quarter of 2010 and decreased
from 5.0 turns in the first quarter of 2010. If the amount of inventories we are holding increases or our inventory turns decrease, the risk of a potential inventory write-down and adverse impact on our gross margins increases.

Our research and development expense consists primarily of compensation and related costs for employees involved in the design and
development of our products, prototyping and other development expense, and the depreciation costs related to equipment being used for research and development. All research and development costs are expensed as incurred. Research and development
expenses can fluctuate as a result of long design cycles with periods of relatively low expenses punctuated with increased expenditures for prototypes and product development toward the end of the design cycle.

Selling, general and administrative expense consists primarily of compensation and related costs for employees involved in sales and
marketing, general management, finance, legal, human resources and information technology, as well as expenses related to travel and entertainment, professional services, and insurance.

Litigation expenses consist primarily of attorneys fees and costs and expenses associated with our litigation matters described in
Item 1 of Part II - Legal Proceedings, and such legal proceedings may continue for the current year and beyond. In the first quarter of 2011, our litigation expenses were approximately $1.3 million.

Our income tax provision is dependent on our estimated annual effective tax rate. Our annual effective tax rate has fluctuated and is
dependent on the mix of income and losses between domestic and international operations, as well as the utilization of available net operating loss carry forwards to offset taxable income and tax credit carry forwards that offsets income tax in the
U.S. and changing assessments of statutory income tax rates. Our domestic deferred tax assets are fully offset by a valuation allowance because, dependent on the available objective evidence, we believe it is more likely than not that the net
deferred tax assets will not be realizable. If we later determine that it is more likely than not that the deferred tax assets would be realized, we may revise this assessment, which could result in a favorable adjustment to the reported income tax
provision in the period of re-assessment followed by higher reported tax rates in subsequent periods. Our foreign income is typically subject to lower statutory rates than our domestic income. We expect that both our geographical mix of taxable
income and losses as well as the statutory rates we are subject to internationally may change over time, resulting in changes to our effective tax rate and reported income tax provision.

Critical Accounting Policies



16



---

##### Table of Contents

There have been no significant changes to our critical accounting policies during the three
months ended March 31, 2011 as compared to the previous disclosures in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the fiscal year ended
December 31, 2010, as filed with the SEC on March 8, 2011.

Results of Operations

The following table sets forth our results of operations as a percentage of net revenue for the periods indicated:



|                                    |  |                    |     |  |      |  |   |  |  |  |     |  |  |  
|----------------------------------- |  | ------------------ | --- |  | ---- |  | - |  |  |  | --- |  |  | -
|                                    |  | Three Months Ended
|                                    |  | March 31,         
|                                    |  | 2011               |     |  | 2010
|Net revenue                         |  |                    | 100 |  |      |  | % |  |  |  | 100 |  |  | %
|Cost of revenue                     |  |                    | 42  |  |      |  |   |  |  |  | 39  |  |  |  
|                                    |  |                    |     |  |      |  |  
|Gross margin                        |  |                    | 58  |  |      |  |   |  |  |  | 61  |  |  |  
|                                    |  |                    |     |  |      |  |  
|                                    |  |                    |     | 
|Operating expenses:                 |  |                    |     |  |      |  |   |  |  |  |     |  |  |  
|Research and development            |  |                    | 27  |  |      |  |   |  |  |  | 20  |  |  |  
|Selling, general and administrative |  |                    | 19  |  |      |  |   |  |  |  | 16  |  |  |  
|Litigation                          |  |                    | 4   |  |      |  |   |  |  |  | 4   |  |  |  
|                                    |  |                    |     |  |      |  |  
|Total operating expenses            |  |                    | 50  |  |      |  |   |  |  |  | 40  |  |  |  
|                                    |  |                    |     |  |      |  |  
|                                    |  |                    |     | 
|Income from operations              |  |                    | 8   |  |      |  |   |  |  |  | 21  |  |  |  
|Non-operating expense, net          |  |                    |    |  |      |  |   |  |  |  |    |  |  |  
|                                    |  |                    |     |  |      |  |  
|Income before income taxes          |  |                    | 8   |  |      |  |   |  |  |  | 21  |  |  |  
|Income tax expense                  |  |                    |    |  |      |  |   |  |  |  |    |  |  |  
|                                    |  |                    |     |  |      |  |  
|Net income                          |  |                    | 8   |  |      |  |   |  |  |  | 21  |  |  |  
|                                    |  |                    |     |  |      |  |   |  |  |  |     |  |  |  

Comparison of Three Months Ended March 31, 2011 to Three Months Ended March 31, 2010

Net Revenue.Net revenue was $34.2 million in the three months ended March 31, 2011 and $36.3 million in the three months ended
March 31, 2010, a decrease of 6%. Revenues decreased approximately $5.3 million and $0.9 million in the server and storage and networking and communications markets respectively, but these decreases were offset by an increase in revenue of
approximately $4.1 million in the consumer and portable market.

Cost of Revenue and Gross Margin.Cost of revenue was $14.5
million for the three months ended March 31, 2011 and $14.0 million for the three months ended March 31, 2010, an increase of 4%. Gross margin was $19.7 million for the three months ended March 31, 2011 and $22.3 million for the
three months ended March 31, 2010, a decrease of 12%. Gross margin as a percentage of net revenue was 58% for the three months ended March 31, 2011 compared to 61% for the three months ended March 31, 2010. The decrease in the gross
margin percentage for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was primarily associated with revenue mix. Our products in the consumer and portable market currently contribute somewhat lower
gross margin percentage than our products in the server and storage and networking and communications markets.

Research and
Development.Research and development expenses were $9.1 million for the three months ended March 31, 2011 and $7.3 million for the three months ended March 31, 2010, an increase of 24%. The increase is primarily due to the
increase in wages and related expenses of $1.0 million in connection with increases in headcount and product development expenses of $0.6 million.

Selling, General and Administrative.Selling, general and administrative expenses were $6.6 million for the three months ended March 31, 2011 and $5.7 million for the three months ended
March 31, 2010, an



17



---

##### Table of Contents

increase of 16%. The increase was primarily due to the increase in stock-based compensation of $0.4 million and wages of $0.4 million consistent with increases in headcount.

Litigation. Litigation expenses were approximately $1.3 million for the three months ended March 31, 2011 and $1.5 million for the
three months ended March 31, 2010, a decrease of 17%. The decrease was due to lower activity in our pending litigation described in Item 1 of Part II - Legal Proceedings.

Income Tax Expense.Income tax expense was $36 thousand and $111 thousand for the three months ended March 31, 2011 and 2010, respectively.

Liquidity and Capital Resources

As of March 31, 2011, we had working capital of $127.9 million, including cash, cash equivalents and short-term investments of $105.6 million, compared to working capital of $121.4 million, including
cash, cash equivalents and short-term investments of $99.8 million, as of December 31, 2010. Our cash, cash equivalents and short-term investments increased by $5.8 million in the three months ended March 31, 2011. We currently have no
debt and believe that our current cash, cash equivalents, and short-term investments as well as expected cash flows from operations will be sufficient to fund our operations and meet our capital needs for the current fiscal year and the foreseeable
future.

Our operating activities provided net cash of $4.7 million for the three months ended March 31, 2011, compared
to net cash provided of $9.1 million for the three months ended March 31, 2010. Cash provided from operating activities for the three months ended March 31, 2011 was primarily due to net income of $2.7 million and a decrease in accounts
receivable of $1.2 million, which was primarily due to the timing of collections from our customers and a decrease in net revenue. The above increase in cash was partially offset by a decrease in accrued liabilities of $3.5 million, which was
primarily due to the annual payout of profit-dependent accruals. The primary sources of cash from operations for the three months ended March 31, 2010 were due to net income of $7.7 million and an increase in accounts payable of $1.2 million
which was primarily due to the timing of payments to our vendors. The above increases in cash were partially offset by a decrease in accrued liabilities of $1.2 million, which was primarily due to the annual payout of profit-dependent accruals and
an increase in inventories of $0.9 million primarily due to increased production levels.

