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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)



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

For the quarterly period ended June 30, 2008

OR



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

Commission file number: 000-51349





Advanced Analogic Technologies
Incorporated

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)







|                                                              |  |                                        
|------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                      |  | 77-0462930                             
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                              | 
|3230 Scott Blvd., Santa Clara, California                     |  | 95054                                  
|(Address of principal executive offices)                      |  | (Zip Code)                             

Registrants telephone number, including area code:

(408) 737-4600





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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈            Smaller Reporting Company   ̈

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

There were 45,792,592 shares of the
Registrants common stock issued and outstanding as of July 28, 2008.









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TABLE OF CONTENTS



|                              |  |                                                                                                                    |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
|                              |  |                                                                                                                    |  | PAGE
|PART I. FINANCIAL INFORMATION |  | 3                                                                                                                 
|                              |  |                                                                                                                   
|ITEM 1.                       |  | FINANCIAL STATEMENTS (UNAUDITED)                                                                                   |  | 3   
|                              |  |                                                                                                                   
|                              |  | CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2008 AND DECEMBER 31, 2007                                       |  | 3   
|                              |  |                                                                                                                   
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007 |  | 4   
|                              |  |                                                                                                                   
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30,
2007           |  | 5   
|                              |  |                                                                                                                   
|                              |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                               |  | 6   
|                              |  |                                                                                                                   
|ITEM 2.                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                              |  | 14  
|                              |  |                                                                                                                   
|ITEM 3.                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |  | 21  
|                              |  |                                                                                                                   
|ITEM 4.                       |  | CONTROLS AND PROCEDURES                                                                                            |  | 22  
|                              | 
|PART II. OTHER INFORMATION    |  | 23                                                                                                                
|                              |  |                                                                                                                   
|ITEM 1.                       |  | LEGAL PROCEEDINGS                                                                                                  |  | 23  
|                              |  |                                                                                                                   
|ITEM 1A.                      |  | RISK FACTORS                                                                                                       |  | 23  
|                              |  |                                                                                                                   
|ITEM 2.                       |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                        |  | 33  
|                              |  |                                                                                                                   
|ITEM 3.                       |  | DEFAULTS UPON SENIOR SECURITIES                                                                                    |  | 33  
|                              |  |                                                                                                                   
|ITEM 4.                       |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |  | 33  
|                              |  |                                                                                                                   
|ITEM 5.                       |  | OTHER INFORMATION                                                                                                  |  | 34  
|                              |  |                                                                                                                   
|ITEM 6.                       |  | EXHIBITS                                                                                                           |  | 34  



2



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PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and
par value)



|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | -------------------- | - | ------- | -
|                                                                                                                                                                              |  | June 30,2008 |         |   | December 31,2007 (*) |  
|Assets                                                                                                                                                                        |  |              |         |   |                      |   |         |  
|Current assets                                                                                                                                                                |  |              |         |   |                      |   |         |  
|Cash and cash equivalents                                                                                                                                                     |  | $            | 86,834  |   |                      | $ | 53,779  |  
|Short-term investments                                                                                                                                                        |  |              | 23,145  |   |                      |   | 60,448  |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total cash, cash equivalents and short-term investments                                                                                                                       |  |              | 109,979 |   |                      |   | 114,227 |  
|Accounts receivable, net of allowances                                                                                                                                        |  |              | 11,269  |   |                      |   | 14,428  |  
|Inventories                                                                                                                                                                   |  |              | 13,732  |   |                      |   | 12,214  |  
|Prepaid expenses and other current assets                                                                                                                                     |  |              | 1,443   |   |                      |   | 2,273   |  
|Notes receivable                                                                                                                                                              |  |              | 2,000   |   |                      |   | 2,000   |  
|Deferred income taxes                                                                                                                                                         |  |              | 591     |   |                      |   | 591     |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total current assets                                                                                                                                                          |  |              | 139,014 |   |                      |   | 145,733 |  
|Property and equipment, net                                                                                                                                                   |  |              | 5,836   |   |                      |   | 4,699   |  
|Other assets                                                                                                                                                                  |  |              | 4,166   |   |                      |   | 1,377   |  
|Deferred income taxes                                                                                                                                                         |  |              | 7,053   |   |                      |   | 6,815   |  
|Intangibles, net                                                                                                                                                              |  |              | 1,547   |   |                      |   | 2,127   |  
|Goodwill                                                                                                                                                                      |  |              | 16,116  |   |                      |   | 15,717  |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total assets                                                                                                                                                                  |  | $            | 173,732 |   |                      | $ | 176,468 |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Liabilities and stockholders equity                                                                                                                                          |  |              |         |   |                      |   |         |  
|Current liabilities                                                                                                                                                           |  |              |         |   |                      |   |         |  
|Accounts payable                                                                                                                                                              |  | $            | 7,710   |   |                      | $ | 7,938   |  
|Accrued liabilities                                                                                                                                                           |  |              | 4,683   |   |                      |   | 8,472   |  
|Income tax payable                                                                                                                                                            |  |              | 730     |   |                      |   | 1,367   |  
|Current portion of capital lease obligations                                                                                                                                  |  |              | 118     |   |                      |   | 151     |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total current liabilities                                                                                                                                                     |  |              | 13,241  |   |                      |   | 17,928  |  
|Long-term income tax payable                                                                                                                                                  |  |              | 1,771   |   |                      |   | 1,053   |  
|Long-term capital lease obligations                                                                                                                                           |  |              |        |   |                      |   | 41      |  
|Other long-term liabilities                                                                                                                                                   |  |              | 196     |   |                      |   | 155     |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total liabilities                                                                                                                                                             |  |              | 15,208  |   |                      |   | 19,177  |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Stockholders equity                                                                                                                                                          |  |              |         |   |                      |   |         |  
|Common stock, $0.001 par value100,000,000 shares authorized; 45,772,282 and 45,355,884 shares issued and outstanding as of June 30,
2008 and December 31, 2007, respectively |  |              | 46      |   |                      |   | 45      |  
|Additional paid-in capital                                                                                                                                                    |  |              | 170,837 |   |                      |   | 166,763 |  
|Deferred stock-based compensation                                                                                                                                             |  |              | (304    | ) |                      |   | (1,058  | )
|Accumulated other comprehensive loss                                                                                                                                          |  |              | (321    | ) |                      |   | (108    | )
|Accumulated deficit                                                                                                                                                           |  |              | (11,734 | ) |                      |   | (8,351  | )
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total stockholders equity                                                                                                                                                    |  |              | 158,524 |   |                      |   | 157,291 |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                    |  | $            | 173,732 |   |                      | $ | 176,468 |  
|                                                                                                                                                                              |  |              |         |   |                      |   |         |  



|* | Amounts as of December 31, 2007 were derived from the December 31, 2007 audited consolidated financial statements.
|- | ------------------------------------------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)



|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                |  | 2008                       |        |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Net revenue                                                     |  | $                          | 21,173 |   |                          | $ | 25,837 |      |  | $ | 46,274 |   |  | $ | 46,945 |  
|Cost of revenue                                                 |  |                            | 11,149 |   |                          |   | 11,612 |      |  |   | 22,517 |   |  |   | 21,544 |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                    |  |                            | 10,024 |   |                          |   | 14,225 |      |  |   | 23,757 |   |  |   | 25,401 |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                             |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Research and development                                        |  |                            | 7,790  |   |                          |   | 7,572  |      |  |   | 15,449 |   |  |   | 14,675 |  
|Sales, general and administrative                               |  |                            | 6,201  |   |                          |   | 6,597  |      |  |   | 12,646 |   |  |   | 12,799 |  
|Patent litigation                                               |  |                            | 482    |   |                          |   | 1,488  |      |  |   | 744    |   |  |   | 3,077  |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                        |  |                            | 14,473 |   |                          |   | 15,657 |      |  |   | 28,839 |   |  |   | 30,551 |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Loss from operations                                            |  |                            | (4,449 | ) |                          |   | (1,432 | )    |  |   | (5,082 | ) |  |   | (5,150 | )
|Interest and other income (expense):                            |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                                 |  |                            | 749    |   |                          |   | 1,368  |      |  |   | 1,878  |   |  |   | 2,737  |  
|Interest expense and other income (expense), net                |  |                            | 17     |   |                          |   | (14    | )    |  |   | 32     |   |  |   | (285   | )
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total interest and other income (expense), net                  |  |                            | 766    |   |                          |   | 1,354  |      |  |   | 1,910  |   |  |   | 2,452  |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Loss before income taxes                                        |  |                            | (3,683 | ) |                          |   | (78    | )    |  |   | (3,172 | ) |  |   | (2,698 | )
|Provision for income taxes                                      |  |                            | 147    |   |                          |   | 813    |      |  |   | 211    |   |  |   | 944    |  
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net loss                                                        |  | $                          | (3,830 | ) |                          | $ | (891   | )    |  | $ | (3,383 | ) |  | $ | (3,642 | )
|                                                                |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net loss per share:                                             |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                           |  | $                          | (0.08  | ) |                          | $ | (0.02  | )    |  | $ | (0.07  | ) |  | $ | (0.08  | )
|Diluted                                                         |  | $                          | (0.08  | ) |                          | $ | (0.02  | )    |  | $ | (0.07  | ) |  | $ | (0.08  | )
|Weighted average shares used in net loss per share calculation: |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                           |  |                            | 45,687 |   |                          |   | 44,602 |      |  |   | 45,589 |   |  |   | 44,461 |  
|Diluted                                                         |  |                            | 45,687 |   |                          |   | 44,602 |      |  |   | 45,589 |   |  |   | 44,461 |  

See accompanying notes to condensed consolidated financial statements.



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                                                              |  |                           |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                              |  | Six Months Ended June 30, |        
|                                                                                                              |  | 2008                      |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                         |  |                           |         |   |      |   |         |  
|Net loss                                                                                                      |  | $                         | (3,383  | ) |      | $ | (3,642  | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                     |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                                                                 |  |                           | 1,457   |   |      |   | 1,379   |  
|Stock-based compensation                                                                                      |  |                           | 3,629   |   |      |   | 3,457   |  
|In-process research and development                                                                           |  |                           | 255     |   |      |   |        |  
|Cumulative effect of adoption of FIN 48                                                                       |  |                           |        |   |      |   | 543     |  
|Provision for doubtful accounts                                                                               |  |                           |        |   |      |   | (4      | )
|Excess tax benefit from share-based awards                                                                    |  |                           | (487    | ) |      |   |        |  
|(Gain) loss on disposal of property and equipment                                                             |  |                           | (14     | ) |      |   | 5       |  
|Loss on liquidation of a foreign branch office                                                                |  |                           |        |   |      |   | 266     |  
|Changes in operating assets and liabilities, net of effect of acquisition:                                    |  |                           |         |   |      |   |         |  
|Accounts receivable                                                                                           |  |                           | 3,159   |   |      |   | (762    | )
|Inventories                                                                                                   |  |                           | (1,487  | ) |      |   | (3,030  | )
|Prepaid expenses and other current assets                                                                     |  |                           | 886     |   |      |   | 294     |  
|Other assets                                                                                                  |  |                           | 96      |   |      |   | (106    | )
|Deferred income taxes                                                                                         |  |                           | (70     | ) |      |   | (1,719  | )
|Accounts payable                                                                                              |  |                           | (288    | ) |      |   | 4,118   |  
|Accrued and other liabilities                                                                                 |  |                           | (3,960  | ) |      |   | 515     |  
|Income taxes payable                                                                                          |  |                           | 77      |   |      |   | 1,997   |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                                           |  |                           | (130    | ) |      |   | 3,311   |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                         |  |                           |         |   |      |   |         |  
|Purchases of property and equipment                                                                           |  |                           | (1,648  | ) |      |   | (1,388  | )
|Purchases of short-term investments                                                                           |  |                           | (13,135 | ) |      |   | (36,988 | )
|Proceeds from sales and maturities of short-term investments                                                  |  |                           | 47,239  |   |      |   | 28,060  |  
|Acquisition, net of cash acquired                                                                             |  |                           | (647    | ) |      |   |        |  
|Purchase of long-term investment                                                                              |  |                           | (250    | ) |      |   |        |  
|Proceeds from sale of property and equipment                                                                  |  |                           | 14      |   |      |   |        |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                                                           |  |                           | 31,573  |   |      |   | (10,316 | )
|                                                                                                              |  |                           |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                         |  |                           |         |   |      |   |         |  
|Proceeds from exercise of common stock options                                                                |  |                           | 1,170   |   |      |   | 447     |  
|Excess tax benefits from share-based awards                                                                   |  |                           | 487     |   |      |   |        |  
|Principal payments on capital lease obligations                                                               |  |                           | (74     | ) |      |   | (67     | )
|                                                                                                              |  |                           |         |   |      |   |         |  
|Net cash provided by financing activities                                                                     |  |                           | 1,583   |   |      |   | 380     |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                                  |  |                           | 29      |   |      |   | (72     | )
|                                                                                                              |  |                           |         |   |      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                          |  |                           | 33,055  |   |      |   | (6,697  | )
|CASH AND CASH EQUIVALENTSBeginning of period                                                                 |  |                           | 53,779  |   |      |   | 58,121  |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTSEnd of period                                                                       |  | $                         | 86,834  |   |      | $ | 51,424  |  
|                                                                                                              |  |                           |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                             |  |                           |         |   |      |   |         |  
|Increases (decreases) in accounts payable and accrued liabilities related to property and equipment purchases |  | $                         | 222     |   |      | $ | 202     |  
|Cash paid for interest                                                                                        |  | $                         | 8       |   |      | $ | 16      |  
|Cash paid for income taxes                                                                                    |  | $                         | 183     |   |      | $ | 123     |  

See accompanying notes to condensed consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Advanced Analogic Technologies Incorporated (the
Company) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Certain information and disclosures normally included in consolidated 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 annual report on Form 10-K filed with the SEC on March 4, 2008.

