UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2004
|Commission File No. 0-29454                

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POWER-ONE, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of incorporation or organization)        |  | 77-0420182(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------- |  | ----------------------------------------------
|740 Calle Plano
Camarillo, California(Address of principal executive offices) |  | 93012(Zip code)                               

Registrant's
telephone number, including area code(805) 987-8741

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Securities
registered pursuant to Section 12(b) of the Act:None

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

Common Stock, $0.001 par value(Title of class)

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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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

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

Aggregate market value of registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the
registrant's common stock on June 25, 2004, as reported by the National Market System of the National Association of Securities Dealers Automated Quotation ("NASDAQ") System on that date was
approximately $758,525,000

As
of March 11, 2005, 84,635,389 shares of the registrant's $0.001 par value common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A and relating to
the registrant's Annual Meeting of Stockholders For Fiscal Year 2004, to be held on May 3, 2005, are incorporated by reference into Parts II and III of this Annual Report on
Form 10-K.



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TABLE OF CONTENTS

|                              |  |                                                                                                              |  | Page
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I                        |  |                                                                                                              |  |     
|Item 1.                       |  | Business                                                                                                     |  | 2   
|Item 2.                       |  | Properties                                                                                                   |  | 19  
|Item 3.                       |  | Legal Proceedings                                                                                            |  | 19  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                          |  | 20  
|PART II                       |  |                                                                                                              |  |     
|Item 5.                       |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 21  
|Item 6.                       |  | Selected Financial Data                                                                                      |  | 21  
|Item 7.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 25  
|Item 7A.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 38  
|Item 8.                       |  | Financial Statements and Supplementary Data                                                                  |  | 39  
|Item 9.                       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                        |  | 39  
|Item 9A.                      |  | Controls and Procedures                                                                                      |  | 39  
|Item 9B.                      |  | Other Information                                                                                            |  | 41  
|PART III                      |  |                                                                                                              |  |     
|Item 10.                      |  | Directors and Executive Officers of the Company                                                              |  | 42  
|Item 11.                      |  | Executive Compensation                                                                                       |  | 42  
|Item 12.                      |  | Security Ownership of Certain Beneficial Owners and Management                                               |  | 42  
|Item 13.                      |  | Certain Relationships and Related Transactions                                                               |  | 42  
|Item 14.                      |  | Principal Accountant Fees and Services                                                                       |  | 42  
|PART IV                       |  |                                                                                                              |  |     
|Item 15.                      |  | Exhibits and Financial Statement Schedules                                                                   |  | 43  
|Signatures                    |  | 44                                                                                                          
|Index to Financial Statements |  | F-1                                                                                                         
|Financial Statement Schedule  |  | S-1                                                                                                         
|Index to Exhibits             |  | S-3                                                                                                         

Unless the context indicates otherwise, all references herein to "Power-One," "the Company," "we," "us," and "our" refer collectively to
Power-One, Inc. and its subsidiaries.

This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that can be identified by the use of forward-looking terminology such as "may," "will," "believe,"
"expect," "anticipate," "estimate," "plan," "intend" or "continue" or the negative thereof or other variations thereon or comparable terminology. We caution that the matters set forth under "Risk
Factors," constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to
differ materially from those in such forward-looking statements.

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PART I

ITEM 1BUSINESS

Overview

We are a leading designer and manufacturer of power conversion and power management products, most of which are sold into the communications infrastructure
market. Our products are used to convert, process and manage electrical energy to the high levels of quality, reliability and precise levels of direct current ("DC") voltage required by communications
infrastructure and other equipment. With hundreds of different products, we have one of the most comprehensive product lines in the power conversion and power management industry and are one of a few
companies that can power virtually every segment of a communications infrastructure network.

Our
products include:



We
design our products primarily for the higher-end communications infrastructure market, rather than for use in personal computers, mobile phones or other consumer products.

AC/DC
power supplies convert alternating current ("AC") from a primary power source, such as a wall outlet, into a precisely controlled DC voltage. Virtually every electronic device that
plugs into an AC wall outlet requires some type of AC/DC power supply. DC/DC converters modify an existing DC voltage level to other DC voltage levels to meet the power needs of various subsystems and
components within electronic equipment. DC power systems are integrated or external systems used to power and back-up large communications infrastructure equipment. During 2004, we
introduced our Z-One digital power management architecture and related products, which manage DC power in a significantly enhanced manner over traditional power supplies and also can save
customers significant board space, design time and cost.

We
design our power conversion and power management products primarily to meet the needs of manufacturers of communications infrastructure equipment. For these manufacturers, a
fluctuation of power may cause severe damage to sensitive systems, resulting in data loss, file corruption and significantly reduced productivity. We design our products to take
low-quality power from the electrical grid and purify it to meet the higher quality demanded by digital communications networks, providing significantly greater protection against power
disturbances, such as fluctuations and outages. In addition, our products' compact designs are critical to our customers who need to minimize the space allocated to power conversion products in order
to maximize the space available for other components. We continually strive to stay ahead of the technology curve to develop innovative products that meet and exceed our customers' needs.

While
approximately 38.4% of our sales were to our top ten customers in 2004, we sell our products to hundreds of customers worldwide. Our largest customer in 2004 was Cisco Systems and
its contract manufacturers, which accounted for 15.1% of our sales in 2004, 15.4% of our sales in 2003,

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and
15.5% of our sales in 2002. Other key communications infrastructure customers include Nokia, Lucent, Alcatel, Nortel and Motorola. Key customers in other industries include Teradyne, Siemens and
Intel.

We
were originally incorporated in 1973 as a California corporation, and re-incorporated in State of Delaware in January 1, 1996.

Industry Background

The power conversion industry is highly fragmented and diverse. Sales of power conversion products are generally divided into two broad categories: those sold to
third-party customers (merchant) and those for use in-house or sold to other divisions within the manufacturer's own company (captive). Power-One is a merchant power supply
manufacturer whose products are sold to third parties.

The
communications industry experienced rapid change in the late 1990s through 2000 as deregulation and privatization fueled competition and fostered the entry of new competitors. In
addition, advances in technology allowed communications service providers to offer a more varied range of services. Increases in Internet usage, demand for broadband services and demand for wireless
services contributed to the growth of the communications industry. Because these technological advances required significantly greater and more reliable power, the demand for power conversion products
also grew. In 2001, however, the communications infrastructure industry entered into a severe downturn, which was characterized by delayed network deployments by service providers due to excess
capacity and by a significant inventory correction. This downturn continued into 2002, and resulted in significant industry contraction. During this downturn we experienced decreasing sales,
cancellation of orders, write-offs of excess inventory, restructuring charges and asset impairment charges. We experienced modest sales growth in 2003 and 2004, as customers are now
ordering at levels that reflect current estimated demand.

Long
term, however, we believe the following key trends will continue to drive demand for power conversion:

Increasing Amounts of Power Required by the Communications Infrastructure Industry.With the advent
of the Internet, wireless communications, broadband applications and other new technologies, recent years have witnessed unprecedented growth in the volume of information being transmitted around the
world at any given moment. This increase in data quantity required the construction of large-scale, sophisticated fiber optic and server-based networks in the late 1990s. However, many networks became
overbuilt. Longer term, however, as the communications infrastructure industry needs to process greater amounts of data, it will in turn demand continual increases in power. Industry sources project
that the amount of power required by communications infrastructure equipment will grow significantly faster than the demand by other traditional users of power.

Increasing Demand for High Reliability Power.The nature of power demanded by the digital economy is
significantly different from the power provided by the electric utility grid. The electric utility grid supplies acceptable power quality, or power that is free from surges, spikes, or sags, 99.9% of
the time, resulting in the equivalent of nine hours per year of interrupted, or unavailable, power. These nine hours of downtime often occur in many isolated interruptions of very short duration. In
traditional industries, a brief interruption of power only interrupts operations for the time that the power is actually unavailable. For a modern communications network, however, even a minor power
disturbance or brief interruption could cause computers to crash and significantly shorten the life-span of electrical components. A network crash could result in several hours of
downtime, including the time necessary for complex microprocessor-based equipment to reboot and regain power. This downtime could lead to significant lost revenue and customer dissatisfaction. To
reduce these risks, power conversion products

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convert
this low-quality power to power that is much more reliable than that provided by the electric utility grid.

Growing Use of Distributed Power Architecture and Intermediate Bus Architecture, as well as the Trend Toward Power Management Rather than
Simple Power Conversion.Traditional power supply architecture uses a single, centralized power supply, which distributes the power through a cable of wires to the
various individual components dispersed throughout a system. Newer communications systems demand increasing amounts of power for semiconductors located throughout their communications equipment. At
the same time, newer-generation communications technologies being developed are requiring semiconductors that use lower voltages than previous-generation technologies. In many sophisticated systems,
the traditional architecture distributes power too inefficiently to accomplish these goals because as power increases and voltage decreases the cable thickness increases to an unacceptable size.

To
address this issue, Distributed Power Architecture, or DPA, uses a front-end power supply that converts AC voltage into an intermediate high-level DC voltage,
typically 48 volts, thus allowing a smaller cable to be used within a system to distribute power. DC/DC converters are located throughout the system close to the devices that use power. These
converters reduce the voltage to the precise amount needed at the point it is to be used. Furthermore, DPA helps to diversify the risk within a large communications system. While the failure of a
traditional centralized power supply could jeopardize the entire system, the failure of a single DC/DC converter in a DPA system may only affect those few individual components that it serves.
Finally, because there are many
converters within the system, DPA allows for greater flexibility by permitting a part of the system to be reconfigured or upgraded without requiring a major change to the overall system.

More
recently, a modified version of DPA called Intermediate Bus Architecture, or IBA has emerged, which addresses the number of different and lower voltages required by different
systems. Instead of using multiple DC/DC converters that have a typical input of 48 volts and low output voltages of less than 3V, the IBA uses a single converter with an intermediate voltage
(typically between 12 volts and 3 volts). The intermediate voltage from the one converter is then transmitted to multiple POL DC/DC converters, each of which converts the intermediate voltage to the
required lower voltages, which are typically 3 volts or less. During 2003 we announced a new division within the Company, Silicon Power Systems (SPS), which designs highly innovative and efficient
silicon-based solutions for next generation DC/DC power management products in the IBA market. We developed our maXyz product line specifically for the IBA market. In 2004 we introduced our
Z-One digital power management architecture and related products as part of the maXyz product line. We have spent and anticipate spending significant capital on R&D related to this
developing area of power conversion technology.

Our Competitive Advantages

We believe that we have key advantages that helped us to establish a leading brand for our products. The factors that we believe contribute to this leading
position are as follows:

Broad Product Line.We offer hundreds of products, in power ranging from one watt to a
half-megawatt. Our smaller products are no larger than a dime, while our larger DC power systems could fill an entire room. With millions of potential current and voltage configurations,
our broad product line offers our customers a one-stop shop opportunity, allowing them to purchase nearly all of their power conversion and power management products from a single
supplier. As a result, we are one of the few companies that can power virtually every segment of a communications infrastructure network.

Leading Design and Development Capabilities.There are a limited number of highly-skilled power
engineers in the world, and we believe that we have assembled some of the most capable and

4

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innovative
teams in the industry. In addition to maintaining a high retention rate among our technical staff, we also added top scientists to our ranks through each of our past strategic acquisitions.
This pool of engineering talent has allowed us to consistently upgrade to new generations of power conversion products, each of which has outperformed prior products with higher power density and
smaller size. It has also allowed us to become a leader in the implementation of DPA technology, and we expect to achieve a similar leading position in IBA technology. We believe that our
Z-One digital power management architecture has created a first-to-market competitive advantage for us; although certain competitors have announced a strategic
alliance to develop similar products, there is currently no similar competing product offering in the market place.

Reputation for Quality and Reliability.We have been in the power conversion industry since 1973. By
establishing rigorous internal quality control programs, we believe that we have been able to provide our customers with products that are highly reliable. This is particularly important for
manufacturers of communications infrastructure equipment. As a result, we established a strong customer base that includes many of the largest manufacturers in the communications infrastructure
industry. Although power conversion products typically represent only 2% to 5% of the cost of an entire network, their failure can cripple the entire system in which they are installed. Consequently,
we believe most customers are not willing to risk buying from an unproven supplier in an effort to cut costs in this area.

Changing Customer Needs.Manufacturers and service providers are facing greater competition to
accelerate the time-to-market for their new products, and are increasingly expected to produce newer generations of products in a shorter period of time. As a result, they are
more likely to purchase from suppliers who can offer a broad range of standardized power conversion products, rather than highly customized products that take more time to design and manufacture.
Manufacturers of communications infrastructure equipment are also focusing more on their core competencies, and therefore increasingly outsourcing the manufacture of power conversion products to more
efficient suppliers. Consequently, these customers are moving towards sourcing from the limited number of suppliers who can meet all of these needs.

Our Strategy: Powering the Communications Infrastructure

Our primary objective is to become one of the worldwide leaders in power conversion equipment for the global communications infrastructure equipment market. To
achieve this objective, we plan to do the following:

Expand Product Lines, Including DPA and IBA Products.We provide one of the most comprehensive lines
of power conversion and power management products, including DPA and IBA products, which are increasingly being designed into communications infrastructure equipment. Our recently introduced
Z-One digital power management products play a key role in our strategy. Once a power supply has been designed into a customer's product, it is generally difficult for the customer to
change suppliers during that product's life cycle. We also work with our customers to understand their changing product needs in order to proactively develop leading technology products. We intend to
continue our extensive research and development program to improve our products' performance and expand the breadth of our product offerings.

Continue to Cross-Sell Products on a Global Basis.We expanded the geographic reach of
our business through a series of strategic acquisitions in 1998 through 2003, which provided market penetration for our AC/DC and DC/DC products throughout Europe and broadened access for our telecom
DC power systems products to Europe and Asia. We believe we have substantial opportunities to market products developed in one region to customers located in other regions. We intend to capitalize on
our increased access to global markets by attempting to sell our complete product line to customers who had previously purchased only those products offered by the companies we acquired.

5

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Continue to Acquire and Invest in Strategic Businesses and Technologies.We plan to selectively
acquire and invest in businesses and technologies that can extend our geographic reach, increase the breadth of our product line, enhance the performance of our products, lower our manufacturing costs
or expand our customer base in the communications infrastructure equipment market. We believe the fragmentation of the power conversion industry presents opportunities for further consolidation. In
addition, we are investing aggressively in internal research and development initiatives to create next-generation power conversion products and continuing to invest in advanced
technologies for our DC/DC power converter products to enable significantly smaller power converters, higher efficiencies, and better performance in controlling and managing power on communications-
oriented printed circuit boards. We continue to earmark a significant portion of our overall research and development budget to develop this technology.

In
2004 we introduced our Z-One digital power management architecture and related products, which integrate conversion, communications, and control for a digital board-level
solution. Features of this architecture and the related Z-7000 product line include the ability to fully manage up to 32 POL DC/DC converters with a single-wire digital bus. It
also provides a 50% reduction in Printed Circuit Board (PCB) space, 20% cost savings, and a 90% decrease in components, number of PCB traces, and power-system development time. In 2005, we introduced
our Z-1000 product line, which are power management products that contain many but not all of the same features as the Z-7000 products, which we plan to market for customers'
mid-range applications.

Utilize Contract Manufacturers to Minimize Risk and Remain Cost Competitive.We continue to shift our
manufacturing model toward increased use of low-cost contract manufacturers around the world, especially in Asia. We have made strategic investments in or formed joint ventures with
certain contract manufacturers in order to ensure adequate access to their capacity. Although we currently manufacture many of our products in low cost locations such as the Dominican Republic and
Slovakia, the increased use of contract manufacturers will enable us to lower our overall costs and allow us to more efficiently scale production without significant capital investments in production
capacity.

Our Products

The majority of our products are standard and modified standard products that are designed to accelerate customers' time to market, as well as reduce the cost of
customers' new product introductions. Power supplies are generally classified as standard, modified standard and custom. Standard products refer to products that are standard to a particular
manufacturer, as opposed to an industry standard. Modified standard products are a specific company's standard products modified to fit a particular customer application. Because they have already
been designed and manufactured, standard and modified standard products allow end customers to reduce their time-to-market and minimize costs for new product introductions.
Custom products are usually designed from "scratch" to meet the specifications of a unique customer application. Standard and modified standard products tend to have higher margins than custom
products, which require significant tool and die costs and four- to six-month lead-times from conception through production. In addition, users of custom products
frequently have high-volume production requirements and typically operate in more price-sensitive industries. We also developed modular product architectures, which are meant to achieve
the flexibility of a custom power supply without the long lead-times and significant tool and die costs.

All
of our products are designed to convert, regulate, purify, store, manage or distribute electrical power for electronic equipment. Our products can be classified into three main
groups: AC/DC power supplies, DC/DC converters and DC power systems. These categories can be distinguished based on their location, size, functions within the system and primary applications.

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AC/DC power supplies:



DC/DC converters ("bricks") and POLs:



DC power systems:



Division Structure

In 2005, we announced plans to integrate substantially all of the operations of the ES division and di/dt into those of the CAPS division. As of 2004, the Company
consisted of four divisions: the Compact Advanced Power Systems ("CAPS") division, the Energy Solutions ("ES") division, the Silicon Power Systems ("SPS") division and di/dt. Upon completion of the
integration, the CAPS division will consist of our traditional AC/DC, DC/DC and power systems businesses. The SPS division is and will be focused on developing next-generation
silicon-based digital power management products for the recently introduced Z-One digital power management architecture.

Customers

We sell our power conversion products to a diversified group of hundreds of equipment manufacturers, including contract manufacturers. Cisco Systems and its
contract manufacturers accounted for 15.1% of our sales in 2004, 15.4% of our sales in 2003 and 15.5% of our sales in 2002. Cisco Systems and its contract manufacturers collectively were the only
customers to account for more than 10% of our sales during these periods.

Our
top 10 customers accounted for approximately 38.4% of net sales in 2004, 36.3% of net sales in 2003 and 39.4% of net sales in 2002. Although our sales are diversified across many end
markets, our strategy has been to focus our sales efforts on the communications infrastructure equipment market

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due
to the suitability of our products for this market and because of the higher level of long-term growth we believe this market will experience. The following table illustrates the
percentage of our net sales in our primary markets:

Year Ended December 31,2004

2003Communications

59
%
62
%Industrial

16
%
16
%Transportation

7
%
8
%ATE/Semiconductor test equipment

7
%
5
%Medical

2
%
3
%Computer and Retail

4
%
3
%Other

5
%
3
%Total

100
%
100
%


We
have manufacturing and research and development operations in the United States, Dominican Republic, Switzerland, Slovakia, Ireland and China. The following table summarizes our
revenues and long lived assets in different geographic locations (in millions):

Years Ended December 31,2004

2003

2002Embedded
products

Power
systems

Embedded
products

Power
systems

Embedded
products

Power
systemsRevenues:(a)United States

$
83.5

$
19.7

$
79.6

$
16.4

$
78.0

$
13.0Canada


29.0


0.6


11.5


2.3


7.7


2.4United Kingdom


9.2


4.1


9.1


7.0


7.9


9.9Other European countries


46.1


37.7


40.3


39.9


30.6


35.4Malaysia


19.5


1.3


25.7





21.9


Other Asian countries


12.8


11.6


6.9


12.9


3.8


11.4Other foreign countries


0.1


5.1


0.1


4.6


8.5


0.2Total

$
200.2

$
80.1

$
173.2

$
83.1

$
158.4

$
72.3


December 31,2004

2003Long-Lived Assets:United States

$
66.2

$
70.4Switzerland


15.5


19.7Norway


13.3


12.1Dominican Republic


9.1


10.3Slovakia


7.9


3.8Other foreign countries


3.8


3.7Total

$
115.8

$
120.0


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Sales and Marketing

We market our products through a global sales force. We have direct sales offices in Europe, North America, Asia and Australia. These direct sales offices are
augmented by an extensive network of manufacturers' representatives and distributors.

Our
direct sales force is typically oriented towards customers that have the potential to purchase large volumes of our products, generally several million dollars or more on an annual
basis. Our direct sales force works closely with our existing and potential customers to determine their long-term technology requirements for power conversion products. This close
collaboration allows us to design products that best fit our customers' expected applications. We expect that our direct sales to strategic accounts will increase in the future as we increasingly
focus on sales to these customers.

Research, Development and Engineering

Worldwide we have approximately 318 employees in our research and development departments of which approximately 166 are engineers. We spent approximately
$29.4 million on research and development in 2004, $28.5 million in 2003 and $21.2 million in 2002. We have four engineering and design centers in the United States: Andover,
Massachusetts; Dallas, Texas; and Camarillo, Carlsbad and Morgan Hill, California. We also have engineering and design centers in Santo Domingo, Dominican Republic; Drammen, Norway; Uster,
Switzerland; Shenzhen, China; and Limerick, Ireland. Additionally, we have engineering staff on site in each of our manufacturing facilities. Finally, we have engineering teams at each of our power
plant system integration facilities to enable more efficient customization of our system configurations for our customers. Our goal has been to establish research centers in areas that are
strategically located for servicing our customers and in which we have strong access to technical talent.

