**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 June 30, 2005
 
 OR
 o
              
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
 
 For
        the
        transition period from
                  to
 
 Commission
        file number 000-50857
 
 **Volterra
        Semiconductor Corporation**
 (Exact
        name of registrant as specified in its charter)
  Delaware
              
              94-3251865*(State
                  or other jurisdiction of*
              
              *(I.R.S.
                  Employer**incorporation
                  or organization)*
              
              *Identification
                  No.)*
 
 3839
        Spinnaker Court
 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   o
  Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in
        Rule 12b-2 of the Exchange
        Act).   Yes   o   No   x
  As
        of
        July 22, 2005, the registrant had 23,588,278 shares of common stock
        outstanding.
  1
  **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
        the
        caption “Factors that May Affect Future Operating Results” 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
  **Volterra
        Semiconductor Corporation and Subsidiaries**
 
 INDEX
  **Page**PART
                      I. FINANCIAL INFORMATIONItem 1.
                      Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2005 and
                      December 31,
                      2004
                  
                  
                  4Condensed Consolidated Statements of Operations for the three
                      and six
                      months ended June 30, 2005 and 2004
                  
                  
                  5Condensed Consolidated Statements of Cash Flows for the six
                      months ended
                      June 30, 2005 and 2004
                  
                  
                  6Notes to Condensed Consolidated Financial Statements
                  
                  
                  7Item 2.
                      Management’s Discussion and Analysis of Financial Condition and Results
                      of
                      Operations
                  
                  
                  11Item 3.
                      Quantitative and Qualitative Disclosures About Market Risk
                  
                  
                  27Item 4.
                      Controls and Procedures
                  
                  
                  27PART
                      II. OTHER INFORMATIONItem
                      1. Legal Proceedings
                  
                  
                  27Item 2.
                      Unregistered Sales of Equity Securities and Use of
                      Proceeds
                  
                  
                  27Item 4.
                      Submission of Matters to Vote of Security Holders
                  
                  
                  28Item 6.
                      Exhibits
                  
                  
                  28SIGNATURE
                  
                  
                  29
  3
 **PART
        I. FINANCIAL INFORMATION**
 
 ITEM
        1.
        Financial Statements
 
 **VOLTERRA
        SEMICONDUCTOR CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(In
        thousands, except share data)**
  **June
                  30,**
              
              **December
                  31,****2005**
              
              **2004****(Unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              25,988
              
              $
              24,895Short-term
                  investments
              
              
              19,710
              
              
              19,838Accounts
                  receivable, net of allowances of $813 and $1,102,
                  respectively
              
              
              7,582
              
              
              2,097Inventory
              
              
              5,269
              
              
              5,134Prepaid
                  expenses and other current assets
              
              
              695
              
              
              726Total
                  current assets
              
              
              59,244
              
              
              52,690Property
                  and equipment, net
              
              
              2,246
              
              
              1,414Other
                  assets
              
              
              34
              
              
              34Total
                  assets
              
              $
              61,524
              
              $
              54,138**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              3,844
              
              $
              1,768Accrued
                  liabilities
              
              
              2,949
              
              
              2,105Total
                  current liabilities
              
              
              6,793
              
              
              3,873Commitments
                  (Note 4)Stockholders’
                  equity:Preferred
                  stock, $0.001 par value; 5,000,000 shares authorized;none
                  issued and outstanding
              
              
              —
              
              
              —Common
                  stock, $0.001 par value; 200,000,000 shares authorized;23,585,590
                  and 23,336,165 shares issued and outstanding, respectively
              
              
              24
              
              
              23Additional
                  paid-in capital
              
              
              95,206
              
              
              94,412Deferred
                  stock-based compensation
              
              
              (231
              )
              
              (462
              )Accumulated
                  deficit
              
              
              (40,268
              )
              
              (43,708
              )Total
                  stockholders’ equity
              
              
              54,731
              
              
              50,265Total
                  liabilities and stockholders’ equity
              
              $
              61,524
              
              $
              54,138
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
  4
 **VOLTERRA
          SEMICONDUCTOR CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(In
        thousands, except per share amounts)**
 **(Unaudited)**
 
 **Three
                        Months**
                      **Ended
                        June 30,**
                    
                    **Six
                        Months**
                      **Ended
                        June 30,****2005**
                    
                    **2004**
                    
                    **2005**
                    
                    **2004**Net
                        revenue
                    
                    $
                    13,185
                    
                    $
                    9,144
                    
                    $
                    27,816
                    
                    $
                    16,759Cost
                        of revenue
                    
                    
                    5,344
                    
                    
                    4,242
                    
                    
                    11,742
                    
                    
                    7,900Gross
                        margin
                    
                    
                    7,841
                    
                    
                    4,902
                    
                    
                    16,074
                    
                    
                    8,859Operating
                        expenses:Research
                        and development
                    
                    
                    4,029
                    
                    
                    3,000
                    
                    
                    7,606
                    
                    
                    5,570Selling,
                        general and administrative
                    
                    
                    2,518
                    
                    
                    1,175
                    
                    
                    4,586
                    
                    
                    2,217Stock-based
                        compensation(*)
                    
                    
                    144
                    
                    
                    174
                    
                    
                    263
                    
                    
                    273Total
                        operating expenses
                    
                    
                    6,691
                    
                    
                    4,349
                    
                    
                    12,455
                    
                    
                    8,060Income
                        from operations
                    
                    
                    1,150
                    
                    
                    553
                    
                    
                    3,619
                    
                    
                    799Interest
                        and other income
                    
                    
                    288
                    
                    
                    44
                    
                    
                    540
                    
                    
                    82Interest
                        and other expense
                    
                    
                    (4
                    )
                    
                    (3
                    )
                    
                    (9
                    )
                    
                    (5
                    )Income
                        before income taxes
                    
                    
                    1,434
                    
                    
                    594
                    
                    
                    4,150
                    
                    
                    876Income
                        tax expense
                    
                    
                    303
                    
                    
                    28
                    
                    
                    710
                    
                    
                    41Net
                        income
                    
                    $
                    1,131
                    
                    $
                    566
                    
                    $
                    3,440
                    
                    $
                    835Basic
                        net income per share
                    
                    $
                    0.05
                    
                    $
                    0.10
                    
                    $
                    0.15
                    
                    $
                    0.15Shares
                        used in computing basic net
                      income
                        per share
                    
                    
                    23,535
                    
                    
                    5,546
                    
                    
                    23,469
                    
                    
                    5,559Diluted
                        net income per share
                    
                    $
                    0.04
                    
                    $
                    0.03
                    
                    $
                    0.13
                    
                    $
                    0.04Shares
                        used in computing diluted net
                      income
                        per share
                    
                    
                    26,129
                    
                    
                    21,076
                    
                    
                    26,205
                    
                    
                    20,851(*)Stock-based compensation consists of:Cost
                        of revenue
                    
                    $
                    7
                    
                    $
                    7
                    
                    $
                    14
                    
                    $
                    13Research
                        and development
                    
                    
                    73
                    
                    
                    100
                    
                    
                    121
                    
                    
                    142Selling,
                        general and administrative
                    
                    
                    64
                    
                    
                    67
                    
                    
                    128
                    
                    
                    118Total
                    
                    $
                    144
                    
                    $
                    174
                    
                    $
                    263
                    
                    $
                    273
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
  5
  **VOLTERRA
        SEMICONDUCTOR CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(In
        thousands)**
 **(Unaudited)**
 **Six
                  Months**
                **Ended
                  June 30,****2005**
              
              **2004****Cash
                  flows from operating activities:**Net
                  income
              
              $
              3,440
              
              $
              835Adjustments
                  to reconcile net income to net cash
                provided
                  by operating activities:Depreciation
                  and amortization
              
              
              259
              
              
              251Amortization
                  of bond discount
              
              
              (77
              )
              
              —Provision
                  for doubtful accounts
              
              
              —
              
              
              24Interest
                  income on stockholders’ notes receivable
              
              
              —
              
              
              (54
              )Stock-based
                  compensation
              
              
              263
              
              
              273Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (5,485
              )
              
              330Inventory
              
              
              (135
              )
              
              (2,095
              )Prepaid
                  expenses and other current assets
              
              
              31
              
              
              (206
              )Accounts
                  payable
              
              
              2,076
              
              
              793Accrued
                  liabilities
              
              
              844
              
              
              264Net
                  cash provided by operating activities
              
              
              1,216
              
              
              415**Cash
                  flows from investing activities:**Purchases
                  of property and equipment
              
              
              (1,091
              )
              
              (544
              )Purchases
                  of short-term investments
              
              
              (9,673
              )Proceeds
                  from maturity of short-term investments
              
              
              9,878
              
              
              —Net
                  cash used in investing activities
              
              
              (886
              )
              
              (544
              )**Cash
                  flows from financing activities:**Borrowings
                  under line of credit
              