Our investing activities used net
cash of $3.9 million in the three months ended March 31, 2011, compared to net cash used of $3.0 million in the three months ended March 31, 2010. The primary use of cash for the three months ended March 31, 2011 was the purchase of
short-term investments of $9.0 million and purchases of property and equipment of $0.8 million, partially offset by the maturities of short-term investments of $5.9 million. The primary use of cash for the three months ended March 31, 2010 was
the purchase of short-term investments of $4.9 million and purchases of property and equipment of $0.9 million, partially offset by the maturities of short-term investments of $2.8 million.

Our financing activities provided net cash of $1.9 million for the three months ended March 31, 2011, compared to net cash provided
of $5.8 million for the three months ended March 31, 2010. The sources of cash for the three months ended March 31, 2011 and 2010 were from proceeds from the exercise of employee stock options.

Contractual Obligations

The following table sets forth our contractual obligations as of March 31, 2011 (in thousands) and the periods in which such
obligations are expected to be settled:



18



---

##### Table of Contents

|                            |  |       |       |  |                 |   |       |          |  |   |          |  |  |                  |     |  |  |   |   | 
|--------------------------- |  | ----- | ----- |  | --------------- | - | ----- | -------- |  | - | -------- |  |  | ---------------- | --- |  |  | - | - | 
|                            |  | Total |       |  | Less than1 year |   |       | 1-3years |  |   | 3-5years |  |  | More than 5years |    
|                            |  |       |       |  |                
|Operating lease obligations |  | $     | 4,679 |  |                 | $ | 1,431 |          |  | $ | 2,261    |  |  | $                | 987 |  |  | $ | - | 
|Purchase obligations        |  |       | 4,763 |  |                 |   | 4,560 |          |  |   | 203      |  |  |                  | -   |  |  |   | - | 
|                            |  |       |       |  |                 |   |       |          |  |   |          |  |  |                  |     |  |  |   |   | 
|                            |  |       |       |  |                
|                            |  | $     | 9,442 |  |                 | $ | 5,991 |          |  | $ | 2,464    |  |  | $                | 987 |  |  | $ | - | 
|                            |  |       |       |  |                 |   |       |          |  |   |          |  |  |                  |     |  |  |   |   | 

Operating lease obligations consist of the estimated obligations under the Companys real property or facility leases.
Purchase obligations are comprised of the estimated obligation for non-cancelable in-process silicon wafers and purchase obligations under the Companys software maintenance contracts. We depend entirely upon third-party foundries to
manufacture our silicon wafers. Due to lengthy foundry lead times, we typically order these materials up to three months or more in advance of required delivery dates, and we are obligated to pay for the materials in accordance with the contractual
payment terms, which typically require payment within three months.

The amounts in the table above exclude $1.3 million of
non-current income tax liabilities as we are unable to reasonably estimate the timing of settlement.

Recent Accounting Pronouncements

The Company has determined that there were no recent accounting pronouncements issued during the three months ended
March 31, 2011 that are expected to have a material impact on the Companys financial position, results of operations or liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended March 31, 2011, there were no material changes to the quantitative and qualitative disclosures about
market risk related to our investment activities as disclosed under Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 8, 2011.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the
period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (collectively, our certifying officers), of
the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as required by Rules 13a-15(b) or 15d-15(b) of the Securities
Exchange Act of 1934, as amended. Based on their evaluation, our certifying officers concluded that these disclosure controls and procedures were effective.

We believe that a system of internal controls, no matter how well designed and operated, is based in part upon certain assumptions about the likelihood of future events, and can be affected by limitations
inherent in all internal controls systems including the realities that human judgment in decision-making can be faulty, that persons responsible for establishing controls need to consider their relative costs and benefits, that breakdowns can occur
because of human failures such as simple error or mistake, and that controls can be circumvented by collusion of two or more people. Accordingly, we believe that our system of internal controls, while effective, can only provide reasonable, not
absolute, assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.



19



---

##### Table of Contents

We have reviewed our internal controls over financial reporting and have made no changes
during the quarter ended March 31, 2011, that our certifying officers concluded materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to
time, we may become subject to legal proceedings in the ordinary course of our business. Except as set forth below, we are not currently involved in any legal proceedings that we believe will, either individually or in the aggregate, materially and
adversely affect our business.

As initially disclosed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008, we filed a lawsuit in November 2008 in the United States District Court in the Northern District of California against Primarion, Inc., Infineon Technologies AG and Infineon Technologies North America Corporation
(collectively, the Defendants) for infringement of several of our patents, seeking damages, enhanced damages for willful infringement and injunctive relief. As updated in subsequent public filings, this case has progressed through
several substantive and procedural phases, and our trial related to our integrated power stage patents (U.S. Patent Nos. 6,278,264 and 6,462,522) is scheduled to begin on May 9, 2011.

As initially disclosed in the Companys Annual Report on Form 10-K for the year ended December 2009 and as updated in subsequent
public filings, Infineon Technologies AG filed a lawsuit against us in January 2010 in the United States District Court for the District of Delaware for infringement of four patents assigned to Infineon, seeking damages, enhanced damages for willful
infringement and injunctive relief. On January 13, 2011, the Delaware Court ordered a stay of the Delaware proceedings, pending final resolution of the California action.

While we believe in the strength of our positions, we are unable to assess the ultimate outcome or possible losses relating to these cases, and there is no guarantee that any such proceedings would be
successful on its merits or that we will receive monetary damages awards or recoup our legal expenses.

Item 1A. Risk Factors

Included below is a description of risk factors related to our business to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking
statements made in this quarterly report on Form 10-Q. The risks and uncertainties set forth below are not all of the risks and uncertainties facing our business, but we do believe that they reflect important ones. You should carefully consider the
risks described below and elsewhere in this report, which could materially and adversely affect our business, results of operations or financial condition. In those cases, the trading price of our common stock could decline and you may lose all or
part of your investment. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2010, as filed with the SEC on March 8, 2011, are set forth below. These risk factors have not substantively changed, except for those identified by asterisk below.

Risks Related to our Financial Performance

Our financial performance in the past has fluctuated and may continue to do so in the future.

We have been profitable on an annual basis since 2004, following annual net losses from 1996 through 2003. While we have historically experienced year over year revenue growth, the rate of revenue growth
has fluctuated significantly over such periods. Between 2009 and 2010, our annual net revenue increased 46% from $104.9 million to $153.6 million, and between 2008 and 2009, our annual net revenue increased



20



---

##### Table of Contents

1% from $104.2 million to $104.9 million. We expect our quarterly and annual revenue to continue to fluctuate. Our net revenue may decline on a period to period basis and we may not maintain
profitability on a quarterly or annual basis. Accordingly, you should not rely on the results of any prior quarterly or annual periods as an indication of our future revenue growth or financial results. Our ability to maintain profitability on a
quarterly or annual basis depends in part on the rate of growth of our target markets, the continued acceptance of our and our customers products, the competitive position of our products, our ability to develop new products, our ability to
secure adequate manufacturing capacity and our ability to manage expenses. Because many of our expenses are fixed in the short term or incurred in advance of anticipated revenue, we may not be able to decrease our expenses in a timely manner or we
may elect to not reduce expenses, to offset any shortfall in revenue.

Our operating results have fluctuated in the past, and we expect a
number of factors to cause our operating results to fluctuate in the future, making it difficult for us to accurately forecast our operating results.