Manufacturing Process and Quality Control

Production of most of our products typically entails subassembly of sophisticated printed circuit boards that are in turn combined with structural hardware to
produce a final product. In response to market demands for increased quality and reliability, design complexity, and sophisticated technology, we continue to invest in
state-of-the-art processes and have automated many electronic assembly and testing processes that we previously performed manually. We have also standardized many
of our manufacturing processes and much of our equipment worldwide to increase efficiency and optimize flexibility between facilities.

Our
manufacturing processes are designed to rapidly produce a wide variety of quality products at a low cost. The use of surface mount technology, or SMT, permits us to reduce board size
by eliminating the need for holes in the printed circuit boards and by allowing us to use smaller components. Our investment in SMT has significantly increased our product development processes and
production capacity, and we believe it has also improved our product quality. In addition, we made an equity investment in and have manufacturing outsourcing arrangements with a contract manufacturer
in Asia and we have outsourcing arrangements with other contract manufacturers.

Product
quality and responsiveness to our customers' needs are of critical importance in our efforts to compete successfully. We emphasize quality and reliability in both the design and
manufacturing of our products. In addition to testing throughout the design and manufacturing process, we test and /or burn-in our products using automated equipment and customer-approved
processes. We also perform out-of-box test or pre-ship audit on randomly selected units before delivery. We require the same levels of quality from our contract
manufacturers.

As
their operations expand internationally, our customers increasingly require that their power products meet or exceed established international safety and quality standards. In
response to this

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need,
we design and manufacture our power conversion products in accordance with the certification requirements of many international agencies. These agencies include Underwriters Laboratories in the
U.S., the CSA International in Canada, and TUV Product Service for the European market; additionally, various equipment may be tested to Network Equipment-Building System requirements for the U.S.
telecom market, and to European Telecom Standard Institute requirements for the European Union telecom market.

We
manufacture and assemble approximately 50% of our products at our facilities in the Dominican Republic, California, Asia, and Slovakia. We have smaller system integration facilities
throughout Europe, Asia, North America, and Australia for our DC power plant products. Production of our silicon-based POLs is outsourced to contract manufacturers in North America and in Asia. Our
manufacturing plant in Mexico was closed in late 2002. All of our manufacturing facilities are ISO certified or, in the case of the newest facilities, are in the process of receiving their
certification. In our global manufacturing operations, we currently have an aggregate of approximately 500,000 square feet of manufacturing space. Most of our subcontractors are located in Asia.

In
addition to our own facilities, we utilize low-cost contract manufacturing in several locations around the world. Although we currently manufacture many of our own
products, we are shifting toward increased use of contract manufacturers to minimize costs and capital requirements, while providing greater flexibility. Although decisions to use and/or expand
contract manufacturing will depend on a number of factors, including customer needs, we expect that the overall trend toward increased use of contract manufacturers will continue in the future.

Suppliers

We maintain a network of suppliers for components and other materials used in the manufacture of our power conversion products. We typically design products using
components readily available from several sources and attempt to minimize our use of components that we can only obtain through a single source. We procure components based upon our enterprise
resource planning system and use a combination of forecasts, customer purchase orders and formal purchase agreements to create our materials requirements plan.

We
occasionally use components or other materials for which a single supplier is the only source of supply. We may seek to establish long-term relationships with such
suppliers. We have a number of volume purchase agreements with certain suppliers of key items. This practice enables us to maintain a more constant source for required supplies and produce cost
savings through volume purchase discounts.

Backlog

We generally sell our products pursuant to purchase orders rather than long-term contracts. Backlog consists of purchase orders on-hand
having delivery dates scheduled within the next six months. Customers may cancel or reschedule most deliveries without penalty. Our backlog is not necessarily a reliable indicator of future revenue
because a significant portion of customer orders is turns business (orders booked and shipped within the same reporting period that never appear as period-end backlog). Because our
lead-times have averaged four to eight weeks, which we believe is substantially lower than our competition and generally allows us to turn around product to customers more quickly than our
competitors, a higher proportion of our business in turns business. In addition, customers on Vendor Managed Inventory ("VMI") programs exercise discretion as to the timing of inventory consumption.
When VMI programs are initiated by customers, bookings and backlog are canceled and replaced by a product-use forecast. We then manufacture product for the customer per the forecast, and
the customer uses the inventory as needed. Under a VMI program, the booking and billing occur simultaneously upon use of the product, and therefore there is always a
book-to-bill ratio

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of
1.0 for these programs. We may bring additional VMI programs on-line in the future, which would result in higher turns business and a lower backlog.

Competition

The power conversion industry is highly fragmented and characterized by intense competition. No single company dominates the overall market, and our competitors
vary depending upon the specific type of products they produce. We believe that the principal bases of competition in our targeted markets are breadth of product line, quality, reliability, technical
knowledge, flexibility, readily available products, financial strength and competitive prices. Our competition includes companies located throughout the world, including Artesyn Technologies, Vicor,
Delta Electronics, Eltek, and divisions of Emerson Electric and Tyco International.

Intellectual Property Matters

We regard certain equipment, processes, information and knowledge that we developed and use to design and manufacture our products as proprietary. We rely on a
combination of patent, trade secret and other intellectual property laws, confidentiality agreements executed by most of our employees and other measures to protect our proprietary rights. We
currently hold 74 patents, an increase of 18 patents from the prior year, many of which are protected by corresponding foreign patents in selected jurisdictions. Additional U.S. and foreign patent
applications are pending. We hold 9 U.S. registered trademarks with additional applications pending, and claim common law trademark rights to certain additional marks.

Employees

At December 31, 2004, we employed 2,422 employees at our facilities in the following functions:

Function

Number of
EmployeesManufacturing

1,643Engineering

318General and administrative

220Sales and marketing

135Quality assurance

106Total

2,422


We
believe that our continued success depends, in part, on our ability to attract and retain qualified personnel. We consider our relations with our employees to be good. None of our
employees are represented by a union.

Company Website, Corporate Governance Website and Access to Company Filings

The Company posts all periodic reports on Form 10-K and 10-Q, current reports on Form 8-K, and amendments to
these reports filed or furnished pursuant to the Securities Exchange Act of 1934 on its website atwww.power-one.com, as soon as reasonably
practicable after the reports are filed with or furnished to the Securities and Exchange Commission. Access to these reports is free of charge. In addition, the Company has launched a Corporate
Governance section on its Website in response to recent legislation and the investor community's general concerns regarding corporate governance.

11

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RISK FACTORS

A significant percentage of our revenue is generated from customers in the volatile communications infrastructure industry. If our customers in this industry do not at least
maintain their level of purchases from us, we may see a reduction in demand for our products and our operating results may be materially adversely affected.

Our sales to the communications infrastructure industry increased from 25% of our total sales in 1998 to a range of 59% to 73% over the past five years. Growth in
the communications industry in the late 1990s through 2000 was being driven primarily by the expansion of the Internet, broadband and wireless networks. The subsequent downturn in the industry in
2001and 2002 caused a sharp decrease in demand for our products as a result of a decrease in capital spending by our customers, particularly service providers. The industry downturn caused some of our
customers, including our largest customers, to restructure into smaller operations and hampered their ability to forecast accurately. Our future revenue growth depends in large part on the resumed
growth of these services as widely used media for commerce and communication. We experienced modest revenue growth in 2004 and 2003. However, if the communications infrastructure industry experiences
further volatility, it could have a material adverse effect on our operating results.

Cancellations, reductions or delays in purchases could cause our quarterly results to fluctuate.

We do not obtain long-term purchase orders or commitments from our customers and customers may generally cancel, reduce or postpone orders without
penalty. Cancellations, reductions and delays in orders could reduce our backlog and adversely affect our net sales, gross profit and operating results. Our expense levels are based, in part, on
expected future revenues and are relatively fixed once set. Our expectations for net sales beyond 90 days are based partially on our own estimate of future demand and partially on firm customer
orders. Because a substantial portion of our quarterly net sales is made in the last month of a quarter, we are limited in our ability to reduce expenses quickly if for any reason net sales do not
meet our expectations in a particular period. Therefore, fluctuations in net sales, particularly if customers cancel, postpone or delay orders, may adversely impact our operating results.

Fluctuations
in customer needs may also affect our mix of products and volume of orders, which in turn affect our gross margin and operating results. High-volume orders,
especially orders which require modification of our standard products, if cancelled, may substantially increase the risk of inventory obsolescence and write-offs due to excess capacity. In
addition, certain significant customers are on vendor managed inventory, or VMI, programs. For VMI programs, we build product to the customers' forecast and the inventory is physically located at a
site controlled by the customer. The customer uses the inventory as needed, and the sale occurs at that time. We experienced and expect to continue to experience variability as to the timing of
customers' VMI pulls, which results in variability in our net sales.

We rely on a few major customers for a material portion of our business and the loss of any of those customers could reduce our net income and operating results.

A few customers account for a material portion of our net sales each year. Cisco Systems and its contract manufacturers represented approximately 15% of our net
sales in 2004 and 2003. For 2004 and 2003, our top five original equipment manufacturers ("OEM") customers accounted for approximately 31% and 28% of our net sales, respectively. In addition, some of
our products sell for significantly higher gross margins than others. If we lose any of these key customers, if any of them reduces or cancels a significant order, or if our product mix changes
significantly, our net sales and operating results could decrease significantly.

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Failure to anticipate trends in the type of power conversion products our customers will demand may adversely affect our business.

Because we have many customers in the communications infrastructure industry, the factors and economic trends that affect these companies also affect our
business. The communications infrastructure industry has experienced rapid change in recent years. With advances in technology, communications service providers offer a more varied range of services.
Increasing usage of the Internet, emerging demand for broadband services and the increasing demand for wireless services all contributed to the growth of the communications infrastructure industry.
Because resulting technological advances required significantly greater and more reliable power, the demand for newer generation power conversion products has also grown. To respond to the needs of
our customers in the communications infrastructure industry, we must continuously develop new and more advanced products at lower prices. We have made and will continue to make significant investments
in next generation technologies, but there can be no assurance that the resulting products will be successful or that we will recoup our research and developments costs through increased sales.

During
2003, we announced the creation of a new division within the Company dedicated to developing next-generation DC/DC products, and this division launched its first major
digital power management products during 2004. Many of these new products are based on silicon technology, which may expose us to new and unfamiliar competitors. We also have limited experience in the
semiconductor industry. While we believe that our technology is at least two years ahead of our competitors, some of our traditional competitors have formed a consortium with other semiconductor
technology companies to address the same market as we are seeking to address. This consortium may create doubt about our technology and products in the marketplace. In addition, although we have
licensed our technology to another company in order to address customers' second source concerns, there can be no assurance that sufficient quantities of our products will be available. The market may
not accept our technology or adoption rates may be slower than expected. Our inability to properly assess developments in the communications infrastructure industry or to anticipate the needs of our
customers could cause us to lose some or all of these customers, prevent us from obtaining new customers, or cause us to record substantial write-offs.

We may not be able to realize all of the savings we have projected from the 2005 restructuring we have announced.

We have announced a restructuring plan in 2005, the largest component of which is our plan to substantially eliminate our Energy Solutions operations in Norway
and to integrate them into our embedded products business infrastructure. In addition, we have planned further cost reductions in other areas of the Company. While we anticipate realizing significant
cost savings from this restructuring, there can be no assurance that the full savings will actually be realized. In addition, there can be no assurance that the restructured business will operate as
efficiently as we anticipate.

Certain
positions that are eliminated in a particular location may need to be rehired in other locations, or the elimination of certain positions may need to be delayed due to business
transition issues. We may experience a significant number of resignations in a location that is being downsized. In addition to not realizing cost savings, we may encounter difficulties integrating
the Energy Solutions operations into our remaining infrastructure. For example, integration issues could cause shipments to be delayed and we could lose customers. Any of the foregoing could delay or
prevent us from realizing the full cost savings associated with the restructuring plan and could have a material adverse impact on our financial results.

13

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Price erosion may have a material adverse effect on our margins and profitability.

The power supply manufacturing industry is generally characterized by intense competition. We believe that the principal bases of competition in our targeted
markets are breadth of product line, quality, reliability, stability and reputation of the provider, technical knowledge, flexibility and readily available products. We believe that price becomes a
more important competitive factor when competition increases, when an economic downturn occurs or when we negotiate high volume orders. We saw pricing pressure from some of our key customers during
2004 and 2003 and have factored additional price erosion into our forecast for 2005. Downward pricing pressure could have a material adverse effect on our operating results.

We are subject to credit risks.

Some of our customers have experienced and may continue to experience financial difficulties and/or have failed to meet their financial obligations to us. As a
result, we have incurred charges for bad debt provisions related to certain trade receivables. In certain cases where our end-customers utilize contract manufacturers or distributors, our
accounts receivable risk may lie with the contract manufacturer or distributor and may not be guaranteed by the end-customer. If there are additional failures of our customers to meet
their receivables obligations to us, or if the assumptions underlying our recorded bad debt provisions with respect to receivables obligations do not materially reflect our customers' financial
conditions and payment levels, we could incur additional write-offs of receivables in excess of our provisions, which could have a material adverse effect on our cash flow and operating
results.

We face, and might in the future face, intellectual property infringement claims that might be costly to resolve.

We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights that
are alleged to cover our products. At least one such claim has resulted in litigation in the past. If we do not prevail in any such litigation, our business may be adversely affected.

In
addition, our industry is characterized by uncertain and conflicting intellectual property claims and vigorous protection and pursuit of intellectual property rights or positions,
which have on occasion resulted in significant and often protracted and expensive litigation. We cannot assure that intellectual property claims will not be made against us in the future or that we
will not be prohibited from using our technologies subject to any such claims or that we will not be required to obtain licenses and make corresponding royalty payments. In addition, the necessary
management attention diverted to litigation, along with the associated legal costs, could have a significant adverse effect on operating results.

We are subject to risks associated with future company and technology acquisitions, divestitures, joint ventures and strategic investments.

We may continue to pursue acquisitions and disposals of businesses, products and technologies, or enter into joint ventures and equity investment arrangements,
that could complement or otherwise enhance our business. The negotiation of potential acquisitions, divestitures, joint ventures or investments as well as the integration of an acquired business,
product or technology could require us to incur significant costs and cause diversion of management's time and resources for which economic and opportunity costs cannot be recouped if the transactions
do not occur. Future transactions by us could result in the following consequences:



14

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We
may also encounter difficulties in integrating acquired assets with our operations. Furthermore, we may not realize the benefits we anticipated when entering into these transactions.
In addition, after we complete an acquisition, our management must be able to assume significantly greater responsibilities, and this in turn may cause them to divert their attention from our existing
operations. Any of the foregoing could have a material adverse effect on our financial position and results of operations.

Any failure to protect our intellectual property could have a material adverse effect on our business; costs associated with enforcing our rights could adversely affect our
results.

We rely upon a combination of patents, trademarks, contractual provisions and trade secret laws to protect our proprietary rights in certain of our products. Our
competitors may, however, misappropriate our technology or independently develop technologies that are as good as, or better than, ours. Additionally, the laws of some foreign countries do not protect
our proprietary rights as much as U.S. laws do. We currently own patents and continue to apply for additional patents, but the U.S. Patent and Trademark Office may reject some or all of our patent
applications. The patents that the U.S. government issues to us may not provide us with a competitive advantage or create a sufficiently broad claim to protect the technology that we develop.
Furthermore, our competitors may challenge or circumvent our patents, and some of our patents may be invalidated. Litigation may be necessary to enforce our patents and other intellectual property
rights, to protect our trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Litigation could result in
substantial costs and diversion of resources and could have a significant adverse effect on operating results.

Our success depends on our ability to retain our senior management and to attract and retain key technical personnel.

If we lose one or more members of our senior management, or if we cannot attract and retain qualified management or highly technical personnel, our operating
results could be adversely affected. Our capacity to develop and implement new technologies depends on our ability to employ personnel with highly technical skills. Competition for such qualified
technical personnel is intense due to the relatively limited number of power supply engineers worldwide. We believe that this supply will remain constrained because of the limited number of
engineering students concentrating on power conversion.

Much of our business is subject to risks associated with operations in foreign countries.

Many of our operations are located outside of the United States and we expect to build or move additional operations overseas. Depending on location, our
operations may be affected by:



15

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Historically,
we have not hedged against any currency exchange rate risks. The occurrence of any of these factors may adversely affect our operating results.

Our charter contains provisions that may hinder or prevent a change in control of our company.

Certain provisions of our Certificate of Incorporation could make it difficult for a third party to obtain control of us, even if such a change in control would
benefit our stockholders. As currently adopted, we have a Board of Directors which is divided into three Classes, which means that our stockholders can only elect approximately one third of the board
on a "per class" basis at each annual meeting of stockholders. We are however seeking shareholder approval at our annual meeting in May, 2005 for amending our Certificate of Incorporation to provide
for election of all directors annually, as opposed to the current "class" arrangement. If this amendment is approved, we will ask our stockholders to
elect our entire Board of Directors at the May, 2005 Annual Meeting. Stockholders must inform our corporate secretary before a stockholders' meeting of any business they wish to discuss and any
directors they wish to nominate. Our Certificate of Incorporation also requires approval of 75% of our voting stock to amend certain provisions. Our Board of Directors can issue preferred stock
without stockholder approval. Stockholder rights could be adversely affected by the rights of holders of preferred stock that we issue in the future. Finally, we have a stockholder rights plan that
allows our stockholders to purchase preferred stock at a reduced price if certain parties attempt to acquire a substantial interest in us without the approval of our Board of Directors. Any one of the
provisions discussed above could discourage third parties from obtaining control of us. Such provisions may also impede a transaction in which our stockholders could receive a premium over
then-current market prices and our stockholders' ability to approve transactions that they consider in their best interests.

16

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EXECUTIVE OFFICERS OF THE REGISTRANT

Set
forth below is certain information concerning our executive officers.

|Name                  |  | Age(1) |  | Position                                                            
|--------------------- |  | ------ |  | --------------------------------------------------------------------
|Steven J. Goldman     |  | 47     |  | Chief Executive Officer and Chairman of the Board                   
|William T. Yeates     |  | 44     |  | President and Chief Operating Officer                               
|Eddie K. Schnopp      |  | 46     |  | Senior Vice PresidentFinance, Treasurer and
Chief Financial Officer
|Randall H. Holliday   |  | 55     |  | Secretary and General Counsel                                       
|Donna M. Koep         |  | 44     |  | Senior Vice PresidentHuman Resources                               
|William Franciscovich |  | 45     |  | Senior Vice PresidentWorldwide Sales                               
|Brad W. Godfrey       |  | 45     |  | President, CAPS Division                                            

---

Steven J. Goldman.Mr. Goldman, who joined us in 1982, became our President and Chief Executive Officer in 1990 and
was named Chairman of the Board in February 1997. From 1990 to January 2000, Mr. Goldman also served as our President. He received his B.S. degree in Electrical Engineering from
the University of Bridgeport and his M.B.A. degree from Pepperdine University's Executive program. Mr. Goldman is a contributing member and Co-Membership Chairman of the San
Fernando Valley Chapter of the Young President's Organization.

William T. Yeates.Mr. Yeates joined us in January 2000 as President and Chief Operating Officer. Before
joining us, Mr. Yeates held various positions of increasing responsibility at Lucent Technologies, including Vice President and General Manager of the Titania Power Division. He received his
B.S. degree in Electrical Engineering and his M.B.A degree in Finance from Louisiana Tech University.

Eddie K. Schnopp.Mr. Schnopp, who joined us in 1981, was appointed Vice PresidentFinance and Logistics
in 1993 and Secretary and Chief Financial Officer in 1995. He was appointed Senior Vice PresidentFinance, Treasurer and Chief Financial Officer in February 1999. From
February 1999 to January 2001, Mr. Schnopp also served as our Secretary. He received his B.S. degree in Accounting from California State University Northridge. Mr. Schnopp
is married to Ms. Donna Koep, our Senior Vice PresidentHuman Resources.

Randall H. Holliday.Mr. Holliday joined us in 2000 as General Counsel, and was appointed Secretary in 2001. Before
joining us, Mr. Holliday served as Secretary and General Counsel of Xircom, Inc. He has held a variety of in-house legal positions in diverse industries since 1981.
Mr. Holliday received his J.D. degree in 1974 from Florida State University, Tallahassee, FL.