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 and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2008 or for any other future period. The condensed consolidated balance sheet as of December 31, 2007 is derived from the audited consolidated financial statements as of and for the year then ended.

2. INVESTMENTS

The Company accounts
for its investment instruments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). At
June 30, 2008, the Company had investments in short-term debt instruments which were classified as available-for-sale under SFAS No. 115. Short-term investments consist primarily of investment grade debt securities with a maturity of
greater than 90 days at the time of purchase with the exception of certain auction rate securities (ARS) discussed below. The Company classifies investments with maturities greater than one year as short-term investments as it considers
all investments a potential source of operating cash regardless of maturity date. The Companys debt securities are carried at fair market value with the related unrealized gains and losses included in accumulated other comprehensive loss,
which is a separate component of stockholders equity. As of June 30, 2008, none of the securities in which the Company invested were secured by real estate. The cost of securities sold is based on the specific identification method.
Interest earned on securities is included in Interest income in the Condensed Consolidated Statements of Operations.

The
Company adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157) as of January 1, 2008 to measure the fair value of certain of its financial assets required to be measured on a recurring basis, including
available-for-sale fixed income securities and certain equity investments. Under SFAS No. 157, based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to
the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following
three categories:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Directly or indirectly observable market based inputs used in models or other valuation methodologies.

Level 3: Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.



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Fair value measurements of financial assets on a recurring basis as of June 30, 2008 are as follows:



|                             |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       
|---------------------------- |  | ----------------------------------------------------------- | ------ | -------------------------------------------- | - | -------------------------------------- |  | ----- | ----- |  | - | ------
|                             |  | Fair Value Measurements as of June 30, 2008 Using:         
|                             |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |        | Direct or IndirectObservable Inputs(Level 2) |   | SignificantUnobservableInputs(Level 3) |  | Total
|                             |  | (in thousands)                                             
|U.S. Government agency bonds |  | $                                                           | 32,581 |                                              | $ |                                       |  | $     |      |  | $ | 32,581
|U.S. Treasury bills          |  |                                                             | 5,815  |                                              |   |                                       |  |       |      |  |   | 5,815 
|U.S. Corporate bonds         |  |                                                             | 16,468 |                                              |   |                                       |  |       |      |  |   | 16,468
|Money market funds           |  |                                                             | 20,526 |                                              |   |                                       |  |       |      |  |   | 20,526
|Auction rate securities      |  |                                                             |       |                                              |   |                                       |  |       | 2,623 |  |   | 2,623 
|Private equity investment    |  |                                                             |       |                                              |   |                                       |  |       | 802   |  |   | 802   
|                             |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       
|Total                        |  | $                                                           | 75,390 |                                              | $ |                                       |  | $     | 3,425 |  | $ | 78,815
|                             |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       
|Amounts included in:         |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       
|Cash and Cash equivalents    |  | $                                                           | 52,245 |                                              | $ |                                       |  | $     |      |  | $ | 52,245
|Short-term investments       |  |                                                             | 23,145 |                                              |   |                                       |  |       |      |  |   | 23,145
|Other assets                 |  |                                                             |       |                                              |   |                                       |  |       | 3,425 |  |   | 3,425 
|                             |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       
|Total                        |  | $                                                           | 75,390 |                                              | $ |                                       |  | $     | 3,425 |  | $ | 78,815
|                             |  |                                                             |        |                                              |   |                                        |  |       |       |  |   |       

The following table provides a reconciliation of the beginning and ending balances for the assets
measured at fair value using significant unobservable inputs (Level 3):



|                                                                              |  |                                                                       |       |   |                          |   |       |  |   |       |  
|----------------------------------------------------------------------------- |  | --------------------------------------------------------------------- | ----- | - | ------------------------ | - | ----- |  | - | ----- | -
|                                                                              |  | Fair Value Measurement Using Significant UnobservableInputs (Level 3) |      
|                                                                              |  | Auction RateSecurities                                                |       |   | Private EquityInvestment |   | Total | 
|Beginning balances as of January 1, 2008                                      |  | $                                                                     |      |   |                          | $ | 802   |  | $ | 802   |  
|Transfers in and/or out of Level 3                                            |  |                                                                       | 3,200 |   |                          |   |      |  |   | 3,200 |  
|Unrealized gains or (losses) included in accumulated other comprehensive loss |  |                                                                       | (376  | ) |                          |   |      |  |   | (376  | )
|                                                                              |  |                                                                       |       |   |                          |   |       |  |   |       |  
|Ending balances as of March 31, 2008                                          |  | $                                                                     | 2,824 |   |                          | $ | 802   |  | $ | 3,626 |  
|                                                                              |  |                                                                       |       |   |                          |   |       |  |   |       |  
|Unrealized gains or (losses) included in accumulated other comprehensive loss |  |                                                                       | (201  | ) |                          |   |      |  |   | (201  | )
|                                                                              |  |                                                                       |       |   |                          |   |       |  |   |       |  
|Ending balances as of June 30, 2008                                           |  | $                                                                     | 2,623 |   |                          | $ | 802   |  | $ | 3,425 |  
|                                                                              |  |                                                                       |       |   |                          |   |       |  |   |       |  

Auction Rate Securities

As of June 30, 2008, the Company had approximately $2.6 million of ARS, the fair value of which has been measured using Level 3 inputs. These ARS are collateralized largely with Federal Family Education Loan
Program student loans. The monthly auctions have historically provided a liquid market for these securities. The three ARS in the Companys portfolio had successful auctions until January 2008 and as such, their fair value would have been
measured using Level 1 inputs at January 1, 2008. However, since February 2008, there has not been a successful auction in that there were insufficient buyers for these ARS, therefore the Company transferred them from the Level 1 to the Level 3
category in the first quarter of 2008.

The Company has used a discounted cash flow model to determine the estimated fair value of its
investment in ARS as of June 30, 2008. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity
and other risk factors, amount of cash flows and expected holding periods of the ARS. These inputs reflect the Companys own assumptions about the assumptions market participants would use in pricing the ARS, including assumptions about risk,
developed based on the best information available in the circumstances.

Based on this assessment of fair value, during the second quarter
of 2008, the Company determined there was an additional decline in the fair value of its ARS investments of approximately $0.2 million resulting in a year-to-date impairment loss of approximately $0.6 million, which was deemed temporary as the
Company has the ability and intent to hold these ARS investments until a recovery of the auction process or until maturity (ranging from 2025 to 2046). As of June 30, 2008, the entire ARS investment balance was included in long-term other
assets on its condensed consolidated balance sheet as the Company believes that it will take longer than one year for its investments in ARS to recover its par value.



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Private Equity Investment

In addition to the ARS, the Company also holds an equity investment in a non-publicly traded company of $0.8 million that is included in long-term other assets. This investment is accounted for under the cost method
and evaluated for other-than-temporary impairment at each reporting period. During the quarter ended June 30, 2008, the Company did not recognize an impairment on this investment as no indicators suggesting a potential reduction in value
existed.

3. STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123(R)), which requires the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

The following table summarizes stock-based compensation expense related to stock options, including the amortization of the intrinsic value under
Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, for pre-April 4, 2005 options, for the three and six months ended June 30, 2008 and June 30, 2007, which was allocated as follows:



|                                        |  |                            |       |                          |   |       |  |      |       |  |   |      
|--------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                        |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|Statement of operations classifications |  | 2008                       |       | 2007                     |   | 2008  |  | 2007
|                                        |  | (in thousands)            
|Cost of revenue                         |  | $                          | 95    |                          | $ | 66    |  | $    | 172   |  | $ | 131  
|Research and development                |  |                            | 773   |                          |   | 662   |  |      | 1,563 |  |   | 1,273
|Sales, general and administrative       |  |                            | 1,034 |                          |   | 1,019 |  |      | 1,894 |  |   | 2,053
|                                        |  |                            |       |                          |   |       |  |      |       |  |   |      
|Total stock-based compensation expense  |  | $                          | 1,902 |                          | $ | 1,747 |  | $    | 3,629 |  | $ | 3,457
|                                        |  |                            |       |                          |   |       |  |      |       |  |   |      

The related tax effect for stock-based compensation expense for the three and six months ended
June 30, 2008 was approximately $312,000 and $511,000, respectively, and approximately $401,000 and $777,000 for the three and six months ended June 30, 2007, respectively. The related tax effect was determined using the applicable tax
rates in jurisdictions to which this expense relates.

For options granted subsequent to January 1, 2006, the Company estimates
expected volatility based on a combination of historical and market-based implied volatility in accordance with guidance in SFAS No. 123(R) and SEC Topic 14, Share-Based Payment (SAB 107). The Company determined that a
combination of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. The expected term of employee stock options represents the
weighted-average period that the stock options are expected to remain outstanding. Starting from the fourth quarter of 2006, due to the lack of historical data, the Company derived the expected term assumption based on the Company and its peer
groups weighted average vesting period combined with the post-vesting holding period. Prior to the fourth quarter of 2006, the Company used the simplified method to calculate the expected term for its options, as allowed by SAB 107. The
risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the Companys employee stock options. The dividend yield assumption is based on the Companys history and expectation of dividend
payouts. The Company has never declared or paid any cash dividends on common stock, and it does not anticipate paying any cash dividends in the foreseeable future.



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##### Table of Contents

The following table includes the weighted average assumptions utilized for purposes of calculating the
valuation of the Companys stock option grants for the three and six months ended June 30, 2008 and June 30, 2007:



|                                |  |                            |   |  |                          |   |  |      |   |  |      |  
|------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                                |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                |  | 2008                       |   |  | 2007                     |   |  | 2008 |   |  | 2007 |  
|Volatility                      |  | 49                         | % |  | 48                       | % |  | 51   | % |  | 49   | %
|Expected option term (in years) |  | 4.04                       |   |  | 4.07                     |   |  | 4.04 |   |  | 4.17 |  
|Expected annual dividend yield  |  | 0                          | % |  | 0                        | % |  | 0    | % |  | 0    | %
|Risk free interest rate         |  | 2.93                       | % |  | 5.10                     | % |  | 2.81 | % |  | 4.80 | %

4. NET INCOME (LOSS) PER SHARE

The Company calculates net income (loss) per share in accordance with SFAS No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period excluding shares subject to repurchase. Diluted net
income per common share reflects the effects of potentially dilutive securities, which consist of common stock options and warrants outstanding and restricted common stock subject to repurchase, using the treasury stock method unless their inclusion
would be anti-dilutive. Basic and diluted net loss per share are the same for the three and six months ended June 30, 2008 and 2007 due to the Companys incurring losses in those periods.

A reconciliation of shares used in the calculation of basic and diluted net loss per share is as follows:



|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  
|------------------------------------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ------ | - |  | ------ | -
|                                                              |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                                              |  | 2008                       |   |  | 2007                     |   |  | 2008   |   |  | 2007   |  
|                                                              |  | (in thousands)             |  
|Weighted average common shares outstanding                    |  | 45,712                     |   |  | 44,678                   |   |  | 45,614 |   |  | 44,537 |  
|Weighted average shares subject to repurchase                 |  | (25                        | ) |  | (76                      | ) |  | (25    | ) |  | (76    | )
|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  
|Shares used to calculate basic net loss per share             |  | 45,687                     |   |  | 44,602                   |   |  | 45,589 |   |  | 44,461 |  
|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  
|Effect of dilutive securities:                                |  |                            |   |  |                          |   |  |        |   |  |        |  
|Common stock warrants                                         |  |                           |   |  |                         |   |  |       |   |  |       |  
|Common stock options                                          |  |                           |   |  |                         |   |  |       |   |  |       |  
|Weighted average shares subject to repurchase                 |  |                           |   |  |                         |   |  |       |   |  |       |  
|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  
|Dilutive potential common stock                               |  |                           |   |  |                         |   |  |       |   |  |       |  
|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  
|Weighted average common shares outstanding, assuming dilution |  | 45,687                     |   |  | 44,602                   |   |  | 45,589 |   |  | 44,461 |  
|                                                              |  |                            |   |  |                          |   |  |        |   |  |        |  

Approximately 8.1 million and 8.2 million shares of potentially dilutive common
equivalent shares were excluded from the net loss per share calculation for the three and six months ended June 30, 2008, respectively, and 5.6 million and 6.9 million shares of potentially dilutive common equivalent shares were
excluded from the net loss per share calculation for the three and six months ended June 30, 2007, respectively as their inclusion would have been antidilutive given the Companys net loss position in these periods.