              
              —
              
              
              3,350Payments
                  on line of credit
              
              
              —
              
              
              (3,750
              )Proceeds
                  from issuance of common stock, net
              
              
              763
              
              
              851Net
                  cash provided by financing activities
              
              
              763
              
              
              451Net
                  increase in cash and cash equivalents
              
              
              1,093
              
              
              322Cash
                  and cash equivalents, beginning of period
              
              
              24,895
              
              
              10,129Cash
                  and cash equivalents, end of period
              
              $
              25,988
              
              $
              10,451**Supplemental
                  disclosure of cash flow information:**Cash
                  paid for interest
              
              $
              —
              
              
              5**Supplemental
                  disclosure of non-cash investing and financing
                  activities:**Deferred
                  stock-based compensation
              
              $
              —
              
              $
              935Decrease
                  in liability for early option exercises, net
              
              $
              —
              
              $
              (132
              )Cancellation
                  of notes receivable from
                stockholders
                  in connectionwith
                  stock repurchase
              
              $
              —
              
              $
              1,634
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
  6
 
 **VOLTERRA
        SEMICONDUCTOR CORPORATION**
 **AND
        SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(In
        thousands, except share and per share data)**
 **(Unaudited)**
 
 
 **1. 
        Description of Business**
 
 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 for the computing, storage,
        networking and consumer markets. In August 2004, the Company completed its
        initial public offering of Common Stock and received net proceeds of $31.9
        million.
 
 ***Basis
        of Presentation***
 
 The
        accompanying condensed consolidated financial statements include the accounts
        of
        the Company and its wholly owned subsidiaries. All significant inter-company
        balances and transactions have been eliminated in consolidation. The functional
        currency of foreign subsidiaries is the U.S. dollar and foreign currency
        transaction gains and losses are recorded in income. For all periods presented,
        there have been no material foreign currency transaction 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 (the “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
        Form
        10-K filed with the SEC on March 1, 2005.
 
 In
        the
        opinion of management, the accompanying unaudited condensed consolidated
        financial statements reflect all adjustments (consisting only of normal
        recurring adjustments) necessary to summarize fairly the Company’s financial
        position, results of operations and cash flows for the interim periods
        presented. The operating results for the three-month and six-month periods
        ended
        June 30, 2005 are not necessarily indicative of the results that may be expected
        for the year ending December 31, 2005 or for any other future period. The
        condensed consolidated balance sheet as of December 31, 2004 is derived from
        the
        audited consolidated financial statements as of and for 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. Actual results could differ from those
        estimates.
 
 ***Financial
        Instruments and Concentrations of Credit Risk***
 
 Financial
        instruments consist of cash equivalents, short-term investments, accounts
        receivable and accounts payable. The carrying value of the Company’s cash
        equivalents, short-term investments, accounts receivable and accounts payable
        approximates their 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 with remaining contractual maturities on the date of purchase
        of 90
        days or less. Short-term investments are comprised of government agency debt
        securities with remaining contractual maturities on the date of purchase
        greater
        than 90 days but less than one year. These investments are classified as
        held-to-maturity and carried at amortized cost.
 
 The
        Company sells its products to international distributors and original equipment
        manufacturers (and their outsourced suppliers) in the computing, storage,
        networking and consumer electronics industries. The Company performs continuing
        credit evaluations of its customers’ financial condition and generally does not
        require collateral from its customers. An allowance is provided for estimated
        accounts receivable that may not be collected.
 
 7
 
 ***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. The Company’s long-lived assets are
        principally located in the United States.
 
 Significant
        customers are those customers accounting for more than 10% of the Company’s
        total net revenue or accounts receivable. For each significant customer,
        net
        revenue as a percentage of total net revenue and accounts receivable as a
        percentage of total accounts receivable are as follows:
 
 **Net
                  Revenue**
              
              **Accounts
                  Receivable****Three
                  Months Ended**
              
              **Three
                  Months Ended**
              
              **Six
                  Months Ended**
              
              **Six
                  Months Ended**
              
              **As
                  of****Customer**
              
              **June
                  30, 2005**
              
              **June
                  30, 2004**
              
              **June
                  30, 2005**
              
              **June
                  30, 2004**
              
              **June
                  30, 2005**
              
              **Dec.
                  31, 2004**A
              
              
              24%
              
              
              16%
              
              
              23%
              
              
              18%
              
              
              18%
              
              
              21%B
              
              
              16%
              
              
              12%
              
              
              14%
              
              
              18%
              
              
              27%
              
              
              *C
              
              
              15%
              
              
              24%
              
              
              13%
              
              
              26%
              
              
              13%
              
              
              *D
              
              
              12%
              
              
              *
              
              
              *
              
              
              *
              
              
              12%
              
              
              *E
              
              
              *
              
              
              21%
              
              
              *
              
              
              12%
              
              
              *
              
              
              *F
              
              
              *
              
              
              *
              
              
              *
              
              
              *
              
              
              *
              
              
              11%G
              
              
              *
              
              
              12%
              
              
              *
              
              
              *
              
              
              *
              
              
              43%H
              
              
              *
              
              
              *
              
              
              *
              
              
              *
              
              
              12%
              
              
              **
                  Less than 10%
 
 The
Companyreports its net revenue by geographic area according to the destination
        to which the product was shipped. Net revenue by geographic area was as
        follows:
 
 **Three
                  Months****Ended**
                **June
                  30,**
              
              **Six
                  Months****Ended**
                **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Singapore
              45%
              
              34%
              
              46%
              
              47%China
              14%
              
              21%
              
              13%
              
              12%Taiwan
              12%
              
              15%
              
              12%
              
              12%Japan
              12%
              
              4%
              
              9%
              
              6%United
                  States
              7%
              
              7%
              
              7%
              
              8%Hong
                  Kong
              5%
              
              16%
              
              7%
              
              11%Other
              5%
              
              3%
              
              6%
              
              4%
 
 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.
 
 
 ***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 returns and allowances. The allowance is
        based
        upon historical experience, current trends and the Company’s expectations
        regarding future experience. Sales returns must be authorized by Volterra
        and
        are generally limited to instances provided for under the Company’s standard
        warranty.
 
 The
        Company has made no sales to U.S. distributors. Volterra’s sales to
        international 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 international
        distributor sales returns and allowances based on historical data and current
        business expectations and reduces revenue for estimated future returns and
        allowances through the allowance for sales returns. Sales returns from
        distributors must be authorized by the Company and are generally limited
        to
        instances provided for under the same standard warranty described
        above.
 
 8
  Costs
        of
        shipping and handling for delivery of the Company’s products that are reimbursed
        by its customers are recorded as revenue in the statement of operations.
        Shipping and handling costs are charged to cost of revenue as incurred.
 
 ***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 net income by the weighted average shares
        of
        common stock outstanding 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 warrants, computed using
        the
        treasury stock method, and conversion of convertible preferred
        stock.
 
 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:
 
 **Three
                  Months**
                **Ended** **June
                  30,**
              
              **Six
                  Months**
                **Ended****June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Numerator:Net
                  income
              
              $
              1,131
              
              $
              566
              
              $
              3,440
              
              $
              835Denominator:Weighted
                  average common shares - Basic
              
              
              25,535,390
              
              
              5,546,175
              
              
              23,469,026
              
              
              5,558,915Effect
                  of dilutive securities:Stock
                  options
              
              
              2,594,008
              
              
              2,339,271
              
              
              2,735,844
              
              
              2,106,818Convertible
                  preferred stock
              
              
              —
              
              
              13,038,133
              
              
              —
              
              
              13,038,133Convertible
                  preferred warrants
              
              
              —
              
              
              152,735
              
              
              —
              
              
              147,571Weighted
                  average common shares - Diluted
              
              
              26,129,398
              
              
              21,076,314
              
              
              26,204,870
              
              
              20,851,437Net
                  income per share — Basic
              
              $
              0.05
              
              $
              0.10
              
              $
              0.15
              
              $
              0.15Net
                  income per share — Diluted
              
              $
              0.04
              
              $
              0.03
              
              $
              0.13
              
              $
              0.04
 
 In
        the
        three months ended June 30, 2005 and 2004, stock options outstanding to purchase
        687,600 and 0 shares of the Company’s Common Stock, respectively, were excluded
        from the calculation of diluted net income per share as they had an antidilutive
        effect. The securities outstanding as of June 30, 2005 could dilute net income
        per share in the future.
 