Donna M. Koep.Ms. Koep joined us in 1978. During her employment with the Company, Ms. Koep has held numerous
Human Resource management positions within the Company of increasing responsibility and scope. She was appointed in 1999 to her current position as Senior Vice President, Human Resources, responsible
for overseeing and managing Power-One's worldwide Human Resource functions. Ms. Koep is married to Mr. Eddie K. Schnopp, our Senior Vice PresidentFinance, Chief Financial
Officer and Treasurer.

William Franciscovich.Mr. Franciscovich joined us in 2004 as our Senior Vice President of Embedded Product Sales and
was appointed Senior Vice President of Worldwide Sales later that year. Before joining us, Mr. Franciscovich held various positions of increasing responsibility in the sales division at IDT,
including most recently as Vice President of Worldwide Sales. He holds a B.S. degree in Materials Science Engineering from Cornell University.

17

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Brad W. Godfrey.Mr. Godfrey joined us in 1988. During his tenure with us, he has held a variety of positions of
increasing responsibility and scope within the company, including Senior Vice PresidentGlobal Operations. He was appointed to his current position of CAPS Division President in
July 2003.

Our
officers serve at the discretion of the Board, subject to any employment agreements.

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ITEM 2PROPERTIES

The table below lists our principal facilities currently in operation.

|Location                          |  | Approximate Size
(square feet) |  | Employees |  | Primary Activity                                                            
|--------------------------------- |  | ------------------------------ |  | --------- |  | ----------------------------------------------------------------------------
|Camarillo, California             |  | 100,000                        |  | 143       |  | Administration, R&D, Warehousing, Marketing and Sales                       
|Carlsbad, California              |  | 65,000                         |  | 89        |  | Administration, R&D, Manufacturing, Warehousing, Marketing and Sales        
|Andover, Massachusetts            |  | 61,000                         |  | 41        |  | Administration, R&D, Warehousing, Marketing and Sales                       
|Lewisville, Texas                 |  | 20,000                         |  | 31        |  | Administration, R&D, Systems Integration, Warehousing, Marketing and Sales  
|Santo Domingo, Dominican Republic |  | 190,000                        |  | 1,222     |  | Administration, Manufacturing and Assembly, Warehousing                     
|Dubnica Nad Vahom, Slovakia       |  | 122,000                        |  | 519       |  | Administration, Manufacturing and Systems Integration, Warehousing, R&D     
|Limerick, Ireland                 |  | 35,000                         |  | 42        |  | R&D, Small-Volume Manufacturing, Warehousing                                
|Shenzhen, China                   |  | 52,000                         |  | 80        |  | Administration, Manufacturing and Assembly, Warehousing, Marketing and Sales

The table below lists our closed facilities that are subleased or available for subleasing.

Location

Approximate Size
(square feet)Orange County, California

157,000Round Rock, Texas

14,000San Luis, Mexico

116,000


We
believe that the facilities we now use are more than adequate for our current and anticipated operating needs. We own our facilities in Mexico and Slovakia that are included in the
facilities listed above. In addition, we own facilities in Switzerland and Norway. We lease the remainder of our facilities pursuant to lease agreements with expiration dates through 2014 in North
America and 2011 in Europe and Asia. We believe that we will be able to renew these leases with similar terms upon expiration. If we cannot renew, we believe that we could find other suitable premises
without any material adverse impact on our operations.

ITEM 3LEGAL PROCEEDINGS

The Company is involved in certain claims and legal proceedings which have arisen in the normal course of business. Management does not believe that the outcome
of any currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company's consolidated financial position, results of
operations or cash flow.

The
Company provides the following information for the purposes of final reporting of one prior legal proceeding in which the Company was involved.

VLT Corporation and Vicor Corporation v. Power-One, Inc., United States District Court, District of Massachusetts, Civil Action
No. 01-10207-PBS.The Complaint, filed on February 5, 2001, alleged infringement of Vicor's U.S. patent number
Re. 36,098 by certain products of Power-One. The

19

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Complaint
sought certain injunctive relief and compensatory damages. The Company denied all infringement or liability for any damages.

Following
proceedings at the trial and appellate levels (details of which have been reported in previous periodic filings of the Company), the subject litigation was concluded with a
finding of no infringement of the Vicor patent by the Company's products. All appellate rights and proceedings have expired, all prior rulings favorable to the Company have become final, and all
proceedings have now been dismissed.

As
part of its defense of the Vicor patent dispute, the Company has asked for indemnification and reimbursement from escrow accounts which were created as part of the Company's
acquisition of Melcher AG. Management believes that a substantial portion of its costs of defense will be reimbursed from amounts held in the Melcher escrow account.    However, litigation
in Switzerland may be required based on objection by the Melcher sellers to the Company's claim for reimbursement.

ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 2004.

20

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PART II

ITEM 5MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is listed on the NASDAQ and is traded under the symbol "PWER." The following table sets forth, for the quarterly periods indicated, the range of
high and low closing sale prices for our common stock.

Year Ended December 31,2004

2003High

Low

High

LowFirst Quarter

14.26

10.30

6.59

4.25Second Quarter

11.37

8.62

7.93

4.56Third Quarter

11.00

6.45

12.46

6.77Fourth Quarter

10.12

6.08

12.03

8.16


As
of March 11, 2005, there were 415 holders of record of our common stock.

We
have not paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item will be contained under the caption "Equity Compensation Plan Information as of December 31, 2004" in our definitive
Proxy Statement related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and such information is incorporated herein by reference.

ITEM 6SELECTED FINANCIAL DATA

In the table below, we provide selected consolidated historical financial and operating data. We prepared this information using audited financial statements for
the fiscal years ended December 31, 2004, 2003, 2002, 2001 and 2000. When reading this selected historical consolidated financial and operating data, it is important to read it along with "Item
7Management's Discussion and Analysis of

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Financial
Condition and Operating Results" included in this Form 10-K. Historical results are not necessarily indicative of future results.

|                              |                                                            | Fiscal Year Ended December 31,(1) |  
|----------------------------- | ---------------------------------------------------------- | --------------------------------- | -
|
|
|STATEMENT OF OPERATIONS DATA: |                                                            |                                   |  
|                              | Net sales                                                  |                                   | $
|                              | Cost of goods sold                                         |                                   |  
|                              |                                                            |                                   |  
|                              | Gross profit (loss)                                        |                                   |  
|                              | Selling, general and administrative expense                |                                   |  
|                              | Engineering and quality assurance expense                  |                                   |  
|                              | Amortization of intangible assets                          |                                   |  
|                              | Restructuring charge                                       |                                   |  
|                              | Impairment of goodwill                                     |                                   |  
|                              | Asset impairment                                           |                                   |  
|                              |                                                            |                                   |  
|                              | Total expenses                                             |                                   |  
|                              |                                                            |                                   |  
|                              | Income (loss) from operations                              |                                   |  
|                              | Interest income                                            |                                   |  
|                              | Interest expense                                           |                                   |  
|                              | Other income (expense), net                                |                                   |  
|                              |                                                            |                                   |  
|                              | Income (loss) before provision (benefit) for income taxes. |                                   |  
|                              | Provision (benefit) for income taxes                       |                                   |  
|                              |                                                            |                                   |  
|                              | Net income (loss)                                          |                                   | $
|                              |                                                            |                                   |  
|                              | Basic earnings (loss) per common share                     |                                   | $
|                              | Basic weighted average shares outstanding                  |                                   |  
|                              | Diluted earnings (loss) per common share                   |                                   | $
|                              | Diluted weighted average shares outstanding                |                                   |  
|                              |                                                            |                                   |  
|SELECTED OPERATING DATA:      |                                                            |                                   |  
|                              | Gross profit (loss) margin                                 |                                   |  
|                              | Depreciation and amortization                              |                                   | $
|                              | Capital expenditures                                       |                                   |  
|                              | Backlog(10)                                                |                                   |  
|                              | Cash flows provided by (used in):                          |                                   |  
|                              | Operating activities                                       |                                   | $
|                              | Investing activities                                       |                                   |  
|                              | Financing activities                                       |                                   |  
|                              |                                                            |                                   |  
|BALANCE SHEET DATA:           |                                                            |                                   |  
|                              | Working capital                                            |                                   | $
|                              | Total assets                                               |                                   |  
|                              | Total long-term debt(11)                                   |                                   |  
|                              | Total debt(12)                                             |                                   |  
|                              | Total stockholders' equity                                 |                                   |  

---

22

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23

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ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this Management's Discussion and Analysis (MD&A), including, without limitation, statements containing the words "may," "will,"
"should," "anticipate," "believe," and similar expressions constitute "forward-looking statements." Persons reading this MD&A should not place undue reliance on these forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including risks described in the Risk Factors sections and elsewhere in this filing.
The following discussion should be read in conjunction with our financial statements and the related notes.

Introduction

We are a leading designer and manufacturer of hundreds of high-quality brand name power supplies and converters. We sell our products to original
equipment manufacturers, distributors and service providers who value quality, reliability, technology and service. We have hundreds of customers in the communications, industrial, transportation,
automatic/semiconductor test equipment, medical equipment and other electronic equipment industries.

At
December 31, 2004, we had four primary divisions: Compact Advanced Power Solutions ("CAPS"), Energy Solutions ("ES"), Silicon Power Systems ("SPS"), and di/dt. CAPS consisted
of the original Power-One AC/DC business and the high-density board-mounted DC/DC businesses obtained through our acquisitions of IPD in 1999 and of Melcher in 1998. ES
represented the combination of our HC Power and Powec acquisitions in 2000. SPS is a new division that is engaged in developing next-generation silicon-based DC/DC technology.
di/dt Inc., a technology leader in the DC/DC space, was acquired in 2003.

In
February 2005, we announced a restructuring plan in which most of the operations of both ES and di/dt would be combined with those of the CAPS division. The most significant
component of this plan involves the elimination of most ES operations in Norway and their subsequent integration into our other existing locations. In addition to the integration of ES and di/dt, we
are planning cost reductions in other areas of the Company. We expect to substantially complete this restructuring and integration by June 30, 2005 and expect to save approximately
$25 million in annual SG&A and overhead costs beginning in the third quarter of 2005 with full savings realized by the fourth quarter of 2005. We expect to incur restructuring and asset
impairment charges of $20 to $25 million during the first and second quarters of 2005, of which $5 to $10 million are expected to be non-cash in nature and relate to asset
impairment charges for property and equipment. The balance of the charges relate to severance and continuing lease obligations for closed facilities, the longest of which continues through 2008.

Our
CAPS division is a worldwide organization primarily engaged in the design, manufacture and sale of AC/DC and DC/DC power conversion products for multiple industries, although our
products are generally geared toward the communications infrastructure and technology markets. Our board-mounted DC/DC products, which include di/dt products, provide precise levels of DC power to
sensitive electronic equipment such as switches, routers and other communications equipment. Our ES products primarily consist of DC power systems that are sold to telecommunications and Internet
service providers worldwide. All products are sold under the Power-One brand name by our sales force. The CAPS, SPS and di/dt products are collectively referred to as the "embedded
products" and ES products are referred to as "power systems."

The
SPS division is strategically significant to the Company and is engaged in the design and production of highly innovative and efficient silicon-based digital power management
solutions for next

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generation
DC/DC power conversion products in the Intermediate Bus Architecture (IBA) market. SPS' maXyz product line was introduced in 2003 and was developed specifically for the IBA
market. In 2004, we introduced our new "Z-One" digital power management architecture and our new Z-series product line which included a digital controller. We began full
production of these products near the end of the third quarter of 2004, and signed on C&D Technologies as a second-source licensing partner for these products. In response to our new technology,
certain of our competitors have formed a consortium in an attempt to develop competing technologies. We have spent and anticipate spending significant capital on R&D related to this developing area of
power management technology, but there can be no assurance that the market will accept the resulting technology or that we will recover our investment in this technology through sales of new products.

We
are becoming an increasingly international company, as we generate a significant percentage of our revenue internationally through sales offices located throughout Europe and Asia. In
addition, manufacturing is performed in our own facilities in the Dominican Republic, China, Slovakia and at contract manufacturers in Asia. We are in the process of shifting our business model toward
increased
use of contract manufacturers. We believe that the use of contract manufacturers will provide us with greater flexibility and a better ability to respond to changes in the market and will be less
capital intensive. In the future, we intend to significantly increase our presence in Asia to take advantage of its lower cost structure and closer proximity to certain major customers. However, we
recognize that there are inherent risks to our international operations that may impact our business, which include but are not limited to the following:



Critical Accounting Policies

Application of our accounting policies requires management to make judgments and estimates about the amounts reflected in the financial statements. Management
uses historical experience and all available information to make these estimates and judgments, although differing amounts may be
reported if there are changes in the assumptions and estimates. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventory allowances, restructuring
costs, impairment charges, depreciation and amortization, sales returns, warranty costs, taxes and contingencies. Management has identified the following accounting policies as critical to an
understanding of our financial statements and as areas most dependent on management's judgment and estimates.

Revenue RecognitionWe recognize revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the
price is fixed or readily determinable, and collectibility is probable. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition."Sales

26

---



are
recorded net of sales returns and discounts, which are estimated at the time of shipment based upon historical data. Changes in assumptions regarding the rate of sales returns and discounts earned
by our customers could impact our results.

We
generally recognize revenue at the time of shipment (or at the time of inventory consumption for customers on Vendor Managed Inventory ("VMI") programs) because this is the point at
which revenue is earned and realizable and the earnings process is complete. For most shipments, title to shipped goods transfers at the shipping point, so the risks and rewards of ownership transfer
once the product leaves our warehouse. Revenue is only recognized when collectibility is reasonably assured. We may charge shipping and handling fees to customers, which are included in revenue. The
related costs are recorded in cost of goods sold.

We
offer our distributors a standard agreement which includes payment terms, description of their right to return or exchange product, and price discounts. In general, payment is due
within 30 days of our shipment of the product to the distributor. The distributor has a right to return only if we discontinue a product that the distributor has on hand. The distributor has a
right to exchange up to 5% of the dollar value of products purchased within the prior six-month period, so long as the distributor is currently purchasing at least the equivalent dollar
value in new product. Estimated products exchanges or returns are accrued for at the time of the sale based on historical information in accordance with Statement of Financial Accounting Standards
(SFAS) 48, "Revenue Recognition When Right of Return Exists." Finally, we may give price discounts to a distributor at the time a purchase order is received from the distributor for product that they
will sell to a specific customer. The price discount is available for one year following issuance of the purchase order for items listed on the purchase order. We accrue for the estimated price
discount at the time revenue is recognized.

We
have a joint venture in Asia which, along with certain of our contract manufacturers, may purchase raw components and other goods from us, and may sell finished goods to us as well as
to other third parties. We record revenue on sales to the joint venture and contract manufacturer only when the components and goods are for sales to third parties. When the joint venture or contract
manufacturer
purchases components that will be assembled and sold back to us, no revenue is recorded because the earnings process has not been completed.

Impairment of Long-Lived Assets and GoodwillWe review the recoverability of the carrying value of
long-lived assets using the methodology prescribed in SFAS 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." We review long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to recover its carrying value, it is
written down to fair value. Fair value is determined based on discounted cash flows, appraised values or other information available in the market, depending on the nature of the assets. Methodologies
for determining fair value are inherently based on estimates that may change, such as the useful lives of assets and our cash flow forecasts associated with certain assets. A change in these estimates
may result in impairment charges, which would impact our operating results.

We
review the carrying value of goodwill and non-amortizable intangible assets using the methodology prescribed in SFAS 142, "Goodwill and Other Intangible Assets."
SFAS 142 requires that we not amortize goodwill, but instead subject it to impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be impaired. These
impairment tests are also dependent on management's forecasts, which frequently change. A change in our forecasts may result in impairment charges.

Restructuring CostsEffective January 1, 2003, we adopted and recorded restructuring charges in accordance with
SFAS 146, "Accounting for Costs Associated with Disposal Activities," which requires

27

---



that
a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, in contrast to the date of an entity's commitment to an exit plan. Restructuring
costs were related to the downsizing of our operations and primarily consisted of specific charges that had been incurred or were to be incurred with no future economic benefit. These charges included
costs related to personnel severance, continuing lease obligations for vacant facilities and write-off of leasehold improvements and equipment therein, and certain contract termination
penalties and other shutdown costs. Calculation of the restructuring reserves includes management's judgment regarding closed facilities, which include assumptions about the length of time it will
take for facilities to be subleased as well as the likely sublease income amount. Changes in these estimates may impact our operating results.

Deferred Income Tax Asset Valuation AllowanceWe record a deferred income tax asset in jurisdictions where we generate a loss.
We also record a valuation allowance against these deferred tax assets in accordance with SFAS 109, "Accounting for Income Taxes," when, in management's judgment,
it is more likely than not that the deferred income tax assets will not be realized in the foreseeable future.

InventoriesInventories are stated at the lower of cost (first-in, first-out method) or market. Slow
moving and obsolete inventory are written down quarterly based on a comparison of on-hand quantities to projected usages. Additionally, reserves for non-cancelable open
purchase orders for components we are obligated to purchase in excess of projected usage, or for open purchase orders where the market price is lower than the purchase order price, are recorded as
other accrued expenses on the balance sheet. Calculation of inventory write-downs is based on management's assumptions regarding projected usage of each component, which are subject to changes in
market demand.

Accounts Receivable and Allowance for Doubtful AccountsWe establish the allowance for doubtful accounts using the specific
identification method and also provide a reserve in the aggregate. Our estimates for calculating the aggregate reserve are based on historical information. Any changes to our assumptions or estimates
may impact our operating results.

Recent Pronouncements and Accounting ChangesIn December 2004, the FASB issued SFAS 123(R), "Share-Based
Payment," which revises SFAS 123, "Accounting for Stock-Based Compensation," and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires
fair value recognition of stock option grants on the income statement as an expense and is effective for the first interim and annual reporting period that begins after June 15, 2005. This
pronouncement will become effective for us as of the third quarter of 2005 and may have a material impact on our operating results. Valuing a stock option is a complex calculation that can be
performed by a number of valuation methods, such as the Black-Scholes or lattice binomial methods. Each valuation method, however, may utilize a number of management judgments as calculation inputs,
including but not limited to the expected life of the option, expected forfeitures, and future volatility. Changes in our estimates of the valuation assumptions may materially impact the valuation and
therefore impact our operating results.

We
are in the process of evaluating the impact of this pronouncement on our financial statements and how it may change the way we provide incentive compensation to our employees in the
future.

28

---



Results of Operations

The year ended December 31, 2004 represents a 53-week year, and the years ended December 31, 2003 and 2002 represent 52-week
years. The following table represents our consolidated statements of operations as a percentage of net sales for the periods presented:

Fiscal Year Ended December 31,2004

2003

2002Net sales

100.0
%
100.0
%
100.0
%Cost of goods sold

65.1

63.1

101.7Gross profit (loss)

34.9

36.9

(1.7
)Selling, general and administrative expense

24.2

24.4

25.7Engineering and quality assurance expense

15.0

15.9

15.1Amortization of intangibles

1.4

1.4

2.2Restructuring costs

0.4

1.2

4.6Impairment of goodwill





29.3Asset impairment

0.7



18.5Loss from operations

(6.8
)
(6.0
)
(97.1
)Interest income

0.6

0.6

0.7Interest expense

(0.2
)
(0.4
)
(0.5
)Other income (expense), net

(0.1
)
(1.7
)
0.1Loss before provision (benefit) for income taxes

(6.5
)
(7.5
)
(96.8
)Provision (benefit) for income taxes

1.1

(0.4
)
(5.3
)Net loss

(7.6
)%
(7.1
)%
(91.5
)%


Comparison of Fiscal Year Ended December 31, 2004 with Fiscal Year Ended December 31, 2003

Net Sales.Net sales increased $24.0 million, or 9%, to $280.3 million for the year
ended December 31, 2004 from $256.3 million for the year ended December 31, 2003. We continued to see moderate growth within our industry during 2004 as customers are ordering
product at levels that reflect their current needs. Sales increases were attributable to volume growth in sales to certain communications and semiconductor automatic test equipment industry customers,
and distributors. In addition, we estimate that approximately $8 to $10 million of the increase in net sales relates to sales in foreign currencies as the US dollar experienced significant
weakening during 2004.

Net
sales for our two product lines are as follows, in millions:

Year Ended
December 31,
2004

Year Ended
December 31,
2003Embedded products

$
200.2

71
%
$
173.2

68
%Power systems


80.1

29
%

83.1

32
%Total

$
280.3

100
%
$
256.3

100
%


29

---



Net
sales by customer category are as follows, in millions:

Year Ended
December 31,
2004

Year Ended
December 31,
2003OEMs

$
196.1

70
%
$
174.0

68
%Distributors


61.1

22
%

58.7

23
%Service providers


23.1

8
%

23.6

9
%Total

$
280.3

100
%
$
256.3

100
%


Cisco
Systems and its contract manufacturers collectively were the only customer to exceed 10% of net sales in both years ended December 31, 2004 and 2003 at $42.3 million,
or 15% of net sales, and $39.4 million, or 15% of net sales, in each respective year.