In the past, our net revenue and operating results have fluctuated from quarter to quarter and year to year, and we expect them to continue to do so in the future. A number of factors, many of which are
beyond our control, are likely to cause our net revenue and operating results to fluctuate. These factors include, but are not limited to:



| |  |  | varying order patterns in the markets in which we sell our products;
| | - |  | --------------------------------------------------------------------

| |  |  | the loss of one or more key customers, or a significant reduction in sales to, or significant product returns by, one or more key customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our ability to develop new products or new generations and versions of our existing products that achieve market acceptance in a timely manner;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | demand for our products or the electronic systems into which our products are incorporated and our ability to accurately forecast such demand;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our management of our own inventory levels to meet changes in demand;
| | - |  | ---------------------------------------------------------------------

| |  |  | changes in orders both received and shipped during the same quarter (our turns business);
| | - |  | -------------------------------------------------------------------------------------------

| |  |  | the volatile nature of the semiconductor industry;
| | - |  | --------------------------------------------------

| |  |  | changes in the condition of the world economy;
| | - |  | ----------------------------------------------

| |  |  | the loss of one or more key distributors, or a significant reduction in orders from one or more key distributors, which we are unable to replace;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our customers failure to pay us on a timely basis, or at all;
| | - |  | --------------------------------------------------------------

| |  |  | the timing of introductions of competing products or technologies;
| | - |  | ------------------------------------------------------------------

| |  |  | litigation involving us or our products;
| | - |  | ----------------------------------------

| |  |  | disputes regarding intellectual property rights;
| | - |  | ------------------------------------------------

| |  |  | changes in the prices of our products or the electronic systems into which our products are incorporated;
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | our ability to obtain sufficient capacity from foundries and other third-party subcontractors to manufacture, assemble and test our products on a
timely and cost-effective basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the ability of our foundries and third-party subcontractors to achieve satisfactory yields or quality;
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | the ability of our manufacturing subcontractors to manufacture of our products on a timely and cost effective basis;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  | our ability to fulfill orders for our products in a timely manner, or at all; and
| | - |  | ---------------------------------------------------------------------------------

| |  |  | our ability to adequately support our future growth.
| | - |  | ----------------------------------------------------

Due to these and other factors discussed in this report, you should not rely upon the results of any prior quarter or year as an indication of our future operating performance.

Our stock price will fluctuate and may be volatile, which could result in substantial losses for investors and significant costs related to
litigation.



21



---

##### Table of Contents

The market price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, which could result in substantial losses for investors. These factors include, but are not limited to:



| |  |  | actual or anticipated fluctuations in our revenue, operating results or growth rate;
| | - |  | ------------------------------------------------------------------------------------

| |  |  | failure to meet the expectations of securities analysts or investors with respect to our financial performance;
| | - |  | ---------------------------------------------------------------------------------------------------------------

| |  |  | actual or anticipated fluctuations in our competitors operating results or changes in their growth rates;
| | - |  | ----------------------------------------------------------------------------------------------------------

| |  |  | sales of our common stock or other securities in the future;
| | - |  | ------------------------------------------------------------

| |  |  | stock market price and trading volume fluctuations of publicly-traded companies in general and semiconductor companies in particular;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the trading volume of our common stock;
| | - |  | ---------------------------------------

| |  |  | changes in financial estimates and ratings by securities analysts for us, our competitors or companies in the semiconductor industry generally;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | changes in the condition of the financial markets, the economy as a whole, the semiconductor industry, our customers or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | publicity about the semiconductor industry, our competitors or our customers; and
| | - |  | ---------------------------------------------------------------------------------

| |  |  | changes in key personnel.
| | - |  | -------------------------

For example, as reflected in Part II  Market Information and Stockholders of our Annual Report on Form 10-K for the year ended December 31, 2010, the high and low of our stock price during the
fiscal year ended December 31, 2010 fluctuated significantly within each period. The stock market in general, and the Nasdaq Global Select Market in particular, has experienced extreme price and volume fluctuations in recent years that have
often been unrelated or disproportionate to the operating performance of the listed companies. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance.

In the past, securities class action litigation has often been brought against companies following periods of volatility and decline in
the market price of their securities. If our stock price is volatile or declines, we may be the target of similar litigation in the future. Securities litigation could result in significant costs and divert managements attention and resources,
which could seriously harm our business and operating results.

Risks Related to our Markets and Customers

We target our sales and marketing efforts in particular markets, and in these markets we have experienced varying order patterns, and if demand for
our products in these markets declines, or if we are unable to adjust to the varying order patterns in these markets or expand into new markets, our business would be harmed.

In 2010, a significant portion of our net revenue was derived from the sale of our products in the server and storage markets. If the
demand for our products in these markets declines, or if demand for products in the other markets we are targeting, such as the consumer and networking markets, does not continue to develop, we may need to further diversify and expand our target
markets. If we are unable to do so in a timely and cost-effective manner, our business and operating results could be harmed.

In addition, our business in these markets has been subject to varying order patterns, and we expect business in new markets we enter
into will similarly be subject to varying order patterns. In particular, our operating results could be negatively impacted during the first quarter of each year due to the lunar New Year holidays in Asia, during which time many of our customers,
manufacturers, and subcontractors cease or significantly reduce their operations. We also address higher-volume applications across multiple markets, which applications could include desktop and notebook computers, digital cameras, digital
televisions, digital video recorders, or DVRs, game consoles, graphics cards, hard disk drives, printers and set-top boxes. In these higher-volume applications, we expect a disproportionate amount of our net revenue to be generated during the second
half of the year as a result of the December holiday season. If we are unable to adjust production of our products or the levels of our operating expenses to address changes in demand, our operating results would be harmed.



22



---

##### Table of Contents

We depend on a small number of customers for substantially all of our net revenue and the loss of, or a
significant reduction in orders from, any of them would significantly reduce our net revenue and adversely affect our operating results.*

We sell our products primarily to original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, contract equipment manufacturers, or CEMs, and merchant power supply manufacturers,
either directly through our internal sales force or indirectly through distributors and outsourced suppliers. Certain of these customers in turn sell more broadly to multiple companies that directly address consumer demand. The markets in which we
sell products are prone to significant and unpredictable changes in demand, and our product sales are directly affected by the ability of our concentrated customer base to sell their products or electronic systems that incorporate our products. If
these electronic systems are not commercially successful or if the development or commercial introduction of such electronic systems is delayed or fails to occur as planned or forecasted, or if our customers do not consistently manage their
inventories of products we sell to them, our operating results will be adversely affected. We expect a significant amount of our revenue to continue to come from the commercial introduction of new systems making our revenue more difficult to
forecast.

In the first quarter of 2011, three customers each accounted for more than 10% of our net revenue, and collectively
accounted for at least 64% of our net revenue, and in the first quarter of 2010, two customers each accounted for more than 10% of our net revenue, and collectively accounted for at least 48% of our net revenue. While we report revenue for direct
sales to particular customers, our sales data may not accurately reflect the additional indirect demand from distributors and outsourced suppliers who purchase our products pursuant to their business relationships with such significant
customers. Because we have less visibility into and are not able to quantify this indirect demand, we are unable to determine how much additional revenue these significant customers may affect. In addition, our sales data also may not
identify customers who do not directly account for 10% of our net revenue, but may be significant in that such customers also generate significant indirect demand from distributors and outsourced suppliers. If any such significant
customer were to stop incorporating our products or third party products containing our components into its designs, we would not only lose the direct revenue we receive from the significant customer, but we could also lose a portion of the revenue
from third parties who do business with such significant customer. We expect demand from a small number of customers to continue to account for a substantial portion of our net revenue for the current fiscal year. In addition, our accounts
receivable tend to be concentrated with a small group of customers and we expect this to continue. Consolidation among our customers may increase our customer concentration. The loss of any of our major customers could materially adversely impact
our operating results and financial position.

Our customers may be impacted by the recent natural disasters in Japan, which may have an
adverse impact on our business.*

In March 2011, the northeast coast of Japan experienced a severe earthquake
followed by a tsunami, with continuing aftershocks. These events have caused significant damage in the region, including severe damage to nuclear power plants, and have impacted Japans power and other infrastructure as well as its economy.
Certain of the Companys customers are located in Japan, and to the extent that these customers operations are damaged or subject to production delays, this may adversely impact our ability to ship products to these areas and could affect
the Companys financial condition and operating results.