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5. OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive loss are as follows:



|                                                                 |  |                            |        |   |                          |   |      |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                 |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                 |  | 2008                       |        |   | 2007                     |   |      | 2008 |  |   | 2007   |  
|                                                                 |  | (in thousands)             |        |   | (in thousands)           |  
|Net loss, as reported                                            |  | $                          | (3,830 | ) |                          | $ | (891 | )    |  | $ | (3,383 | ) |  | $ | (3,642 | )
|Changes in cumulative translation adjustment                     |  |                            | 27     |   |                          |   | (12  | )    |  |   | 195    |   |  |   | 218    |  
|Changes in unrealized gains /losses on investments, net of taxes |  |                            | (215   | ) |                          |   | (20  | )    |  |   | (408   | ) |  |   | (15    | )
|                                                                 |  |                            |        |   |                          |   |      |      |  |   |        |   |  |   |        |  
|Total other comprehensive loss                                   |  | $                          | (4,018 | ) |                          | $ | (923 | )    |  | $ | (3,596 | ) |  | $ | (3,439 | )
|                                                                 |  |                            |        |   |                          |   |      |      |  |   |        |   |  |   |        |  

The changes in unrealized gains or losses on investments during the second quarter and first six
months of 2008 included unrealized impairment losses on the Companys auction rate securities, net of taxes. See Note 2.

The changes
in cumulative translation adjustment during the first six months of 2007 included a write-off of $0.3 million cumulative translation adjustment loss as a result of the liquidation of the Companys Sweden branch office.

6. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS



|                                          |  |                |        |   |                   |   |        |  
|----------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                          |  | June 30, 2008  |        |   | December 31, 2007 |  
|                                          |  | (in thousands) |       
|Work in process                           |  | $              | 7,794  |   |                   | $ | 7,876  |  
|Finished goods                            |  |                | 5,938  |   |                   |   | 4,338  |  
|                                          |  |                |        |   |                   |   |        |  
|Total inventories                         |  | $              | 13,732 |   |                   | $ | 12,214 |  
|                                          |  |                |        |   |                   |   |        |  
|Computers and software                    |  | $              | 5,527  |   |                   | $ | 4,733  |  
|Office and test equipment                 |  |                | 6,530  |   |                   |   | 5,744  |  
|Leasehold improvements                    |  |                | 1,490  |   |                   |   | 1,101  |  
|                                          |  |                |        |   |                   |   |        |  
|                                          |  |                | 13,547 |   |                   |   | 11,578 |  
|Accumulated depreciation and amortization |  |                | (7,711 | ) |                   |   | (6,879 | )
|                                          |  |                |        |   |                   |   |        |  
|Total property and equipment, net         |  | $              | 5,836  |   |                   | $ | 4,699  |  
|                                          |  |                |        |   |                   |   |        |  
|Accrued payroll and benefits              |  | $              | 2,204  |   |                   | $ | 6,049  |  
|Deferred revenue                          |  |                | 176    |   |                   |   | 219    |  
|Accrued legal and accounting services     |  |                | 749    |   |                   |   | 621    |  
|Warranty reserve                          |  |                | 63     |   |                   |   | 101    |  
|Accrued payables and other                |  |                | 1,491  |   |                   |   | 1,482  |  
|                                          |  |                |        |   |                   |   |        |  
|Total accrued liabilities                 |  | $              | 4,683  |   |                   | $ | 8,472  |  
|                                          |  |                |        |   |                   |   |        |  



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7. GOODWILL AND INTANGIBLE ASSETS

In October 2006, the Company acquired Analog Power Semiconductor Corporation (AP Semi). The purchase consideration was allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their estimated fair values on the acquisition date under SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142).

In June 2008, the Company acquired Elite Micro Devices, Inc.
(Elite), a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. The Company recorded preliminary non tax deductible goodwill of $399,000 associated with this acquisition that was accounted for as a
business combination under SFAS No. 141. The Company also wrote off $255,000 of in-process research and development as a result of this acquisition. The Company did not record any intangible assets as a result of the Elite acquisition.

With the additional goodwill as a result of the Elite acquisition, as of June 30, 2008, the carrying amount of goodwill was $16.1
million The Company will perform its annual goodwill impairment analysis during the third quarter of 2008 pursuant to the steps and requirements under SFAS No. 142 and determine if goodwill is impaired.

The following table summarizes intangible assets as of June 30, 2008 and December 31, 2007, respectively, (in thousands):



|                       |  |                          |       |                          |   |              |                        |   |                  |   |  |              |        |                  |  |   |       |  |   |      
|---------------------- |  | ------------------------ | ----- | ------------------------ | - | ------------ | ---------------------- | - | ---------------- | - |  | ------------ | ------ | ---------------- |  | - | ----- |  | - | -----
|                       |  | Intangible Assets, Gross |       | Accumulated Amortization |   |              | Intangible Assets, Net
|                       |  | June 30,2008             |       | December 31,2007         |   | June 30,2008 |                        |   | December 31,2007 |   |  | June 30,2008 |        | December 31,2007
|Core technology        |  | $                        | 2,900 |                          | $ | 2,900        |                        | $ | (1,613           | ) |  | $            | (1,129 | )                |  | $ | 1,287 |  | $ | 1,771
|Customer relationships |  |                          | 580   |                          |   | 580          |                        |   | (320             | ) |  |              | (224   | )                |  |   | 260   |  |   | 356  
|                       |  |                          |       |                          |   |              |                        |   |                  |   |  |              |        |                  |  |   |       |  |   |      
|Total                  |  | $                        | 3,480 |                          | $ | 3,480        |                        | $ | (1,933           | ) |  | $            | (1,353 | )                |  | $ | 1,547 |  | $ | 2,127
|                       |  |                          |       |                          |   |              |                        |   |                  |   |  |              |        |                  |  |   |       |  |   |      

Amortization expense for the three and six months ended June 30, 2008 was $290,000 and
$580,000, respectively. Amortization expense for the three and six months ended June 30, 2007 was $290,000 and $580,000, respectively. Estimated future amortization expense for the remainder of 2008 and 2009 is $580,000 and $967,000,
respectively.

8. SEGMENT INFORMATION

As defined by the requirements of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, the Company operates in one reportable segment: the design, development, marketing and sale of power
management semiconductor products and solutions for the communications, computing and consumer portable and personal electronics marketplace. The Companys chief operating decision maker is its chief executive officer.

The following is a summary of net revenue by geographic region based on the location to which the product is shipped:



|                                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|----------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                          |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                          |  | 2008                       |        | 2007                     |   | 2008   |  | 2007
|                                          |  | (in thousands)            
|South Korea                               |  | $                          | 13,788 |                          | $ | 12,795 |  | $    | 28,407 |  | $ | 24,387
|China                                     |  |                            | 2,202  |                          |   | 8,427  |  |      | 6,944  |  |   | 13,653
|Taiwan                                    |  |                            | 2,917  |                          |   | 3,521  |  |      | 7,495  |  |   | 6,539 
|Europe                                    |  |                            | 678    |                          |   | 480    |  |      | 1,125  |  |   | 1,030 
|North America (principally United States) |  |                            | 436    |                          |   | 561    |  |      | 925    |  |   | 1,136 
|Japan                                     |  |                            | 1,152  |                          |   | 53     |  |      | 1,378  |  |   | 200   
|                                          |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total                                     |  | $                          | 21,173 |                          | $ | 25,837 |  | $    | 46,274 |  | $ | 46,945
|                                          |  |                            |        |                          |   |        |  |      |        |  |   |       



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The following is a summary of net revenue by product type:



|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|--------------------------------------- |  | ----------------------------- | ------ | -------------------- | ------------------------- | - | ------ | ---- | -------------------- |  | ---- | ------ |  | -------------------- | ------ |  | ------ | - | -------------------- | - | ------ |  | --- | -
|                                        |  | Three Months Ended June 30,   |        |                      | Six Months Ended June 30, |  
|                                        |  | 2008                          |        |                      | 2007                      |   |        | 2008 |                      |  | 2007 |       
|                                        |  | Amount                        |        | Percentof netrevenue |                           |   | Amount |      | Percentof netrevenue |  |      | Amount |  | Percentof netrevenue |        |  | Amount |   | Percentof netrevenue |  
|                                        |  | (dollar amounts in thousands) |       
|Display and Lighting Solutions          |  | $                             | 12,610 |                      | 60                        | % |        | $    | 15,277               |  | 59   | %      |  | $                    | 27,420 |  | 59     | % |                      | $ | 27,178 |  | 58  | %
|Voltage Regulation and DC/DC Conversion |  |                               | 4,075  |                      | 19                        | % |        |      | 5,709                |  | 22   | %      |  |                      | 10,822 |  | 23     | % |                      |   | 10,764 |  | 23  | %
|Interface and Power Management          |  |                               | 3,885  |                      | 18                        | % |        |      | 4,446                |  | 17   | %      |  |                      | 7,084  |  | 15     | % |                      |   | 8,208  |  | 17  | %
|Battery Management                      |  |                               | 603    |                      | 3                         | % |        |      | 405                  |  | 2    | %      |  |                      | 948    |  | 2      | % |                      |   | 795    |  | 2   | %
|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|Total                                   |  | $                             | 21,173 |                      | 100                       | % |        | $    | 25,837               |  | 100  | %      |  | $                    | 46,274 |  | 100    | % |                      | $ | 46,945 |  | 100 | %
|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  

The following table summarizes net revenue and accounts receivable for customers who accounted for
10% or more of accounts receivable or net revenue, respectively:



|         |  |                           |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |  
|-------- |  | ------------------------- | - |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | - |  | ---- | -
|         |  |                           |   |  | Net Revenue                |   |  | Net Revenue              |  
|         |  | Accounts Receivable as of |   |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|         |  | June 30, 2008             |   |  | December 31, 2007          |   |  | 2008                     |   |  | 2007 |   |  | 2008 |   |  | 2007 |  
|Customer |  |                           |   |  |                            |   |  |                          |   |  |      |   |  |      |   |  |      |  
|A        |  | 30                        | % |  | 19                         | % |  | 28                       | % |  | 21   | % |  | 29   | % |  | 22   | %
|B        |  | 30                        | % |  | 17                         | % |  | 19                       | % |  | 11   | % |  | 15   | % |  | 13   | %
|C        |  |                          |   |  |                           |   |  | 10                       | % |  |     |   |  | 10   | % |  |     |  
|D        |  |                          |   |  | 29                         | % |  |                         |   |  | 17   | % |  |     |   |  | 15   | %

9. INCOME TAXES

The Company recorded a tax provision of approximately $147,000 and $211,000 for the three and six months ended June 30, 2008, respectively. The Company recorded a tax provision of approximately $813,000 and
$944,000 for the three and six months ended June 30, 2007, respectively. The income tax provision is primarily related to the geographical mix of income taxed at different rates and nondeductible stock-based compensation. The decrease in the
Companys tax provision from prior year is primarily due to a decrease in projected pre-tax income for this year.

The Company
accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes. Under this method, the Company determines deferred tax assets and liabilities based upon the differences between the financial statement
and tax bases of the Companys assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. The Company adopted SFAS No. 123(R) as of January 1, 2006, and,
as a result, incurred significant stock-based compensation expense. The Companys stock-based compensation expense also includes amounts related to incentive stock options for which no corresponding tax benefit is recognized unless a
disqualifying disposition occurs. Disqualifying dispositions result in a reduction of the provision for income taxes in the quarter when the disqualifying disposition occurs in an amount equal to the tax benefit relating to previously expensed
stock compensation. During the three months ended June 30, 2008 and 2007, the provision for income taxes was reduced by approximately $6,000 and $16,000, respectively, as a result of disqualifying dispositions.

During the three months ended June 30, 2008, the Company increased its total amount of unrecognized tax benefits as calculated under FASB
Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 by approximately $419,000, including an accrual of interest and penalties of
approximately $29,000. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2005 and 2006 tax year. As of June 30, 2008, no audit
adjustments have been made. Currently, the Company cannot estimate the range of reasonably possible change in unrecognized tax benefits in the next 12 months.



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10. LEGAL PROCEEDINGS

In May 2003, the Company received a letter from Linear Technology Corporation (Linear Technology) alleging that certain of its charge pump products infringed United States Patent No. 6,411,531
(531 Patent) owned by Linear Technology. In August 2004, the Company received a letter from Linear Technology alleging that certain of its switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258
(258 Patent). In response to these letters, the Company contacted Linear Technology to convey its good faith belief that it does not infringe the patents in question. Subsequently, the Company became aware of a marketing campaign conducted by
Linear Technology in which it sought to disrupt the Companys business relationships and sales by suggesting to the Companys customers that its products infringe the same U.S. patents mentioned in its two letters to the Company. As a
result, in February 2006, the Company initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and
non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (USITC) investigation described in the following paragraph.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to
determine if certain of the Companys products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in the Companys lawsuit with
Linear Technology.