Net
sales by end-markets were as follows:

Year Ended
December 31,2004

2003Communications

59
%
62
%Industrial

16
%
16
%Transportation

7
%
8
%ATE/Semiconductor test equipment

7
%
5
%Computer and Retail

4
%
3
%Medical

2
%
3
%Other

5
%
3
%Total

100
%
100
%


Our
combined 180-day and 90-day backlog are summarized as follows:

Backlog and bookings (in millions)

December 31, 2004

December 31, 2003Combined 180-day backlog

$
38.0

$
39.6Combined 90-day backlog

$
33.9

$
34.7


Our
combined 180-day backlog on December 31, 2004 was $38.0 million, a decrease of 4% compared to backlog of $39.6 million on December 31, 2003.
The slight decrease in backlog primarily reflects the shorter lead times within the industry. Our bookings were not significantly impacted by any new Vendor Managed Inventory ("VMI") programs during
2004. When VMI programs are initiated by customers, bookings are canceled (or never placed) and replaced by a forecast. We then supply product to the customer per an agreed-upon electronic
"signal" or an order placed to ship the goods, and the customer uses the inventory as needed. Under a VMI program, the booking and billing occur simultaneously upon use of the product, and therefore
there is always a book-to-bill ratio of 1.0 for these programs. We may bring additional VMI programs on-line in the future, which could result in higher turns
business and a lower backlog. As such, we believe that backlog may not necessarily be a reliable indicator of future results over time.

Gross Profit (Loss).Gross profit for the year ended December 31, 2004 was
$97.9 million compared with a gross profit of $94.7 million for 2003. As a percentage of net sales, gross profit percentage decreased to 34.9% for the year ended December 31, 2004
from a gross profit percentage of 36.9% for the same period in 2003. Two factors contributed to the decrease in gross margin during the year ended December 31, 2004. First, we recorded
$3.1 million, or approximately 1 percent, in cost of goods sold related to write-offs for excess and obsolete inventory, the majority of which was related

30

---



to
some of our power systems products which are being discontinued. Second, during 2004 our product mix was unfavorable due to a decrease in sales of high-power products which carry an
above-average gross margin, as well as significantly higher sales of telecom power systems to one of our largest telecom customers and of other embedded products, which have lower gross margins. We
estimate that product mix impacted our gross margin by approximately $1.5 million, or nearly one percent.

Selling, General and Administrative Expense.Selling, general and administrative expense increased
$5.4 million, or 9%, to $67.8 million for the year ended December 31, 2004 from $62.4 million for 2003. As a percentage of net sales, selling, general and administrative
expense remained constant at 24% for the years ended December 31, 2004 and 2003.

Selling
expense increased $4.2 million, or 16%, to $29.5 million for the year ended December 31, 2004 from $25.3 million for 2003. Increases were primarily
due to $1.5 million higher commissions expense during 2004 related to increased sales, increases in our sales force of $0.8 million, as well as foreign currency fluctuations related to
the weakening US dollar.

Administrative
expense increased $1.2 million, or 3%, to $38.3 million for the year ended December 31, 2004 from $37.1 million for 2003. The increase in
administrative expense was primarily due to costs associated with audit fees related to Sarbanes-Oxley legislation, legal work associated with patent filings related to new products, various corporate
projects, as well as foreign currency fluctuations. These increases were partially offset by cost savings resulting from the restructuring of our European operations.

Engineering and Quality Assurance Expense.Engineering and quality assurance expense increased
$1.4 million, or 4% to $42.2 million for the year ended December 31, 2004 from $40.8 million for 2003. As a percentage of net sales, engineering and quality assurance
expense decreased to 15% for the year ended December 31, 2004 from 16% for the same period in 2003. The increases in engineering and quality assurance expenses were primarily due to foreign
currency movements.

Amortization of Intangible Assets and Goodwill Impairment.Amortization of intangible assets
increased $0.3 million, or 8%, to $3.9 million for the year ended December 31, 2004 from $3.6 million for the same
period in 2003. The increase in amortization expense was associated with the acquisition of di/dt in February 2003, which resulted in twelve months of amortization expense recorded during the
year ended December 31, 2004 compared to ten months of amortization expense recorded during the same period in 2003.

Other
changes in intangible asset balances from period to period relate primarily the translation of the intangible asset balances from our subsidiaries' functional currencies into U.S.
dollars.

Restructuring Charge during Fiscal Year Ended December 31, 2004.Effective January 1,
2003, we adopted SFAS 146. During 2004, we recorded pre-tax cash restructuring charges of $1.1 million primarily related to severance payments for a reduction in headcount in
our European operations and other costs related to our restructuring of the Boston, Massachusetts facility in 2001. A summary of the restructuring activity recorded under SFAS 146 during the
year ended December 31, 2004 is as follows, in millions:

|                              |  | Restructuring
Liabilities at
January 1, 2004 |     | Restructuring
Charges |   | Applications of
Reserve |  | Restructuring
Liabilities at
December 31, 2004
|----------------------------- |  | -------------------------------------------- | --- | --------------------- | - | ----------------------- |  | ----------------------------------------------
|Worldwide workforce reduction |  | $                                            | 0.5 |                       | $ | 0.7                     |  | $                                             
|Facilities closure            |  |                                              | 5.2 |                       |   |                        |  |                                               
|Other                         |  |                                              |    |                       |   | 0.4                     |  |                                               
|                              |  |                                              |     |                       |   |                         |  |                                               
|                              |  | $                                            | 5.7 |                       | $ | 1.1                     |  | $                                             
|                              |  |                                              |     |                       |   |                         |  |                                               

31

---



Asset Impairment.During 2004, we recorded asset impairment charges of $2.0 million. In
connection with the restructuring of our European operations during the second quarter of 2004, we recorded $0.7 million to write down the equipment at one of our European facilities to fair
market value. The impairment tests indicated that the carrying value of manufacturing equipment at this European facility was not recoverable by the future cash flows from the continuing operations of
that location.

In
addition, we wrote down our excess Mexico facility to fair value using current market activity resulting in an impairment charge of $1.3 million during the third quarter of
2004.

Loss from Operations.As a result of the items above, loss from operations increased
$3.8 million to a loss of $19.1 million for the year ended December 31, 2004 from an operating loss of $15.3 million for the same period in 2003.

Interest Income (Expense), Net.Net interest income was $1.2 million for the year ended
December 31, 2004 compared to net interest income of $0.6 million for the same period in 2003. The increase in interest income is attributable to our cash management program implemented
during 2004 where we have purchased available-for-sale and held to maturity investments in an effort to earn a higher rate of return on our cash, as well as to a decrease in
interest expense resulting from the repayment of our long-term debt during the first quarter of 2004.

Other Income (Expense), Net.Net other expense was $0.2 million for the year ended
December 31, 2004, compared with net other expense of $4.5 million for 2003. This change is primarily due to a partial write-off of $5.7 million for an investment that
we held in a privately held company during 2003. Components of other expense during 2004 include the write-down of $1.1 million related to an investment we hold in a
privately-held technology company and foreign currency losses, offset by income related to our joint venture and a VAT tax refund in Europe.

32

---



Benefit for Income Taxes.The provision for income taxes was $3.1 million for the year
ended
December 31, 2004 at our profitable European locations, compared to the benefit for income taxes of $1.0 million for 2003. For the year ended December 31, 2004, we recorded a
deferred income tax asset valuation allowance of approximately $10.1 million compared to $5.9 million recorded during the same period in 2003.

We
record a deferred income tax asset in jurisdictions where we generate a loss. We also record a valuation allowance against these deferred tax assets in accordance with
SFAS 109, "Accounting for Income Taxes," when, in management's judgment, it is more likely than not that the deferred income tax assets will not be realized in the foreseeable future.

Comparison of Fiscal Year Ended December 31, 2003 with Fiscal Year Ended December 31, 2002

General.The discussion of our results below includes the expense associated with the
Power-One 2001 Deferred Compensation Plan filed on Form S-8, October 5, 2001 ("the Plan"). The Plan period began in October 2001 and continued through
January 2003. The Plan was established as a means of motivating and retaining our employees during the industry downturn. Under the terms of the Plan, employees voluntarily elected to defer up
to 50% of their base salary in exchange for our common stock at a predetermined price. We matched these shares at 100% at the end of the Plan period. Below is a summary of compensation expense and
related payroll taxes recognized in our financial results associated with our match portion of the Plan. Amounts are pre-tax and in millions:

Year Ended
December 31,2003

2002Cost of goods sold

$
0.1

$
0.7Selling





0.8Administrative


0.2


2.8Engineering and quality assurance


0.2


2.2$
0.5

$
6.5


Net Sales.Net sales increased $25.6 million, or 11%, to $256.3 million for the year
ended December 31, 2003 from $230.7 million for the year ended December 31, 2002. The increase was attributable to volume increases across all product lines. Fiscal year 2002 was
characterized by a downturn in the communications infrastructure marketplace, which continued into 2003. However, sales improved since 2002 as customers utilized their excess inventory and ordered
product at levels that reflected their needs.

Net
sales for our two product lines are as follows, in millions:

Year Ended
December 31,
2003

Year Ended
December 31,
2002Embedded products

$
173.2

68
%
$
158.4

69
%Power systems


83.1

32
%

72.3

31
%Total

$
256.3

100
%
$
230.7

100
%


33

---



Net
sales by customer category are as follows, in millions:

Year Ended
December 31,
2003

Year Ended
December 31,
2002OEMs

$
174.0

68
%
$
157.9

68
%Distributors


58.7

23
%

43.4

19
%Service providers


23.6

9
%

29.4

13
%Total

$
256.3

100
%
$
230.7

100
%


Cisco
Systems and its contract manufacturers was the only customer to exceed 10% of net sales in both years ended December 31, 2003 and 2002, with $39.4 million or 15% of
net sales and $35.7 million or 15% of net sales, in each respective year.

Net
sales by markets were as follows:

Year Ended December 31,2003

2002Communications

62
%
64
%Industrial

16
%
16
%Transportation

8
%
6
%ATE/Semiconductor test equipment

5
%
5
%Medical

3
%
3
%Computer and Retail

3
%
3
%Other

3
%
3
%Total

100
%
100
%


Our
combined 180-day and 90-day backlog are summarized as follows:

Backlog and bookings (in millions)

December 31, 2003

December 31, 2002Combined 180-day backlog

$
39.6

$
32.8Combined 90-day backlog

$
34.7

$
29.2


Our
combined 180-day backlog on December 31, 2003 was $39.6 million, an increase of 21% compared to backlog of $32.8 million on December 31, 2002.
The increase in backlog reflects the overall improvement in the industry. Our bookings were not impacted materially by any new Vendor Managed Inventory ("VMI") programs during 2003.

Gross Profit (Loss).Gross profit for the year ended December 31, 2003 was
$94.7 million compared with a gross loss of $4.0 million for 2002. As a percentage of net sales, gross profit percentage increased to 36.9% for the year ended December 31, 2003
from a negative margin of 1.7% for the same period in 2002. Gross loss for the year ended December 31, 2002 included inventory charges of $73.0 million related to a change in our
methodology for calculating excess and obsolete inventory in response to shorter product lifecycles, as well as related to products that were discontinued as part of our restructuring. The improvement
in gross profit and gross profit percentage is also due to the benefit received from the restructuring actions implemented during 2002, when we consolidated our manufacturing locations and relocated
much of our manufacturing activity to lower cost locations, including contract manufacturers.

Additionally,
gross profit for the year ended December 31, 2003 was positively impacted by sales of raw materials. During the year ended December 31, 2003, our margin was
benefited by $1.8 million due to the sale of raw material, or less than 1%, as a portion of the inventory had been previously written

34

---



off
as excess. Gross profit for the year ended December 31, 2002 was negatively impacted by the sales of raw materials of $2.2 million with an associated cost of approximately
$3.9 million, which reduced our gross margin by approximately 1%.

Selling, General and Administrative Expense.Selling, general and administrative expense increased
$3.1 million, or 5%, to $62.4 million for the year ended December 31, 2003 from $59.3 million for 2002. As a percentage of net sales, selling, general and administrative
expense decreased to 24% for the year ended December 31, 2003 from 26% in 2002.

Selling
expense increased $1.6 million, or 7%, to $25.3 million for the year ended December 31, 2003 from $23.7 million for 2002. Increases due to our
acquisition of di/dt were partially offset by decreases related to the mix of sales between commission-earning accounts and house accounts, which are not commission-based, as well as a reduction in
our sales force during 2002. Administrative expense increased $1.5 million, or 4%, to $37.1 million for the year ended December 31, 2003 from $35.6 million for 2002. The
increase in administrative expense was primarily due to costs associated with our new Silicon Power Systems division, such as for personnel and legal costs associated with patent filings, as well as
administrative expenses at di/dt.

Engineering and Quality Assurance Expense.Engineering and quality assurance expense increased
$6.1 million, or 18% to $40.8 million for the year ended December 31, 2003 from $34.7 million for 2002. As a percentage of net sales, engineering and quality assurance
expense increased to 16% for the year ended December 31, 2003 from 15% for the same period in 2002. The increases in engineering and quality assurance expenses were primarily due to higher R&D
costs associated with our new silicon-based product family and engineering expenses at di/dt, partially offset by savings resulting from the closure of our Orange County, California facilities. We
anticipate ongoing significant investments in research and development.

Amortization of Intangible Assets and Goodwill Impairment.Amortization of intangible assets
decreased $1.5 million, or 30%, to $3.6 million for the year ended December 31, 2003 from $5.1 million for 2002. The decreases in amortization expense were primarily due to
the write-off in 2002 of approximately $23.4 million of other intangible assets associated with the acquisition of Powec in 2000, offset by an increase in amortization expense of
$0.7 million related to the intangible assets associated with the acquisition of di/dt in February 2003.

During
2002, we performed impairment tests of goodwill in accordance with SFAS 142 and of other intangible assets in accordance with SFAS 144. The results of these tests
indicated that the carrying value of these assets was not recoverable, and we recorded impairment charges to write off approximately $67.6 million of goodwill and $23.4 million of other
intangible assets, both associated with the acquisition of Powec in 2000. Amortization expense associated with these intangibles assets and goodwill for the year ended December 31, 2002 was
$2.4 million.

Other
changes in intangible asset balances from period to period relate primarily to the acquisition of di/dt in February 2003 and the translation of the intangible asset balances
from our subsidiaries' functional currencies into U.S. dollars.

Restructuring Charge during Fiscal Years Ended December 31, 2003 and 2002.Effective
January 1, 2003, we adopted SFAS 146. During 2003, we recorded pre-tax restructuring charges of $3.1 million primarily related to severance payments for a reduction in
headcount and consolidation of excess facilities. The facilities closure charge of $2.2 million mainly relates to continuing lease obligations for our Andover, Massachusetts facility extending
through 2006. Due to the industry downturn and the slow recovery that followed, a significant portion of our Andover facility was unused and we determined that no economic benefit will be gained from
these premises through 2006. In accordance with SFAS 146, we measured and recognized a liability for the fair value of the future payments

35

---



remaining
on the lease. A summary of the restructuring activity during the year ended December 31, 2003 is as follows (in millions):

|                              |  | Restructuring
Liabilities at
January 1, 2003 |     | Restructuring
Charges |   | Applications of
Reserve |  | Restructuring
Liabilities at
December 31, 2003
|----------------------------- |  | -------------------------------------------- | --- | --------------------- | - | ----------------------- |  | ----------------------------------------------
|Worldwide workforce reduction |  | $                                            | 2.4 |                       | $ | 0.9                     |  | $                                             
|Facilities closure            |  |                                              | 5.9 |                       |   | 2.2                     |  |                                               
|                              |  |                                              |     |                       |   |                         |  |                                               
|                              |  | $                                            | 8.3 |                       | $ | 3.1                     |  | $                                             
|                              |  |                                              |     |                       |   |                         |  |                                               

The
restructuring liabilities at January 1, 2002 were accrued during 2002 and 2001 when we announced a restructuring program in response to macroeconomic and capital spending
issues affecting the communications industry. All of these charges related to severance for a significant reduction in headcount, facilities closures and associated fixed assets write-offs
for obsolete and excess equipment, and contract termination costs.

Loss from Operations.As a result of the items above, loss from operations decreased
$208.7 million to a loss of $15.3 million for the year ended December 31, 2003 from an operating loss of $224.0 million for the same period in 2002. The decrease in
operating loss is primarily due to the magnitude of restructuring and asset impairment charges that occurred during 2002 compared to 2003.

Other Income (Expense), Net.Net other expense was $4.5 million for the year ended
December 31, 2003, compared with net other income of $0.2 million for 2002. This change is primarily due to a partial write-off of $5.7 million for an investment that
we hold in a privately held company. This company recently went through a significant restructuring and revised its forecast, which indicated that the investment was impaired, and we wrote it down to
fair value based on a discounted cash flow. Additional components of other income include foreign currency translation gains as a result of the strengthening of currencies at our international
locations, primarily the Norwegian Kroner and Swiss Franc.

Benefit for Income Taxes.The benefit for income taxes was $1.0 million for the year ended
December 31, 2003 compared to the benefit for income taxes of $12.2 million for 2002. The effective income tax rate was a benefit of 5.1% for 2003 compared with a benefit of 5.5% for the
same period in 2002. For the year ended December 31, 2003, we recorded a deferred income tax asset valuation allowance of approximately $5.9 million compared to $39.9 million
recorded during the same period in 2002.

We
record a deferred income tax asset in jurisdictions where we generate a loss. We also record a valuation allowance against these deferred tax assets in accordance with
SFAS 109, "Accounting for Income Taxes," when, in management's judgment, it is more likely than not that the deferred income tax assets will not be realized in the foreseeable future.

Liquidity and Capital Resources

Our cash and cash equivalents balance decreased $64.0 million, or 64%, to $35.5 million at December 31, 2004 from $99.5 million at
December 31, 2003. Our primary uses of cash in 2004 consisted of $44.2 million to purchase investments classified as held to maturity, $7.5 million to purchase investments
classified as available-for-sale, $9.1 million to repay long term debt and $7.3 million for the acquisition of property and equipment. Our primary sources of cash
in 2004 consisted of $3.2 million from the issuance of common stock related to stock option exercises and $1.9 million from the sale of property and equipment.

Cash
used in operating activities of $1.0 million included a net decrease in trade and other accounts receivable of $8.1 million and a net decrease in accounts payable and
accrued expenses of

36

---



$4.7 million.
In addition, cash used in operating activities also included approximately $4.5 million of cash payments relating to the Company's restructuring plan.

Cash
provided from the sale of property and equipment included $0.6 million in proceeds from the sale of an excess facility we had in Europe. The remaining proceeds primarily
related to the sale of excess surface mount technology (SMT) equipment.

In
February 2004, we elected to repay from our cash on hand the long-term debt of $9.1 million, which had been incurred for the purchase of a subsidiary's
office and manufacturing facility in Norway.

In
addition, we maintain credit facilities with various banks in Europe, Asia and Australia. These credit facilities were acquired primarily as a result of acquisitions in 1998 and 2000.
The aggregate limit on all credit facilities is approximately $8.9 million. The credit facilities bear interest on amounts outstanding at various intervals based on published market rates. Some
credit agreements require our subsidiaries to maintain certain financial covenants and to provide certain financial reports to the lenders. At December 31, 2004, we had no outstanding balance
on any credit facility.

We
currently anticipate that our total capital expenditures for 2005 will be in the range of $6 to $8 million, including capital expenditures related to our 2005 restructuring.
These capital expenditures relate primarily to manufacturing equipment and process improvements, equipment related to research and development and product development, additions and upgrades to our
facilities and information technology infrastructure, and other administrative requirements. The amount of these anticipated
capital expenditures will frequently change during the year based on changes in expected revenues, our financial condition and the general economic climate.

Based
on current plans and business conditions, we believe our existing working capital and borrowing capacity, coupled with the funds generated from our operations, will be sufficient
to meet our liquidity requirements for the next twelve months. However, if we make a large acquisition, it may be necessary to raise debt or equity in the private or public securities markets.

Below
we identify and disclose all of our significant off balance sheet arrangements and related party transactions. We do not utilize special purpose entities or have any known
financial relationships with other companies' special purpose entities.

Operating Leases.We enter into operating leases where the economic climate is favorable. The liquidity impact of operating
leases is not material.

Purchase Commitments.We have purchase commitments for materials, supplies, services, and property, plant and equipment as
part of the normal course of business. Commitments to purchase inventory at above-market prices have been reserved. Certain supply contracts may contain penalty provisions for early termination. Based
on current expectations, we do not believe that we are reasonably likely to incur any material amount of penalties under these contracts.