If we are unable to timely develop new products or new generations and
versions of our existing products that achieve market acceptance, our operating results and competitive position could be harmed.

Our industry is characterized by intense competition, rapidly evolving technology, and continually changing customer requirements. These factors could render our existing products obsolete. Accordingly,
our ability to compete in the future will depend on our ability to successfully adapt to new technologies and requirements, and to continue to develop and market new products that achieve market acceptance on a



23



---

##### Table of Contents

timely and cost-effective basis. For example, a significant number of our products are developed to operate in computing systems that are based on Intel CPU and chipset specifications or
architectures, which may be modified from time to time. Some of the factors affecting our ability to compete successfully include, but are not to:



| | ¡ |  | our ability to timely and effectively address new technologies, power architectures, specifications, industry standards or consumer preferences;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| | ¡ |  | our accurate prediction of changing customer requirements;
| | - |  | ----------------------------------------------------------

| | ¡ |  | timely development of new designs;
| | - |  | ----------------------------------

| | ¡ |  | timely qualification and certification of our products for use in electronic systems;
| | - |  | -------------------------------------------------------------------------------------

| | ¡ |  | commercial acceptance and production of the electronic systems into which our products are incorporated;
| | - |  | --------------------------------------------------------------------------------------------------------

| | ¡ |  | availability, quality, price, performance, and size of our products relative to competing products and technologies;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| | ¡ |  | our customer service and support capabilities and responsiveness;
| | - |  | -----------------------------------------------------------------

| | ¡ |  | our ability to effectively recruit, motivate and retain skilled engineering and research and development staff;
| | - |  | ---------------------------------------------------------------------------------------------------------------

| | ¡ |  | successful development of relationships with existing and potential new customers; and
| | - |  | --------------------------------------------------------------------------------------

| | ¡ |  | successful development of relationships with key developers of advanced digital semiconductors.
| | - |  | -----------------------------------------------------------------------------------------------

Products we have recently developed or which we are currently developing may not achieve market acceptance. Many of these new products and processes
require significant expenditures of company resources, and there is no guarantee that these expenditures will contribute to the development of commercially successful products. If these products fail to achieve market acceptance, or if we fail to
timely develop new products that achieve market acceptance, our business, operating results, and competitive position could be adversely affected.

We sell a limited number of products and a reduction in demand for these products would harm our business and operating results.

We derive substantially all of our net revenue from the sale of integrated voltage regulator semiconductors, integrated power protection
and distribution semiconductors and scalable voltage regulator semiconductor chipsets, and we expect to continue to derive substantially all of our net revenue from these products for the current fiscal year. Factors that could cause the demand for
our products to decline include downturns in the semiconductor industry or general economic conditions, the introduction of competing products, our pricing strategies and the pricing strategies of our competitors, or a decline in demand for the
electronic systems into which our products are incorporated.

Because we often manufacture products in advance of receiving purchase
orders, or if existing purchase orders are changed or cancelled, we are subject to inventory risks and manufacturing costs that could negatively impact our operating results.*

To ensure availability of our products for our customers, we typically start the manufacturing of our products based on forecasts
provided by these customers in advance of receiving purchase orders. However, these forecasts do not represent binding purchase commitments, and we do not recognize revenue from these products until they are shipped to the customer. In addition,
because we sell our products to distributors and outsourced suppliers and not always directly to electronic system producers, we have more limited visibility into ultimate product demand, which makes forecasting more difficult for us. We incur
inventory and manufacturing costs in advance of anticipated revenue. Demand for our products may not materialize and if we overestimate customer demand for our products, manufacturing based on forecasts subjects us to risks of high inventory
carrying costs and obsolescence and may increase our costs. Similarly, if we underestimate demand, we may not have sufficient product inventories and may lose market share and damage customer relationships, which also could harm our business.



24



---

##### Table of Contents

In addition, our current sales practice generally allows customers to, and customers
routinely do, revise and cancel orders and reschedule delivery dates on relatively short notice pursuant to changes in the customers requirements. If, after initial orders are placed, we change certain features of our product to accommodate
customer requirements, we may create additional inventories that we may not be able to sell. If purchase orders are changed or cancelled, or if shipments are delayed, we may end up with excess inventories that we cannot sell, which could result in
the loss of anticipated revenue and an increase in our costs due to excess inventory charges which could materially impact our financial results.

Our inventory levels were $14.5 million at the end of the first quarter of 2011, and inventory turns, calculated as our annualized cost of revenue for the quarter divided by our inventories as of the end
of such quarter, increased to 4.0 turns in the first quarter of 2011 compared to 3.7 turns in the fourth quarter of 2010 and decreased from 5.0 turns in the first quarter of 2010. If the amount of inventories we are holding increases or our
inventory turns decrease, the risk of a potential inventory write-down and adverse impact on our financial results increases.

We are
subject to the highly cyclical nature of the semiconductor industry and any future downturns could significantly harm our business.

Our business is heavily influenced by the cyclical nature of the semiconductor industry. The semiconductor industry has experienced significant downturns, often in connection with, or in anticipation of,
maturing product cycles of both semiconductor companies and their customers and declines in general economic conditions. These downturns have been characterized by production overcapacity, high inventory levels, and accelerated erosion of average
selling prices. Any future downturns could significantly harm our business or reduce our revenue from one period to the next or for a prolonged period of time. From time to time, the semiconductor industry also has experienced periods of increased
demand and production capacity constraints. We may experience substantial changes in future operating results due to factors that affect the semiconductor industry generally.

We rely on a small number of distributors to market and distribute our products, and if we fail to manage these relationships, our net revenue may decline.*

Many purchases of our products are made through a concentrated group of distributors, which group may change over time. Our sales to
distributors accounted for 29% of our net revenue in the first quarter of 2011 compared to 35% in the first quarter of 2010. None of our distributors are required to purchase a specified minimum level of products from us. Currently, our sales to
distributors are made pursuant to standard purchase orders rather than long-term contracts and although we do not grant them a right of return pursuant to these purchase orders, their orders may be cancelled or changed more readily than if we had
long-term purchase commitments. In the event of a cancellation, reduction or delay of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business. We also rely on our distributors to
provide certain support services and other customer service to our customers. If they fail to provide appropriate levels of support and service to our customers on a timely basis, our relationships with our customers will suffer.

We need to maintain our relationships with our distributors while expanding additional channels for the marketing and sale of our
products. If we fail to manage these relationships, our distributors may decide not to include our products among those that they sell or they may not make marketing and selling our products a priority. In addition, our distributors may sell product
lines that are competitive with ours. If we fail to successfully manage our relationships with distributors while we look for additional channels for marketing and selling our products, our business would be harmed.

We are exposed to credit risk and payment delinquencies on our accounts receivable.

A substantial majority of our outstanding accounts receivables is not covered by collateral or credit insurance. In addition, our
standard terms and conditions permit payment within a specified number of days following shipment of product. While we have procedures to monitor and limit exposure to credit risk on our receivables, there can be no assurance such procedures will
effectively limit our credit risk and avoid



25



---

##### Table of Contents

losses. As economic conditions change, certain of our customers may face liquidity concerns and may be unable to satisfy their payment obligations, which would have a material adverse effect on
our financial condition and operating results.

Risks Related to Competition, Intellectual Property, Litigation and Regulation

We face significant competition and many of our competitors have greater resources than we have, and thus we may be unsuccessful
in competing against current and future competitors.