 ***Accounting
        for Stock-Based Compensation***
 
 The
        Company applies the intrinsic value based method of accounting prescribed
        by
        Accounting Principles Board (APB) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related interpretations including Financial Accounting Standards Board (FASB)
        Interpretation (FIN) No. 44, *Accounting
        for Certain Transactions Involving Stock Compensation, an Interpretation
        of APB
        Opinion No. 25* ,
        to
        account for the Company’s fixed plan stock options. Under this method, deferred
        stock-based compensation has been recorded only if the deemed fair value
        of the
        underlying common stock exceeded the exercise price of options granted to
        employees on the date of grant. Deferred stock-based compensation expense
        is
        amortized on an accelerated basis over the vesting period of each grant using
        the method prescribed by FASB FIN 28, *Accounting
        for Stock Appreciation Rights and Other Variable Stock Option or Awards
        Plans* .
 
 Statement
        of Financial Accounting Standards (SFAS) No. 123, *Accounting
        for Stock-Based Compensation,* and
        SFAS
        No. 148, *Accounting
        for Stock-Based Compensation — Transition and Disclosure, an Amendment of FASB
        Statement No. 123* ,
        established accounting and disclosure requirements using a fair value based
        method of accounting for stock-based employee compensation plans. As permitted
        by existing accounting standards, the Company has elected to continue to
        apply
        the intrinsic value based method of accounting described above, and has adopted
        only the disclosure requirements of SFAS No. 123, as amended. The following
        table illustrates the effect on net income (loss) if the fair value based
        method
        had been used in each period:
 9
 
 **Three
                  Months****Ended**
                **June
                  30,**
              
              **Six
                  Months****Ended**
                **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  income as reported
              
              $
              1,131
              
              $
              566
              
              $
              3,440
              
              $
              835Add:
                  stock-based compensation for employee awards
                included
                  inthe
                  determination of net income, net of tax
              
              
              91
              
              
              113
              
              
              191
              
              
              207Less:
                  stock-based compensation for employee awards
                determinedunder
                  the fair-valuemethod,
                  net of tax
              
              
              (822
              )
              
              (206
              )
              
              (1,529
              )
              
              (350
              )Pro
                  forma net income
              
              $
              400
              
              $
              473
              
              $
              2,102
              
              $
              691Basic
                  net income per share:As
                  reported
              
              $
              0.05
              
              $
              0.10
              
              $
              0.15
              
              $
              0.15Pro
                  forma
              
              $
              0.02
              
              $
              0.09
              
              $
              0.09
              
              $
              0.12Diluted
                  net income per share:As
                  reported
              
              $
              0.04
              
              $
              0.03
              
              $
              0.13
              
              $
              0.04Pro
                  forma
              
              $
              0.02
              
              $
              0.02
              
              $
              0.08
              
              $
              0.03
 
 
 **2. 
        Inventory**
 
 Inventory
        as of June 30, 2005 and December 31, 2004 consisted of the
        following:
 
 **June
                  30,****2005**
              
              **December
                  31,****2004**Work-in-process
              
              $
              1,855
              
              $
              3,430Finished
                  goods
              
              
              3,414
              
              
              1,704$
              5,269
              
              $
              5,134
 
 
 **3. 
        Property and Equipment**
 
 Property
        and equipment as of June 30, 2005 and December 31, 2004 consisted of the
        following:
 
 **June
                  30,****2005**
              
              **December
                  31,****2004**Computer
                  hardware
              
              $
              1,107
              
              $
              966Computer
                  software
              
              
              2,803
              
              
              1,979Equipment
                  and furniture
              
              
              2,233
              
              
              2,107Leasehold
                  improvements
              
              
              626
              
              
              6266,769
              
              
              5,678Less
                  accumulated depreciation and amortization
              
              
              (4,523
              )
              
              (4,264
              )$
              2,246
              
              $
              1,414
 
 **4. 
        Commitments**
 
 The
        Company leases its facilities under operating lease agreements expiring between
        2005 and 2007. Rent expense for the six months ended June 30, 2005 and 2004
        was
        $248 and $239, respectively.
 
 The
        following table sets forth the Company’s contractual obligations as of June 30,
        2005 and the years in which such obligations are expected to be
        settled:
  **2005**
              
              **2006**
              
              **2007**
              
              **2008**
                **andthereafter**
              
              **Total**Future
                  minimum lease commitments
              
              $
              242
              
              $
              463
              
              $
              304
              
              $
              —
              
              $
              1,009Inventory
                  purchase commitments
              
              
              1,542
              
              
              —
              
              
              —
              
              
              —
              
              
              1,542$
              1,784
              
              $
              463
              
              $
              304
              
              $
              —
              
              $
              2,551
 
 Inventory
        purchase commitments are comprised of the estimated obligation for in-process
        silicon wafers.
 
 
 10
 
 
 **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 and scalable voltage regulator semiconductor chipsets in the
        computing, storage, networking and consumer markets. For the first six months
        of
        2005, most of our revenue was derived from sales in the computing and storage
        markets.
 
 We
        commenced operations in 1996. From 1996 to 2000, we were primarily involved
        in
        developing our technology, recruiting personnel and raising capital. We made
        our
        first commercial shipments of products in 2000 and began to recognize revenue
        in
        the first quarter of 2001. As of June 30, 2005, we had an accumulated deficit
        of
        $40.3 million. We have been profitable for the past six quarters. We generated
        net revenue of $13.2 million and net income of $1.1 million in the three
        months
        ended June 30, 2005, compared to net revenue of $9.1 million and net income
        of
        $0.6 million for the three months ended June 30, 2004.
 
 In
        reviewing our performance, we focus on the following key non-financial factors:
        customers and market penetration, product introductions and performance.
        We
        evaluate our performance as to these non-financial factors against our operating
        plans and internally developed goals. We also focus on the following key
        financial factors: net revenue, and gross margin and income from operations
        as a
        percentage of net revenue. The following table summarizes those key financial
        factors over the last five quarters:
 
 **Three
                  Months Ended****June
                  30,**
                **2005**
              
              **Mar.
                  31,**
                **2005**
              
              **Dec.
                  31,**
                **2004**
              
              **Sept.
                  30,**
                **2004**
              
              **June
                  30,**
                **2004**Net
                  revenue (in thousands)
              
              $
              13,185
              
              $
              14,631
              
              $
              14,614
              
              $
              12,562
              
              $
              9,144As
                  a percent of net revenue:Gross
                  margin
              
              
              60
              %
              
              56
              %
              
              58
              %
              
              56
              %
              
              54
              %Income
                  from operations
              
              
              9
              %
              
              17
              %
              
              18
              %
              
              12
              %
              
              6
              %
 
 Our
        business will be influenced by factors affecting the semiconductor industry
        generally and by conditions in each of the markets we serve. Because of our
        small scale relative to our markets, we believe our business will also be
        significantly influenced by company-specific factors such as our execution
        in
        design engineering, sales and operations. We expect any future changes in
        net
        revenue to be largely driven by our penetration of new customers and markets
        and
        the expansion or contraction of our market share within existing customers
        and
        markets.
 
 Our
        lengthy sales cycles make forecasting the volume and timing of orders difficult.
        The design phase of our sales cycle can take up to 12 months or longer to
        complete. The commercial introduction of systems that use our products can
        take
        an additional six to 12 months or longer to occur, if they are introduced
        at
        all. Our revenue will depend on the timing, size, speed and success of
        commercial introductions of systems that use our products, which are inherently
        difficult to estimate.
 
 The
        sales
        of our products are generally made pursuant to standard purchase orders rather
        than long-term agreements. Purchase orders are frequently revised prior to
        shipment to reflect changes in the customer’s requirements. Product deliveries
        are scheduled upon our receipt of purchase orders. Generally, these orders
        allow
        customers to reschedule delivery dates and cancel orders on relatively short
        notice. In addition, in circumstances where we have achieved our objectives
        in a
        period or when we have limited or insufficient inventory available, we may
        delay
        shipment of orders.
 
 We
        have
        experienced an increasing percentage of our net revenue coming from orders
        received and shipped within the same quarter, which we refer to as our “turns
        business,” which is inherently difficult to forecast. We calculate turns
        business as a percent of net revenue as the ratio of net revenue less beginning
        backlog for that period to net revenue making adjustment for the effect of
        sales
        return reserves or other adjustments to net revenue not included in backlog.
        Turns business grew to between 45% and 55% of net revenue in the second quarter
        of 2005 from between 25% and 35% in the second quarter of 2004. We expect
        our
        turns business in the third quarter to continue to increase and may fluctuate
        in
        the future. As our turns business increases, forecasting revenue becomes
        more
        difficult.
 
 11
  Our
        gross
        margins have historically varied significantly, and are expected to continue
        to
        vary, based on a variety of factors, including changes in the relative mix
        of
        the products we sell, the markets and geographies in which we sell, the size
        and
        nature of our customers in these markets, new product ramps, manufacturing
        volumes and yields, and inventory and overhead costs. We expect our gross
        margins to decline at least temporarily as we reduce production in order
        to
        reduce inventory levels, resulting in deteriorating manufacturing overhead
        absorption. In addition, 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 need to introduce new, lower cost products,
        increase volumes, reduce unit costs or achieve a combination of these
        objectives.
 