In a Final Determination issued September 22, 2007, the USITC left unchanged its earlier initial determination
that the Companys charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim of 531 Patent owned by Linear Technology.

The Final Determination also found that a majority of the Companys switching regulator designs do not infringe Linear Technologys 258
Patent. The USITC also found that one family of switching regulator products infringes certain claims of the 258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under Section 337 of the Tariff Act
prohibiting the direct importation by the Company of this particular product family. This exclusion order does not, however, prevent the Companys customers from importing their products into the United States. To date, the Companys sales
of this product family in the United States have been minimal. Linear Technologys request that downstream products be barred from importation was denied.

Linear Technology is now appealing portions of the Final Determination to the United States Court of Appeals for the Federal Circuit. The Company is opposing this appeal and is also appealing unfavorable portions of
the Final Determination.

On February 20, 2008, and again on June 13, 2008 Linear Technology filed complaints with the USITC
seeking an enforcement proceeding to correct alleged violations of the limited exclusion order of September 22, 2007. The Company will take reasonable steps to protect its interests should the USITC agree to institute the requested enforcement
action. The Company believes that none of its products infringe the Linear Technology patents in question. However, whether or not the Company prevails in this appeal, the Company expects to incur significant legal expenses.

11. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2008, the
FASB issued SFAS No. 162 (SFAS No. 162), The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. While this statement formalizes the sources and hierarchy of GAAP within the authoritative accounting literature, it does not
change the accounting principles that are already in place. This statement will be effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is not expected to have a material impact on the Companys consolidated financial statements.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed
consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our most recently filed Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under
Risk Factors and elsewhere in this Quarterly Report on Form 10-Q.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this Quarterly Report on Form 10-Q the words
anticipate, objective, may, might, should, could, can, intend, expect, believe, estimate, predict,
potential, plan, is designed to or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:



| |  |  | our expectations regarding our expenses, sales and operations;
| | - |  | --------------------------------------------------------------



| |  |  | our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to anticipate the future needs of our customers;
| | - |  | ------------------------------------------------------------



| |  |  | our plans for future products and enhancements of existing products;
| | - |  | --------------------------------------------------------------------



| |  |  | our growth strategy elements;
| | - |  | -----------------------------



| |  |  | our intellectual property;
| | - |  | --------------------------



| |  |  | our anticipated trends and challenges in the markets in which we operate; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to attract customers.
| | - |  | ---------------------------------

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking
statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or
achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q, including those under the heading Risk Factors.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
set forth in this Quarterly Report on Form 10-Q. Other than as required by applicable laws, we are under no obligation to, and do not intend to, update any forward-looking statement, whether as a result of new information, future events or
otherwise.

Overview

We are a supplier
of power management semiconductors for consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, Bluetooth headphones and
accessories, notebook computers, digital TVs, set top boxes and displays. We focus our design and marketing efforts on the application-specific power management needs in these rapidly-evolving devices. We currently offer a portfolio of over 600
power management products comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip and multi-chip packages. We sell directly to original equipment
manufacturers, or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd. and Sony Ericsson. We sell through distributors and original design manufacturers, or ODMs, and to other system designers, including Hewlett-Packard Company,
Lenovo Group Ltd., Quanta Computers Inc. and Toshiba Corporation.



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##### Table of Contents

Our net revenue in the second quarter of 2008 decreased 18 percent compared to the second quarter of 2007
primarily as a result of a decrease in market demand primarily in China and Taiwan. Gross margin in the second quarter of 2008 decreased to 47% compared to 55% in the second quarter of 2007 primarily due to an unfavorable change in product mix and
the impact of a higher than normal excess inventory charge in the second quarter of 2008.

Cash, cash equivalents and short term
investments as of June 30, 2008 decreased by $4 million to $110 million compared to December 31, 2007, due to reclassification of approximately $3 million of auction rate securities from short-term investments to long-term other assets and
approximately $1 million used to purchase Elite Micro Devices, Inc. (Elite). We continue to be debt free as of June 30, 2008.

Critical
Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the
reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, inventories, share-based compensation, income taxes, goodwill, investments and long-lived
assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities. Although actual results have historically been reasonably consistent with managements expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes that there have been no significant changes during the three and six months ended June 30, 2008 to the items that
we disclosed as our critical accounting policies and estimates in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2007.

Results of Operations

The following
table sets forth our unaudited historical operating results, in dollar amounts and as a percentage of net revenue for the periods indicated:



|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|------------------------------------------------ |  | ---------------------------------- | ------ | - | ------------------------- | ----- | -- | ---- | - | ------ | ---- |  | ----- | -- |  | - | ------ | - |  | ----- | -- |  | - | ------ | - |  | ----- | --
|                                                 |  | Three Months Ended June 30,        |        |   | Six Months Ended June 30, |      
|                                                 |  | 2008                               |        |   | 2007                      |       |    | 2008 |   |        | 2007 | 
|                                                 |  | (in thousands, except percentages) |       
|Net revenue                                      |  | $                                  | 21,173 |   |                           | 100.0 | %  |      | $ | 25,837 |      |  | 100.0 | %  |  | $ | 46,274 |   |  | 100.0 | %  |  | $ | 46,945 |   |  | 100.0 | % 
|Cost of revenue                                  |  |                                    | 11,149 |   |                           | 52.7  |    |      |   | 11,612 |      |  | 44.9  |    |  |   | 22,517 |   |  | 48.7  |    |  |   | 21,544 |   |  | 45.9  |   
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Gross profit                                     |  |                                    | 10,024 |   |                           | 47.3  |    |      |   | 14,225 |      |  | 55.1  |    |  |   | 23,757 |   |  | 51.3  |    |  |   | 25,401 |   |  | 54.1  |   
|Operating expenses:                              |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Research and development                         |  |                                    | 7,790  |   |                           | 36.8  |    |      |   | 7,572  |      |  | 29.3  |    |  |   | 15,449 |   |  | 33.4  |    |  |   | 14,675 |   |  | 31.3  |   
|Sales, general and administrative                |  |                                    | 6,201  |   |                           | 29.3  |    |      |   | 6,597  |      |  | 25.5  |    |  |   | 12,646 |   |  | 27.3  |    |  |   | 12,799 |   |  | 27.3  |   
|Patent litigation                                |  |                                    | 482    |   |                           | 2.3   |    |      |   | 1,488  |      |  | 5.8   |    |  |   | 744    |   |  | 1.6   |    |  |   | 3,077  |   |  | 6.6   |   
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Total operating expenses                         |  |                                    | 14,473 |   |                           | 68.4  |    |      |   | 15,657 |      |  | 60.6  |    |  |   | 28,839 |   |  | 62.3  |    |  |   | 30,551 |   |  | 65.2  |   
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Loss from operations                             |  |                                    | (4,449 | ) |                           | (21.0 | )  |      |   | (1,432 | )    |  | (5.5  | )  |  |   | (5,082 | ) |  | (11.0 | )  |  |   | (5,150 | ) |  | (11.1 | ) 
|Interest and other income (expense):             |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Interest income                                  |  |                                    | 749    |   |                           | 3.5   |    |      |   | 1,368  |      |  | 5.3   |    |  |   | 1,878  |   |  | 4.1   |    |  |   | 2,737  |   |  | 5.8   |   
|Interest expense and other income (expense), net |  |                                    | 17     |   |                           | 0.1   |    |      |   | (14    | )    |  | (0.1  | )  |  |   | 32     |   |  |      |    |  |   | (285   | ) |  | (0.6  | ) 
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Total interest and other income (expense), net   |  |                                    | 766    |   |                           | 3.6   |    |      |   | 1,354  |      |  | 5.2   |    |  |   | 1,910  |   |  | 4.1   |    |  |   | 2,452  |   |  | 5.2   |   
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Loss before income taxes                         |  |                                    | (3,683 | ) |                           | (17.4 | )  |      |   | (78    | )    |  | (0.3  | )  |  |   | (3,172 | ) |  | (6.9  | )  |  |   | (2,698 | ) |  | (5.9  | ) 
|Provision for income taxes                       |  |                                    | 147    |   |                           | 0.7   |    |      |   | 813    |      |  | 3.1   |    |  |   | 211    |   |  | 0.5   |    |  |   | 944    |   |  | 2.0   |   
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   
|Net loss                                         |  | $                                  | (3,830 | ) |                           | (18.1 | )% |      | $ | (891   | )    |  | (3.4  | )% |  | $ | (3,383 | ) |  | (7.3  | )% |  | $ | (3,642 | ) |  | (7.9  | )%
|                                                 |  |                                    |        |   |                           |       |    |      |   |        |      |  |       |    |  |   |        |   |  |       |    |  |   |        |   |  |       |   



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##### Table of Contents

Comparison of Three and Six Months ended June 30, 2008 and June 30, 2007

Revenues

The following table illustrates our
net revenue by principal product families:



|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|--------------------------------------- |  | ----------------------------- | ------ | -------------------- | ------------------------- | - | ------ | ---- | -------------------- |  | ---- | ------ |  | -------------------- | ------ |  | ------ | - | -------------------- | - | ------ |  | --- | -
|                                        |  | Three Months Ended June 30,   |        |                      | Six Months Ended June 30, |  
|                                        |  | 2008                          |        |                      | 2007                      |   |        | 2008 |                      |  | 2007 |       
|                                        |  | Amount                        |        | Percentof netrevenue |                           |   | Amount |      | Percentof netrevenue |  |      | Amount |  | Percentof netrevenue |        |  | Amount |   | Percentof netrevenue |  
|                                        |  | (dollar amounts in thousands) |       
|Display and Lighting Solutions          |  | $                             | 12,610 |                      | 60                        | % |        | $    | 15,277               |  | 59   | %      |  | $                    | 27,420 |  | 59     | % |                      | $ | 27,178 |  | 58  | %
|Voltage Regulation and DC/DC Conversion |  |                               | 4,075  |                      | 19                        | % |        |      | 5,709                |  | 22   | %      |  |                      | 10,822 |  | 23     | % |                      |   | 10,764 |  | 23  | %
|Interface and Power Management          |  |                               | 3,885  |                      | 18                        | % |        |      | 4,446                |  | 17   | %      |  |                      | 7,084  |  | 15     | % |                      |   | 8,208  |  | 17  | %
|Battery Management                      |  |                               | 603    |                      | 3                         | % |        |      | 405                  |  | 2    | %      |  |                      | 948    |  | 2      | % |                      |   | 795    |  | 2   | %
|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  
|Total                                   |  | $                             | 21,173 |                      | 100                       | % |        | $    | 25,837               |  | 100  | %      |  | $                    | 46,274 |  | 100    | % |                      | $ | 46,945 |  | 100 | %
|                                        |  |                               |        |                      |                           |   |        |      |                      |  |      |        |  |                      |        |  |        |   |                      |   |        |  |     |  

Our net revenue for the second quarter of 2008 as compared to the second quarter of 2007 decreased
by $4.7 million, or 18%. This decrease reflected decreased sales of all our product families except for Battery Management, as a result of decreased demand. Total unit shipments in the second quarter of 2008 decreased 16% compared to the second
quarter of 2007 while the average selling prices were relatively flat.

Our net revenue for the first six months of 2008 as compared to the
first six months of 2007 decreased by $0.7 million, or 1%. This decrease reflected a $1.1 million decrease in sales of our Interface and Power Management product family, partially offset by slight increases in other product families. Average selling
prices decreased 3% during the first six months of 2008 compared to the first six months of 2007 while total unit shipments increased 2%.

Geographically, sales in Korea, Japan and Europe for the second quarter of 2008 increased slightly compared to the second quarter of 2007 due to higher demand from our OEMs and sales in China and Taiwan decreased primarily due to lower
shipments to our major distributors as a result of lower demand. Sales in Korea, Japan, Taiwan and Europe for first six months of 2008 increased slightly compared to the first six months of 2007 and sales in China decreased due to lower shipments to
our distributors as a result of lower demand.