The markets for semiconductors generally, and power management
semiconductors in particular, are intensely competitive, and we expect competition to increase and intensify in the future as new or larger semiconductor manufacturers enter our market. Increased competition may result in price pressure, reduced
profitability, and loss of market share, any of which could seriously harm our business, revenue, and operating results. Our ability to compete effectively and to expand our business will depend on a number of factors, including, but not limited to:



| |  |  | our ability to continue to recruit and retain engineering talent;
| | - |  | -----------------------------------------------------------------

| |  |  | our ability to introduce new products in a timely manner;
| | - |  | ---------------------------------------------------------

| |  |  | the pricing of components used in competing solutions;
| | - |  | ------------------------------------------------------

| |  |  | the pace at which our customers incorporate our products into their systems;
| | - |  | ----------------------------------------------------------------------------

| |  |  | the availability of foundry, assembly, and test capacity for our products;
| | - |  | --------------------------------------------------------------------------

| |  |  | protection of our products by effective utilization of intellectual property laws; and
| | - |  | --------------------------------------------------------------------------------------

| |  |  | general economic conditions.
| | - |  | ----------------------------

We consider our primary competitors to include International Rectifier, Intersil, Linear Technology, Maxim Integrated Products, Infineon Technologies and Texas Instruments. In addition, we compete with a
number of other companies, some of which may become significant competitors. We may also face competition from new and emerging companies that may enter our existing or future markets. Many of our competitors and potential competitors have longer
operating histories, greater name recognition, complementary product offerings, a larger customer base, longer relationships with customers and distributors, and significantly greater financial, sales, marketing, manufacturing, distribution,
technical, and other resources than we do. As a result, they may be able to respond more quickly to customer requirements, to devote greater resources to the development, promotion, and sales of their products and to influence industry acceptance of
their products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and may be able to deliver products with performance comparable or superior to that of our products at a lower
cost.

In addition, in the event of a manufacturing capacity shortage, these competitors may have or be able to obtain silicon
wafer fabrication capacity when we are unable to obtain such capacity. We expect our competitors to continue to introduce new or enhanced products technologies with greater performance and improved pricing, which could cause our products to become
obsolete or uncompetitive and harm our operating results.

Our ability to compete will be harmed if we are unable to adequately protect our
intellectual property.*

We rely primarily on a combination of patent, trademark, trade secret, and copyright law and
contractual restrictions to protect our intellectual property. These afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain, copy, or use information that we regard as
proprietary, such as product design and manufacturing process expertise. We are currently involved in a patent infringement lawsuit in the United States District Court in the Northern District of California against Primarion, Inc., Infineon
Technologies AG and Infineon Technologies North America Corporation (collectively, the Defendants) for infringement of several of our patents, to which Defendants have filed affirmative defenses and counterclaims, including claims for
declaratory relief for inequitable conduct before the U.S. patent office and for Sherman Act violations. We are also involved in a



26



---

##### Table of Contents

patent infringement lawsuit in the United States District Court for the District of Delaware against Infineon Technologies AG in which we are accused of infringing four patents assigned to
Infineon. These actions or any similar action could consume significant financial and other resources, and in the three months ended March 31, 2011, our litigation related expenses were approximately $1.3 million. While we believe in the
strength of our positions, we are unable to assess the ultimate outcome or possible losses relating to these cases, and there is no guarantee that any such proceedings would be successful on its merits or that we will receive monetary damages awards
or recoup our legal expenses. Because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations or cash flows could be materially adversely
affected.

As of March 31, 2011, we had 67 issued patents and 52 patent applications pending in the United States, and
one foreign patent issued and 31 foreign patent applications pending. These patents have expiration dates ranging from March 2018 to March 2029. Our pending patent applications and any future applications may not result in issued patents or may not
be sufficiently broad to protect our proprietary technologies. Moreover, policing any unauthorized use of our products is difficult and costly, and we cannot be certain that the measures we have implemented will prevent misappropriation or
unauthorized use of our technologies, particularly in foreign jurisdictions where the laws may not protect our proprietary rights as fully as the laws of the United States. The enforcement of patents by others may harm our ability to conduct our
business. Others may independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property. If we fail to effectively protect our intellectual property, our business could be
harmed.

Assertions by third parties of infringement by us or our vendors of their intellectual property rights could result in significant
costs and cause our operating results to suffer.

The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. In the future we may receive communications from various industry participants alleging infringement of patents,
trade secrets or other intellectual property rights. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. These lawsuits, regardless of their success, would likely
be time-consuming and expensive to resolve and would divert managements time and attention. Any potential intellectual property litigation also could force us to take steps that may be harmful to our business, including, but not limited to:



| |  |  | stop selling products or using technology that contain the allegedly infringing intellectual property;
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | pay damages to the party claiming infringement;
| | - |  | -----------------------------------------------

| |  |  | attempt to obtain a license to the relevant intellectual property, which may not be available on reasonable terms or at all; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| |  |  | attempt to redesign those products that contain the allegedly infringing intellectual property.
| | - |  | -----------------------------------------------------------------------------------------------

In addition, the third-party foundries or subcontractors that manufacture our products may also face litigation for claims of
intellectual property. Although not directly creating liabilities for us, such litigation may cause such third parties to cease providing services to us, or may cause us to incur increased costs, either of which may harm our business. We may also
initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. In some cases, we may have an existing direct or indirect relationship with these third parties,
such as customers, vendors, partners or companies within the industry that generally affect our business. Such claims or litigation could not only affect our intellectual property or proprietary rights, but may also affect and disrupt our business
relationship with such third parties, impairing our ability to conduct our business and adversely affecting our financial and operational results.

Any potential dispute involving our patents or other intellectual property could also include our customers, which could trigger our indemnification obligations to them and result in substantial
expense to us.



27



---

##### Table of Contents

In any potential dispute involving our patents or other intellectual property, our customers
could also become the target of litigation. Because we indemnify our customers against claims made against them based on allegations that our products infringe intellectual property rights, such litigation could result in substantial expense for us.
In addition to the time and expense required for us to indemnify our customers, any such litigation could hurt our relations with our customers and cause our operating results to be harmed.

The average selling prices of our products could decrease rapidly, which may negatively impact our net revenue and operating results.

The average selling prices for power management solutions have historically declined over time. Factors that we expect to cause downward
pressure on the average selling price for our products include competitive pricing pressures, the cost sensitivity of our customers, particularly in the higher-volume markets, new product introductions by us or our competitors, and other factors. To
maintain acceptable operating results, we will need to offset any reduction in the average selling prices of our products by developing and introducing new products and developing new generations and versions of existing products on a timely basis,
increasing sales volume, and reducing costs. If the average selling prices for our products decline and we are unable to offset those reductions, our operating results will suffer.

Environmental laws and regulations could cause a disruption in our business and operations.

We are subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products and making
manufacturers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, including various European
Union member countries. We will need to ensure that we comply with such laws and regulations as they are enacted, and that our third-party semiconductor assembly subcontractors such as Amkor Technology, STATS ChipPAC Ltd., Carsem, Advanced
Semiconductor Engineering, SilTech, JCAP and UTAC, timely comply with such laws and regulations. Because we work with subcontractors to make specified modifications to their standard processes, transitioning the manufacturing of our products can
require substantial lead time. Any future delay resulting from such transition could negatively affect product performance, delivery, and yields or increase manufacturing costs. If we, or the subcontractors that we use, fail to timely comply with
such laws, our customers may refuse to purchase our products. Such refusal or delay would have a materially adverse effect on our business, financial condition and results of operations.

Risks Related to our Manufacturing and Development Activities

Our dependence on
third-party semiconductor manufacturers, or foundries, reduces our control over the manufacture of our products and increases our exposure to third party solvency risks, which could harm our business.