 While
        in
        any period there may be fluctuations in our operating expenses, we expect
        these
        expenses generally to grow in absolute dollars. Our 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. Our sales, general
        and administrative expenses are expected to grow in absolute dollars reflecting
        among other factors the higher costs of a publicly-traded company, including
        those related to compliance with the Sarbanes-Oxley Act of 2002.
 
 Our
        effective tax rate has fluctuated based on our changing assessments of the
        mix
        of income and losses between domestic and international operations. We expect
        that both this mix as well as the statutory rates we are subject to
        internationally may change over time, resulting in changes in our effective
        tax
        rate and reported income tax expense. Our deferred tax assets are fully offset
        by a valuation allowance because, based on the available objective evidence,
        management believes it is more likely than not that the net deferred tax
        assets
        will not be realizable. If and as we continue profitable operations, management
        may revise the assessment which could result in a favorable adjustment to
        reported income tax expense in the period of the change. Under the Tax Reform
        Act of 1986, the amount of benefit from net operating loss and tax credit
        carry-forwards may be limited in certain circumstances. As of June 30, 2005,
        while we have not yet determined whether such a limitation has occurred,
        management does not expect any limitation to impact the current utilization
        of
        our net operating loss carry-forwards.
 
 Our
        sales
        are concentrated with a small group of customers. In the three months ended
        June
        30, 2005, four customers each accounted for 10% or more of our net revenue,
        and
        collectively accounted for 67% of our net revenue. Of these customers, one
        is an
        original equipment manufacturer, or OEM, and three are distributors. In the
        three months ended June 30, 2004, five customers each accounted for 10% or
        more
        of our net revenue, and collectively accounted for 85% of our net revenue.
        Of
        these customers, two were OEMs, two were distributors and one was a power
        supply
        manufacturer. If we were to lose or experience a significant reduction in
        sales
        to one or more of our key customers, our operating results could be materially
        impacted. Demand for our products is influenced by demand for our customers’
        products and our customers’ management of their own inventory. Our sales to
        distributors and outsourced suppliers such as original design manufacturers,
        or
        ODMs, contract equipment manufacturers, or CEMs, and merchant power supply
        companies, are subject to higher risk because they service demand from other
        companies that is more difficult for them to forecast accurately.
 
 We
        typically sell directly through our internal sales force to customers in
        North
        America, and indirectly through distributors in other locations, though we
        do
        sell directly to some of our customers in Asia and Europe. During the second
        quarter of 2005, sales to international distributors represented 43% of net
        revenue, an increase from 41% in the second quarter of 2004. We expect the
        mix
        of business between distribution and direct sales to fluctuate over time
        as our
        product offerings and customers change. Our sales through distributors typically
        result in lower gross margins, but also result in lower selling and collections
        expenses than are associated with direct sales. As most of the systems that
        use
        our products are manufactured outside of the United States, the percentage
        of
        our net revenue generated outside the United States was 93% for both the
        three
        months ended June 30, 2005 and 2004. We report our net revenue by geographic
        areas according to the destination to which we shipped our product. To date,
        substantially all of our net revenue has been denominated in U.S. dollars
        and we
        expect to continue this practice.
 
 We
        purchase our inventory pursuant to standard purchase orders. As lead-times
        at
        our manufacturing partners can be up to three months or more, we typically
        build
        inventory based on our sales forecasts rather than backlog, subjecting us
        to
        potential inventory risk.
 
 ***Net
        Revenue.*** Net
        revenue consists primarily of sales of our power management semiconductor
        products. We have made no sales to U.S. distributors. Our sales to international
        distributors are made under agreements that do not provide for price adjustments
        after purchase and provide limited return rights. We recognize revenue upon
        shipment with a provision for estimated sales returns and
        allowances.
 
 ***Cost
        of Revenue.*** Cost of
        revenue consists primarily of silicon wafers and related costs of assembly,
        test
        and shipment of our products, and compensation and related costs of personnel
        and equipment associated with production management and quality
        assurance.
 
 ***Research
        and Development.*** Research
        and development expenses consist 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
        used for research and development. All research and development costs are
        expensed as incurred.
 
 12
  ***Selling,
        General and Administrative.*** Selling,
        general and administrative expenses consist primarily of compensation and
        related costs for employees involved in general management, sales and marketing,
        finance and information technology, as well as travel and entertainment
        expenses, professional services expenses and insurance expenses.
 
 ***Stock-Based
        Compensation.*** Stock-based compensation consists primarily of the amortization of deferred
        stock-based compensation. As of June 30, 2005, we had an aggregate of $0.2
        million of deferred stock-based compensation remaining to be amortized. We
        report employee stock-based compensation separately, rather than including
        it in
        each expense classification, as we believe this allows for more meaningful
        comparison of operating expenses between periods and more consistent comparison
        of our financial results with other companies.
 
 ***Income
        Taxes.*** Our
        effective tax rate is based on our annual effective tax rate in accordance
        with
        SFAS No. 109, *Accounting
        for Income Taxes* .
        Our
        annual effective tax rate is based on the mix of income between domestic
        and
        international operations, as well as the utilization of available net operating
        loss carry-forwards to offset taxable income in the U.S.
 
 
 **Critical
        Accounting Policies**
 
 Management
        believes there have been no significant changes to our critical accounting
        policies during the six months ended June 30, 2005 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, filed with
        the
        SEC on March 1, 2005.
 
 
 **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**
                **June
                  30,**
              
              **Six
                  Months EndedJune 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  revenue
              
              
              100
              %
              
              100
              %
              
              100
              %
              
              100
              %Cost
                  of revenue
              
              
              40
              
              
              46
              
              
              42
              
              
              47Gross
                  margin
              
              
              60
              
              
              54
              
              
              58
              
              
              53Operating
                  expenses:Research
                  and development
              
              
              31
              
              
              33
              
              
              27
              
              
              33Selling,
                  general and administrative
              
              
              19
              
              
              13
              
              
              17
              
              
              13Stock-based
                  compensation
              
              
              1
              
              
              2
              
              
              1
              
              
              2Total
                  operating expenses
              
              
              51
              
              
              48
              
              
              45
              
              
              48Income
                  from operations
              
              
              9
              
              
              6
              
              
              13
              
              
              5Interest
                  and other income, net
              
              
              2
              
              
              -
              
              
              2
              
              
              -Income
                  before income taxes
              
              
              11
              
              
              6
              
              
              15
              
              
              5Income
                  tax expense
              
              
              2
              
              
              -
              
              
              3
              
              
              -Net
                  income
              
              
              9
              %
              
              6
              %
              
              12
              %
              
              5
              %
   **Comparison
        of Quarter Ended June 30, 2005 to Quarter Ended June 30,
        2004**
 
 ***Net
        Revenue.*** Net
        revenue was $13.2 million in the three months ended June 30, 2005 and $9.1
        million in the three months ended June 30, 2004, an increase of 44%. Unit
        volume
        of shipments increased 49% in the second quarter of 2005 as compared to the
        second quarter of 2004, primarily due to higher sales in the computing and
        storage markets.
 
 ***Cost
        of Revenue and Gross Margin.*** Cost of
        revenue was $5.3 million for the three months ended June 30, 2005 and $4.2
        million for the three months ended June 30, 2004, an increase of 26%. Cost
        of
        revenue increased primarily due to the increased volume of shipments, partially
        offset by lower average costs per unit. Gross margin was $7.8 million for
        the
        three months ended June 30, 2005 as compared to $4.9 million for the three
        months ended June 30, 2004, an increase of 60%. Gross margin as a percent
        of net
        revenue increased to 60% for the three months ended June 30, 2005 as compared
        to
        54% for the three months ended June 30, 2004. The increase in gross margin
        was
        due primarily to changing sales mix resulting from a lower proportion of
        sales
        of our first generation products, which had lower gross margin than our newer
        products.
 
 ***Research
        and Development.*** Research
        and development expenses were $4.0 million for the three months ended June
        30,
        2005 as compared to $3.0 million for the three months ended June 30, 2004,
        an
        increase of 34%. The increase was primarily associated with an increase in
        product development and prototype expense of $0.6 million and an increase
        in
        payroll expenses of $0.4 million due to additional headcount.
 
 13
  ***Selling,
        General and Administrative.*** Selling,
        general and administrative expenses were $2.5 million for the three months
        ended
        June 30, 2005 as compared to $1.2 million for the three months ended June
        30,
        2004, an increase of 114%. The increase was primarily associated with increases
        in professional services expenses of $0.6 million and finance expenses of
        $0.2
        million, associated with being a publicly traded company, and an increase
        in
        payroll expenses of $0.3 million due to additional headcount.
 