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##### Table of Contents

Gross Profit



|                               |  |                                    |        |   |      |   |        |                     |  |   |                           |    |  |      |    |  |                     |        |   |  |   |        |   |  |   |      |    |  |    |   
|------------------------------ |  | ---------------------------------- | ------ | - | ---- | - | ------ | ------------------- |  | - | ------------------------- | -- |  | ---- | -- |  | ------------------- | ------ | - |  | - | ------ | - |  | - | ---- | -- |  | -- | --
|                               |  | Three Months Ended June 30,        |        |   |      |   |        |                     |  |   | Six Months Ended June 30, |    |  |      |    |  |                     |       
|                               |  | 2008                               |        |   | 2007 |   |        | Increase (Decrease) |  |   | 2008                      |    |  | 2007 |    |  | Increase (Decrease) |       
|                               |  | (in thousands, except percentages) |       
|Net revenue                    |  | $                                  | 21,173 |   |      | $ | 25,837 |                     |  | $ | (4,664                    | )  |  | (18  | %) |  | $                   | 46,274 |   |  | $ | 46,945 |   |  | $ | (671 | )  |  | (1 | %)
|Cost of revenue                |  |                                    | 11,149 |   |      |   | 11,612 |                     |  |   | (463                      | )  |  | (4   | %) |  |                     | 22,517 |   |  |   | 21,544 |   |  |   | 973  |    |  | 5  | % 
|                               |  |                                    |        |   |      |   |        |                     |  |   |                           |    |  |      |    |  |                     |        |   |  |   |        |   |  |   |      |    |  |    |   
|Gross profit                   |  | $                                  | 10,024 |   |      | $ | 14,225 |                     |  |   |                           |    |  |      |    |  | $                   | 23,757 |   |  | $ | 25,401 |   |  |   |      |    |  |    |   
|                               |  |                                    |        |   |      |   |        |                     |  |   |                           |    |  |      |    |  |                     |        |   |  |   |        |   |  |   |      |    |  |    |   
|Gross profit margin percentage |  |                                    | 47.3   | % |      |   | 55.1   | %                   |  |   | (7.8                      | %) |  |      |    |  |                     | 51.3   | % |  |   | 54.1   | % |  |   | (2.8 | %) |  |    |   

Our gross margin was 47% for the second quarter of 2008, compared to 55% for the second quarter of
2007. This decrease was primarily due to approximately 5% unfavorable impact from change in product mix and an unfavorable 2% due to a higher excess inventory charge associated with lower than anticipated net revenue in the second quarter of 2008,
as described below.

Our gross margin was 51% for the first six months of 2008, compared to 54% for the first six months of 2007. This
decrease was primarily due to approximately 1% unfavorable impact from change in product mix and approximately 2% unfavorable impact due to a higher excess inventory charge associated with lower than anticipated net revenue in the first six of 2008,
as described below.

During the second quarter of 2008, our gross inventory write-down was approximately $1.3 million, offset by the sale
of $0.4 million of previously written down inventory. During the first six months of 2008, our gross inventory write-down was approximately $2.1 million, offset by the sale of $0.7 million of previously written down inventory. During the second
quarter of 2007, our gross inventory write-down was approximately $1.5 million, offset by the sale of $1.0 million of previously written down inventory. During the first six months of 2007, our gross inventory write-down was approximately $2.6
million, offset by the sale of $2.0 million of previously written down inventory. The net effect of inventory write-down on our gross margin contributed to an unfavorable 2% decrease to our gross margin during the second quarter of 2008 relative to
the second quarter of 2007 and an unfavorable 2% decrease to our gross margin during the first six months of 2008 relative to the first six months of 2007.

Research and Development



|                          |  |                                    |       |   |                     |   |       |                           |      |   |                     |      |  |   |   |  |   |        |   |  |   |        |   |  |   |     |   |  |   |  
|------------------------- |  | ---------------------------------- | ----- | - | ------------------- | - | ----- | ------------------------- | ---- | - | ------------------- | ---- |  | - | - |  | - | ------ | - |  | - | ------ | - |  | - | --- | - |  | - | -
|                          |  | Three Months Ended June 30,        |       |   | Increase (Decrease) |   |       | Six Months Ended June 30, |      |   | Increase (Decrease) |     
|                          |  | 2008                               |       |   | 2007                |   |       |                           | 2008 |   |                     | 2007 |  |  
|                          |  | (in thousands, except percentages) |      
|Research and development  |  | $                                  | 7,790 |   |                     | $ | 7,572 |                           |      | $ | 218                 |      |  | 3 | % |  | $ | 15,449 |   |  | $ | 14,675 |   |  | $ | 774 |   |  | 5 | %
|Percentage of net revenue |  |                                    | 36.8  | % |                     |   | 29.3  | %                         |      |   | 7.5                 | %    |  |   |   |  |   | 33.4   | % |  |   | 31.3   | % |  |   | 2.1 | % |  |   |  

Research and development expenses for the second quarter of 2008 increased by $0.2 million as
compared to the second quarter of 2007 primarily due to a $0.3 million charge of in-process research and development associated with our acquisition of Elite during the second quarter of 2008, partially offset by lower supply material and other
expense of $0.1 million.

Research and development expenses for the first six months of 2008 increased by $0.8 million as compared to the
first six months of 2007 primarily due to a $0.6 million increase in payroll and benefit related expenses as a result of higher headcount, a $0.4 million increase in information technology, occupancy and rent expense and a $0.3 million charge of
in-process research and development associated with our acquisition of Elite during the second quarter of 2008, partially offset by lower NRE and engineering related expenses as well as supply material and other expense of $0.4 million.



17



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##### Table of Contents

Sales, General and Administrative



|                                  |  |                                    |       |   |                     |   |       |                           |      |   |                     |      |  |    |    |  |   |        |   |  |   |        |   |  |   |      |   |  |    |   
|--------------------------------- |  | ---------------------------------- | ----- | - | ------------------- | - | ----- | ------------------------- | ---- | - | ------------------- | ---- |  | -- | -- |  | - | ------ | - |  | - | ------ | - |  | - | ---- | - |  | -- | --
|                                  |  | Three Months Ended June 30,        |       |   | Increase (Decrease) |   |       | Six Months Ended June 30, |      |   | Increase (Decrease) |     
|                                  |  | 2008                               |       |   | 2007                |   |       |                           | 2008 |   |                     | 2007 |  |   
|                                  |  | (in thousands, except percentages) |      
|Sales, general and administrative |  | $                                  | 6,201 |   |                     | $ | 6,597 |                           |      | $ | (396                | )    |  | (6 | %) |  | $ | 12,646 |   |  | $ | 12,799 |   |  | $ | (153 | ) |  | (1 | %)
|Percentage of net revenue         |  |                                    | 29.3  | % |                     |   | 25.5  | %                         |      |   | 3.8                 | %    |  |    |    |  |   | 27.3   | % |  |   | 27.3   | % |  |   | 0.0  | % |  |    |   

Sales, general and administrative expenses for the second quarter of 2008 decreased by $0.4
million as compared to the second quarter of 2007 primarily due to a $0.6 million decrease in payroll and benefit related expenses partially offset by a $0.2 million increase in travel and professional service expenses.

Sales, general and administrative expenses for the first six months of 2008 decreased by $0.2 million as compared to the first six months of 2007
primarily due to a $0.6 million decrease in payroll and benefit related expenses and a $0.1 million decrease in external sales commission expense as a result of lower net sales, partially offset by a $0.3 million increase in information technology,
occupancy and rent expense and a $0.2 million increase in travel expenses.

Patent Litigation



|                          |  |                                    |     |   |                     |   |       |                           |      |   |                     |      |  |     |    |  |   |     |   |  |   |       |   |  |   |        |    |  |     |   
|------------------------- |  | ---------------------------------- | --- | - | ------------------- | - | ----- | ------------------------- | ---- | - | ------------------- | ---- |  | --- | -- |  | - | --- | - |  | - | ----- | - |  | - | ------ | -- |  | --- | --
|                          |  | Three Months Ended June 30,        |     |   | Increase (Decrease) |   |       | Six Months Ended June 30, |      |   | Increase (Decrease) |     
|                          |  | 2008                               |     |   | 2007                |   |       |                           | 2008 |   |                     | 2007 |  |    
|                          |  | (in thousands, except percentages) |    
|Patent litigation         |  | $                                  | 482 |   |                     | $ | 1,488 |                           |      | $ | (1,006              | )    |  | (68 | %) |  | $ | 744 |   |  | $ | 3,077 |   |  | $ | (2,333 | )  |  | (76 | %)
|Percentage of net revenue |  |                                    | 2.3 | % |                     |   | 5.8   | %                         |      |   | (3.5                | %)   |  |     |    |  |   | 1.6 | % |  |   | 6.6   | % |  |   | (5.0   | %) |  |     |   

Litigation expenses were significantly lower for the second quarter of 2008 and the first six
months of 2008 as compared to the second quarter of 2007 and the first six months of 2007, respectively, due to lower level of activity related to the patent infringement case. We believe that we will continue to incur significant litigation
expenses for the remainder of 2008. For a description of our litigation, please see Part II, Item 1 - Legal Proceedings- for further details.

Interest Income

Interest income from investments of approximately $0.7 million in the second quarter of 2008
decreased $0.7 million compared to the second quarter of 2007 due to significantly lower average interest rates.

Interest income from
investments of approximately $1.9 million in the first six months of 2008 decreased $0.8 million compared to the first six months of 2007 due to significantly lower average interest rates.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was approximately zero in the second quarter of 2008, the second quarter of 2007 and the first six months of 2008.

Interest and other expense was approximately $0.3 million in the first six months of 2007 primarily as a result a $0.3 million write-off of cumulative translation adjustment loss as a result of the liquidation of our
Sweden branch office during the first quarter of 2007.



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Provision for Income Taxes

We recorded a tax provision of approximately $147,000 and $211,000 for the three and six months ended June 30, 2008, respectively. We recorded a tax provision of approximately $813,000 and $944,000 for the three
and six months ended June 30, 2007, respectively. The income tax provision is primarily related to the geographical mix of income taxed at different rates and nondeductible stock-based compensation. The decrease in our tax provision from prior
year is primarily due to a decrease in projected pre-tax income for this year.

We account for income taxes under the provisions of SFAS
No. 109, Accounting for Income Taxes. Under this method, we determine deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the our assets and liabilities using tax rates in
effect for the year in which we expect the differences to affect taxable income. We adopted SFAS No. 123(R) as of January 1, 2006, and, as a result, incurred significant stock-based compensation expense. Our stock-based compensation
expense also includes amounts related to incentive stock options for which no corresponding tax benefit is recognized unless a disqualifying disposition occurs. Disqualifying dispositions result in a reduction of the provision for income taxes
in the quarter when the disqualifying disposition occurs in an amount equal to the tax benefit relating to previously expensed stock compensation. During the three months ended June 30, 2008 and 2007, the provision for income taxes was
reduced by approximately $6,000 and $16,000, respectively, as a result of disqualifying dispositions.

During the three months ended
June 30, 2008, we increased our total amount of unrecognized tax benefits as calculated under FASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109 by approximately $419,000, including an accrual of interest and penalties of approximately $29,000. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.

We are subject to taxation in the United States and various states and foreign jurisdictions. We are currently under examination by the Internal Revenue
Service for the 2005 and 2006 tax year. As of June 30, 2008, no audit adjustments have been made. Currently, we cannot estimate the range of reasonably possible change in unrecognized tax benefits in the next 12 months.

Recent Accounting Pronouncements

In May 2008, the
FASB issued SFAS No. 162 (SFAS No. 162), The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. While this statement formalizes the sources and hierarchy of GAAP within the authoritative accounting literature, it does not
change the accounting principles that are already in place. This statement will be effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is not expected to have a material impact on our consolidated financial statements.

Liquidity and Capital Resources



|                                                             |  |                                    |        |   |      |   |         |                     |  |   |        |   |  |      |   
|------------------------------------------------------------ |  | ---------------------------------- | ------ | - | ---- | - | ------- | ------------------- |  | - | ------ | - |  | ---- | --
|                                                             |  | Six Months Ended June 30,          |        |   |      |   |         |                     | 
|                                                             |  | 2008                               |        |   | 2007 |   |         | Increase (Decrease) | 
|                                                             |  | (in thousands, except percentages) |       
|Net cash (used in) provided by operating activities          |  | $                                  | (130   | ) |      | $ | 3,311   |                     |  | $ | (3,441 | ) |  | (104 | %)
|Net cash provided by (used in) investing activities          |  |                                    | 31,573 |   |      |   | (10,316 | )                   |  |   | 41,889 |   |  | (406 | %)
|Net cash provided by financing activities                    |  |                                    | 1,583  |   |      |   | 380     |                     |  |   | 1,203  |   |  | 317  | % 
|Effect of exchange rate changes on cash and cash equivalents |  |                                    | 29     |   |      |   | (72     | )                   |  |   | 101    |   |  | (140 | %)
|                                                             |  |                                    |        |   |      |   |         |                     |  |   |        |   |  |      |   
|Net increase (decrease) in cash and cash equivalents         |  | $                                  | 33,055 |   |      | $ | (6,697  | )                   |  | $ | 39,752 |   |  |      |   
|                                                             |  |                                    |        |   |      |   |         |                     |  |   |        |   |  |      |   



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Our cash, cash equivalents and short term investments were $110.0 million as of June 30, 2008 and
$114.2 million as of December 31, 2007.

Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities was $0.1 million for the six months ended June 30, 2008. Net loss of $3.4 million was adjusted for non-cash
charges consisting primarily of $1.5 million of depreciation and amortization expense and $3.6 million of stock-based compensation expense. We wrote off $0.3 million in-process research and development as a result of the acquisition of Elite.
Accounts receivable decreased by $3.2 million due to lower revenue during the first six months of 2008. Accrued liabilities balance decreased by $4.0 million as we paid out 2007 bonuses during the first quarter of 2008. Inventory increased by $1.5
million in anticipation of sales during the remainder of 2008.

Net cash provided by operating activities was $3.3 million for the six
months ended June 30, 2007. Net loss of $3.6 million was adjusted for non-cash charges consisting primarily of $1.4 million of depreciation and amortization expense and $3.5 million of stock-based compensation expense. Accounts payable and
accrued liabilities balance increased $4.6 million due to increased purchases of materials and services to meet expected demand. Inventory increased $3.0 million as a result of anticipated sales during the second half of 2007. Accounts receivable
balance increased $0.8 million due to higher revenue during the period.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $31.6 million in the six months ended June 30, 2008, primarily as a result of a net
cash inflow of $34.0 million from sales, maturities and purchases of our short-term investments. In the first quarter of 2008, we modified our investment policy to place greater emphasis on more liquid securities. The net cash increase provided by
investing activities reflects that policy change. The net cash inflow from investments was offset by $1.6 million used to purchase testing and other equipment and to invest in office leasehold improvements as well as $0.6 million, net of cash
acquired, used to acquire Elite during the first six months of 2008.

In June 2008, we acquired Elite, a privately held, Shanghai,
China-based audio company for approximately $1.0 million in cash. Elites high performance Class D audio amplifier and CODEC products are designed for audio amplification and audio processing in handsets, personal media players, Bluetooth
hands-free car kits and high definition televisions. We recorded goodwill of $399,000 associated with this acquisition. We did not record any intangible assets as a result of the Elite acquisition.

Net cash used in investing activities was $10.3 million in the six months ended June 30, 2007, primarily as a result of a net cash outflow of $8.9
million from purchases and maturities of our short-term investments and $1.4 million used to purchase testing and other equipment and to support our internal infrastructure growth.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $1.6 million in the six months ended June 30, 2008, primarily from net proceeds of $1.2 million from exercises of common stock options and $0.5 million of excess tax
benefit from employee stock-based compensation, offset by $0.1 million used to pay our capital lease obligations.

Net cash provided by
financing activities was $0.4 million in the six months ended June 30, 2007, primarily as a result of $0.5 million net proceeds from exercises of common stock options.

Liquidity

We believe our
existing cash, cash equivalents and short-term investment balances, as well as any cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.



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Our long-term future capital requirements will depend on many factors, including our level of revenue,
the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, our level
of acquisition activity or other strategic transactions, the continuing market acceptance of our products and the amount and intensity of our litigation activity. We could be required, or could elect, to seek additional funding through public or
private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off Balance Sheet
Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees,
subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to us.

Contractual Obligations

The following table describes our principal contractual cash obligations as of June 30, 2008:



|                                 |  |                |        |               |   |       |  |      |       |      |   |       |  |                |     |  |   |     |  |   |      
|-------------------------------- |  | -------------- | ------ | ------------- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | -------------- | --- |  | - | --- |  | - | -----
|                                 |  | Total          |        | Remaining2008 |   | 2009  |  | 2010 |       | 2011 |   | 2012  |  | 2013and beyond
|                                 |  | (in thousands)
|Obligations under capital leases |  | $              | 118    |               | $ | 77    |  | $    | 41    |      | $ |      |  | $              |    |  | $ |    |  | $ |     
|Operating leases                 |  |                | 6,197  |               |   | 830   |  |      | 1,428 |      |   | 1,078 |  |                | 550 |  |   | 568 |  |   | 1,743
|Purchase commitments(1)          |  |                | 6,785  |               |   | 5,603 |  |      | 788   |      |   | 394   |  |                |    |  |   |    |  |   |     
|                                 |  |                |        |               |   |       |  |      |       |      |   |       |  |                |     |  |   |     |  |   |      
|Total contractual obligations    |  | $              | 13,100 |               | $ | 6,510 |  | $    | 2,257 |      | $ | 1,472 |  | $              | 550 |  | $ | 568 |  | $ | 1,743
|                                 |  |                |        |               |   |       |  |      |       |      |   |       |  |                |     |  |   |     |  |   |      



|(1) | Purchase commitments consist primarily of our commitment to purchase wafers and technology licenses.
|--- | ----------------------------------------------------------------------------------------------------



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

At June 30, 2008, we had cash and cash equivalents totaling $86.8 million, compared to $53.8 million at December 31, 2007. At June 30, 2008, we had $23.1 million in short-term investments as compared to $60.4 million at
December 31, 2007. Cash equivalents have an original or remaining maturity when purchased of 90 days or less; short-term investments generally have an original or remaining maturity when purchased of greater than 90 days. The increase in cash
and cash equivalent balances and the decrease in short-term investments reflected our change in investment policy as a result of the recent liquidity crisis. We are placing greater emphasis on instruments with more liquidity, such as treasury notes.

The taxable equivalent interest rates for the three and six months ended June 30, 2008, on those cash equivalents and short-term
investments average approximately 2.8% and 3.4%, respectively. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. While none of the securities in which we
invested are secured by real estate, these securities may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount 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 treasury notes.

A hypothetical increase in market interest rates of 100 basis points from the market rates in effect at June 30, 2008 would cause the fair value of these investments to decrease by an immaterial amount, which
would not have significantly impacted our financial position or results of operations. Declines in interest rates over time will result in lower interest income. Based upon our analysis the fair values did not change materially as our investments
are of short duration.

At June 30, 2008, we also have approximately $2.6 million of auction rate securities (ARS) which
were illiquid. We classified these securities as long-term other assets because of our inability to determine when these ARS would recover their par value. In addition, we recognized approximately $0.6 million of unrealized impairment loss because
the fair value of these ARS measured using Level 3 inputs under the requirements of SFAS No. 157 is below the carrying value. We recorded this unrealized loss as a component of other comprehensive loss because the impairment was deemed
temporary as of June 30, 2008. We have the ability and intent to hold these ARS until a recovery of the auction process or until maturity (ranging from 2025 to 2046) because not having access to these funds does not have any significant impact
on our current or anticipated liquidity needs.



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|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Evaluation of Disclosure Controls
and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As of June 30, 2008, our management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, concluded that our disclosure controls and procedures were effective to ensure that information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Controls Over
Financial Reporting

There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the first quarter of 2008 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In May 2003, we received a
letter from Linear Technology Corporation (Linear Technology) alleging that certain of our charge pump products infringed United States Patent No. 6,411,531 (531 Patent) owned by Linear Technology. In August 2004, we received
a letter from Linear Technology alleging that certain of our switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (258 Patent). In response to these letters, we contacted Linear Technology to
convey our good faith belief that we do not infringe the patents in question. Subsequently, we became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt our business relationships and sales by suggesting to
our customers that our products infringe the same U.S. patents mentioned in its two letters to us. As a result, in February 2006, we initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and
prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (USITC) investigation
described in the following paragraph.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an
investigation under Section 337 of the Tariff Act to determine if certain of our products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products
involved in our lawsuit with Linear Technology.

In a Final Determination issued September 22, 2007, the USITC left unchanged its
earlier initial determination that our charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim 531 Patent owned by Linear Technology.

The Final Determination also found that a majority of our switching regulator designs do not infringe Linear Technologys 258 Patent. The
USITC also found that one family of switching regulator products infringes certain claims of the 258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under Section 337 of the Tariff Act prohibiting the
direct importation by us of this particular product family. This exclusion order does not, however, prevent our customers from importing their products into the United States. To date, our sales of this product family in the United States have been
minimal. Linear Technologys request that downstream products be barred from importation was denied.

Linear Technology is now
appealing portions of the Final Determination to the United States Court of Appeals for the Federal Circuit. We are opposing this appeal and are also appealing unfavorable portions of the Final Determination.

On February 20, 2008, and again on June 13, 2008 Linear Technology filed complaints with the USITC seeking an enforcement proceeding to correct
alleged violations of the limited exclusion order of September 22, 2007. We will take reasonable steps to protect our interests should the USITC agree to institute the requested enforcement action. We believe that none of our products infringe
the Linear Technology patents in question. However, whether or not we prevail in this appeal, we expect to incur significant legal expenses.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Our customers may cancel their
orders, change production quantities or delay production, and if we fail to forecast demand for our products accurately, we may incur product shortages, delays in product shipments or excess or insufficient product inventory.

We generally do not obtain firm, long-term purchase commitments from our customers. Because production lead times often exceed the amount of time required
to fulfill orders, we often must build in advance of orders, relying on an imperfect demand forecast to project volumes and product mix. Our demand forecast accuracy can be adversely affected by a number of factors, including inaccurate forecasting
by our customers, changes in market conditions, new part introductions by our competitors that lead to our loss of previous design wins, adverse changes in our product order mix and demand for our customers products or models. China, in
particular, is an emerging market where forecasting by our distributors is not accurate, and there can be rapid changes in the distribution system and market conditions. Even after an order is received, our customers may cancel these orders or
request a decrease in production quantities. Any such cancellation or decrease subjects us to a number of risks, most notably that our projected sales will not materialize on schedule or at all, leading to unanticipated revenue shortfalls and excess
or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are unable to project customer requirements accurately, we may



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not build enough products, which could lead to delays in product shipments and lost sales opportunities in the near term, as well as force our customers to
identify alternative sources, which could affect our ongoing relationships with these customers. We have in the past had customers dramatically increase their requested production quantities with little or no advance notice and after they had
submitted their original order. We have on occasion been unable to fulfill these revised orders within the time period requested. Either overestimating or underestimating demand would lead to excess, obsolete or insufficient inventory, which could
harm our operating results, cash flow and financial condition, as well as our relationships with our customers.

We receive a
substantial portion of our revenues from a small number of OEM customers and distributors, and the loss of, or a significant reduction in, orders from those customers or our other largest customers would adversely affect our operations and financial
condition.

We receive a substantial portion of our revenues from two of our OEM customers, LG Electronics Inc. of South Korea and
Samsung of South Korea, as well as from a few of our distributors, such as ChiefTech Electronics Ltd. of China. We received an aggregate of approximately 28% and 19% of our revenue from LG Electronics and Samsung in the second quarter of 2008 and
21% and 11% in the second quarter of 2007, respectively. In addition, we sell to a number of Samsungs contract manufacturers. Total sales to Samsung and its contract manufacturers represented 37% and 22% of our net revenue for the second
quarter of 2008 and 2007, respectively. We anticipate that we will continue to be dependent on these customers for a significant portion of our revenue in the immediate future; however, we do not have long-term contractual purchase commitments from
them, and we cannot assure you that they will continue to be our customers.

We received an aggregate of approximately 83% and 80% of our
revenues from our ten largest customers in the second quarter of 2008 and 2007, respectively. Any action by one of our largest customers that affects our orders, product pricing or vendor status could significantly reduce our revenues and harm our
financial results. In the future, our sales to our large customers will continue to be susceptible to quarterly fluctuation as our customers manage their inventories, principally for seasonal variations. In particular, our customers increase
in inventory of our products in advance of the peak buying season during the second half of year for wireless handsets often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth
calendar quarter. Because our largest customers account for such a significant part of our business, the loss of, or a decline in sales to, any of our major customers would negatively impact our business.

Our operating results have fluctuated in the past and we expect our operating results to continue to fluctuate.

Our revenues are difficult to predict and have varied significantly in the past from period to period. We expect our revenues and expense levels to
continue to vary in the future, making it difficult to predict our future operating results. In particular, we experience seasonality and variability in demand for our products as our customers manage their inventories. Our customers tend to
increase inventory of our products in anticipation of the peak fourth quarter buying season for the mobile consumer electronic devices in which our products are used, which often leads to sequentially lower sales of our products in the first
calendar quarter and, potentially, late in the fourth calendar quarter.

Additional factors that could cause our results to fluctuate
include:



| |  |  | the forecasting, scheduling, rescheduling or cancellation of orders by our customers, particularly in China and other emerging markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs associated with litigation, especially related to intellectual property;
| | - |  | ------------------------------------------------------------------------------



| |  |  | liquidity and cash flow of our distributors and end-market customers;
| | - |  | ---------------------------------------------------------------------



| |  |  | changes in manufacturing costs, including wafer, test and assembly costs, and manufacturing yields, product quality and reliability;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and availability of adequate manufacturing capacity from our manufacturing suppliers;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully define, design and release new products in a timely manner that meet our customers needs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, performance and pricing of new product introductions by us and by our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | general economic conditions in the countries where we operate or our products are used;
| | - |  | ---------------------------------------------------------------------------------------



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| |  |  | changes in exchange rates, interest rates, tax rates and tax withholding;
| | - |  | -------------------------------------------------------------------------



| |  |  | geopolitical stability, especially affecting China, Taiwan and Asia in general; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in domestic and international tax laws.
| | - |  | -----------------------------------------------

Unfavorable changes in any of the above factors, most of which are beyond our control, could significantly harm our business and results of operations.