We are a fabless semiconductor company and, as such, we rely on third-party semiconductor manufacturers, or foundries, such as
GlobalFoundries and Taiwan Semiconductor Manufacturing Corporation. The ability of these foundries to provide silicon wafers to us is limited by their available capacity. Moreover, the price of our silicon wafers has in the past fluctuated and is
expected to continue to fluctuate, based on changes in available industry capacity. We do not have long-term supply contracts with any of our foundries. Therefore, our manufacturers could choose to prioritize capacity for other customers,
particularly larger customers, reduce or eliminate deliveries to us on short notice or increase the prices they charge us. There are significant risks associated with our reliance on these third-party manufacturers, including, but not limited to:



| |  |  | inability to increase production and achieve acceptable yields on a timely basis;
| | - |  | ---------------------------------------------------------------------------------

| |  |  | reduced control over delivery schedules and product quality;
| | - |  | ------------------------------------------------------------

| |  |  | inability of our foundries to obtain an adequate supply of the raw materials used in the manufacturing of our products on a timely and cost-effective
basis;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### Table of Contents

| |  |  | increased exposure to potential misappropriation of our intellectual property;
| | - |  | ------------------------------------------------------------------------------

| |  |  | limited warranties on silicon wafers or products supplied to us;
| | - |  | ----------------------------------------------------------------

| |  |  | labor shortages or labor strikes;
| | - |  | ---------------------------------

| |  |  | natural disasters affecting countries in which we conduct our business or in which our products are manufactured; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | political instability in countries where our products are manufactured.
| | - |  | -----------------------------------------------------------------------

In addition, these third party manufacturers may elect or may be forced to shut down particular facilities for reasons beyond our
control, which may require us to transition the manufacturing of our products to other facilities of such third party manufacturer or to other third party manufacturers. Because we work with foundries to make specified modifications to their
standard process technologies, transitioning the manufacturing of our products to other foundries or other facilities of an existing foundry can require process design changes and may require substantial lead time. Any such delay resulting from such
transition could negatively affect product performance, delivery, and yields or increase manufacturing costs. If we are not able to obtain foundry capacity as required, our relationships with our customers would be harmed and our net revenue would
likely decline. Deterioration of worldwide economic conditions and financial markets and tightening in credit markets may adversely impact the financial position of our third party manufacturers. If our third party manufacturers are unable to obtain
the necessary capital to operate their business, this may also impact their ability to provide us with the foundry capacity we need, or may adversely affect their ability to provide timely services or to make timely deliveries of products to us. Any
such result could adversely affect our operations and financial condition.

We rely on third-party subcontractors to assemble and test our
products and our failure to successfully manage our relationships with these subcontractors could damage our relationships with our customers, decrease our net revenue, and limit our growth.*

We rely on third-party subcontractors, such as Amkor Technology, STATS ChipPAC Ltd., Carsem, Advanced Semiconductor Engineering, SilTech,
JCAP and UTAC, to assemble and test our products. None of these third-party vendors are obligated to perform services or supply products to us for any specific period, or in any specific quantities, except as may be provided in a particular purchase
order. Moreover, none of our assembly and test subcontractors has provided contractual assurances to us that adequate capacity will be available to us to meet future demand for our products. We are subject to many of the same risks with these
vendors as with our foundries, including risks related to the ability of such vendors to continue to provide us with the agreed-upon services or products as needed, and our ability to control delivery schedules and product quality. If we do not
successfully manage these relationships, the quality of products shipped to our customers may decline, which would damage our relationships with customers, decrease our net revenue, and negatively impact our growth.

Our products are highly complex and may require modifications to resolve previously undetected design or process errors or defects and to meet our
customers specifications, which could lead to an increase in our costs, a loss of revenue and customers, a delay in market acceptance of our products, or product liability claims.

Our power management products are highly complex and may contain previously undetected errors or defects in design or that occur in the
manufacturing or assembly process that may significantly affect yields or quality. If we deliver products with errors or defects, we may suffer a reduction in or deferral of our revenue as a result of significant product returns and our operating
results and financial position could be materially impacted. We may incur product replacement costs, and we may have to rework or scrap inventory that is returned. In addition, we may incur additional manufacturing and/or development costs to fix
the defect or error and may have to rework or scrap inventory that had been built with the error or defect resulting in additional costs. If we are unable to fully recover or be reimbursed for all or a portion of these costs, our financial position
and operating results may be adversely impacted. Also as a result of shipping products with defects or errors, our credibility and the market acceptance of our products could be harmed. Defects could also lead to liability for defective products as
a result of lawsuits against our customers or us. We have agreed to indemnify our customers in some circumstances against liability from defects in our products. In the future, as we increase the amount of business with any given customer, we may be



29



---

##### Table of Contents

expected to agree upon additional terms and conditions of sale regarding product quality or product defects which may increase our costs, obligations and liabilities in connection with our
product sales. Although we maintain insurance coverage consistent with customary industry practice to defray potential costs from lawsuits, including lawsuits arising from product liability, if liabilities arise that are not effectively limited or
covered by such insurance, a successful product liability claim could require us to pay a significant amount of damages, which could have a material adverse impact on our financial results and financial position.

Our products comprise only part of the complex electronic systems in which they are used. As a result, our products must operate
according to specifications with the other components in the electronic system. If other components of the electronic system fail to operate properly with our products, we may be required to incur additional development time and costs to enable
interoperability of our products with these other components and may not be able to sell our existing inventories resulting in additional cost of revenue and materially adversely affecting our financial results.

Any disruption to our operations or the operations of our foundries or assembly and test subcontractors resulting from earthquakes, droughts, or other
natural disasters, public health issues or other catastrophic events beyond our control could significantly delay the production or shipment of our products.*

Our principal offices are located in California, and we rely on foundries and assembly and test subcontractors in Malaysia, Philippines, Singapore, Taiwan, Thailand and China. The risk of an earthquake in
these Pacific Rim locations is significant, as highlighted by the severe earthquake and tsunami that struck the northeast coast of Japan in March 2011. The occurrence of an earthquake, drought, floods, fires or other natural disaster near our
principal offices or our subcontractors locations could result in damage, power outages, and other disruptions that impair our design, manufacturing, and assembly capacity and otherwise interfere with our ability to conduct our business. In
addition, public health issues, acts of terrorism or other catastrophic events could significantly delay the production or shipment of our products. Any disruption resulting from such events could cause significant delays in the shipment of our
products until we are able to shift our fabrication, assembling, testing or other operations from the affected subcontractor to another third-party vendor.

Because we rely on third party foundries and assembly and test subcontractors, we have experienced, and may in the future experience, delays in the manufacture, development and introduction of our new
products, which may harm our business and operating results.

The development of our products is highly complex, costly
and inherently risky. Because we rely on third party foundries and assembly and test subcontractors, we have experienced, and may in the future experience, delays in the manufacture, development and introduction of new products or new generations
and versions of our existing products. If we are unable to manufacture, develop or introduce products on a timely basis, we may lose new or existing market and customer opportunities and our financial results or competitive position could be harmed.
We cannot assure you that the procedures that we have implemented to minimize delays will be effective or that delays may not occur in the future. In particular, we expect to continue to bring new products to production in new manufacturing and
assembly processes. Any future delays in the introduction of new products or new generations or versions of our existing products could materially harm our business and operating results.

The nature of the design process requires us to incur expenses prior to earning revenue associated with those expenses, and we will have difficulty selling our products and generating profits if
electronic system producers do not design our products into their electronic systems.

We devote significant time and
resources in working with electronic system producers to get our products designed into their systems. If the system designer chooses a competitors product for its electronic system, it becomes significantly more difficult for us to sell our
products for use in that electronic system because changing suppliers involves significant cost, time, effort, and risk for electronic



30



---

##### Table of Contents

system producers. If electronic system producers do not design our products into their systems, our business would be materially adversely affected.

We often incur significant expenditures in the development of a new product without any assurance that electronic system producers will
select our product for use in their electronic systems. If we incur such expenditures and fail to be selected, or if we are selected and subsequently excluded from such designs, our operating results will be adversely affected. Furthermore, even if
electronic system producers use our products in their electronic systems, we cannot be assured that these systems will be commercially successful or that we will receive any associated revenue.