Other Contractual Obligations.We do not have material financial guarantees that are reasonably likely to affect liquidity.

Related Parties.We maintain minority ownership in a number of investments, which are recorded on the balance sheet. These
include investments in entities with which Power-One has a manufacturing relationship, including a joint-venture located in China, as well as an investment made in one of our contract
manufacturers in Asia. The investment in the contract manufacturer was made during 2002 by contributing $2.1 million of SMT manufacturing equipment and a $5.2 million note receivable we
held from the contract manufacturer, in exchange for common equity. We may pay up to $0.7 million in cash to this contract manufacturer if we do not reach certain purchasing milestones during
the period from January 1, 2003 through December 31, 2005. The joint venture is accounted for under the equity-method, and the investment in the contract manufacturer is accounted for
under the cost method, since

37

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we
do not have significant influence on the contract manufacturer and own approximately 10% of the common equity. During 2003 we recorded an impairment charge on this investment of
$5.7 million.

The
joint venture and contract manufacturer may purchase raw components and other goods from Power-One, and may sell finished goods to Power-One as well as to
other third parties. Power-One records revenue on sales to the joint venture and contract manufacturer only when the components and goods are for sales to third parties. When the joint
venture or contract manufacturer purchases components that will be assembled and sold back to Power-One, no revenue is recorded. Power-One also has significant and similar
relationships with other contract manufacturers where no investment has been made. These contract manufacturers may purchase raw components from and sell finished goods back to Power-One.
No revenue is recognized for these transactions. Revenue is recognized only when the products are for sale to third parties.

In
February 2003, we acquired 100% of the equity of di/dt Inc. Prior to the acquisition, we held an exclusive license from di/dt for certain di/dt products, under which
license we were making royalty payments to di/dt relating to sales of licensed products. Stephens, Inc. was a significant shareholder in di/dt. Additionally, our outside counsel, OMM, held a
modest equity position in di/dt, and our CEO, Mr. Goldman, held a very small personal position in di/dt via an LLC created by Stephens, Inc. in connection with the original investment of
Stephens, Inc. in di/dt. The total cost of the acquisition, including subsequent earn-out payments, was $17.5 million.

Summary of Contractual Obligations and Commitments.A summary of our future contractual payments related to lease obligations
and non-cancelable open purchase orders is as follows (in millions):

Year Ending December 31,

Operating
Leases

Non-Cancelable
Purchase
Orders

Total2005

$
5.9

$
9.4

$
15.32006


4.6





4.62007


3.5





3.52008


2.9





2.92009


2.6





2.62010 and thereafter


4.6





4.6Total

$
24.1

$
9.4

$
33.5


Approximately
$1.9 million of the operating lease commitments above were reserved for in the restructuring charge accrual for the year ended December 31, 2004.

ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest
rate risk results from the financial debt instruments which arise from transactions entered into during the normal course of business. We may enter into derivative financial instrument transactions,
such as swaps, in order to manage or reduce our exposure to interest rate changes related to our portfolio of borrowings. Under no circumstances do we enter into derivative or other financial
instrument transactions for speculative purposes.

Debt.At December 31, 2004, we have no outstanding balance on any credit facility, and we
believe that interest rate volatility would not have a material impact on our liquidity.

Foreign Currency.A significant portion of our business operations are conducted in various countries
in Europe and Asia. As a result, we have a certain degree of market risk with respect to our cash flows due to changes in foreign currency exchange rates when transactions are denominated in

38

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currencies
other than our functional currency. Historically, we have not actively engaged in substantial exchange rate hedging activities, and at December 31, 2004, we had not entered into any
significant foreign exchange contracts.

ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data listed in Item 15(a)(1) hereof are incorporated herein by reference and are filed as part of this Annual Report on
Form 10-K beginning on page F-1.

ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None

ITEM 9ACONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods.

As
of December 31, 2004, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of
the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures,
as defined in Exchange Act Rules 13a15(e) and 15d15(e), are effective to ensure that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Company reviews its disclosure controls
and procedures on an ongoing basis and may from time to time make changes aimed at enhancing their effectiveness and to ensure that they evolve with the Company's business.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company, as defined in Exchange Act
Rules 13a15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The
Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

39

---



Under
the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness
of internal control over financial reporting based on the criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of
the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2004. Our management's assessment
of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm,
as stated in their report which is included herein.

Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Stockholders of
Power-One, Inc.:

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Power-One, Inc. and
subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

40

---



In
our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the
criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 11, 2005 expressed an unqualified opinion on those financial statements and the
financial statement schedule.

Deloitte &
Touche LLP
Los Angeles, California
March 11, 2005

Changes In Internal Control Over Financial Reporting

There have been no significant changes in the Company's internal control over financial reporting, as defined in Exchange Act Rules 13a-15, during the
fourth fiscal quarter of 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9BOTHER INFORMATION

Not applicable.

41

---





PART III

ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information relating to our directors and nominees required by this item will be contained under the caption "Proposal 2: Election of Directors" in our
definitive Proxy Statements related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and such information is incorporated herein by reference.

The
information relating to our executive officers required by this item is included herein in Part I, Item 1under the caption "Executive Officers of the Registrants," and such
information is incorporated by reference into this section.

The
information required pursuant to Item 405 of Regulation S-K will be contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
our Proxy Statement related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and such information is incorporated herein by reference.

The
information required pursuant to Item 406 of Regulation S-K is presented below.

We
adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and all associated principal corporate and
divisional/business unit financial managers. This code of ethics is posted in the "Governance" section within the "Investor Relations" pages of our Website. The Internet address for our Website is www.power-one.com.

We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such
information on our website, within the "Governance" section of our website per the address specified above.

ITEM 11EXECUTIVE COMPENSATION

The information required for by this item will be contained under the caption "Executive Officer Compensation" in our Proxy Statement related to our Annual
Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and such information is incorporated herein by reference.

ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in our Proxy Statement
related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and such information is incorporated herein by reference.

ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item will be contained under the caption "Other InformationCertain Relationships and Related Transactions" in our
Proxy Statement related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and is incorporated herein by reference.

ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by this item will be contained under the captions "Ratification of Independent AuditorsPrincipal Accountant Fees and
Services" in our Proxy Statement related to our Annual Meeting of Stockholders for Fiscal Year 2004, to be held on May 3, 2005, and is incorporated herein by reference.

42

---





PART IV

ITEM 15EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)    FINANCIAL STATEMENTS

The following financial statements are filed as a part of this Annual Report on Form 10-K:

|POWER-ONE, INC.                                                     |  | Page
|------------------------------------------------------------------- |  | ----
|Reports of Independent Registered Public Accounting Firm            |  | F-2 
|Consolidated Statements of Operations                               |  | F-3 
|Consolidated Balance Sheets                                         |  | F-4 
|Consolidated Statements of Comprehensive Loss                       |  | F-5 
|Consolidated Statements of Stockholders' Equity                     |  | F-6 
|Consolidated Statements of Cash Flows                               |  | F-7 
|Notes to Consolidated Financial Statements                          |  | F-9 
|Quarterly Financial Data for the 2004 and 2003 Quarters (Unaudited) |  | S-1 

(a)(2)    SCHEDULES

The following financial statement schedule is filed as a part of this Annual Report on Form 10-K and is incorporated herein by reference.

|POWER-ONE, INC.                                |  | Page
|---------------------------------------------- |  | ----
|Schedule II: Valuation and Qualifying Accounts |  | S-2 

(c)         EXHIBITS

The exhibit index on page S-3 is hereby incorporated by reference.

43

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|                     |  | POWER-ONE, INC.
|-------------------- |  | ---------------
|                     |  | By:            
|Date: March 17, 2005 |  |                

POWER OF ATTORNEY

We the undersigned directors and officers of Power-One, Inc. hereby constitute and appoint Steven J. Goldman and Eddie K. Schnopp, or any of
them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and
in our names in the capacities indicated below, that said attorneys and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities and Exchange
Act of 1934, as amended, any rules, regulations, and requirements of the SEC, in connection with this Annual Report on Form 10-K, including specifically, but not limited to, power
and authority to sign for us or any of us in our names and in the capacities indicated below, any and all amendments and supplements to this Annual Report on Form 10-K, and we
hereby ratify and confirm all that the said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.

|Signature                                       |  | Title                                                                                                             |  | Date          
|----------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --------------
|                                                |  |                                                                                                                   |  |               
|/s/STEVEN J. GOLDMAN(Steven J. Goldman)         |  | Chairman of the Board and Chief Executive Officer (Principal Executive Officer)                                   |  | March 17, 2005
|/s/EDDIE K. SCHNOPP(Eddie K. Schnopp)           |  | Senior Vice PresidentFinance, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 17, 2005
|/s/KENDALL R. BISHOP(Kendall R. Bishop)         |  | Director                                                                                                          |  | March 17, 2005
|/s/DR. HANSPETER BRÄNDLI(Dr. Hanspeter Brändli) |  | Director                                                                                                          |  | March 17, 2005
|/s/JON E. M. JACOBY(Jon E. M. Jacoby)           |  | Director                                                                                                          |  | March 17, 2005
|/s/JAY WALTERS(Jay Walters)                     |  | Director                                                                                                          |  | March 17, 2005
|/s/MARK MELLIAR-SMITH(Mark Melliar-Smith)       |  | Director                                                                                                          |  | March 17, 2005

44

---





FINANCIAL STATEMENTS

The following financial statements are filed as a part of this Report:

POWER-ONE, INC.

|                                                                    |  | Page
|------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm             |  | F-2 
|Consolidated Statements of Operations                               |  | F-3 
|Consolidated Balance Sheets                                         |  | F-4 
|Consolidated Statements of Comprehensive Loss                       |  | F-5 
|Consolidated Statements of Stockholders' Equity                     |  | F-6 
|Consolidated Statements of Cash Flows                               |  | F-7 
|Notes to Consolidated Financial Statements                          |  | F-9 
|Quarterly Financial Data for the 2004 and 2003 Quarters (Unaudited) |  | S-1 
|Supplemental Schedule II: Valuation and Qualifying Accounts         |  | S-2 

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Power One, Inc.:

We
have audited the accompanying consolidated balance sheets of Power-One, Inc. and its subsidiaries (the "Company") as of December 31, 2004 and 2003, and the
related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over
financial reporting as of December 31, 2004, based on the criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 11, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified
opinion on the effectiveness of the Company's internal control over financial reporting.

Deloitte &
Touche LLP
Los Angeles, California
March 11, 2005

F-2

---





POWER-ONE, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

|                                                      |                                     | Year Ended
December 31,                   |        
|----------------------------------------------------- | ----------------------------------- | ----------------------------------------- | -------
|
|NET SALES                                             |                                     | $                                         | 280,279
|COST OF GOODS SOLD                                    |                                     |                                           | 182,375
|                                                      |                                     |                                           |        
|GROSS PROFIT (LOSS)                                   |                                     |                                           | 97,904 
|EXPENSES:                                             |                                     |                                           |        
|                                                      | Selling, general and administrative |                                           |        
|                                                      | Engineering and quality assurance   |                                           |        
|                                                      | Amortization of intangibles         |                                           |        
|                                                      | Restructuring costs                 |                                           |        
|                                                      | Impairment of goodwill              |                                           |        
|                                                      | Asset impairment                    |                                           |        
|                                                      |                                     |                                           |        
|                                                      |                                     | Total expenses                            |        
|                                                      |                                     |                                           |        
|LOSS FROM OPERATIONS                                  |                                     |                                           | (19,102
|INTEREST AND OTHER INCOME (EXPENSE):                  |                                     |                                           |        
|                                                      | Interest income                     |                                           |        
|                                                      | Interest expense                    |                                           |        
|                                                      | Other income (expense), net         |                                           |        
|                                                      |                                     |                                           |        
|                                                      |                                     | Total interest and other income (expense) |        
|                                                      |                                     |                                           |        
|LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES      |                                     |                                           | (18,090
|PROVISION (BENEFIT) FOR INCOME TAXES                  |                                     |                                           | 3,100  
|                                                      |                                     |                                           |        
|NET LOSS                                              |                                     | $                                         | (21,190
|                                                      |                                     |                                           |        
|BASIC AND DILUTED LOSS PER SHARE                      |                                     | $                                         | (0.25  
|                                                      |                                     |                                           |        
|BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING |                                     |                                           | 83,757 
|                                                      |                                     |                                           |        

See
notes to consolidated financial statements.

F-3

---





POWER-ONE, INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except share and per share data)

|                                     |                                                                                                                                                                                                    | December 31,                                                                     |                           
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------------------------
|
|ASSETS                               |                                                                                                                                                                                                    |                                                                                  |                           
|CURRENT ASSETS:                      |                                                                                                                                                                                                    |                                                                                  |                           
|                                     | Cash and cash equivalents                                                                                                                                                                          |                                                                                  | $                         
|                                     | Available for sale securities                                                                                                                                                                      |                                                                                  |                           
|                                     | Investments held to maturity                                                                                                                                                                       |                                                                                  |                           
|                                     | Accounts receivable:                                                                                                                                                                               |                                                                                  |                           
|                                     |                                                                                                                                                                                                    | Trade, less allowance for doubtful accounts of $4,836 in 2004 and $4,395 in 2003 |                           
|                                     |                                                                                                                                                                                                    | Other                                                                            |                           
|                                     |                                                                                                                                                                                                    | Notes receivable                                                                 |                           
|                                     | Inventories                                                                                                                                                                                        |                                                                                  |                           
|                                     | Refundable income taxes                                                                                                                                                                            |                                                                                  |                           
|                                     | Property held for sale                                                                                                                                                                             |                                                                                  |                           
|                                     | Prepaid expenses and other current assets                                                                                                                                                          |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  | Total current assets      
|INVESTMENTS HELD TO MATURITY         |                                                                                                                                                                                                    |                                                                                  | 34,788                    
|PROPERTY AND EQUIPMENT, net          |                                                                                                                                                                                                    |                                                                                  | 57,707                    
|GOODWILL, net                        |                                                                                                                                                                                                    |                                                                                  | 33,425                    
|OTHER INTANGIBLE ASSETS, net         |                                                                                                                                                                                                    |                                                                                  | 24,657                    
|OTHER ASSETS                         |                                                                                                                                                                                                    |                                                                                  | 4,385                     
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|TOTAL                                |                                                                                                                                                                                                    | $                                                                                | 327,053                   
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                                    |                                                                                  |                           
|CURRENT LIABILITIES:                 |                                                                                                                                                                                                    |                                                                                  |                           
|                                     | Bank credit facilities                                                                                                                                                                             |                                                                                  | $                         
|                                     | Current portion of long-term debt                                                                                                                                                                  |                                                                                  |                           
|                                     | Accounts payable                                                                                                                                                                                   |                                                                                  |                           
|                                     | Restructuring reserve                                                                                                                                                                              |                                                                                  |                           
|                                     | Deferred income taxes                                                                                                                                                                              |                                                                                  |                           
|                                     | Other accrued expenses                                                                                                                                                                             |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  | Total current liabilities 
|DEFERRED INCOME TAXES                |                                                                                                                                                                                                    |                                                                                  | 633                       
|OTHER LIABILITIES                    |                                                                                                                                                                                                    |                                                                                  | 999                       
|COMMITMENTS AND CONTINGENCIES        |                                                                                                                                                                                                    |                                                                                  |                           
|STOCKHOLDERS' EQUITY                 |                                                                                                                                                                                                    |                                                                                  |                           
|                                     | Common stock, par value $0.001; 300,000,000 shares authorized; 84,252,127 and 83,308,554 shares issued and outstanding at December 31, 2004 and 2003, respectively, net of 100,002 treasury shares |                                                                                  |                           
|                                     | Additional paid-in capital                                                                                                                                                                         |                                                                                  |                           
|                                     | Deferred compensation                                                                                                                                                                              |                                                                                  |                           
|                                     | Accumulated other comprehensive income                                                                                                                                                             |                                                                                  |                           
|                                     | Accumulated deficit                                                                                                                                                                                |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|                                     |                                                                                                                                                                                                    |                                                                                  | Total stockholders' equity
|                                     |                                                                                                                                                                                                    |                                                                                  |                           
|TOTAL                                |                                                                                                                                                                                                    | $                                                                                | 327,053                   
|                                     |                                                                                                                                                                                                    |                                                                                  |                           

See
notes to consolidated financial statements.

F-4

---





POWER-ONE, INC.        CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS        (In thousands)

|                                  |                                          | Year Ended December 31, |        
|--------------------------------- | ---------------------------------------- | ----------------------- | -------
|
|NET LOSS                          |                                          | $                       | (21,190
|OTHER COMPREHENSIVE INCOME (LOSS) |                                          |                         |        
|                                  | Unrealized Gain (Loss) on Investments    |                         |        
|                                  | Foreign currency translation adjustments |                         |        
|                                  |                                          |                         |        
|COMPREHENSIVE LOSS                |                                          |                         | (13,189
|                                  |                                          |                         |        

See
notes to consolidated financial statements.

F-5

---





POWER-ONE, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (In thousands, except share data)

|                                                               |                                       | Common Stock$.001 Par Value |  |   |    |  |   |         |   |   |      |   |  
|-------------------------------------------------------------- | ------------------------------------- | ---------------------------- |  | - | -- |  | - | ------- | - | - | ---- | - | -
|
|
|
|BALANCE, DECEMBER 31, 2001                                     |                                       | 78,912,924                   |  | $ | 79 |  | $ | 570,427 |   | $ |     |   | $
|Net loss                                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Other comprehensive loss:                                      |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               | Cumulative translation adjustment     |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Total comprehensive loss                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Issuance of common stock under stock option and purchase plans |                                       | 1,005,798                    |  |   | 1  |  |   | 5,240   |   |   |      |   |  
|Stock compensation                                             |                                       | 79,897                       |  |   |    |  |   | 10,371  |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|BALANCE, DECEMBER 31, 2002                                     |                                       | 79,998,619                   |  |   | 80 |  |   | 586,038 |   |   |     |   |  
|Net loss                                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Other comprehensive loss                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               | Cumulative translation adjustment     |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Total comprehensive loss                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Issuance of common stock under stock option and purchase plans |                                       | 652,159                      |  |   | 1  |  |   | 1,939   |   |   |      |   |  
|Stock compensation                                             |                                       | 1,042,314                    |  |   | 1  |  |   | (739    | ) |   | (662 | ) |  
|Issuance of common stock in connection with acquisition        |                                       | 1,615,462                    |  |   | 1  |  |   | 8,211   |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|BALANCE, DECEMBER 31, 2003                                     |                                       | 83,308,554                   |  |   | 83 |  |   | 595,449 |   |   | (662 | ) |  
|Net loss                                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Other comprehensive loss                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               | Cumulative translation adjustment     |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               | Unrealized gain (loss) on investments |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Total comprehensive loss                                       |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|Issuance of common stock under stock option and purchase plans |                                       | 613,065                      |  |   | 1  |  |   | 3,246   |   |   |      |   |  
|Stock compensation                                             |                                       | 32,125                       |  |   |   |  |   | 825     |   |   | 618  |   |  
|Issuance of common stock in connection with acquisition        |                                       | 298,383                      |  |   |   |  |   | 3,217   |   |   |      |   |  
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  
|BALANCE, DECEMBER 31, 2004                                     |                                       | 84,252,127                   |  | $ | 84 |  | $ | 602,737 |   | $ | (44  | ) | $
|                                                               |                                       |                              |  |   |    |  |   |         |   |   |      |   |  

See notes to consolidated financial statements.