 ***Stock-based
        Compensation.*** Stock-based compensation expense was $0.1 million for the three months ended
        June 30, 2005 and $0.2 million for the three months ended June 30, 2004,
        a
        decrease of 18%. In 2004, we granted options that were considered compensatory
        because the fair market value of our stock determined for financial reporting
        purposes was greater than the fair value determined by the board of directors
        on
        the date of grant of the options.
 
 ***Income
        Tax Expense.*** Income
        tax expense was $0.3 million for the three months ended June 30, 2005 and
        $28,000 for the three months ended June 30, 2004. Income tax expense in 2005
        is
        based on our estimated annual effective tax rate of 17%, compared to an annual
        effective tax rate of 4% in 2004. In 2005 and 2004, our effective tax rate
        was
        significantly less than statutory rates because we utilized net operating
        loss
        carry-forwards, from which no previous benefit had been recognized to offset
        taxable income in the U.S.
 
 
 **Comparison
        of Six Months Ended June 30, 2005 to Six Months Ended June 30,
        2004**
 
 ***Net
        Revenue.*** Net
        revenue was $27.8 million in the six months ended June 30, 2005 and $16.8
        million in the six months ended June 30, 2004, an increase of 66%. Unit volume
        of shipments increased 75% in the first half of 2005 as compared to the first
        half of 2004, primarily due to higher sales in the computing and storage
        markets.
 
 ***Cost
        of Revenue and Gross Margin.*** Cost of
        revenue was $11.7 million for the six months ended June 30, 2005 and $7.9
        million for the six months ended June 30, 2004, an increase of 49%. Cost
        of
        revenue increased primarily due to the increased volume of shipments, partially
        offset by lower average costs per unit. Gross margin was $16.1 million for
        the
        six months ended June 30, 2005 as compared to $8.9 million for the six months
        ended June 30, 2004, an increase of 81%. Gross margin as a percent of net
        revenue increased to 58% for the six months ended June 30, 2005 as compared
        to
        53% for the six months ended June 30, 2004. The increase in gross margin
        was due
        primarily to changing sales mix resulting from a lower proportion of sales
        of
        our first generation products, which had lower gross margin than our newer
        products.
 
 ***Research
        and Development.*** Research
        and development expenses were $7.6 million for the six months ended June
        30,
        2005 as compared to $5.6 million for the six months ended June 30, 2004,
        an
        increase of 37%. The increase was primarily associated with an increase in
        product development and prototype expenses of $1.0 million and an increase
        in
        payroll expenses of $0.7 million due to additional headcount.
 
 ***Selling,
        General and Administrative.*** Selling,
        general and administrative expenses were $4.6 million for the six months
        ended
        June 30, 2005 as compared to $2.2 million for the six months ended June 30,
        2004, an increase of 107%. The increase was primarily associated with increases
        in professional services expenses of $1.0 million and finance expenses of
        $0.5
        million, associated with being a publicly traded company, and an increase
        in
        payroll expenses of $0.5 million due to additional headcount.
 
 ***Stock-based
        Compensation.*** Stock-based compensation expense was $0.3 million for both the six months
        ended
        June 30, 2005 and 2004.
 
 ***Income
        Tax Expense.*** Income
        tax expense was $0.7 million for the six months ended June 30, 2005 and $41,000
        for the six months ended June 30, 2004.
   **Liquidity
        and Capital Resources**
 
 As
        of
        June 30, 2005, we had working capital of $52.5 million, including cash and
        cash
        equivalents of $26.0 million, compared to working capital of $48.8
        million,
        including cash and cash equivalents of $24.9 million, as of December 31,
        2004.
        Since our inception, we have financed our operations primarily through private
        sales of equity securities totaling $60.8 million. We have also funded
        operations with debt financing under a bank credit facility and with capital
        leases. In August 2004, we received total proceeds of $31.9 million, net
        of
        related issuance fees and estimated offering costs, from our initial public
        offering. We believe that our current cash, cash equivalents and investments
        as
        well as cash flows from operations will be sufficient to continue our operations
        and meet our capital needs for the foreseeable future.
 
 Net
        cash
        of $1.2 million was provided by operating activities in the six months
        ended June 30, 2005 compared to net cash provided by operating activities
        of
        $0.4 million in the six months ended June 30, 2004. The increase in cash
        provided by operating activities is primarily due to an increase in net income
        of $3.4 million and a $2.1 million increase in accounts payable, partially
        offset by an increase in accounts receivable of $5.5 million. We may offer
        extended payment terms to customers in the future and this may lead to
        incremental increases in our accounts receivable balances.
 
 14
  Our
        investing activities used net cash in the amounts of $0.9 million and $0.5
        million for the six months ended June 30, 2005 and 2004, respectively. In
        both
        periods, these amounts resulted primarily from the acquisition of property
        and
        equipment. In 2005, we have been and expect to continue to increase our capital
        expenditures as we upgrade our information systems. We expect to expend less
        than $5 million on these upgrades in 2005 and to fund these increases from
        existing capital resources and operating cash flows.
 
 Our
        financing activities provided $0.8 million and $0.5 million, for the six
        months
        ended June 30, 2005 and 2004, respectively. During the six months ended June
        30,
        2005, we received net proceeds of $0.8 million from the issuance of common
        stock
        in connection with employee exercises of stock options and the offering under
        our 2004 Employee Stock Purchase Plan. During the six months ended June 30,
        2004, the net cash provided by financing activities was primarily due to
        $0.9
        million from the issuance of common stock and net payments of $0.4 million
        under
        our line of credit.
 
 In
        the
        first six months of 2004, we used our bank line of credit to generate $3.4
        million of debt financing. Amounts due were repaid in full in 2004. This
        line of
        credit expired on June 24, 2005 and was not renewed by us.
 
 
 **Contractual
        Obligations**
 
 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 3 months
        or
        more in advance of required delivery dates, and we are obligated to pay for
        the
        materials in accordance with their payment terms, which typically require
        payment within three months.
 
 The
        following table sets forth our contractual obligations as of June 30, 2005
        (in
        thousands):
  **2005**
              
              **2006**
              
              **2007**
              
              **2008**
                **andthereafter**
              
              **Total**Future
                  minimum lease commitments
              
              $
              242
              
              $
              463
              
              $
              304
              
              $
              —
              
              $
              1,009Inventory
                  purchase commitments
              
              
              1,542
              
              
              —
              
              
              —
              
              
              —
              
              
              1,542$
              1,784
              
              $
              463
              
              $
              304
              
              $
              —
              
              $
              2,551
 
 Inventory
        purchase commitments are comprised of the estimated obligation for in-process
        silicon wafers.
 
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board, or FASB, issued
        Statement of Financial Accounting Standards 123R (SFAS No. 123R), *Share-Based
        Payment* ,
        effective beginning after June 15, 2005. SFAS No. 123R supersedes APB Opinion
        No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        will require companies to recognize compensation expense, using a fair-value
        based method, for costs related to share-based payments including stock options
        and stock issued under employee stock purchase plans. On April 14, 2005,
        SFAS
        No. 123R was amended to allow companies to adopt the standard at the beginning
        of the fiscal year that begins after June 15, 2005. We will be required to
        implement SFAS No. 123R beginning January 1, 2006. Our adoption will be applied
        on a modified prospective basis and measured and recognized on January 1,
        2006.
        We are currently evaluating option valuation methodologies and assumptions
        in
        light of SFAS No. 123R, and therefore cannot estimate the impact of our adoption
        at this time. These methodologies and assumptions may be different from those
        currently employed by us in applying SFAS No. 123 as outlined in the “Accounting
        for Stock-Based Compensation” section of our Notes to Condensed Consolidated
        Financial Statements. We expect that our adoption of SFAS No. 123R will have
        a
        material adverse impact on our financial statements and results of
        operations.
 
 In
        November 2004, the FASB issued SFAS No. 151, *Inventory Costs* , *an amendment of ARB No. 43, Chapter 4.* This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory
        Pricing,” to clarify the accounting for abnormal amounts of idle facility
        expense, freight, handling costs, and wasted material (spoilage). Paragraph
        5 of
        ARB No. 43, Chapter 4, previously stated that “...under some circumstances, items
        such as idle facility expense, excessive spoilage, double freight, and
        rehandling costs may be so abnormal as to require treatment as current period
        charges....” This Statement requires that those items be recognized as current
        period charges regardless of whether they meet the criterion of “so abnormal.”
        In addition, this Statement requires that allocation of fixed production
        overheads to the costs of conversion be based on the normal capacity of the
        production facilities. The provisions of this Statement are effective for
        inventory costs incurred during fiscal years beginning after June 15,
        2005.
        The adoption of this Statement is not expected to have a material effect
        on our
        consolidated financial position, results of operations or cash
        flows.
 
 15
 
 **Factors
        that May Affect Future Operating Results**
 
 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.
 