Even if our products are selected for design into a particular electronic system, a substantial period of time will elapse before we
generate revenue related to the significant expenses we have incurred. The reasons for this delay generally include, but are not limited to, the following:



| |  |  | it can typically take up to 12 months from the time our products are selected to complete the design process, and in some cases such design process may
take substantially more time to complete;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | it can typically take an additional six to 12 months to complete commercial introduction of the electronic systems that use our products, and in some
cases such introduction may take substantially more time to complete, if they are introduced at all;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems, which
may also result in our products being excluded from the system design for reasons other than our design specifications;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | OEMs typically limit the initial release of their electronic systems to evaluate performance and consumer demand; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | the development and commercial introduction of products incorporating new technology are frequently delayed.
| | - |  | ------------------------------------------------------------------------------------------------------------

As a result, we may be unable to accurately forecast the volume and timing of our orders and revenue. In addition, incurring research and
development expenses prior to generating revenue may cause our operating results to fluctuate significantly from period to period.

Risks Related to our International Activities

We have significant international activities and customers, and plan to continue such efforts, which subjects us to additional business risks including increased logistical complexity, additional
regulatory restrictions and political instability.*

A number of our customers are multinational corporations, with
operations located throughout the world. In the first quarter of 2011, 98% of our net revenue was attributable to customers, or customers operations, located outside of the United States, primarily in China and Singapore, and we anticipate
that a significant portion of our future revenue will continue to be generated by sales to these customers or to the customers operations in China and Singapore. We have engineering, sales, and operations personnel in Japan, Singapore, Taiwan,
China and the United Kingdom. Our foundries, assembly and test subcontractors, and distributors are also primarily located in Asia. Our international operations and sales are subject to a number of risks, including, but not limited to:



| |  |  | cultural and language barriers;
| | - |  | -------------------------------

| |  |  | increased complexity and costs of managing international operations;
| | - |  | --------------------------------------------------------------------

| |  |  | protectionist laws and business practices that favor local competition in some countries;
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | multiple, conflicting and changing laws and regulatory and tax environments;
| | - |  | ----------------------------------------------------------------------------

| |  |  | potentially longer and more difficult collection periods;
| | - |  | ---------------------------------------------------------

| |  |  | political instability, international terrorism, and anti-American sentiment, particularly in emerging markets;
| | - |  | --------------------------------------------------------------------------------------------------------------

| |  |  | highly volatile economies in Asia;
| | - |  | ----------------------------------



31



---

##### Table of Contents

| |  |  | difficulty in hiring qualified management, technical sales personnel, and applications engineers; and
| | - |  | -----------------------------------------------------------------------------------------------------

| |  |  | less effective protection of intellectual property than is afforded to us in the United States.
| | - |  | -----------------------------------------------------------------------------------------------

Our inability to overcome these risks could adversely affect our foreign operations, and some of our customers and suppliers, and could
harm our business and operating results.

We could be adversely affected by violations of the United States Foreign Corrupt Practices
Act and similar worldwide anti-bribery laws.

The United States Foreign Corrupt Practices Act (FCPA) and
similar anti-bribery laws in other jurisdictions generally prohibit companies, their subsidiaries and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. While our policies
mandate compliance with the FCPA and these anti-bribery laws, there can be no assurance that our internal controls and procedures will protect us from improper acts committed by our employees or agents. If we are found to be liable for FCPA
violations, we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

We do not hedge fluctuations in currency exchange rates, which could harm our financial results.*

Substantially all sales to international customers and purchases of production materials and manufacturing services from international
suppliers in 2010 and during the three months ended March 31, 2011 were denominated in U.S. dollars. However, fluctuations in currency exchange rates could have an effect on our results of operations and financial condition. An increase in the
value of the U.S. dollar relative to foreign currencies could make our products more expensive for our international customers to purchase, thus rendering the prices of our products less competitive. If the value of the U.S. dollar decreases
relative to foreign currencies, this could result in an increase in the effective costs of working with our international vendors or suppliers, and our ability to control our cost structure and maintain our financial results could be harmed.

Risks Related to our Growth and Organization

We may undertake acquisitions to expand our business that may pose risks to our business and dilute the ownership of our existing stockholders.

We will evaluate opportunities to acquire other businesses, products or technologies that would complement our current offerings, expand
the breadth of markets we can address or enhance our technical capabilities. Acquisitions that we may potentially make in the future entail a number of risks that could materially adversely affect our operating and financial results, including, but
not limited to:



| |  |  | our lack of experience acquiring other businesses;
| | - |  | --------------------------------------------------

| |  |  | problems integrating the acquired operations, technologies, or products with our existing business and products;
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  | diversion of managements time and attention from our core business;
| | - |  | --------------------------------------------------------------------

| |  |  | the need for financial resources above our planned investment levels;
| | - |  | ---------------------------------------------------------------------

| |  |  | overestimation of potential synergies or a delay in realizing those synergies;
| | - |  | ------------------------------------------------------------------------------

| |  |  | difficulties in retaining business relationships with suppliers and customers of the acquired company;
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | risks associated with entering markets in which we lack prior experience; and
| | - |  | -----------------------------------------------------------------------------

| |  |  | the potential loss of key employees of the acquired company.
| | - |  | ------------------------------------------------------------

Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue equity securities that would reduce
the ownership percentages of existing stockholders. Furthermore, acquisitions could result in adverse tax consequences, substantial depreciation, deferred compensation charges,



32



---

##### Table of Contents

impairment of goodwill, or the amortization of amounts related to deferred compensation and to identifiable purchased intangible assets, any of which would negatively affect our operating
results.

If we do not effectively manage our growth, our resources, systems, and controls may be strained and our operating results may
suffer.

In recent periods, we have continued to increase the scope of our operations and the size of our workforce. This
growth has placed, and any future growth of our operations will continue to place, a significant strain on our management personnel, systems, and resources. We anticipate that we will need to implement a variety of new and upgraded operational and
financial systems, procedures, and controls, including the improvement of our accounting and other internal management systems. We also will need to continue to expand, train, manage, and motivate our workforce, and manage our customer and
distributor relationships, develop our internal sales force, and manage our foundry and assembly and test subcontractors. All of these endeavors will require substantial management effort and skill, and we anticipate that we will require additional
personnel and internal processes to manage these efforts. Our growth in recent years has also caused several key employees and members of management to take on new and greater responsibilities within our organization. If the transition to these new
roles and responsibilities is not successful or completed on a timely basis, we may be unable to take full advantage of additional growth opportunities and our business could be adversely affected. We plan to fund the costs of our operational and
financial systems, additional personnel, and internal processes from current cash balances and funds generated from operations. If we are unable to effectively manage our expanding operations, our revenue and operating results could be materially
adversely affected.

We evaluate our internal controls over financial reporting in order to allow management to report on, and
our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which we collectively refer to as Section 404. As
we grow and implement new and upgraded operational and financial systems, procedures, and controls, we will need to maintain effective internal controls over financial reporting. In addition, in the course of our Section 404 compliance, we may
identify deficiencies in our internal controls, some of which may be categorized as a significant deficiency or a material weakness. If we fail to correct the deficiencies that we identify and to maintain the adequacy of our internal control over
financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with
Section 404. If we cannot favorably assess, or our independent registered public accountants are unable to provide an unqualified report on the effectiveness of our internal control over financial reporting, investor confidence in the
reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

We rely on
the services of our key personnel, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed.

We rely upon the continued service and performance of a relatively small number of key technical and senior management personnel. If we
are unable to retain any of our key technical or senior management personnel, such as Jeffrey Staszak, our President and Chief Executive Officer, or are unable to fill key positions, our business could be harmed. As a result, our future success
depends on retaining our management team and other key employees. We rely on these individuals for the management of our company, development of our products and business strategy, and management of our strategic relationships, and for the
reliability of our financial reporting and the design and maintenance of our internal controls over financial reporting. In addition, we rely on a relatively small number of analog and mixed-signal design engineers who have the training and
experience to design our products. Any of these employees could leave our company with little or no prior notice and could work with our competitors, subject to their continuing confidentiality obligations to us. We do not have key
person life insurance policies covering any of our employees. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of power management
semiconductors, and we may face challenges in hiring and retaining these types of employees.



33



---

##### Table of Contents

If our computer and communications hardware fails, our business, results of operations and financial
condition would be harmed.