We may be unsuccessful in developing and selling new products or in penetrating new markets.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our
competitiveness and future success depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our
product markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products,
which could result in product obsolescence, decreased revenues and a loss of design wins to our competitors. For example, we introduced over 100 new products during 2007 but many of them have not been adopted by our customers as of June 30,
2008. The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:



| |  |  | effective marketing, sales and service;
| | - |  | ---------------------------------------



| |  |  | timely and efficient completion of process design and device structure improvements and implementation of manufacturing, assembly and test processes; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the quality, performance and reliability of the product.
| | - |  | --------------------------------------------------------

If we fail to introduce new products or penetrate new markets, our revenues will likely decrease over time and our financial condition could suffer.

Due to defects and failures that may occur, our products may not meet specifications, which may cause customers to return or stop buying our
products and may expose us to product liability claims.

Our customers generally establish demanding specifications for quality,
performance and reliability that our products must meet. Integrated circuits, or ICs, as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement of commercial
shipments, which might require product replacement or recall. In addition, our customers may not use our products in a way that is consistent with our published specifications. If defects and failures occur in our products during the design phase or
after, or our customers use our products in ways that are not consistent with their intended use, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations
or rescheduling of orders or shipments, or product returns or discounts, any of which would harm our operating results. We cannot assure you that we will have sufficient resources, including any available insurance, to satisfy any asserted claims.

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

We devote
significant time and resources in working with our customers system designers to understand their future needs and to provide products that we believe will meet those needs. If a customers system designer initially chooses a
competitors product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system because changing suppliers can involve significant cost, time, effort and risk for
our customers.

We often incur significant expenditures in the development of a new product without any assurance that our customers
system designers will select our product for use in their electronic systems. We often are required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need for that particular design. In some
cases, there is minimal or no demand for our products in our anticipated target applications. Even if our products are selected by our customers system designers, a substantial period of time will elapse before we generate revenues related to
the significant expenses we have incurred. The reasons for this delay generally include the following elements of our product sales and development cycle timeline and related influences:



| |  |  | our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | it can take up to 12 months from the time our products are selected to complete the design process;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | it can take an additional nine to 12 months or longer to complete commercial introduction of the electronic systems that use our products, if they are introduced at
all;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | original equipment manufacturers 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.
| | - |  | ------------------------------------------------------------------------------------------------------------

We estimate that the overall sales and development cycle timeline of an average product is approximately 16 months.

Additionally, even if system designers use our products in their electronic systems, we cannot assure you that these systems will be commercially
successful. As a result, we are unable to accurately forecast the volume and timing of our orders and revenues associated with any new product introductions.

Any increase in the manufacturing cost of our products could reduce our gross margins and operating profit.

The semiconductor business exhibits ongoing competitive pricing pressure from customers and competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase price variances or adverse
manufacturing cost variances, will reduce our gross margins and operating profit. For example, if we do not incorporate the partially fabricated wafers held for us by our suppliers into our products in a timely fashion, we may still become obligated
to purchase these materials, which may reduce our gross margins. We do not have many long-term supply agreements with our manufacturing suppliers and, consequently, we may not be able to obtain price reductions or anticipate or prevent future price
increases from our suppliers.

The average selling price of our products may decline, or a change in the mix of product orders may
occur, either of which could reduce our gross margins.

During a power management products life, its selling price tends to
decrease for a particular application. As a result, to maintain gross margins on our products, we must continue to identify new applications for our products, reduce manufacturing costs for our existing products and introduce new products. If we are
unable to identify new, high gross margin applications for our existing products, reduce our production costs or sell new, high gross margin products, our gross margins will suffer. A sustained reduction in our gross margins could harm our future
operating results, cash flow and financial condition, which could lead to a significant drop in the price of our common stock.

Because we receive a substantial portion of our revenues through distributors, their financial viability and ability to access the capital markets could impact our ability to continue to do business with them and could result in lower
revenues, which could adversely affect our operating results and our customer relationships.

We obtain a portion of our revenues
through sales to distributors located in Asia who act as our fulfillment representatives. Sales to distributors accounted for 26% and 43% of our revenues for the second quarter of 2008 and 2007, respectively. In the normal course of their operation
as fulfillment representatives, these distributors typically perform functions such as order scheduling, shipment coordination, inventory stocking, payment and collections and, when applicable, currency exchange between purchasers of our products
and these distributors. Our distributors compensation for these functions is reflected in the price of the products we sell to these distributors. Many of our current distributors also serve as our sales representatives procuring orders for us
to fill directly. If these distributors are unable to pay us in a timely manner or if we anticipate that they will not pay us, we may elect to withhold future shipments, which could adversely affect our operating results. If one of our distributors
experiences severe financial difficulties, becomes insolvent or declares bankruptcy, we could lose product inventory held by that distributor and we could be required to write off the value of any receivables owed to us by that distributor. We could
also be required to record bad debt expense in excess of our reserves. We may not be successful in recognizing these indications or in finding replacement distributors in a timely manner, or at all, any of which could harm our operating results,
cash flow and financial condition.



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Our distributor arrangements often require us to accept product returns and to provide price
protection and if we fail to properly estimate our product returns and price protection reserves, this may adversely impact our reported financial information.

A substantial portion of our sales are made through third-party distribution arrangements, which include stock rotation rights that generally permit the return of up to 5% of the previous six months purchases.
We generally accept these returns in the second and fourth quarter of each annual period. Our arrangements with our distributors typically also include price protection provisions if we reduce our list prices. We record estimated returns at the time
of shipment, and we record reserves for price protection at the time we decide to reduce our list prices. In the future, we could receive returns or claims that are in excess of our estimates and reserves, which could harm our operating results.

Our distributor arrangements often require us to accept returns of unsold products if contractual arrangements with a distributor
are terminated, which could harm our operating results or, if we fail to take steps, could harm our relationship with these distributors and lead to a loss of revenues.

If our relationship with any of our distributors deteriorates or terminates, it could lead to a temporary or permanent loss of revenues until a
replacement sales channel can be established to service the affected end-user customers, as well as inventory write-offs or accounts receivable write-offs. We may not be successful in finding suitable alternative distributors and this could
adversely affect our ability to sell in certain locations or to certain end-user customers. We also may be obligated to repurchase unsold products from a distributor if we decide to terminate our relationship with that distributor.

Our current backlog may not be indicative of future sales.

Due to the nature of our business, in which order lead times may vary, and the fact that customers are generally allowed to reschedule or cancel orders on short notice, we believe that our backlog is not necessarily a
good indicator of our future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because our lead times for the manufacturing of our products generally take six to ten weeks, we often must build in advance of
orders. This exposes us to certain risks, most notably the possibility that expected sales will not occur, which may lead to excess inventory, and we may not be able to sell this inventory to other customers. In addition, we supply LG Electronics,
one of our largest customers, through its central hub and we do not record backlog with respect to the products we ship to the hub. Therefore, our backlog may not be a reliable indicator of future sales.

If consumer demand for mobile consumer electronic devices declines, our revenues will decrease.

Our products are used primarily in the mobile consumer electronic devices market. For the foreseeable future, we expect to see the significant majority of
our revenues continue to come from this market, especially in wireless handsets. If consumer demand for these products declines, our revenues will decrease. If we are unsuccessful in identifying alternative markets for our products in a timely
manner, our operating results will suffer dramatically. For example, there was a decline in the wireless handset demand in China and Taiwan during the first six months of 2008 and as a result, we experienced significant reduction in revenue during
this period.

Substantially all of our manufacturing suppliers, customers and operations are located in Asia, which subjects us to
additional risks, including regional economic influences, logistical complexity, political instability and natural disasters including earthquakes.

We conduct, and expect to continue to conduct, almost all of our business with companies that are located outside the United States. Based on ship-to locations, approximately 95% and 96% of our revenues came from
customers in Asia, particularly South Korea, Taiwan, China and Japan, in the second quarter of 2008 and 2007, respectively. A vast majority of our contract manufacturing operations are located in South Korea, Taiwan, Malaysia and China. In addition,
we have a design center in Shanghai, China. As a result of our international focus, we face several challenges, including:



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



| |  |  | longer and more difficult collection of receivables;
| | - |  | ----------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



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| |  |  | limited protection of our intellectual property;
| | - |  | ------------------------------------------------



| |  |  | unanticipated changes in local regulations, including tax regulations;
| | - |  | ----------------------------------------------------------------------



| |  |  | timing and availability of import and export licenses; and
| | - |  | ----------------------------------------------------------



| |  |  | foreign currency exchange fluctuations relating to our international operating activities.
| | - |  | ------------------------------------------------------------------------------------------

Our corporate headquarters in Santa Clara, California, our operations office in Chupei, Taiwan, and the production facilities of one of our wafer
fabrication suppliers and several of our assembly and test suppliers in Hsinchu and across Taiwan are located near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and our business could be
damaged in the event of a major earthquake or other natural disaster.

In addition to risks in our operations from natural disasters, our
customers are also subject to these risks. Any disaster impacting our customers could result in loss of orders, delay of business and temporary regional economic recessions.

We are also more susceptible to the regional economic impact of health crises. Because we anticipate that we will continue to rely heavily on foreign
companies or U.S. companies operating in Asia for our future growth, the above risks and issues that we do not currently anticipate could adversely affect our ability to conduct business and our results of operations.

We outsource our wafer fabrication, testing, packaging, warehousing and shipping operations to third parties, and rely on these parties to produce
and deliver our products according to requested demands in specification, quantity, cost and time.

We rely on third parties for
substantially all of our manufacturing operations, including wafer fabrication, wafer probe, wafer thinning, assembly, final test, warehousing and shipping. We depend on these parties to supply us with material of a requested quantity in a timely
manner that meets our standards for yield, cost and manufacturing quality. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in the quantity required, which in turn
could cause an unanticipated decline in our sales and possibly damage our customer relationships.

Our products are manufactured at a
limited number of locations. If we experience manufacturing problems at a particular location, we would be required to transfer manufacturing to a backup supplier. Converting or transferring manufacturing from a primary supplier to a backup
fabrication facility could be expensive and could take as long as six to 12 months. During such a transition, we would be required to meet customer demand from our then-existing inventory, as well as any partially finished goods that can be modified
to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be able to meet
customer needs during such a transition, which could delay shipments, cause a production delay or stoppage for our customers, result in a decline in our sales and damage our customer relationships.

In addition, a significant portion of our sales are to customers that practice just-in-time order management from their suppliers, which gives us a very
limited amount of time in which to process and complete these orders. As a result, delays in our production or shipping by the parties to whom we outsource these functions could reduce our sales, damage our customer relationships and damage our
reputation in the marketplace, any of which could harm our business, results of operations and financial condition.

The loss of any
of our key personnel could seriously harm our business, and our failure to attract or retain specialized technical and management talent could impair our ability to grow our business.

The loss of services of one or more of our key personnel could seriously harm our business. In particular, our ability to define and design new products,
gain new customers and grow our business depends on the continued contributions of Richard K. Williams, our President, Chief Executive Officer and Chief Technical Officer, as well as our senior level sales, finance, operations, technology and
engineering personnel. Our future growth will also depend significantly on our ability to recruit and retain qualified and talented managers and engineers, along with key manufacturing, quality, sales and marketing staff members. There remains
intense competition for these individuals in our industry, especially those with power and analog semiconductor design and applications expertise. We cannot assure you we will be successful in finding, hiring and retaining these individuals. If we
are unable to recruit and retain such talent, our product and technology development, manufacturing, marketing and sales efforts could be impaired.



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We do not expect to sustain our growth rate, and we may not be able to manage any future growth
effectively.

We have experienced significant growth in a short period of time. Our revenues have increased from approximately $1.0
million in 2001 to $110.0 million in 2007. We do not expect to achieve similar growth rates in future periods. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating
performance. If we are unable to maintain adequate revenue growth, our financial results could suffer and our stock price could decline.

We have also grown from 110 employees on January 1, 2004 to 304 employees on June 30, 2008, with many located in regional and international offices. Our international growth may subject us to income and transaction taxes in the
United States and in multiple foreign locations. Our future effective tax rates could be affected by changes in our U.S. and foreign tax estimates and liabilities, or changes in tax laws or the interpretation of such tax laws. If additional taxes
are assessed against us, our operating results or financial condition could be materially affected.

Our expansion has placed a significant
strain on our management, personnel, systems and resources. Any future expansion is likely to result in additional strain on our managerial infrastructure. To manage our growth successfully and handle the responsibilities of being a public company,
we believe we must effectively:



| |  |  | recruit, hire, train and manage additional qualified engineers for our research and development activities, especially in the positions of design engineering,
product and test engineering, and applications engineering;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continue to implement and improve adequate administrative, financial and operational systems, procedures and controls; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | enhance our information technology support for enterprise resource planning and design engineering by adapting and expanding our systems and tool capabilities, and
properly training new hires as to their use.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are unable to manage our growth effectively, we may not be able to
take advantage of market opportunities or develop new products, our introduction of derivative products may be delayed and we may fail to satisfy customer requirements, maintain product quality, execute our business plan or respond to competitive
pressures.