 **We
        are an early stage semiconductor company with a limited operating history,
        which
        makes it difficult to evaluate our current business and future prospects
        and may
        increase the risk of your investment.**
 
 We
        have a limited operating history. While our commercial operations began in
        August 1996, our first products were not shipped until the first quarter
        of
        2000 and most of our current products have been sold in significant quantities
        for only a short time. You should consider our business and prospects in
        light
        of the risks and difficulties we encounter as an early stage company. These
        risks and difficulties include the following:
 
 ·
              we
                  have limited historical financial data from which to predict our
                  future
                  revenue and operating results;
 
 ·
              we
                  are subject to the highly cyclical nature of, and downturns in,
                  the
                  semiconductor industry;
 
 ·
              we
                  depend on a small number of customers for substantially all of
                  our net
                  revenue;
 
 ·
              we
                  have a limited number of products;
                  and
 
 ·
              we
                  may face difficulties in managing growth in personnel and
                  operations.
 
 We
        may
        not be able to successfully address any of these risks or others, including
        the
        other risks related to our business and industry described below. Failure
        to
        adequately do so could seriously harm our business and cause our operating
        results to suffer.
 
 **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.
        As a result, it is difficult to predict our future revenue and operating
        results. 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:
 
 ·
              changes
                  in orders received and shipped during the quarter, which we refer
                  to as
                  our “turns business”, which is difficult to estimate and represents an
                  increasing percentage of our net
                  revenue;
 
 ·
              changes
                  in the level of our expenses, including the cost of materials used
                  to
                  manufacture our products;
 
 ·
              the
                  cyclical nature of the semiconductor
                  industry;
 
 ·
              the
                  loss of one or more key customers, or a significant reduction in
                  sales to
                  one or more key customers;
 
 ·
              the
                  loss of one or more key distributors, or a significant reduction
                  in orders
                  from one or more key distributors;
 
 ·
              demand
                  for our products or the electronic systems into which our products
                  are
                  incorporated;
 
 ·
              our
                  customers’ and distributors’ management of the inventory that they
                  hold;
 
 ·
              our
                  ability to develop new products or new generations and versions
                  of our
                  existing products that achieve market acceptance in a timely
                  manner;
 
 ·
              the
                  timing of introductions of competing products or
                  technologies;
 
 ·
              our
                  ability to adequately support our future
                  growth;
 
 ·
              disputes
                  regarding intellectual property
                  rights;
 
 ·
              litigation
                  involving us or our products;
 
 ·
              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 manufacturing subcontractors to obtain an adequate
                  supply
                  of the raw materials used in the manufacture of our products on
                  a timely
                  and cost-effective basis;
  16
  ·
              changes
                  in the prices of our products or the electronic systems into which
                  our
                  products are incorporated;
 
 ·
              our
                  ability to fulfill orders for our products in a timely manner,
                  or at
                  all;
 
 ·
              customers’
                  failure to pay us on a timely
                  basis;
 
 ·
              varying
                  order patterns in the markets in which we sell our
                  products;
 
 ·
              changes
                  in foreign currency rates; and
 
 ·
              changes
                  in accounting principles or policies, including an election by
                  us, or the
                  requirement, to treat stock option grants as an operating
                  expense.
 
 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.
 
 **We
        have a history of losses, have only recently experienced revenue growth and
        become profitable and may not maintain profitability on a quarterly or annual
        basis.**
 
 We
        experienced profitability for the first time in 2004. We incurred net losses
        of
        approximately $9.2 million and $4.0 million in 2002 and 2003,
        respectively, and as of June 30, 2005, we had an accumulated deficit
        of
        $40.3 million. We have recently experienced revenue growth. Specifically,
        our annual net revenue increased 60% from $15.7 million in 2002 to
        $25.1 million in 2003. Net revenue increased 75% from $25.1 million
        in
        2003 to $43.9 million in 2004. Net revenue increased 66% from $16.8
        million
        for the first half of 2004 to $27.8 million for the first half of
        2005.
        However, we do not expect to maintain similar revenue growth rates in future
        periods. We may also incur losses in future periods. 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. We may not maintain profitability on a quarterly or annual
        basis.
 
 **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
        power supply manufacturers, either directly through our internal sales force
        or
        indirectly through distributors and outsourced suppliers. In the six months
        ended June 30, 2005, three customers each accounted for more than 10% of
        our net
        revenue and collectively accounted for 50% of our net revenue. In the six
        months
        ended June 30, 2004, four customers each accounted for more than 10% of our
        net
        revenue and collectively accounted for 74% of our net revenue. We expect
        sales
        to a small number of customers to continue to account for a substantial portion
        of our net revenue for the foreseeable future. Consolidation among our customers
        may increase our customer concentration. The loss of any of our major customers
        would have a substantial negative impact on our business. In addition, our
        operating results will be adversely affected if the electronic systems into
        which our relatively few customers incorporate our products are not commercially
        successful or if the development or commercial introduction of such electronic
        systems is delayed or fails to occur.
 
 **We
        rely primarily on a small number of distributors to market and distribute
        our
        products, and if we fail to maintain or expand these relationships, our net
        revenue would likely decline.**
 
 While
        we
        sell some of our products directly to certain of our customers, many purchases
        of our products are made through a concentrated group of distributors. Sales
        to
        these distributors account for a significant portion of our net revenue.
        Our
        sales to distributors accounted for 34% of our net revenue for 2004 and 40%
        of
        our net revenue for the six months ended June 30, 2005.
  None
        of
        our distributors are required to purchase a specified minimum level of products
        from us. Our sales to distributors are made pursuant to standard purchase
        orders
        rather than long-term contracts and 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 accurately and timely report to us their sales
        of
        our products. Our inability to obtain accurate and timely reports from our
        distributors would limit our visibility into demand for our products. We
        also
        rely on our distributors to provide certain engineering support 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.
 
 17
  We
        need
        to maintain and expand our relationships with distributors, develop additional
        channels for the distribution and sale of our products and effectively manage
        these relationships. If we fail to do so, 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, our business would be harmed.
 
 **We
        depend on a limited number of 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
        2004
        and the first six months of 2005, most of our net revenue was derived from
        the
        sale of our products in the high-performance computing and storage markets.
        If
        the demand for our products in these markets declines, we would need to attempt
        to diversify our markets and our inability to do so in a timely and
        cost-effective manner would harm our business.
 
 In
        addition, we expect our business in these markets to be subject to varying
        order
        patterns. In particular, our operating results have been negatively impacted
        during the first quarter of each year due to the lunar New Year holidays
        in Asia
        during late January or early February, during which time many of our customers,
        manufacturers and subcontractors cease or significantly reduce their operations.
        In the future, we may address higher-volume applications across multiple
        markets
        such as desktop and notebook computers, digital cameras, digital televisions,
        graphics cards, hard disk drives, home game stations, mobile phones, optical
        drives, printers, set top boxes, wireless local area network cards and wireless
        personal digital assistants. In these higher-volume markets, 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 to address changes in demand, our operating
        results would be harmed.
 
 **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 and scalable voltage regulator semiconductor chipsets,
        and we expect to continue to derive substantially all of our net revenue
        from
        these products for the foreseeable future. If demand for these products declines
        or does not grow, we may be forced to diversify our product offerings. Factors
        that could cause the demand for our products to decline include downturns
        in the
        semiconductor industry, 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. Our
        inability to diversify our products in a timely and cost-effective manner
        would
        harm our business 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 requirements. These factors could render our existing
        products obsolete. Accordingly, our ability to compete in the future will
        depend
        in large part on our ability to identify and develop new products or new
        generations and versions of our existing products that achieve market acceptance
        on a timely and cost-effective basis, and to respond to changing requirements.
        If we are unable to do so, our business, operating results and financial
        condition could be negatively affected.
 
 The
        successful development and market acceptance of our products depend on a
        number
        of factors, including:
 
 ·
              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;
 
 ·
              successful
                  development of relationships with existing and potential new
                  customers;
 
 ·
              successful
                  development of relationships with key developers of advanced digital
                  semiconductors; and
 
 ·
              changes
                  in technology, industry standards or consumer
                  preferences.
  18
  Products
        we have recently developed and which we are currently developing may not
        achieve
        market acceptance. 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
        have experienced, and may in the future experience, delays in the development
        and introduction of our products, which may harm our business and operating
        results.**
 
 The
        development of our products is highly complex, costly and inherently risky.
        We
        have experienced, and may in the future experience, delays in the development
        and introduction of new products or new generations and versions of our existing
        products. While we have implemented procedures designed to minimize these
        delays, we cannot assure you that these procedures will be effective or that
        delays may not occur in the future. Any delay in the introduction of new
        products or new generations or versions of our existing products could 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 system designers do not design our products
        into their electronic systems.**
 
 We
        devote
        significant time and resources in working with system designers 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 system
        designers. If system designers do not design our products into their electronic
        systems, our business would be materially and adversely affected.
 