F-6

---





POWER-ONE, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                             |                                                                                           | Year Ended December 31,                                      |                                                    
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                           |                                                              |                                                    
|                                                             | Net loss                                                                                  |                                                              | $                                                  
|                                                             | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                              |                                                    
|                                                             |                                                                                           | Depreciation and amortization                                |                                                    
|                                                             |                                                                                           | Goodwill impairment                                          |                                                    
|                                                             |                                                                                           | Asset impairment (a)                                         |                                                    
|                                                             |                                                                                           | Inventory write-off                                          |                                                    
|                                                             |                                                                                           | Investment write-off (b)                                     |                                                    
|                                                             |                                                                                           | Tax obligations associated with stock compensation plans (c) |                                                    
|                                                             |                                                                                           | Stock compensation                                           |                                                    
|                                                             |                                                                                           | Exchange (gain) or loss                                      |                                                    
|                                                             |                                                                                           | Net (gain) loss on disposal of property and equipment        |                                                    
|                                                             |                                                                                           | Deferred income taxes                                        |                                                    
|                                                             | Changes in operating assets and liabilities:                                              |                                                              |                                                    
|                                                             |                                                                                           | Accounts receivable, net                                     |                                                    
|                                                             |                                                                                           | Notes receivable                                             |                                                    
|                                                             |                                                                                           | Inventories                                                  |                                                    
|                                                             |                                                                                           | Refundable income taxes                                      |                                                    
|                                                             |                                                                                           | Prepaid expenses and other current assets                    |                                                    
|                                                             |                                                                                           | Accounts payable                                             |                                                    
|                                                             |                                                                                           | Accrued expenses                                             |                                                    
|                                                             |                                                                                           | Restructuring reserve                                        |                                                    
|                                                             |                                                                                           | Other liabilities                                            |                                                    
|                                                             |                                                                                           |                                                              |                                                    
|                                                             |                                                                                           |                                                              | Net cash provided by (used in) operating activities
|                                                             |                                                                                           |                                                              |                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                           |                                                              |                                                    
|                                                             | Purchases of available-for-sale investments                                               |                                                              |                                                    
|                                                             | Purchases of held to maturity investments                                                 |                                                              |                                                    
|                                                             | Acquisition of property and equipment                                                     |                                                              |                                                    
|                                                             | Technology investment                                                                     |                                                              |                                                    
|                                                             | Proceeds from sale of property and equipment                                              |                                                              |                                                    
|                                                             | Other assets                                                                              |                                                              |                                                    
|                                                             | Investment in Powec, net of cash acquired                                                 |                                                              |                                                    
|                                                             | Investment in di/dt, net of cash acquired                                                 |                                                              |                                                    
|                                                             |                                                                                           |                                                              |                                                    
|                                                             |                                                                                           |                                                              | Net cash used in investing activities              
|                                                             |                                                                                           |                                                              |                                                    
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                           |                                                              |                                                    
|                                                             | Proceeds from borrowings on bank credit facilities                                        |                                                              |                                                    
|                                                             | Repayments of borrowings on bank credit facilities                                        |                                                              |                                                    
|                                                             | Bank overdraft                                                                            |                                                              |                                                    
|                                                             | Repayments of borrowings on long-term debt                                                |                                                              |                                                    
|                                                             | Principal payments under long-term capital leases                                         |                                                              |                                                    
|                                                             | Issuance of common stock                                                                  |                                                              |                                                    
|                                                             |                                                                                           |                                                              |                                                    
|                                                             |                                                                                           |                                                              | Net cash provided by (used in) financing activities
|                                                             |                                                                                           |                                                              |                                                    
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |                                                                                           |                                                              | 2,277                                              
|                                                             |                                                                                           |                                                              |                                                    
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |                                                                                           |                                                              | (64,003                                            
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |                                                                                           |                                                              | 99,507                                             
|                                                             |                                                                                           |                                                              |                                                    
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     |                                                                                           | $                                                            | 35,504                                             
|                                                             |                                                                                           |                                                              |                                                    
|SUPPLEMENTAL CASH FLOW INFORMATION:                          |                                                                                           |                                                              |                                                    
|                                                             | Cash paid (received) for:                                                                 |                                                              |                                                    
|                                                             |                                                                                           | Interest                                                     |                                                    
|                                                             |                                                                                           | Income taxes                                                 |                                                    

---

See notes to consolidated financial statements.

F-7

---







SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

On February 14, 2003, the Company acquired all the capital stock of di/dt, Inc. for approximately 1.4 million shares of the Company's common
stock valued at $6.3 million and $1.0 million cash and acquisition costs.

In
conjunction with the acquisition, liabilities were assumed as follows (in thousands):

Fair value of tangible assets acquired

$
7,516Fair value of goodwill


2,183Fair value of product technology


3,818Cash paid for di/dt's capital stock and acquisition costs


(966
)Prior investment in di/dt


(5,074
)Fair value of stock issued for di/dt's capital stock


(6,337
)Liabilities assumed

$
1,140


Subsequent
to the acquisition date, the Company distributed a total of 0.5 million shares of the Company's common stock to former di/dt shareholders during 2003 and 2004 valued at
$5.1 million in connection with the earn-out provision of the acquisition. Earn-out payments have been recorded as additional goodwill, and no earn-out
provisions extend beyond December 31, 2004.

During
the fourth quarter of 2002, the Company contributed certain non-cash assets to a contract manufacturer in Asia in exchange for approximately 10% of the common stock of
that contract manufacturer. The Company contributed some of its excess SMT manufacturing equipment that had
previously been written down to fair value of approximately $2.0 million and approximately $5.2 million of a note receivable from the contract manufacturer held by the Company. During
2003, $5.7 million of the investment was written off as this privately held company recently went through a significant restructuring and revised its forecast. This analysis indicated that the
investment was impaired, and the Company wrote the investment down to fair value based on the valuation analysis performed.

F-8

---





POWER-ONE, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

NOTE 1. GENERAL INFORMATION

The accompanying consolidated financial statements of Power-One, Inc. (the "Company" or "Power-One") reflect the consolidated
results of its operations for the years ended December 31, 2004, 2003 and 2002 and include the accounts of the Company and its subsidiaries, all of which are wholly owned. The statements were
prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company's reporting period coincides with the 52- or 53-week period ending on the Sunday closest to December 31 and its fiscal quarters are the 13- or
14-week periods ending on the Sunday nearest to March 31, June 30, September 30 and December 31. The year ended January 2, 2005, described for simplicity
as December 31, 2004, was a 53-week year.

The
Company manufactures and assembles its products primarily at facilities in the United States, Dominican Republic, Switzerland, China, Slovakia and at several contract manufacturers
located throughout the world, predominantly in Asia.

The
Company operates in one industry segment which consists of the design, development and manufacture of power conversion products primarily for the communications infrastructure
market. The Company sells its products and grants credit to customers in this industry, primarily in the United States, Europe, and Asia. Net sales to Cisco Systems and its contract manufacturers,
collectively the Company's largest customer, were approximately 15% of sales during each of the years ended December 31, 2004, 2003 and 2002. Solectron and its subsidiaries, which are contract
manufacturers for Cisco Systems, represented approximately 12% and 13% of the Company's trade accounts receivable balance as of December 31, 2004 and 2003, respectively.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

Principles of ConsolidationThe accompanying consolidated financial statements include the
consolidated accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company includes in its statement of operations
its pro rata share of the financial results of investments accounted for under the equity method.

Use of Estimates in the Preparation of the Financial StatementsThe preparation of the financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventory valuation, restructuring costs,
impairment costs, depreciation and amortization, sales returns, warranty costs, taxes, and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in
future periods may differ from those estimates.

Revenue RecognitionThe Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has
occurred, the price is fixed or readily determinable, and collectibility is probable. The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition."
Sales are recorded net of sales returns and discounts, which are estimated at the time of shipment based upon historical data.

The
Company generally recognizes revenue at the time of shipment (or at the time of inventory consumption for customers on Vendor Managed Inventory ("VMI") programs) because this is the
point

F-9

---



at
which revenue is earned and realizable and the earnings process is complete. For most shipments, title to shipped goods transfers at the shipping point, so the risks and rewards of ownership
transfer once the product leaves the Company's warehouse. Revenue is only recognized when collectibility is reasonably assured. The Company may charge shipping and handling costs to customers, which
are included in revenue and cost of goods sold.

The
Company offers its distributors a standard agreement which includes payment terms, description of rights to return or exchange product, and price discounts. In general, payment is
due within 30 days of shipment of the product to the distributors. The distributor has a right to return only if the Company
discontinues a product that the distributor has on hand. The distributor has a right to exchange up to 5% of the dollar value of products purchased within the prior six-month period, so
long as the distributor is currently purchasing at least the equivalent dollar value in new product. Estimated products exchanges or returns are accrued for at the time of the sale based on historical
information in accordance with Statement of Financial Accounting Standards (SFAS) 48, "Revenue Recognition When Right of Return Exists." Finally, the Company may give price discounts to a distributor
at the time a purchase order is received from the distributor for product that they will sell to a specific customer. The price discount is available for one year following issuance of the purchase
order for items listed on the purchase order. The Company accrues for the estimated price discount at the time revenue is recognized.

The
Company has a joint venture in Asia which, along with certain of our contract manufacturers, may purchase raw components and other goods from Power-One, and sell finished
goods back to Power-One as well as to other third parties. The Company records revenue on sales to the joint venture and contract manufacturer only when the components and goods are for
sales to third parties. When the joint venture or contract manufacturer purchases components that will be assembled and sold back to the Company, no revenue is recorded because the earnings process
has not been completed.

Cash and Cash EquivalentsThe Company considers all highly liquid instruments with a maturity of three months or less at
purchase date to be cash equivalents.

Accounts Receivable and Allowance for Doubtful AccountsThe Company establishes the allowance for doubtful accounts using the
specific identification method and also provides a reserve in the aggregate. The estimates for calculating the aggregate reserve are based on historical information.

InventoriesInventories are stated at the lower of cost (first-in, first-out method) or market. Slow
moving and obsolete inventories are written down quarterly based on a comparison of on-hand quantities to projected usages. Additionally, reserves for non-cancelable open
purchase orders for components the Company is obligated to purchase in excess of projected usage, or for open purchase orders where the market price is lower than the purchase order price, are
recorded as other accrued expenses on the balance sheet.

InvestmentsThe Company has investments in certain debt securities that have been classified on the balance sheet as
available-for-sale securities or investments held-to-maturity in accordance with SFAS No. 115, "Accounting for Certain Investments and Debt and
Equity Securities," (SFAS 115). SFAS 115 establishes accounting and reporting requirements for investments in equity securities that have readily determinable fair value and for all
investments in debt securities. Investments held-to-maturity are recorded on the balance sheet at cost. Available-for-sale securities are recorded at
fair value, with unrealized gains and losses (net of applicable income taxes) included in other

F-10

---



comprehensive
income. Realized gains and losses are determined using the specific identification method. The Company also holds certain equity available-for-sale securities
which have been recorded in other assets on the balance sheet.

The
Company also holds investments in privately-held enterprises. These investments are included in other assets on the Company's balance sheet and are accounted for under
the cost or equity method depending on the nature and circumstances surrounding the investment. The Company monitors these investments for impairment and makes appropriate reductions in carrying value
when necessary.

Property and EquipmentProperty and equipment are recorded at cost. Provision for depreciation has been made based upon the
estimated useful lives of the assets, which range from three to 30 years, using principally the double declining balance and straight-line methods. Provision for amortization of
leasehold improvements is made based upon the estimated lives of the assets or terms of the leases, whichever is shorter. Property and equipment held for sale has been classified in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment and Disposal of Long-Lived Assets."

Intangible AssetsIntangible assets include cost in excess of net assets acquired in connection with the acquisition of the
Company in 1995, of Melcher AG in 1998, of IPD in 1999, and of di/dt, Inc. in 2003, which were allocated among certain intangible items determined by management to have value, such as the
Company's name, distribution network and product technology. Provision for amortization has been made based upon the estimated useful lives of the intangible asset categories, which range from three
to 20 years, using the straight-line method.

Impairment of Long-Lived Assets and GoodwillThe Company reviews the recoverability of the carrying value of
long-lived assets using the methodology prescribed in SFAS 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." The Company reviews
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability
of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset is determined to be unable to
recover its carrying value, it is written down to fair value. Fair value is determined based on discounted cash flows, appraised values or other information available in the market, depending on the
nature of the assets.

The
Company reviews the carrying value of goodwill and non-amortizable intangible assets using the methodology prescribed in SFAS 142, "Goodwill and Other Intangible
Assets." SFAS 142 requires that the Company not amortize goodwill, but instead subject it to impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be
impaired.

Restructuring CostsEffective January 1, 2003, the Company adopted and recorded restructuring charges in accordance
with SFAS 146, "Accounting for Costs Associated with Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized when the
liability is incurred, in contrast to the date of an entity's commitment to an exit plan. Restructuring costs related to the downsizing of the Company's operations and primarily consist of specific
charges that had been incurred or were to be incurred with no future economic benefit. These charges included costs related to personnel severance, continuing lease obligations for vacant facilities
and write-off of leasehold improvements and equipment therein, and certain contract termination penalties and other shutdown costs. Through December 31, 2002, the Company recorded
restructuring charges in accordance with EITF Issue 94-3.

F-11

---



Income TaxesIncome taxes are provided for taxes currently payable or refundable, and for deferred income taxes arising from
future tax consequences of events that were recognized in the Company's financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

Additionally,
the Company's subsidiary Power-One Limited operates in the Dominican Republic in a tax-free enterprise zone and, accordingly, pays no income taxes
in connection with its operations in that country. The Company has not provided for the U.S. federal and state income tax that would be paid on unremitted earnings from this or any other overseas
subsidiaries, as there is no intent to remit any such earnings.

Deferred Income Tax Asset Valuation AllowanceThe Company records a deferred income tax asset in jurisdictions where it
generates a loss. The Company also records a valuation allowance against these deferred income tax assets in accordance with SFAS 109, "Accounting for Income Taxes," when, in management's
judgment, it is more likely than not that the deferred income tax assets will not be realized in the foreseeable future.

Stock CompensationThe Company uses the intrinsic-value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for stock options granted to employees. Accordingly, the Company does not recognize compensation expense for stock option grants to employees
in the Consolidated Statements of Operations that were made at fair market value.

SFAS 123,
"Accounting for Stock-Based Compensation," encourages, but does not require, the recognition of compensation expense for employee stock-based compensation arrangements
using the fair value method of accounting. The Company has elected the "disclosure only" alternative and has disclosed the pro forma net loss per share amounts using the fair value method. In
accordance with SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123," the required pro forma disclosure is shown
below.

|                                                                                                 |                               | Year Ended December 31, |      
|------------------------------------------------------------------------------------------------ | ----------------------------- | ----------------------- | -----
|
|
|Net loss, as reported                                                                            |                               | $                       | (21.2
|Add: Stock-based employee compensation expense included in reported net loss                     |                               |                         | 1.6  
|Deduct: Total stock-based employee compensation expense determined under fair value based method |                               |                         | (15.3
|                                                                                                 |                               |                         |      
|Pro forma net loss                                                                               |                               | $                       | (34.9
|                                                                                                 |                               |                         |      
|Loss per share:                                                                                  |                               |                         |      
|                                                                                                 | Basic and Dilutedas reported |                         | $    
|                                                                                                 | Basic and Dilutedpro forma   |                         | $    

The
pro forma amounts for the fiscal years ended December 31, 2004, 2003 and 2002 do not include a tax benefit on the stock compensation due to the deferred income tax valuation
allowance

F-12

---



recorded
by the Company in each respective year. The fair value of each option grant is estimated on the date of grant using the Black-Scholes model, with the assumptions shown below.

Year Ended
December 31,2004

2003

2002Risk-free interest rate


3.9
%

3.5
%

4.2
%Volatility


49.3
%

72.1
%

94.7
%Option life, years


5.9


5.9


5.8Dividends








Fair value of options granted, millions

$
12.1

$
13.9

$
3.3


Earnings Per ShareThe Company presents both basic and diluted earnings (loss) per share ("EPS") amounts. Basic EPS is
calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS amounts are based upon the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. The Company uses
the treasury stock method to calculate the impact of stock compensation. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive
effect on EPS and, accordingly, are excluded from the calculation.

EngineeringEngineering costs include existing product engineering, custom product development and research and development
costs. Research and development costs are expensed in the period incurred.

WarrantiesThe Company generally offers its customers a two-year warranty on products sold, although warranty
periods may vary by product type and application. Based on warranty repair costs and the estimated rate of return, the Company periodically reviews and adjusts its warranty accrual. Actual repair
costs are charged against the reserve balance as incurred.

Derivative InstrumentsThe Company accounts for derivative instruments in accordance with SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," and subsequent amendments, which establish accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company did not hold any derivative financial instruments during the years presented.

Fair Value of Financial InstrumentsThe recorded values of accounts receivable, notes receivable, accounts payable and accrued
expenses approximate their fair values based on their short-term nature. The recorded values of notes receivable, notes payable to banks, long-term debt and other liabilities
approximate fair value, as interest is tied to or approximates market rates.

Concentration of RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents placed with high credit quality institutions and trade receivables. The Company sells products and extends credit to customers, primarily in the United States,
Europe and Asia; periodically monitors its exposure to credit losses; and maintains allowances for anticipated losses.

Conversion of Foreign CurrenciesThe reporting currency for the consolidated financial statements of the Company is the U.S.
dollar. The assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidation by translating the assets and liabilities at

F-13

---



the
exchange rates applicable at the end of the reporting period. The statements of operations and cash flows of such companies are translated at the average exchange rates during the applicable
period. Translation gains or losses are accumulated as a separate component of stockholders' equity. The Company has not tax-effected the cumulative translation adjustment as there is no
intention to remit the earnings.

ReclassificationsCertain prior year amounts were reclassified to conform to the current year presentation.

Segment ReportingThe Company operates as one segment in accordance with SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information". The Company's chief operating decision maker and management personnel view the Company's performance and make resource allocation decisions by looking at the
Company as a whole. Although there are different divisions within the Company, they are economically similar and are also similar in terms of the five criteria set forth in SFAS 131 that must
be met to combine segments. The Company's products are all power conversion products primarily geared toward the communication industry, and the sales force sells products from all divisions. The
nature of the production process is similar across divisions, and manufacturing for the different divisions occurs in common facilities. Generally, the same engineers with the same qualifications
design and manufacture products across divisions. The types and class of customers are similar across the divisions and product lines, and products are distributed through common channels and
distributor networks.

Recent Pronouncements and Accounting ChangesIn December 2004, the FASB issued SFAS 123(R), "Share-Based
Payment," which revises SFAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires
fair value recognition of stock option grants in the income statement as an expense and is effective for the first interim and annual reporting period that begins after June 15, 2005. This
pronouncement becomes effective for the Company as of the third quarter of 2005 and may have a material impact on our operating results. The Company is in the process of evaluating the impact of this
pronouncement on how it may change the way the Company provides incentive compensation to its employees in the future.

NOTE 3. RESTRUCTURING COSTS AND ASSET IMPAIRMENT CHARGES

During 2002, the Company announced a restructuring program in response to macroeconomic and capital spending issues affecting the communications industry, and
recorded pre-tax charges of $10.7 million in accordance with EITF 94-3 related to the restructuring of the Company's operations and pre-tax goodwill and
asset impairment charges of $67.6 million and $42.6 million in accordance with SFAS 142 and SFAS 144, respectively.

During
2003, the Company announced a restructuring plan and recorded pre-tax charges of $3.1 million in accordance with SFAS 146 related to the restructuring of
the Company's manufacturing and engineering facilities, of which $0.9 million were cash charges and $2.2 million were pre-tax non-cash charges related to lease
obligations.

During
2004, the Company announced a restructuring plan in accordance with SFAS 146 related to the restructuring of the Company's manufacturing and engineering operations
primarily in Europe. The Company recorded pre-tax cash restructuring charges of $1.1 million and pre-tax non-cash asset impairment charges of
$2.0 million.

F-14

---



The
restructuring costs and asset impairment charges are classified as operating expenses.

Restructuring Costs

As of December 31, 2004 the remaining restructuring obligations relate to facilities closures and legal settlement costs which have been classified as
other. The liabilities related to facilities closures contain continuing lease obligations, the longest of which extends to 2007.

A
summary of the restructuring activity during the year ended December 31, 2004 is as follows (in millions):

Restructuring
Liabilities at
January 1, 2004

Restructuring
Charges

Applications of
Reserve

Restructuring
Liabilities at
December 31, 2004Worldwide workforce reduction

$
0.5

$
0.7

$
1.2

$
Facilities closure


5.2





3.3


1.9Other





0.4





0.4$
5.7

$
1.1

$
4.5

$
2.3


A
summary of the restructuring activity during the year ended December 31, 2003 is as follows (in millions):

Restructuring
Liabilities at
January 1, 2003

Restructuring
Charges

Applications of
Reserve

Restructuring
Liabilities at
December 31, 2003Worldwide workforce reduction

$
2.4

$
0.9

$
2.8

$
0.5Facilities closure


5.9


2.2


2.9


5.2$
8.3

$
3.1

$
5.7

$
5.7


The
2004, 2003 and 2002 restructuring charges are comprised of the following (in millions):

Restructuring Costs
Year Ended
December 31,2004

2003

2002Worldwide workforce reduction

$
0.7

$
0.9

$
3.8Other fees


0.4





Facilities closure





2.2


5.2Fixed asset write-off








1.7Total

$
1.1

$
3.1

$
10.7


2004 Restructuring Costs

The $0.7 million of restructuring charge for workforce reduction during 2004 was related to approximately 45 positions eliminated, primarily in Switzerland
and in Norway. The reductions in Norway related to the Company's 2003 restructuring plan to consolidate manufacturing facilities

F-15

---



internally
and shift production to outside contract manufacturers. All severance and related benefits were paid out during 2004. The $0.4 million of other restructuring charges were for
settlement payments and legal costs resulting from a settlement agreement related to the closure of the Boston, Massachusetts facility during 2001. A settlement agreement was reached during the fourth
quarter of 2004 between the Company and the employees impacted by the 2001 restructuring of the Boston facility.