Our ability to successfully operate our business depends in part on the efficient and
uninterrupted operation of our computer and communications systems. Substantially all of the computer and communications hardware necessary to operate our business is located at a single leased facility. Our systems and operations are vulnerable to
damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, computer viruses, earthquakes and similar events, any of which may result in interruptions, delays, loss of
critical data, the inability to accept and fulfill customer orders or the unauthorized disclosure of confidential customer data or proprietary technical information. We do not presently have redundant systems in multiple locations or a formal
disaster recovery plan, and our business interruption insurance may be insufficient to compensate us for losses that may occur. If any of these events or interruptions were to occur, our business and results of operations could be substantially
harmed.

Our principal stockholders have significant voting power and may influence actions that may not be in the best interests of our
other stockholders.

Our executive officers, directors, and principal stockholders collectively hold a significant portion
of our outstanding common stock. As a result, these stockholders, acting together, may have the ability to exert substantial influence over matters requiring approval of our stockholders, including the election and removal of directors and the
approval of mergers or other business combinations. This concentration of beneficial ownership could be disadvantageous to other stockholders whose interests are different from those of our executive officers, directors, and principal stockholders.
For example, our executive officers, directors, and principal stockholders, acting together with stockholders owning a relatively small percentage of our outstanding stock, could delay or prevent an acquisition or merger even if the transaction
would benefit other stockholders.

Anti-takeover provisions of our charter documents and Delaware law could prevent or delay transactions
resulting in a change in control.

Our certificate of incorporation and our bylaws may make more difficult or discourage,
delay or prevent a change in the ownership of our company or a change in our management or our board of directors. The following are examples of provisions that are included in our certificate of incorporation and bylaws that might have those
effects:



| |  |  | our board of directors is classified so that not all members of our board of directors may be elected at one time;
| | - |  | ------------------------------------------------------------------------------------------------------------------

| |  |  | directors may only be removed for cause and only with the approval of stockholders holding a majority of our outstanding voting stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the ability of our stockholders to call a special meeting of stockholders is prohibited;
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | advance notice is required for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder
meetings;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | stockholder action by written consent is prohibited, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our board of directors may designate the terms of, and issue new series of, preferred stock, commonly referred to as blank check preferred
stock, with rights senior to those of common stock without stockholder approval.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we are also
subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our voting stock, the person is an interested stockholder and may not engage
in business combinations with us for a period of three years from the time the person acquired 15% or more of our voting stock.



34



---

##### Table of Contents

These provisions may have the effect of entrenching our management team and may deprive you
of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a premium could reduce the price of our common stock.

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

There were no repurchases made during the three months ended March 31, 2011 under the Companys previously announced share repurchase program. As of March 31, 2011, the dollar value of
shares that may be purchased under the program was approximately $16,163,000.



35



---

##### Table of Contents

Item 6. Exhibits



|            |  |                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                             
|3.1 (1)     |  | Amended and Restated Certificate of Incorporation of Volterra Semiconductor Corporation.                                                                                
|            | 
|3.2 (2)     |  | Amended and Restated Bylaws of Volterra Semiconductor Corporation.                                                                                                      
|            | 
|4.1         |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                              
|            | 
|4.2 (3)     |  | Specimen stock certificate.                                                                                                                                             
|            | 
|10.1 (4)+   |  | 2011 Cash Compensation Policy for Non-Employee Directors.                                                                                                               
|            | 
|10.2 (4)+   |  | 2011 Executive Compensation and 2010 Bonus Awards.                                                                                                                      
|            | 
|10.3 (5)+   |  | 2011 Management Bonus Plan.                                                                                                                                             
|            | 
|10.4 (6)+   |  | 2004 Non-Employee Directors Stock Option Plan.                                                                                                                          
|            | 
|31.1        |  | Certification of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                            
|            | 
|31.2        |  | Certification of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                            
|            | 
|32.1*       |  | Certification of Chief Executive Officer required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350.
|            | 
|32.2*       |  | Certification of Chief Financial Officer required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section
1350. 



|(1) | Previously filed as Exhibit 3.1 to Volterra Semiconductor Corporations Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, as
filed with the Securities and Exchange Commission on September 9, 2004, and incorporated by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Previously filed as Exhibit 3.2 to Volterra Semiconductor Corporations Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007,
as filed with the Securities and Exchange Commission on November 1, 2007, and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Previously filed as Exhibit 4.2 to Volterra Semiconductor Corporations Registration Statement on Form S-1/A (No. 333-115614), as filed with the
Securities and Exchange Commission on July 9, 2004, as amended, and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Previously filed as Exhibit 10.1 to Volterra Semiconductor Corporations Current Report on Form 8-K, as filed with the Securities and Exchange Commission on
January 27, 2011, and incorporated by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Previously filed as Exhibit 10.2 to Volterra Semiconductor Corporations Current Report on Form 8-K, as filed with the Securities and Exchange Commission on
January 27, 2011, and incorporated by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Previously filed as Exhibit 10.1 to Volterra Semiconductor Corporations Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on
March 8, 2011, and incorporated by reference herein.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not be deemed filed by Volterra Semiconductor Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|+ | Indicates a
management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------



36



---

##### Table of Contents

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.



|                   |  |                                    |  |                                           
|------------------ |  | ---------------------------------- |  | ------------------------------------------
|Dated: May 3, 2011 |  | VOLTERRA SEMICONDUCTOR CORPORATION
|                   |  |                                   
|                   |  | By:                                |  | /s/ Mike Burns                            
|                   |  |                                    |  | Mike Burns                                
|                   |  |                                    |  | Chief Financial Officer                   
|                   |  |                                    |  | (Principal Financial, Chief Accounting and
|                   |  |                                    |  | Duly Authorized Officer)                  



37



---

##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                             
|3.1 (1)     |  | Amended and Restated Certificate of Incorporation of Volterra Semiconductor Corporation.                                                                                
|            | 
|3.2 (2)     |  | Amended and Restated Bylaws of Volterra Semiconductor Corporation.                                                                                                      
|            | 
|4.1         |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                              
|            | 
|4.2 (3)     |  | Specimen stock certificate.                                                                                                                                             
|            | 
|10.1 (4)+   |  | 2011 Cash Compensation Policy for Non-Employee Directors.                                                                                                               
|            | 
|10.2 (4)+   |  | 2011 Executive Compensation and 2010 Bonus Awards.                                                                                                                      
|            | 
|10.3(5)+    |  | 2011 Management Bonus Plan.                                                                                                                                             
|            | 
|10.4 (6)+   |  | 2004 Non-Employee Directors Stock Option Plan.                                                                                                                          
|            | 
|31.1        |  | Certification of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                            
|            | 
|31.2        |  | Certification of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.                            
|            | 
|32.1*       |  | Certification of Chief Executive Officer required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350.
|            | 
|32.2*       |  | Certification of Chief Financial Officer required under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section
1350. 



|(1) | Previously filed as Exhibit 3.1 to Volterra Semiconductor Corporations Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, as
filed with the Securities and Exchange Commission on September 9, 2004, and incorporated by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Previously filed as Exhibit 3.2 to Volterra Semiconductor Corporations Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007,
as filed with the Securities and Exchange Commission on November 1, 2007, and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Previously filed as Exhibit 4.2 to Volterra Semiconductor Corporations Registration Statement on Form S-1/A (No. 333-115614), as filed with the
Securities and Exchange Commission on July 9, 2004, as amended, and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Previously filed as Exhibit 10.1 to Volterra Semiconductor Corporations Current Report on Form 8-K, as filed with the Securities and Exchange Commission on
January 27, 2011, and incorporated by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Previously filed as Exhibit 10.2 to Volterra Semiconductor Corporations Current Report on Form 8-K, as filed with the Securities and Exchange Commission on
January 27, 2011, and incorporated by reference herein
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Previously filed as Exhibit 10.1 to Volterra Semiconductor Corporations Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on
March 8, 2011, and incorporated by reference herein.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
shall not be deemed filed by Volterra Semiconductor Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|+ | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------



38