 We
        often
        incur significant expenditures in the development of a new product without
        any
        assurance that system designers will select our product for use in their
        electronic systems. If we incur such expenditures and fail to be selected,
        our
        operating results will be adversely affected. Furthermore, even if system
        designers 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 the following:
 
 ·
              it
                  can take up to 12 months or longer from the time our products
                  are
                  selected to complete the design
                  process;
 
 ·
              it
                  can take an additional six to 12 months or longer to complete
                  commercial introduction of the electronic systems that use our
                  products,
                  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;
 
 ·
              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 are unable to accurately forecast the volume and timing of our
        orders
        and revenue. In addition, incurring expenses prior to generating revenue
        may
        cause our operating results to fluctuate significantly from period to
        period.
 
 **Our
        products are highly complex and may require modifications to resolve undetected
        errors or failures and meet our customers’ specifications, which could lead to
        an increase in our costs, a loss of customers, a delay in market acceptance
        of
        our products or product liability claims.**
  Our
        power management products are highly complex and may contain undetected errors
        or failures when first introduced or as new revisions are released. If we
        deliver products with errors or defects, we may incur additional development,
        repair or replacement costs, and our credibility and the market acceptance
        of
        our products could be harmed. In the past, we have incurred costs in connection
        with the replacement of products due to a manufacturing defect in our products.
        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. 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.
 
 19
  **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. 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:
 
 ·
              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 Analog Devices, International
        Rectifier, Intersil, Linear Technology, Maxim Integrated Products, Semtech
        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.
 
 We
        expect
        our competitors to continue to improve the performance of their current
        products, reduce their prices and introduce new or enhanced technologies
        that
        may offer greater performance and improved pricing, any of which could cause
        our
        products to become obsolete or uncompetitive and harm our operating
        results.
 
 **Our
        dependence on third-party semiconductor manufacturers reduces our control
        over
        the manufacture of our products, 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 Chartered Semiconductor Corporation,
        Samsung Electronics, 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:
 
 ·
              inability
                  to increase production and achieve acceptable yields on a timely
                  basis;
  ·
                reduced
                    control over delivery schedule 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;
  20
 ·
              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, because we work with foundries to make specified modifications
        to
        their standard process technologies, transitioning the manufacturing of our
        products to other foundries can 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.
 
 **If
        our foundries fail to achieve satisfactory yields or quality, our revenue
        and
        operating results could decrease, and our relationships with our customers
        and
        our reputation may be harmed.**
 
 The
        manufacturing process of our products is technically challenging. Minor
        deviations in the manufacturing process can cause substantial decreases in
        yields, and in some cases, cause production to be suspended. When our products
        are qualified with our foundries, minimum acceptable yields are established.
        If
        actual yields are above the minimum, we incur the cost of the silicon wafers.
        Manufacturing yields for our new products tend to be lower initially and
        increase as we achieve full production. Poor yields from our foundries or
        defects, integration issues or other performance problems in our products
        could
        cause us significant customer relations and business reputation problems,
        resulting in potential loss of revenue and lower profitability.
 
 **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, Advanced Semiconductor
        Engineering and STATSCHIPac, 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. 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
        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. In particular, on February 27, 2005, a former employee was arrested
        by federal agents on a criminal complaint filed in the United States District
        Court in the Northern District of California. The complaint charges the former
        employee with illegally emailing to a semiconductor company in Taiwan
        proprietary data sheets containing product specifications and functionality
        regarding several of the Company’s products. As of June 30, 2005, we had 32
        issued patents and 14 patent applications pending in the United States. These
        U.S. patents have expiration dates ranging from December 2017 to February
        2025. 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. Our
        failure to effectively protect our intellectual property could harm our
        business.
 
 **Assertions
        by third parties of infringement by us 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 do one or more of the following:
  21
  ·
              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.
 
 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.
        We
        have agreed to indemnify customers for certain claims of infringement arising
        out of the use of our products.
 
 **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.**
 
 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.
 
 **Our
        internal controls over financial reporting may not be effective and our
        independent auditors may not attest as to their effectiveness, which could
        have
        a significant and adverse effect on our business.**
 
 We
        are
        evaluating our internal controls over financial reporting in order to allow
        management to report on, and our independent auditors to audit 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. We are currently performing the system
        and
        process evaluation and testing required in an effort to comply with the
        management assessment and auditor attestation requirements of Section 404,
        which
        will initially apply to us as of December 31, 2005. In the course of our
        ongoing
        Section 404 evaluation, we have identified areas of internal controls that
        may
        need improvement and have instituted remediation efforts where necessary.
        Currently, none of our identified areas that need improvement have been
        categorized as material weaknesses or significant deficiencies. However,
        we are
        still in the evaluation process, and we may identify conditions that may
        result
        in significant deficiencies or material weaknesses in the future.
 
 **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.
 
 **Any
        disruption to our operations or the operations of our foundries or assembly
        and
        test subcontractors resulting from earthquakes, droughts or other natural
        disasters or public health issues could significantly delay the production
        or
        shipment of our products.**
  Our
        principal offices are located in California. In addition, we rely on foundries
        in Japan, Singapore, South Korea and Taiwan, and assembly and test
        subcontractors in Singapore, South Korea, the Philippines and Taiwan. The
        risk
        of an earthquake in these Pacific Rim locations is significant. The occurrence
        of an earthquake, drought 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 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.
 
 22
  **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.
 
 **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, in some cases we 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
        primarily sell our products to distributors and not directly to system
        designers, 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. Because demand for our products
        may not
        materialize, manufacturing based on forecasts subjects us to risks of high
        inventory carrying costs and obsolescence and may increase our costs. If
        we
        overestimate customer demand for our products, if product changes occur or
        if
        purchase orders are cancelled or shipments delayed, we may end up with excess
        inventory that we cannot sell, which could result in the loss of anticipated
        revenue without allowing us sufficient time to reduce our inventory and
        operating expenses. Similarly, if we underestimate demand, we may not have
        sufficient product inventory and may lose market share and damage customer
        relationships, which also could harm our business.
 
 **We
        have significant international activities and customers, and plan to continue
        such efforts, which subjects us to additional business risks including increased
        logistical complexity, political instability and currency
        fluctuations.**
 
 In
        2004
        and the first six months of 2005, 92% and 93%, respectively, of our net revenue
        was attributable to customers located outside of the United States, primarily
        in
        Asia, and we anticipate that a significant portion of our future revenue
        will be
        generated by sales to customers in Asia. We have engineering, sales and
        operations personnel in Taiwan and Singapore. 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:
 
 ·
              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;
 
 ·
              difficulty
                  in hiring qualified management, technical sales and applications
                  engineers; and
 
 ·
              less
                  effective protection of intellectual property than is afforded
                  to us in
                  the United States.
 
 Some
        of
        our customers and suppliers are subject to similar risks. Substantially all
        sales to international customers and purchases of production materials and
        manufacturing services from international suppliers in 2004 and the first
        six
        months of 2005 were denominated in U.S. dollars. 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.
 
 Our
        inability to overcome these risks could adversely affect our foreign operations,
        and the inability of some of our customers and suppliers, to overcome similar
        risks could adversely affect such customers and suppliers, either of which
        could
        harm our business and operating results.
 
 23
  **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 lose 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. 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 would be free to work with a competitor. We do not
        have
“key person” life insurance policies covering any of our employees.
        Additionally, there is 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.
 
 **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 significantly increased 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. 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 and adversely affected.
 
 **We
        may need to raise additional capital, which might not be available or which,
        if
        available, may be on terms that are not favorable to us.**
 
 We
        believe our existing cash balances and cash expected to be generated from
        our
        operating activities will be sufficient to meet our working capital, capital
        expenditures and other cash needs for at least the next 12 months.
        In the
        future, we may need to raise additional funds, and we cannot be certain that
        we
        will be able to obtain additional financing on favorable terms, if at all.
        If we
        issue equity securities to raise additional funds, the ownership percentage
        of
        our stockholders would be reduced, and the new equity securities may have
        rights, preferences or privileges senior to those of existing holders of
        our
        common stock. If we borrow money, we may incur significant interest charges,
        which could harm our profitability. Holders of debt would also have rights,
        preferences or privileges senior to those of existing holders of our common
        stock. If we cannot raise needed funds on acceptable terms, we may not be
        able
        to develop or enhance our products, take advantage of future opportunities
        or
        respond to competitive pressures or unanticipated requirements, which could
        seriously harm our business, operating results and financial
        condition.
 
 **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
        and adversely affect our business, operating and financial results,
        including:
 
 ·
              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.
 
 24
  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,
        in-process research and development charges, 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.
 
 **Our
        stock price will fluctuate and may be volatile, which could result in
        substantial losses for investors and significant costs related to
        litigation.**
 
 Investors
        may be unable to resell their shares at or above the purchase price and this
        could result in substantial losses for those investors. The market price
        of our
        common stock may fluctuate significantly in response to a number of factors,
        some of which are beyond our control. These factors include:
 
 ·
              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
 
 ·
              additions
                  or departures of key personnel.
 