2003 Restructuring Costs

The $0.9 million of restructuring charge for workforce reduction during 2003 was related to 49 positions eliminated during the fourth quarter of 2003, of
which 27 were located in Norway and 22 were located in Andover, Massachusetts. The reductions in Norway were comprised of manufacturing positions and were part of the Company's plan to consolidate
manufacturing facilities internally and shift production to outside contract manufacturers. All remaining severance and related benefits was paid out during 2004.

The
facilities closure charge of $2.2 million mainly represents continuing lease obligations for the Andover, Massachusetts facility, which has been partially vacated with no
future economic benefit. Due to the industry downturn and the slow recovery that has followed, a significant portion of these premises is unused and the Company has determined that no economic benefit
will be gained from a portion of this facility. In accordance with SFAS 146, the Company measured and recognized a liability for the fair value of the future payments remaining on the lease,
offset by estimated sublease rents. The Company expects that this reserve will be exhausted by 2007.

2002 Restructuring Costs

The $3.8 million restructuring charge for workforce reduction during 2002 related to approximately 625 positions eliminated, of which approximately 400
positions were located in Puerto Rico and Mexico, including 300 manufacturing positions. Of the remaining positions eliminated, approximately 175 were located in the United States, including 100
manufacturing positions, and the balance of approximately 50 were located at the Company's other overseas locations, primarily in Europe.

The
$5.2 million charge for facilities closures during 2002 was related to office space and facilities that were vacated with no future economic benefit. This charge included the
write-off of existing leasehold improvements as well as payments for continuing lease obligations. Cash payments will be made through the remaining terms of the leases, the longest of
which extends to 2006. The Company facilities vacated were located in Costa Mesa, California; Mexico; and Puerto Rico. In connection with these closures, the Company recorded a charge of approximately
$1.7 million for the write down of fixed assets at these locations during 2002.

Impairment of Fixed Assets and Purchased Intangible Assets

During 2004, the Company performed an impairment review in accordance with SFAS 144 to determine whether any of its long-lived assets were
impaired due to the restructuring of one of its European facilities. The Company recorded non-cash impairment charges of $0.7 million related to manufacturing equipment at that
facility. The fixed assets were written down to fair value based on a discounted cash flow and on market quotes obtained from third party sources, as the Company determined that the carrying values of
the fixed assets would not be recovered from future cash flows. In addition, the Company recorded non-cash asset impairment charges of $1.3 million when it wrote

F-16

---



down
the book value of an idle facility in Mexico to fair value which the Company determined based on current market activity.

During
2002, the Company performed an impairment review in accordance with SFAS 144 to determine whether any of its long-lived assets were impaired due to further
deterioration in market conditions as well as the closure of several facilities. The Company identified certain long-lived assets that were held for sale, which were written down to a fair
value less estimated cost of disposition. The non-cash impairment charge associated with these assets was $13.7 million. These assets included manufacturing equipment as well as a
facility. The Company determined fair value primarily through obtaining market quotes from third party sources.
Further, the Company identified $28.9 million of certain intangible assets and other fixed assets at one of its subsidiaries with continuing operations whose carrying values are not expected to
be recovered from future cash flows. These assets included certain intangibles associated with the acquisition of Powec in 2000, primarily customer relationships and product technology, as well as an
owned facility in Norway. These were also written down to fair value, which was determined by using discounted cash flows for the intangible assets and a third-party appraisal for the facility. Asset
impairment charges associated with SFAS 144 totaled $42.6 million for the year ended December 31, 2002.

In
addition, the Company performed an impairment test of goodwill in accordance with SFAS 142 during 2002 and recorded a $67.6 million non-cash impairment
charge. During 2002 the Company modified its long-term forecast to account for continuing weakness in its industry, which negatively impacted the SFAS 142 analysis of discounted
cash flows. All of the impaired goodwill is related to the acquisition of Powec in 2000, whose business was negatively impacted by a decline in service provider spending. As of December 31,
2002, there was no remaining goodwill related to the Powec acquisition.

NOTE 4. INVESTMENTS

The Company has investments in certain debt securities that have been classified on the balance sheet as investments held-to-maturity and
available-for-sale securities in accordance with SFAS 115. The Company also has certain equity securities that have been classified as
available-for-sale securities that are recorded in other assets on the balance sheet. Investments held-to-maturity are recorded on the balance sheet at
cost, and available-for-sale securities are recorded at fair value based upon quoted market prices, with unrealized gains and losses (net of applicable income taxes) included
in other comprehensive income. Realized gains and losses on sales of investments are determined using the specific identification method.

Available-for-sale
securities consist of the following (in millions):

December 31, 2004Amortized Cost

Net
Unrealized Gains

Fair ValueMunicipal notes and bonds

$
2.0

$


$
2.0Other fixed income investments


5.5





5.5$
7.5

$


$
7.5


F-17

---





Investments held-to-maturity consist of the following (in millions):

December 31, 2004Amortized Cost

Net
Unrealized Gains

Fair ValueU.S. government and agencies notes and bonds

$
39.2

$


$
39.2Other fixed income investments


5.0


0.2


5.2$
44.2

$
0.2

$
44.4


The
fair value of the Company's investments held-to-maturity at December 31, 2004, by contractual maturity, is shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call certain obligations.

Amortized Cost

Fair ValueDue in less than one year

$
9.4

$
9.4Due in 12 years


17.0


17.0Due in 25 years


17.8


18.0$
44.2

$
44.4


The
Company also has investments in privately-held enterprises, including a joint-venture located in China, that are accounted for under the cost or equity methods depending
on the nature of the investment. Additionally, the Company has an investment in one of its contract manufacturers in Asia, which is classified as an available-for-sale
security. Such investments are included in other assets in the balance sheet.

During
2004, no securities were sold prior to their maturity or call date.

NOTE 5. ACQUISITIONS

On February 14, 2003, the Company completed its acquisition of di/dt Inc., a Delaware corporation based in Carlsbad, California and a technology
innovator in the design and manufacture of high-density DC/DC converters used mainly in communications systems and networking environments. The Company acquired di/dt primarily for its
innovative technology in the DC/DC space.

The
purchase price for di/dt was approximately $17.5 million, which consisted of the following: a $2.0 million note receivable from, as well as a $3.1 million cost
basis investment in, di/dt prior to the acquisition; 1.4 million shares of the Company's common stock valued at $6.3 million at acquisition; $1.0 million in cash and acquisition
costs; and 0.5 million shares of the Company's common stock paid as earn-out to the former shareholders of di/dt during 2003 and 2004 valued at $5.1 million.
Earn-out payments have been recorded as additional goodwill, and no
earn-out provisions extend beyond December 31, 2004. In addition to the purchase price, the Company granted a cash bonus of approximately $1.0 million to the original
founders of di/dt upon acquisition, which was recorded as compensation expense in 2003.

The
net purchase price, plus acquisition costs, was allocated to tangible assets and intangible assets. The excess of the aggregate purchase price over the estimated fair values of the
net tangible

F-18

---



assets
acquired was recognized as goodwill and product technology. Product technology is being amortized over five years. The consolidated statements of operations, comprehensive income (loss) and
cash flows for the fiscal year ended December 31, 2003, include ten months of di/dt's operations. No pro forma information is included herein, as di/dt was not material to the Company's
financial position or results of operations.

Prior
to the acquisition, the Company held an exclusive license from di/dt for certain current and prospective di/dt products, under which license the Company was making royalty payments
to di/dt relating to sales of licensed products. Stephens, Inc., a significant shareholder of the Company, was also a significant shareholder in di/dt. Additionally, the Company's outside
counsel held a modest equity position in di/dt, and the Company's CEO, Mr. Goldman, held a very small personal position in di/dt via an LLC created by Stephens, Inc. in connection with
the original investment of Stephens, Inc. in di/dt.

NOTE 6. INVENTORIES

Inventories, inclusive of the inventory charges recorded, consist of the following (in millions):

December 31,2004

2003Raw materials

$
29.8

$
28.5Subassemblies-in-process


6.1


5.0Finished goods


18.4


17.7$
54.3

$
51.2


The
Company looks at projected usage for components in determining excess and obsolete inventory. The methodology for forecasting demand may be modified depending on specific product
lifecycles and local circumstances. Any inventory in excess of this demand is written off.

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in millions):

December 31,2004

2003Land

$
1.1

$
1.1Buildings (useful lives of 20 to 30 years)


14.8


15.6Factory and office equipment (useful lives of 3 to 10 years)


83.8


76.0Vehicles (useful lives of 3 to 7 years)


0.6


0.8Leasehold improvements (useful lives of 5 to 10 years)


13.9


12.3Construction in progress


2.7


8.5116.9


114.3Less accumulated depreciation and amortization


59.2


51.6$
57.7

$
62.7


During
2004, the Company sold assets held for sale for $1.5 million and recorded a loss on sale of less than $0.1 million. In addition, the Company intends to sublease its
Mexico building which was

F-19

---



previously
recorded as held for sale; as a result, the Company reclassified $3.1 million of assets previously recorded as held for sale to property and equipment.

During
2003, the Company sold one of its closed facilities that was held for sale for $4.8 million and recorded a gain on sale of approximately $0.2 million.

NOTE 8. CREDIT FACILITIES AND BORROWINGS

In February 2004, the Company elected to repay from its cash on hand the long-term debt of $9.1 million, which had been incurred for the
purchase of a subsidiary's office and manufacturing facility in Norway.

In
addition, the Company maintains credit facilities with various banks in Europe, Asia and Australia. These credit facilities were acquired primarily as a result of acquisitions in 1998
and 2000. The aggregate limit on all credit facilities is approximately $8.9 million. The credit facilities bear interest on amounts outstanding at various intervals based on published market
rates. Some credit agreements require the Company's subsidiaries to maintain certain financial covenants and to provide certain financial reports to the lenders. At December 31, 2004, the
Company had no outstanding balance on any credit facility.

At
December 31, 2004, the Company was in compliance with all debt covenants.

NOTE 9. OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following (in millions):

December 31,2004

2003Accrued payroll and related expenses

$
5.3

$
5.6Accrued income taxes


5.1


1.0Accrued bonuses


2.1


1.6Accrued warranties


3.4


3.3Accrued supplier liabilities


0.5


1.8Other accrued expenses


5.6


5.2$
22.0

$
18.5


NOTE 10. COMMITMENTS AND CONTINGENCIES

LeasesThe Company leases facilities in various locations around the world under lease agreements expiring at various dates
through 2014 in North America and 2011 in Europe and Asia.

Additionally,
the Company also leases several vehicles with leases expiring in 2007.

F-20

---



Future
minimum lease payments for operating leases as of December 31, 2004 are as follows (in millions):

Years Ending December 31,

Operating
Leases2005

$
5.92006


4.62007


3.52008


2.92009


2.62010 and thereafter


4.6Total minimum lease payments

$
24.1


Total
rent expense was approximately $7.2 million, $5.9 million, and $5.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Approximately $1.9 million and $5.2 million of operating
lease commitments above were reserved for in the restructuring charge accruals as of December 31, 2004 and December 31, 2003, respectively. The Company intends to seek subleases for
unused facilities.

Legal ProceedingsThe Company is involved in certain claims and legal proceedings which have arisen in the normal course of
business. Management does not believe that the outcome of any currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flow.

VLT Corporation and Vicor Corporation v. Power-One, Inc., United States District Court, District of Massachusetts, Civil Action
No. 01-10207-PBS.The Complaint, filed on February 5, 2001, alleged infringement of Vicor's U.S. patent number
Re. 36,098 by certain products of Power-One. The Complaint sought certain injunctive relief and compensatory damages. The Company denied all infringement or liability for any damages.

Following
proceedings at the trial and appellate levels, the subject litigation was concluded with a finding of no infringement of the Vicor patent by the Company's products. All
appellate rights and proceedings have expired, all prior rulings favorable to the Company have become final, and all proceedings have now been dismissed.

As
part of its defense of the Vicor patent dispute, the Company has asked for indemnification and reimbursement from escrow accounts which were created as part of the Company's
acquisition of Melcher AG. Management believes that a substantial portion of its costs of defense will be reimbursed from amounts held in the Melcher escrow account. However, litigation in Switzerland
may be required based on objection by the Melcher Sellers to the Company's claim for reimbursement.

NOTE 11. COMMON STOCK

Deferred Compensation PlanOn October 4, 2001, the Company's Board of Directors approved a
Deferred Compensation Plan (the "Deferred Plan"). The purpose of the Deferred Plan was to motivate and retain eligible employees and non-employee directors by permitting them to defer
compensation into stock units that would be paid out in the form of shares of the Company's common stock in January 2003. For the period beginning on October 22, 2001 and ending on
October 20, 2002 (the

F-21

---



"Deferral
Period"), eligible employees elected irrevocably to defer up to 50% of their base salary and eligible directors elected irrevocably to defer up to 100% of their compensation related to
regularly scheduled meetings. The Company matched the deferral at 100% in January 2003. The Deferred Plan provided for these amounts to be settled in the Company's common stock on the first day
following the public release of earnings of the Company for the fiscal year ending December 31, 2002 which was January 31, 2003 (the "Payment Date"). For participants under the Plan as
of October 31, 2001, the number of shares of the Company's common stock distributed to the employee or director on the Payment Date was equal to the sum of (i) amount deferred plus
(ii) the 100% Company match, divided by $6.00. Participants (i.e. new employees) entering the Plan after October 31, 2001 received a number of shares of the Company's common stock on the
Payment Date equal to the sum of (i) amount deferred plus (ii) the 100% Company match, divided by the average of the Company's stock price over the ten trading days preceding the first
day of the Company's applicable pay period which follows the participant's irrevocable election to participate.

The
Company recognized the amount deferred by the employees and directors as compensation expense ratably during the Deferral Period. The Company recognized the amount matched by the
Company as compensation expense ratably during the period beginning on October 22, 2001 and ending on the Payment Date. Compensation expense recognized by the Company was equal to the total
number of shares to be distributed to each employee and director multiplied by the fair market value, or $8.43, on the measurement date, October 18, 2001. For the years ended
December 31, 2003 and 2002, the Company recorded approximately $0.5 million and $9.5 million in compensation expense related to the Deferred Plan, respectively. No compensation
expense was recognized during 2004 under the Deferred Plan.

The
stock unit equivalent of the amount deferred by the employee vested at the end of each pay period, whereas the stock unit equivalent of the Company's match vested on the Payment
Date. The Plan provided for certain prorating of vesting and for distribution of shares in the event employment or director service ends (either voluntarily or involuntarily) before the Payment Date.
At December 31, 2002, there were approximately 0.7 million stock units vested under the Deferred Plan. Additionally, as of December 31, 2002 approximately 0.1 million
shares of the Company's common stock had been issued in connection with the provisions of the Plan relating to terminations of employment prior to the Payment Date. The total number of shares issued
on the Payment Date in connection with this plan was approximately 0.9 million shares which is net of approximately 0.5 million shares that were withheld
to satisfy the employees' tax obligation. The Company paid the tax obligation of $2.6 million in cash in lieu of issuing shares.

Stock Options, Restricted Stock, and Restricted Stock UnitsIn February 1996, the Board of Directors approved a stock
option plan for the issuance of 3.0 million shares of common stock (the "1996 Plan"). In January 1999, the 1996 Plan was amended to increase the shares issuable under the plan. In
May 2004, the 1996 Plan was amended by the Board of directors to terminate the option to further increase shares issuable under this plan, to grant to non-employees, and to reprice
shares. The Company can issue either qualified or non-qualified stock options, restricted stock and restricted stock units under the 1996 Plan. At December 31, 2004,
16.7 million shares were reserved under the 1996 plan, of which 0.9 million were available for future grants. The option price is determined by the Board of Directors based on the fair
market value of the Company's common stock on the date of grant. The existing options generally vest over four- and seven-year terms. Those options with seven-year
vesting terms include accelerated vesting provisions that allow for vesting over five years if certain performance measures are met. In connection with the issuance of stock options in 1997 and 2002,
the Company has

F-22

---



computed
compensation cost for the difference between the estimated fair market values and the option exercise prices at the date of grant totaling approximately $0.2 million and
$0.9 million, respectively, which is being amortized over the vesting periods of the options. For the year ended December 31, 2002, the Company recognized compensation expense of
$0.9 million. There was no material compensation expense recorded in 2004 and 2003 related to these stock options. During year ended December 31, 2003, the Company issued
0.3 million restricted stock shares and stock units, resulting in compensation expense of $1.6 million and $0.6 million and deferred compensation of $44 thousand and
$0.7 million, for the years ended December 31, 2004 and 2003, respectively.

In
September 2001, the Board of Directors approved a stock option plan for the issuance of 2.5 million shares of common stock (the "2001 Plan"). The Company only issued
non-qualified stock options under the 2001 Plan, and did not issue options under the 2001 Plan to a member of the Board of Directors or an executive officer (i.e. an officer as defined
under and subject to Section 16 of the Securities Exchange Act of 1934). The Board of Directors determined the option price based on the fair market value of the Company's common stock on the
date of grant. All options under the 2001 Plan were granted at fair market value. Options granted under the 2001 Plan generally vest over four years. In May 2004, the Board of Directors
approved an amendment to this plan whereby the Company may not grant additional awards under the 2001 Plan and the Company may not reprice options previously granted under this plan. As of
December 31, 2004, approximately 2.0 million shares of common stock were granted under the 2001 Plan.

In
May 2004, the Board of Directors and shareholders approved the adoption of the Power-One 2004 stock incentive plan (the "2004 Plan") for the issuance of
4.8 million shares of common stock. Under this plan, the Company can issue stock options, stock appreciation rights, restricted stock, stock bonuses and other forms of awards denominated in
common stock or units as well as cash bonus awards. The option price is determined by the Board of Directors based on the fair market value of the Company's common stock on the date of grant. The
existing options
generally vest over four- year terms. At December 31, 2004, 4.7 million shares were available for future grants.

Total
options exercisable under the 1996, 2001 and 2004 Plans as of December 31, 2004, 2003 and 2002 were 8.7 million, 5.6 million and 4.7 million,
respectively.

F-23

---



Stock
option activity of the Company is as follows:

Millions of
Options

Exercise Price
per Option

Weighted Average
Exercise PriceOptions outstandingDecember 31, 2001

12.2

$0.33 - $83.75

$
10.43Options granted

0.6

$0.10 - $10.78

$
5.63Options exercised

(1.0
)
$0.10 - $  5.77

$
5.13Options cancelled

(0.7
)
$2.05 - $83.75

$
12.53Options outstandingDecember 31, 2002

11.1

$0.10 - $83.75

$
10.51Options granted

3.4

$4.31 - $12.46

$
5.89Options exercised

(0.6
)
$0.10 - $  9.00

$
2.78Options cancelled

(1.2
)
$2.05 - $83.75

$
13.15Options outstandingDecember 31, 2003

12.7

$0.34 - $83.75

$
9.39Options granted

2.4

$6.20 - $14.26

$
9.52Options exercised

(0.5
)
$0.34 - $  9.55

$
4.77Options cancelled

(0.6
)
$2.32 - $83.75

$
12.12Options outstandingDecember 31, 2004

14.0

$0.34 - $83.75

$
9.44


The
following table summarizes information regarding options outstanding at December 31, 2004:

|                  |  | Options Outstanding |  | Options Exercisable
|----------------- |  | ------------------- |  | -------------------
|
|$  0.34 - $  2.05 |  | 1.7                 |  | 2.57 yrs           
|$  2.32 - $  4.67 |  | 2.0                 |  | 6.32 yrs           
|$  4.75 - $  5.77 |  | 2.8                 |  | 6.80 yrs           
|$  5.86 - $  8.92 |  | 2.2                 |  | 8.03 yrs           
|$  8.96 - $  9.12 |  | 1.9                 |  | 9.54 yrs           
|$  9.13 - $20.88  |  | 2.8                 |  | 5.93 yrs           
|$22.00 - $42.31   |  | 0.3                 |  | 5.48 yrs           
|$47.50 - $83.75   |  | 0.3                 |  | 5.52 yrs           
|                  |  |                     |  |                    
|$  0.34 - $83.75  |  | 14.0                |  | 6.55 yrs           
|                  |  |                     |  |                    

Employee Stock Purchase PlanThe Company adopted, effective January 1, 1998, an Employee Stock Purchase Plan, under
which 9.0 million shares are reserved for purchase by employees. The plan qualifies for non-compensatory status under APB 25, Paragraph 7 as it meets the following criteria:
all full-time employees are able to participate in the plan; the stock is offered equally to all eligible employees; the purchase right is limited to a reasonable time period; and the
discount from the market price of the stock is reasonable and in compliance with Section 423 of the Internal Revenue Code. No compensation cost is recognized for shares issued under this plan.
Substantially all of the Company's domestic employees may contribute from two to eight percent of their qualified earnings toward the purchase of the Company's common stock. The plan provides the
participants the opportunity to purchase shares at 85% of the fair market value on either the first day or the last day of each six-month offering period, whichever is lower. The offering
periods generally run from January 1 through June 30 and July 1 through December 31. At December 31, 2004, 2003 and 2002 there were 0.4 million,
0.3 million and 0.2 million shares issued cumulatively under this plan, respectively.