A failure to maintain our international structure may adversely affect our tax rate, financial condition and operating
results.

During 2005, we realigned certain areas of our operations in connection with the implementation of an international
structure. This realignment required us to transfer certain functions previously handled in our Santa Clara, California headquarters to offices in foreign jurisdictions, primarily Macau. If we fail to maintain our realigned operations, our operating
results may be adversely affected. Additionally, our international structure results in an increased volume of transactions and accounting for those transactions may require us to increase our headcount either domestically or internationally. A
failure to process those transactions in an accurate and timely manner could be indicative of a material weakness in our internal controls over financial reporting. Our international structure requires that we understand complex tax laws and
regulations in various domestic and international jurisdictions. If we are unable to comply with domestic and international tax laws, our tax rate and our financial condition may be adversely impacted. Further, the domestic and international tax
laws governing our structure are subject to change, which could adversely affect our operations and financial results. We are currently undergoing an audit by the Internal Revenue Service for our 2005 and 2006 tax years. In connection with this
audit, the IRS could challenge certain of our tax positions, including our international structure. If the IRS challenges our international structure and such challenge is successful, our financial results and financial condition could be materially
and adversely affected.

Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns
could adversely affect our results.

Our future effective tax rates could be adversely affected by lower than anticipated earnings
in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations,
accounting principles or interpretations thereof. Further, as a result of certain ongoing employment and capital investment



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commitments made by us, our income in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from tax. Our failure to meet
such commitments could adversely impact our effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of
adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results
and financial condition.

We compete against companies with substantially greater financial and other resources, and our market share
or gross margins may be reduced if we are unable to respond to competitive challenges effectively.

The analog, mixed-signal, or
analog with digital, and power management semiconductor industry in which we operate is highly competitive and dynamic, and we expect it to remain so. Our ability to compete effectively depends on defining, designing and regularly introducing new
products that meet or anticipate the power management needs of our customers next-generation products and applications. We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other
resources with which to pursue marketing, technology development, product design, manufacturing, quality, sales and distribution of their products.

We consider our primary competitors to be Maxim Integrated Products, Inc., Linear Technology Corporation, Texas Instruments Incorporated, Semtech Corporation and National Semiconductor Corporation. We expect continued competition from
existing competitors as well as from new entrants into the power management semiconductor market. Our ability to compete depends on a number of factors, including:



| |  |  | our success in identifying new and emerging markets, applications and technologies, and developing power management solutions for these markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our products performance and cost effectiveness relative to that of our competitors products;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | our ability to deliver products in large volume on a timely basis at a competitive price;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to recruit application engineers and designers; and
| | - |  | ---------------------------------------------------------------



| |  |  | our ability to protect our intellectual property.
| | - |  | -------------------------------------------------

We cannot assure you that our products will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by our existing competitors or new
companies entering this market.

Assertions by third parties of infringement by us of their intellectual property rights could result
in significant costs, reduce sales of our products 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. We have in the past received, and expect that in the future we may receive,
communications from various industry participants alleging our infringement of their 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. Any potential intellectual property litigation also could force us to do one or more of the following:



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



| |  |  | incur significant legal expenses;
| | - |  | ---------------------------------



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



| |  |  | redesign those products that contain the allegedly infringing intellectual property; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



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We initiated a lawsuit against Linear Technology Corporation in February 2006 for unfair business
practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. In this case, we are seeking to prevent Linear Technology from continuing a marketing campaign
designed to disrupt our business relationships and sales by suggesting to our customers that our products infringe several U.S. patents owned by Linear Technology. As we informed Linear Technology in 2003 and 2004, and as discussed in our prior
public filings, we believe that none of our products infringe the patents in question. However, whether or not we prevail in this lawsuit, we expect to incur significant legal expenses related to this case. In February 2006, in a related action,
Linear Technology petitioned the United States International Trade Commission (USITC) requesting that the USITC initiate an investigation to determine if certain of our products infringe certain patents owned by Linear Technology under
Section 337 of the Tariff Act. The patents involved in this action are a subset of the patents involved in the lawsuit that we filed against Linear Technology. The accused products include charge pumps and switching regulators and are similar
to the products involved in our lawsuit with Linear Technology.

In a Final Determination issued September 22, 2007, the USITC left
unchanged its earlier initial determination that our charge pumps do not violate Section 337 of the Tariff Act because they do not infringe any valid claim of U.S. Patent No. 6,411,531 (531 Patent) owned by Linear Technology.

The Final Determination also found that a majority of our switching regulator designs do not infringe Linears Patent
No. 6,580,258 (258 Patent). The USITC also found that one family of switching regulator products infringes certain claims of the 258 Patent. Following normal USITC procedure, the USITC issued a limited exclusion order under
Section 337 of the Tariff Act prohibiting the direct importation by us of this particular product family. This exclusion order does not, however, prevent our customers from importing their products into the United States. Linear
Technologys request that downstream products be barred from importation was denied.

Linear Technology is now appealing portions of
the Final Determination to the United States Court of Appeals for the Federal Circuit. We are opposing this appeal and are also appealing unfavorable portions of the Final Determination.

On February 20, 2008, and again on June 13, 2008 Linear Technology filed complaints with the USITC seeking an enforcement proceeding to correct
alleged violations of the limited exclusion order of September 22, 2007. We will take reasonable steps to protect our interests should the USITC agree to institute the requested enforcement action. We believe that none of our products infringe
the Linear Technology patents in question. However, whether or not we prevail in this appeal, we expect to incur significant legal expenses. Uncertainty over the outcome of our litigation with Linear Technology may cause our customers or potential
customers to elect not to include our products that are the subject of this litigation into the design of their systems. Once a customers system designer initially chooses a competitors product for a particular electronic system, it
becomes significantly more difficult for us to sell our products for use in that electronic system, because changing suppliers can involve significant cost, time, effort and risk for our customers. As a result, our litigation with Linear Technology
or any similar future litigation may reduce both our current and future revenues. If we are unsuccessful in this case, our business and our ability to compete in foreign markets could be harmed, and we could be enjoined from selling the accused
products in the United States, either directly or indirectly, which could have a material adverse impact on our revenues, financial condition, results of operations and cash flows.

Our failure to protect our intellectual property rights adequately could impair our ability to compete effectively or to defend ourselves from
litigation, which could harm our business, financial condition and results of operations.

We rely primarily on patent, copyright,
trademark and trade secret laws, as well as confidentiality and non-disclosure agreements to protect our proprietary technologies and know-how. While we have more than 50 patents issued or allowed in the United States or foreign countries and a
larger number of pending applications, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents could be challenged or circumvented by our competitors or be declared invalid or
unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is generally
not as comprehensive as our U.S. patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign
countries may not be available. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products.



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Monitoring unauthorized use of our intellectual property is difficult and costly. It is possible that
unauthorized use of our intellectual property may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property
could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could harm our business, results of operations and financial condition. We may in the future need to initiate infringement claims or
litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in
a determination favorable to us.

Any acquisitions we make could disrupt our business, result in integration difficulties or fail to
realize anticipated benefits, which could adversely affect our financial condition and operating results.

We may choose to acquire
companies, technologies, assets and personnel that are complementary to our business, including for the purpose of expanding our new product design capacity, introducing new design, market or application skills or enhancing and expanding our
existing product lines. In October 2006, we acquired Analog Power Semiconductor Corporation and related assets and personnel, primarily located in Shanghai, China. In June 2008, we acquired Elite, located in Shanghai, China. Acquisitions
involve numerous risks, including the following:



| |  |  | difficulties in integrating the operations, systems, technologies, products and personnel of the acquired companies;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting
from acquisitions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in entering markets in which we may have no or limited direct prior experience and where competitors may have stronger market positions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential loss of key employees, customers, distributors, suppliers and other business partners of the companies we acquire following and continuing after
announcement of acquisition plans;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | improving and expanding our management information systems to accommodate expanded operations;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | insufficient revenue to offset increased expenses associated with acquisitions; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | addressing unforeseen liabilities of acquired businesses.
| | - |  | ---------------------------------------------------------

Acquisitions may also cause us to:



| |  |  | issue capital stock that would dilute our current stockholders percentage ownership;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | use a substantial portion of our cash resources or incur debt;
| | - |  | --------------------------------------------------------------



| |  |  | assume liabilities;
| | - |  | -------------------



| |  |  | record goodwill or incur amortization expenses related to certain intangible assets; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | incur large and immediate write-offs and other related expenses.
| | - |  | ----------------------------------------------------------------

Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, and our failure to realize these benefits could adversely affect our business. In addition, we may not be successful in
identifying future acquisition opportunities or in consummating any acquisitions that we may pursue on favorable terms, if at all. Any transactions that we complete may impair stockholder value or otherwise adversely affect our business and the
market price of our stock. Failure to manage and successfully integrate acquisitions could materially harm our financial condition and operating results.

Our operating results, financial condition and cash flows may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address, including the cyclical
nature of and volatility in the semiconductor industry.

The semiconductor industry has historically exhibited cyclical behavior
which at various times has included significant downturns in customer demand. These conditions have caused significant variations in product orders and production capacity utilization, as well as price erosion. Because a significant portion of our
expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses rapidly enough to offset any unanticipated shortfall in revenues. If this situation were to occur, it could adversely
affect our operating results, cash flow and financial condition.



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Additionally, general worldwide economic conditions have recently experienced a downturn due to slower
economic activity, concerns about inflation and deflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the wired and wireless
communications markets, recent international conflicts and terrorist and military activity and the impact of natural disasters and public health emergencies. These conditions make it extremely difficult for our customers, our vendors and us to
accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. We cannot predict the timing, strength or duration
of any economic slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the economy or markets in which we operate do not continue at their present levels, our business, financial condition and results of operations
will likely be materially and adversely affected.

Our business may be adversely impacted if our end customers cannot obtain
sufficient supplies of other components in their products to meet their production projections and target quantities.

Our power
management products are used by our customers in conjunction with a number of other components such as digital integrated circuits, baseband processors, microcontrollers and digital signal processors. If for any reason our customers incur a shortage
of any component, their ability to produce the forecasted quantity of their end product or model may be adversely affected and our product sales would decline until such shortage is remedied. Such a situation could harm our operating results, cash
flow and financial condition.

A failure of our information systems would adversely impact our ability to process orders for and
manufacture products.

We operate a multinational business enterprise with manufacturing, administration and sales groups located in
Asia, Europe and the United States. These disparate groups are connected by a private network-based enterprise resource planning system, where daily manufacturing operations and order entry functions rely on maintaining a reliable network among
locations. Any failure of our computer network or our enterprise resource planning system would impede our ability to schedule orders, monitor production work in process and ship and bill our finished goods to our customers.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Not
applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Our 2008 annual meeting of stockholders was held on May 28, 2008 to consider and vote upon two matters. The first matter related to the election of two Class III director nominees, Chandramohan Subramaniam and Thomas Weatherford, to
serve for a term of three years expiring on the 2011 Annual Meeting of Stockholders or in the event that the nominees become unavailable or decline to serve as a director duly elected and qualified. The votes cast and withheld for such nominees were
as follows:



|                         |  |            |  |          
|------------------------ |  | ---------- |  | ---------
|Name                     |  | For        |  | Withheld 
|Chandramohan Subramaniam |  | 41,119,122 |  | 156,580  
|Thomas Weatherford       |  | 36,837,400 |  | 4,438,302

In addition to the recently elected directors, Samuel Anderson, Jaff Lin, Thomas Redfern and
Richard K. Williams continued as directors after the 2008 Annual Meeting of Stockholders.



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The second matter related to the ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December 31, 2008. 40,945,213 votes were cast for ratification, 327,391 votes were cast against, and there were 3,098 abstentions and no broker non-votes.

Based on these voting results, each of the directors nominated was elected and the second matter was passed.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------



|      |  |                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.1  |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   



|* | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section,
nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any
filings.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

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.



|                     |  |  |  |                                             |  |                       |  |                                                                           
|-------------------- |  |  |  | ------------------------------------------- |  | --------------------- |  | --------------------------------------------------------------------------
|                     |  |  |  | ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED
|                     |  |  | 
|Dated: July 29, 2008 |  |  |  | By:                                         |  | /s/ Brian R. McDonald
|                     |  |  |  |                                             |  |                       |  | Brian R. McDonald                                                         
|                     |  |  |  |                                             |  |                       |  | Chief Financial Officer, Vice President of Worldwide Finance and Secretary



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EXHIBIT INDEX



|      |  |                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.1  |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   



|* | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section,
nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any
filings.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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