 The
        stock
        market in general, and the Nasdaq National Market in particular, have
        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. Technology companies have experienced stock price volatility
        that is greater than that experienced by many other industries in recent
        years
        and as a result have been subject to a greater number of securities class
        action
        claims. 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.
 
 **If
        securities or industry analysts do not publish research or reports about
        our
        business, or publish negative reports about our business, our stock price
        and
        trading volume could decline.**
 
 The
        trading market for our common stock will depend on the research and reports
        that
        securities or industry analysts publish about us or our business. We do not
        have
        any control over these analysts. If one or more of the analysts who cover
        us
        downgrade our stock, our stock price would likely decline. If one or more
        of
        these analysts cease coverage of our company or fail to regularly publish
        reports on us, we could lose visibility in the financial markets, which could
        cause our stock price or trading volume to decline.
 
 **Our
        principal stockholders have significant voting power and may influence actions
        that may not be in the best interests of our other
        stockholders.**
 
 We
        believe that our executive officers, directors and principal stockholders,
        in
        the aggregate, beneficially own approximately 29% of our outstanding common
        stock as of July 22, 2005. As a result, these persons, 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.
 
 25
  **Being
        a public company will increase our expenses and administrative
        burden.**
 
 We
        completed our initial public offering in August 2004. As a public
        company,
        we will incur significant legal, accounting and other expenses that we did
        not
        incur as a private company. In addition, our administrative staff will be
        required to perform additional tasks. For example, in 2004, we created or
        revised the roles and duties of our board committees, adopted additional
        internal controls and disclosure controls and procedures, retained a transfer
        agent and a financial printer and adopted an insider trading policy, and
        we are
        subject to the internal and external costs of preparing and distributing
        periodic public reports in compliance with our obligations under the securities
        laws.
 
 In
        addition, changing laws, regulations and standards relating to corporate
        governance and public disclosure, including the Sarbanes-Oxley Act of 2002
        and
        related regulations implemented by the Securities and Exchange Commission
        and
        the National Association of Securities Dealers, are creating uncertainty
        for
        public companies, increasing legal and financial compliance costs and making
        some activities more time consuming. We are currently evaluating and monitoring
        developments with respect to new and proposed rules and we believe we will
        incur
        additional costs of $1 to $2 million in 2005 and we may incur additional
        costs
        in the future. These laws, regulations and standards are subject to varying
        interpretations, in many cases due to their lack of specificity, and, as
        a
        result, their application in practice may evolve over time as new guidance
        is
        provided by regulatory and governing bodies. This could result in continuing
        uncertainty regarding compliance matters and higher costs necessitated by
        ongoing revisions to disclosure and governance practices. We intend to invest
        resources to comply with evolving laws, regulations and standards, and this
        investment may result in increased general and administrative expenses and
        a
        diversion of management’s time and attention from revenue-generating activities
        to compliance activities. If our efforts to comply with new laws, regulations
        and standards differ from the activities intended by regulatory or governing
        bodies due to ambiguities related to practice, regulatory authorities may
        initiate legal proceedings against us and our business may be harmed. These
        factors could also make it more difficult for us to attract and retain qualified
        members of our board of directors, particularly to serve on our audit committee,
        and qualified executive officers.
 
 **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 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.
 
 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.
 
 **New
        accounting pronouncements or regulatory rulings may impact our future financial
        position and results of operations.**
 
 26
  New
        accounting pronouncements or regulatory rulings may have an impact on our
        future
        financial position and results of operations. In particular, On April 14,
        2005,
        the Securities and Exchange Commission announced the adoption of a new rule
        that
        amends the compliance dates for Statement of Financial Accounting Standards
        No.
        123R (SFAS No. 123R), *Share
        Based Payment* .
        Under
        SFAS No. 123R, most public companies would have been required to adopt the
        standard as of the beginning of the first interim or annual period that begins
        after June 15, 2005. The Commission’s new rule allows companies to adopt SFAS
        No. 123R at the beginning of the fiscal year that begins after June 15, 2005.
        SFAS No. 123R will require companies to recognize compensation expense, using
        a
        fair value-based method, for costs related to share-based payments including
        stock options and employee stock purchase plans . We will be required to
        implement the standard starting January 1, 2006. The cumulative effect of
        adoption, if any, applied on a modified prospective basis, would be measured
        and
        recognized on January 1, 2006. The adoption of SFAS No. 123R to, and other
        future accounting pronouncements or regulatory rulings may, materially impact
        our results of operations.
 
 
 **Item 3. 
        Quantitative and Qualitative Disclosures About Market Risk**
  The
        primary objective of our investment activities is to preserve principal while
        maximizing income without significantly increasing risk. Some of the securities
        in which we invest may be subject to market risk. This means that a change
        in
        prevailing interest rates may cause the market value of the investment to
        fluctuate. To minimize this risk, we may maintain our portfolio of cash
        equivalents and short-term investments in a variety of securities, including
        commercial paper, money market funds, debt securities and certificates of
        deposit. The risk associated with fluctuating interest rates is limited to
        our
        investment portfolio and we do not believe that a 10% change in interest
        rates
        would have a significant impact on our interest income. As of June 30, 2005,
        all
        of our short-term investments were government agency securities and our cash
        equivalents were held in checking accounts, money market accounts and government
        agency securities.
  
 **Item 4. 
        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. Based on their evaluation, our certifying officers
        concluded that these disclosure controls and procedures are effective in
        providing reasonable assurance that the information required to be disclosed
        by
        us in our periodic reports filed with the Securities and Exchange Commission
        (“SEC”) is recorded, processed, summarized and reported within the time periods
        specified by the SEC’s rules and SEC reports.
 
 We
        believe that a controls system, no matter how well designed and operated,
        is
        based in part upon certain assumptions about the likelihood of future events,
        and therefore 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 a company have been detected.
 
 In
        addition, we have reviewed our internal controls over financial reporting
        and
        have made no changes during the quarter ended June 30, 2005, 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**
 
 We
        are
        not currently involved in any material pending legal proceedings. However,
        from
        time to time we may be subject to legal proceedings and claims in the ordinary
        course of business.
  
 **Item 2. 
        Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 (b) On
        July 28, 2004, our registration statement on Form S-1 (Registration
        No.
        333-115614) was declared effective for our initial public offering. As of
        July
        22, 2005, we had invested the $31.9 million in net proceeds from the offering
        in
        government agency securities. We intend to use these proceeds for general
        corporate purposes, including working capital, research and development,
        general
        and administrative expenses and capital expenditures. We may also use a portion
        of the net proceeds to fund possible investments in, or acquisitions of,
        complementary businesses, products or technologies or in establishing joint
        ventures, although none is currently contemplated.
 
 27
  **Item 4. 
        Submission of Matters to a Vote of Security Holders**
 
 The
        2005
        Annual Meeting of Stockholders of Volterra Semiconductor Corporation was
        held on
        May 18, 2005. Proxies for the meeting were solicited by our Board of Directors
        pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended,
        and there was no solicitation in opposition to the Board’s solicitations. The
        final votes on the proposals presented at the meeting were recorded as follows:
 
 Proposal
        1:
 
 Edward
        Ross and Anthony Stratakos were elected as directors to hold office until
        the
        2008 Annual Meeting of Stockholders by the following vote:
  **Nominee**
              
              **For**
              
              **Withheld**Edward
                  Ross
              
              
              16,765,214
              
              
              354,995Anthony
                  Stratakos
              
              
              17,066,583
              
              
              53,626
 
 Proposal
        2:
 
 The
        selection by the Audit Committee of our Board of Directors of KPMG LLP as
        our
        independent registered public accounting firm for the fiscal year ending
        December 31, 2005 was ratified by the following vote:
 
 **For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  Non-Votes**16,176,118
              
              
              931,873
              
              
              12,218
              
              
              0
 
 
 **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.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 3.4 to Volterra Semiconductor Corporation’s
                  Registration Statement on Form S-1 (No. 333-115614),
                  as filed
                  with the Securities and Exchange Commission on May 19, 2004, as
                  amended,
                  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.
  *
              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.
  28
 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.
  Date: August
                4, 2005
              **VOLTERRA
                SEMICONDUCTOR CORPORATION**By:
              /s/ Greg
                HildebrandGreg
                HildebrandChief
                  Financial Officer
                (Principal Financial, Chief Accounting
                  and Duly
                  Authorized Officer)
   29
  **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.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 3.4 to Volterra Semiconductor Corporation’s
                  Registration Statement on Form S-1 (No. 333-115614),
                  as filed
                  with the Securities and Exchange Commission on May 19, 2004, as
                  amended,
                  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.
 
  *
              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.
  
 30