F-24

---





NOTE 12. BUSINESS GEOGRAPHICAL LOCATIONS

The Company has manufacturing and research and development operations in the United States, Dominican Republic, Switzerland, Slovakia, Norway, Ireland and China.
The following table summarizes the Company's revenues and long-lived assets in different geographic locations (in millions):

Years Ended December 31,2004

2003

2002Embedded
products

Power
systems

Embedded
products

Power
systems

Embedded
products

Power
systemsRevenues:(a)United States

$
83.5

$
19.7

$
79.6

$
16.4

$
78.0

$
13.0Canada


29.0


0.6


11.5


2.3


7.7


2.4United Kingdom


9.2


4.1


9.1


7.0


7.9


9.9Other European countries


46.1


37.7


40.3


39.9


30.6


35.4Malaysia


19.5


1.3


25.7





21.9


Other Asian countries


12.8


11.6


6.9


12.9


3.8


11.4Other international locations


0.1


5.1


0.1


4.6


8.5


0.2Total

$
200.2

$
80.1

$
173.2

$
83.1

$
158.4

$
72.3


December 31,2004

2003Long-Lived Assets:United States

$
66.2

$
70.4Switzerland


15.5


19.7Norway


13.3


12.1Dominican Republic


9.1


10.3Slovakia


7.9


3.8Other international locations


3.8


3.7Total

$
115.8

$
120.0


---

NOTE 13. INCOME TAXES

Loss before provision (benefit) for income taxes consisted of the following (in millions):

Year Ended December 31,2004

2003

2002United States

$
(17.4
)
$
(20.7
)
$
(78.9
)Non-United States


(0.7
)

1.5


(144.3
)Total

$
(18.1
)
$
(19.2
)
$
(223.2
)


F-25

---



The
components of the provision (benefit) for income taxes are as follows (in millions):

Year Ended December 31,2004

2003

2002Current:Federal

$


$


$
(4.7
)State








Foreign


4.3


(2.7
)

(0.3
)Total current


4.3


(2.7
)

(5.0
)Deferred:Federal








State








Foreign


(1.2
)

1.7


(7.2
)Total deferred


(1.2
)

1.7


(7.2
)Provision (benefit) for income taxes

$
3.1

$
(1.0
)
$
(12.2
)


The
components of deferred income tax assets (liabilities) are as follows (in millions):

Year Ended December 31,2004

2003Federal

State

Foreign

Federal

State

ForeignCurrent:Uniform capitalization

$
0.6

$
0.1

$


$
0.4

$
0.1

$
Sales discount reserve


0.7


0.1





0.4


0.1


Bad debt reserve


0.6


0.1





0.9


0.2


(0.6
)Inventory reserve


2.4


0.4


(0.3
)

4.3


0.7


(0.6
)Warranty reserve


1.0


0.2


0.1


1.0


0.1


0.1Other


0.5


0.1


(0.2
)

0.4


0.2


(0.3
)Subtotal


5.8


1.0


(0.4
)

7.4


1.4


(1.4
)Valuation allowance


(5.8
)

(1.0
)

(1.1
)

(7.4
)

(1.4
)

(0.5
)Total current








(1.5
)







(1.9
)Non-current:NOL


81.1


4.4


11.8


68.1


5.4


6.8Intangible assets


(1.5
)

(0.3
)




1.3


0.2


Restructuring allowance


0.7


0.1





1.1


0.2


Fixed assets


(0.8
)

2.1


1.4


0.5


0.2


0.8Other


2.6


1.1


(0.1
)

1.9


2.8


0.1Subtotal


82.1


7.4


13.1


72.9


8.8


7.7Valuation allowance


(82.1
)

(7.4
)

(13.7
)

(72.9
)

(8.8
)

(8.7
)Total non-current








(0.6
)







(1.0
)Net deferred income tax liabilities

$


$


$
(2.1
)
$


$


$
(2.9
)


F-26

---



The
Company records a deferred income tax asset in jurisdictions where it generates a loss for income tax purposes. Due to volatility in the industry within which the Company operates,
the Company records a valuation allowance against these deferred income tax assets in accordance with SFAS 109 when, in management's judgment, the deferred income tax assets will likely not be
realized in the foreseeable future. For the years ended December 31, 2004, 2003 and 2002, the Company recorded valuation allowances against deferred income tax assets of $10.1 million,
$5.9 million and $39.9 million, respectively.

A
reconciliation of the Company's provision (benefit) for income taxes to the U.S. federal statutory rate is as follows (in millions):

|                                                         |  | Year Ended December 31, |     
|-------------------------------------------------------- |  | ----------------------- | ----
|
|
|Provision for income taxes at statutory rate             |  | $                       | (6.3
|Foreign income taxed at different rates                  |  |                         | 3.3 
|Non-deductible goodwill                                  |  |                         | 0.5 
|Job Creation and Worker Assistance Act income tax refund |  |                         |    
|Other                                                    |  |                         |    
|Valuation allowance net of state taxes                   |  |                         | 5.6 
|                                                         |  |                         |     
|                                                         |  |                         | 3.1 
|                                                         |  |                         |     

As
of December 31, 2004, the Company had net operating loss (NOL) carry-forwards for U.S. federal and state income tax purposes of approximately $226.9 million and
$72.2 million, respectively. These operating loss carry-forwards expire in various years beginning in 2021 and 2012, respectively. The Company also has foreign NOLs in various countries.

On
March 9, 2002, the Job Creation and Worker Assistance Act was signed into law. Among other provisions, the act temporarily extends the general NOL carry-back period
to five years (from two years). The provision is effective for NOLs generated in taxable years ending December 31, 2002 and 2001. This act allowed the Company to obtain an additional tax refund
of approximately $4.7 million during 2002. SFAS 109 requires that the effect of an enacted change in tax laws or rates be included in income from continuing operations in the period that
includes the enactment date.

NOTE 14. RELATED PARTY TRANSACTIONS

Stephens, Inc., a significant stockholder, provided no financial advisory services during the year ended December 31, 2004, and less than
$0.1 million in each of the years ended December 31, 2003 and 2002. The Company had no payables to Stephens, Inc., at December 31, 2004 and 2003. A former officer of
Stephens, Inc., now retired, is on the Company's Board of Directors.

O'Melveny &
Myers LLP ("OMM") provided general legal services of approximately $1.1 million, $0.9 million, and $0.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively. A former O'Melveny & Myers LLP partner, now retired, is on the Company's Board of Directors. The Company owed O'Melveny & Myers LLP
$0.1 million at December 31, 2004. No amounts were owed to O'Melveny & Myers LLP at December 31, 2003.

F-27

---



During
the fourth quarter of 2002, the Company contributed certain non-cash assets to a privately-owned contract manufacturer in Asia in exchange for approximately 10% of the
common stock of that contract manufacturer. This investment is being accounted for under the cost method. The Company contributed some of its excess SMT manufacturing equipment that had previously
been written down to fair value of approximately $2.1 million and approximately $5.2 million of a note receivable from the contract manufacturer held by the Company in exchange for the
equity investment. This contract manufacturer is a significant supplier to the Company. During the fourth quarter of 2003, the Company recorded a write-down of approximately
$5.7 million in other expense to reduce the book value of its equity investment held in that contract manufacturer.

In
February 2003, the Company acquired 100% of the equity of di/dt Inc. Prior to acquisition, the Company held an exclusive license from di/dt for certain di/dt products,
under which license the Company was making royalty payments to di/dt relating to sales of licensed products. Stephens, Inc. was a significant shareholder in di/dt. Additionally, the Company's
outside counsel, OMM, held a modest equity position in di/dt, and the Company's CEO, Mr. Goldman, held a very small personal position in di/dt via an LLC created by Stephens, Inc. in
connection with the original investment of Stephens, Inc. in di/dt. The total cost of the acquisition, including subsequent earn-out payments, was $17.5 million.

NOTE 15. RESEARCH AND DEVELOPMENT

Research and development expenses were $29.4 million, $28.5 million and $21.2 million for the years ended December 31, 2004, 2003 and
2002, respectively.

F-28

---





NOTE 16. INTANGIBLE ASSETS

Intangible assets consist of the following (in millions):

December 31, 2004Gross Intangible
Assets

Accumulated
Amortization

Net Intangible
Assets

Weighted Average
Life (In Years)Non-amortizable intangiblesGoodwill

$
39.1

$
5.7

$
33.4Trade name


16.6


5.2


11.4Subtotal


55.7


10.9


44.8Amortizable intangiblesProduct technology


25.4


17.3


8.1

9Other


10.7


5.5


5.2

15Subtotal


36.1


22.8


13.3Total

$
91.8

$
33.7

$
58.1


December 31, 2003Gross Intangible
Assets

Accumulated
Amortization

Net Intangible
Assets

Weighted Average
Life (In Years)Non-amortizable intangiblesGoodwill

$
34.2

$
5.1

$
29.1Trade name


16.6


5.2


11.4Subtotal


50.8


10.3


40.5Amortizable intangiblesProduct technology


24.9


14.0


10.9

9Other


10.4


4.5


5.9

15Subtotal


35.3


18.5


16.8Total

$
86.1

$
28.8

$
57.3


The
Company reviews the carrying value of goodwill and non-amortizable intangible assets using the methodology prescribed in SFAS 142, "Goodwill and Other Intangible
Assets." SFAS 142 requires that the Company not amortize goodwill, but instead subject it to impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be
impaired.

The
Company performed an impairment test of goodwill and Company's trade name in accordance with SFAS 142 during the third quarter of 2004 and 2003. Based on impairment test
performed using discounted cash flow approach, there was no impairment of the goodwill and the Company's trade name.

During
2003, the Company completed an acquisition, which was accounted for using the purchase method of accounting. The net purchase price, plus acquisition costs, was allocated to
tangible assets and intangible assets. The excess of the aggregate purchase price over the estimated fair values of the

F-29

---



net
tangible assets acquired was recognized as goodwill and product technology in the amount of $2.2 million and $3.8 million, respectively. Product technology is being amortized over
five years.

Estimated
future amortization expense is as follows, in millions:

Year Ending December 31,

Amortization
Expense2005

$
3.92006


3.12007


2.92008


1.32009


0.6Total

$
11.8


As
earn-out consideration for attainment of defined operational performance for years 2004 and 2003, the Company distributed a total of 0.3 and 0.2 million shares
during 2004 and 2003, respectively, of the Company's common stock to the former shareholders of di/dt. These payments were recorded as additional goodwill.

The
changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 are as follows (in millions):

December 31,2004

2003Beginning balance

$
29.1

$
24.0Increase in goodwill related to acquisition


3.2


4.1Changes due to foreign currency fluctuations


1.1


1.0Ending balance

$
33.4

$
29.1


NOTE 17. EARNINGS (LOSS) PER SHARE (EPS)

The following is a reconciliation of the EPS data (in millions, except per share data):

|                                     |  | Year Ended December 31, |      
|------------------------------------ |  | ----------------------- | -----
|
|
|Net loss                             |  | $                       | (21.2
|Basic and Diluted shares outstanding |  |                         |      
|                                     |  |                         |      
|Basic and Diluted loss per share     |  | $                       | (21.2
|                                     |  |                         |      

The
dilutive effect of stock options outstanding at December 31, 2004, 2003 and 2002 was not included in the calculations of diluted loss per share for the years ended
December 31, 2004, 2003 and 2002 because to do so would have had an anti-dilutive effect as the Company had a net loss for these periods. The weighted average number of such options
excluded from the diluted loss per share

F-30

---



computation
was approximately 2.8 million 2.7 million and 1.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.

NOTE 18. NOTES RECEIVABLE

In January 2004, the outstanding balance of a note from an officer of the Company in the amount of $0.8 million, which was included in the current
amount at December 31, 2003, was paid in full. There are no other notes outstanding to officers or directors as of December 31, 2004.

NOTE 19. WARRANTIES

The Company offers its customers warranties on products sold based on product type and application. Management reviews and adjusts the warranty accrual based on
warranty repair costs and the rate of return. Actual repair costs are charged against the reserve. A tabular presentation of the activity within the warranty accrual account for the years ended
December 2004, 2003 and 2002 is presented below, in millions:

December 31,2004

2003

2002Beginning balance

$
3.3

$
3.8

$
3.1Charges and costs accrued


1.0


1.1


1.6Less repair costs incurred


(1.0
)

(1.7
)

(1.1
)Change due to foreign currency


0.1


0.1


0.2Ending balance

$
3.4

$
3.3

$
3.8


NOTE 20. RETIREMENT PLANS

The Company sponsors or participates in various retirement and pension plans, including defined benefit and defined contribution plans. Most international
employees are covered by government-sponsored programs where the costs to the Company are not significant. The Company has a 401(k) profit sharing plan covering all U.S. employees, subject to certain
participation, age and vesting requirements. The plan provides for a partial Company match at either a discretionary amount or up to specified percentages. Total Company contributions were
$0.5 million, $0.4 million, and $0.3 million for the years ended December 31, 2004, 2003 and 2002, respectively.

NOTE 21. SUBSEQUENT EVENTS

On February 1, 2005, the Company committed to a restructuring plan, which was announced on February 3, 2005, for which it expects to record $20 to
$25 million in restructuring and impairment charges during the first and second quarters of 2005. Approximately $5 to $10 million of these charges relate to non-cash asset
impairments, primarily property and equipment and other assets. The balance relates to cash expenditures for severance for terminated employees and continuing lease obligations on closed facilities,
the longest of which extends through 2008. The expected restructuring charges result from a plan to significantly downsize the Company's telecom systems operations in Norway, as certain functions move
to other existing Power-One facilities in low-cost locations, and to reduce operations and overhead in other locations. The Company expects that the restructuring actions will
be substantially complete by June 30, 2005.

F-31

---



On
February 23, 2005, the Board of Directors of the Company authorized accelerating the vesting of all of the Company's outstanding unvested stock options granted to directors,
officers and employees of the Company under applicable equity incentive plans of the Company, which have an exercise price greater than $5.00. The closing price of the Company's common stock on the
Nasdaq National Market Quotation System to be used for measurement of compensation as of the date of acceleration was $5.93. As a result of the acceleration, options to acquire approximately
3.8 million shares of the Company's common stock, which otherwise would have vested from time to time over the next four years, become immediately exercisable. All other terms and conditions
applicable to outstanding stock option grants remain in effect. The option plans under which the accelerated grants were issued are the Company's Amended and Restated Stock Incentive Plan, the 2001
Stock Option Plan, and the 2004 Stock Incentive Plan. The Board of Directors' decision to accelerate the vesting of the affected stock options was in response to the issuance by the Financial
Accounting Standards Board of Statement of SFAS 123 (revised 2004), "Share-Based Payment," which will require the Company to treat unvested stock options as an expense effective at the
beginning of the Company's third fiscal quarter of 2005. By accelerating the vesting of the affected stock options now, the Company has elected to recognize an immaterial amount of compensation
expense in the first fiscal quarter of 2005 for such accelerated stock options with exercise prices between $5.00 and $5.93. The Company believes that it will thereafter not be required to recognize
any compensation expense in future periods associated with the affected options. However, there can be no assurance that the acceleration of the options may not result in some future compensation
expense.

F-32

---





POWER-ONE, INC.        QUARTERLY FINANCIAL DATA FOR THE        2004 AND 2003 QUARTERS (Unaudited)        (In millions, except per share data)

|                       |  | 2004 Quarters Ended |      
|---------------------- |  | ------------------- | -----
|
|Net sales              |  | $                   | 68.7 
|Gross profit           |  |                     | 24.7 
|Loss from operations   |  |                     | (3.1 
|Net Loss               |  |                     | (2.8 
|Diluted loss per share |  |                     | (0.03

|                       |  | 2003 Quarters Ended |      
|---------------------- |  | ------------------- | -----
|
|Net sales              |  | $                   | 56.3 
|Gross profit           |  |                     | 21.4 
|Loss from operations   |  |                     | (3.5 
|Net loss               |  |                     | (3.1 
|Diluted loss per share |  |                     | (0.04

---

S-1

---





SUPPLEMENTAL SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS        FOR EACH OF THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002        (In millions)

|Descriptions                            |  | Balance at
Beginning of
Period |      | Charged to
Costs and
Expenses (1) |   | Deductions (2) |  | Foreign
Currency Impact |       | Balance at
End of Period
|--------------------------------------- |  | ------------------------------ | ---- | --------------------------------- | - | -------------- |  | ----------------------- | ----- | ------------------------
|Allowance for doubtful accounts:        |  |                                |      |                                   |   |                |  |                         |       |                         
|Year ended December 31,                 |  |                                |      |                                   |   |                |  |                         |       |                         
|2004                                    |  | $                              | 4.4  |                                   | $ | 1.1            |  | $                       | (0.9  | )                       
|2003                                    |  |                                | 6.6  |                                   |   | 0.2            |  |                         | (2.5  | )                       
|2002                                    |  |                                | 4.7  |                                   |   | 2.9            |  |                         | (1.3  | )                       
|Accrued sales discounts and returns:   
|Year ended December 31,                 |  |                                |      |                                   |   |                |  |                         |       |                         
|2004                                    |  | $                              | 1.1  |                                   | $ | 13.3           |  | $                       | (12.5 | )                       
|2003                                    |  |                                | 0.9  |                                   |   | 6.8            |  |                         | (6.6  | )                       
|2002                                    |  |                                | 1.7  |                                   |   | 7.8            |  |                         | (8.6  | )                       
|Deferred tax asset valuation allowance:
|Year ended December 31,                 |  |                                |      |                                   |   |                |  |                         |       |                         
|2004                                    |  | $                              | 99.7 |                                   | $ | 10.1           |  | $                       | (0.6  | )                       
|2003                                    |  |                                | 93.8 |                                   |   | 5.9            |  |                         | (0.8  | )                       
|2002                                    |  |                                | 58.8 |                                   |   | 39.9           |  |                         | (6.1  | )                       

---

S-2

---



INDEX TO EXHIBITS

The exhibits listed below are filed as part of, or incorporated by reference, into this Annual Report on Form 10-K.

|        |  | Description                                                                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(a)  |  | Amended and Restated Stock Purchase Agreement entered into as of May 15, 2000 among Power-One, Inc. and the shareholders of Powec AS (Norway)                                                                                                       
|3.1(b)  |  | Restated Certificate of Incorporation of the Company                                                                                                                                                                                                
|3.2(c)  |  | Amendment to the Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on August 31, 2000                                                                                                               
|3.3(j)  |  | Amended and Restated Bylaws of the Company                                                                                                                                                                                                          
|4.1(b)  |  | Specimen Common Stock Certificate                                                                                                                                                                                                                   
|4.2(d)  |  | Rights Agreement, dated as of July 27, 2000, between Power-One, Inc. and American Stock Transfer & Trust Company, as Rights Agent, including as exhibits thereto the terms of the Junior Participating Preferred Stock
and Form of Right Certificate
|4.3(e)  |  | Certificate of Designations of Junior Participating Preferred Stock of the Company                                                                                                                                                                  
|10.1(b) |  | Form of Indemnification Agreement between the Company and its directors, executive officers and certain other officers                                                                                                                              
|10.2(j) |  | Amended and Restated 1996 Stock Incentive Plan, dated January 25, 2002                                                                                                                                                                              
|10.3(b) |  | P-E Tax Exemption Grant dated January 4, 1995                                                                                                                                                                                                       
|10.4(f) |  | Employee Stock Purchase Plan                                                                                                                                                                                                                        
|10.5(g) |  | Letter of Agreement between the Company and the President and Chief Operating Officer                                                                                                                                                               
|10.6(h) |  | Power-One 2001 Stock Option Plan, dated September 28, 2001                                                                                                                                                                                          
|10.7(i) |  | Power-One 2001 Deferred Compensation Plan, dated October 5, 2001                                                                                                                                                                                    
|21(j)   |  | List of Subsidiaries                                                                                                                                                                                                                                
|23      |  | Independent Auditors' Consent                                                                                                                                                                                                                       
|24(j)   |  | Power of Attorney (Contained on Signature Page)                                                                                                                                                                                                     
|31.1    |  | Section 302 Certification of Principal Executive Officer                                                                                                                                                                                            
|31.2    |  | Section 302 Certification of Principal Financial Officer                                                                                                                                                                                            
|32      |  | Section 906 Certifications of Principal Executive Officer and Principal Financial Officer                                                                                                                                                           

---

S-3

---



S-4

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