This quarterly report on Form 10-Q contains forward-looking statements that involve many risks and uncertainties. These statements relate to future events and our future performance and are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. These include statements concerning:

• the above-average industry growth of product and market areas that we have targeted,

• our plan to introduce additional new products within our existing product families as well as in new product categories

• the absence of strong seasonality in the markets in which we sell our products,

• the cyclical nature of the semiconductor industry,

• the factors that we believe will impact our ability to achieve revenue growth, and

• estimates of our future liquidity requirements.

You can identify forward-looking statements by terms such as "would," "could," "may," "will," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "targets," "seek," or "continue," the negative of these terms or other variations of such terms. These statements are only predictions based upon assumptions that we believe to be reasonable at the time made, and are subject to risks and uncertainties. Therefore, actual events or results may differ materially and adversely from those expressed in any forward-looking statement. In evaluating these statements, you should specifically consider the risks described below in the section entitled "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a fabless semiconductor company that designs, develops, and markets proprietary, advanced analog and mixed-signal integrated circuits ("ICs"). We currently offer products that serve multiple markets, including notebook computers, flat panel displays, cellular handsets, digital cameras, wireless local area network (LAN) access points, home entertainment systems, and personal digital assistants, among others. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to introduce additional new products within our existing product families, as well as in new product categories.

We operate in the cyclical semiconductor industry where there is no strong or primary influence of seasonality. While we will not be immune from future industry downturns, we have targeted product and market areas that we believe have the ability to offer above average industry growth over the long term.

We work with third parties to manufacture and assemble our integrated circuits. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.

Following the introduction of a product, our sales cycle generally takes six to twelve months to complete. Volume production is usually achieved in three to six months after we receive an initial customer order for a new product. Typical lead times for orders are fewer than 90 days. These factors, combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer, make the forecasting of our orders and revenue challenging.

We derive the majority of our revenue from direct sales or sales through distribution arrangements to customers in Asia, where the components we produce are incorporated into an end-user product. We derive a majority of our revenue from the sales of our DC to DC converter product family which services the computing, consumer electronics and wireless markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and successfully secure manufacturing capacity.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to uncollectible accounts receivable, inventories, income taxes, warranty obligations, contingencies, litigation and valuation of stock-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such as demand for our products and economic conditions. Accordingly, our estimates and judgments may prove to be incorrect and actual results may differ, perhaps significantly, from these estimates under different estimates, assumptions or conditions.

We believe our critical accounting policies are as follows:

Revenue Recognition. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition ("SAB 104") issued by the Staff of the SEC. SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and
(4) are based on management's judgment regarding the fixed nature of the fee charged for products delivered and the collectibility of those fees. The application of these criteria has resulted in our generally recognizing revenue upon shipment (when title passes) to customers. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely impacted.

The majority of our sales are made through distribution arrangements with third parties. We recognize revenue upon our shipment to those third party distributors under these distribution arrangements. Some of these arrangements include limited stock rotation rights that permit the return of a small percent of the previous six months' purchases. In 2006, we established a sales reserve for those stock rotation rights. Our normal payment terms with our distributors are generally 30 to 45 days from invoice date, and our arrangements with our largest distributors do not include price protection provisions. In addition, terms in a majority of our distribution agreements include the non-exclusive right to sell, and the agreement to use best efforts to promote and develop a market for, our products in certain regions of the world and the ability to terminate the agreement by either party with up to three months notice. Estimated sales returns are based on historical experience and are recorded at the time product revenue is recognized.

In the first quarter of 2006, we signed a distribution agreement with a major U.S. distributor. Revenue from this distributor will be recognized upon sale by the distributor to the end customer. For the three months ended March 31, 2007, we recognized $0.2 million in revenue that is attributable to this distributor.

Warranty Reserves. We currently provide a 12-month warranty against defects in materials and workmanship and will either repair the goods, provide replacement products at no charge to the customer, or refund amounts to the customer for defective products. We record estimated warranty costs, which are based on historical experience over the preceding 12 months by product, at the time we recognize product revenue. As the complexity of our products increases, we could experience higher warranty claims relative to sales than we have previously experienced, and we may need to increase these estimated warranty reserves.

Inventory Valuation. We value our inventory at the lower of the standard cost (which approximates actual cost on a first-in, first-out basis) or its current estimated market value. We write down inventory for obsolescence or lack of demand on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Accounting for Income Taxes. Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, Accounting for Income Taxes establishes financial accounting and reporting standards for the effect of income taxes. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, we recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards. We record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty or finality to an anticipated outcome, changes in accounting or tax laws in the U.S., or foreign jurisdictions where we operate, or changes in other facts or circumstances. In addition, we recognize liabilities for potential U.S. and foreign income tax contingencies based on our estimate of whether, and the extent to which, additional taxes may be due. If we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment, we may be required to recognize an income tax benefit or additional income tax expense in our financial statements, accordingly. Due to the adoption of FIN 48 effective January 1, 2007, we calculated our contingencies based on certain estimates and judgments related to transfer pricing, cost sharing and our international tax structure exposure.

Contingencies. We are engaged in legal proceedings resulting from several patent infringement actions against us, two of which related to contract disputes. In addition, from time to time, we become aware that we are subject to other contingent liabilities. When this occurs, we will evaluate the appropriate accounting for the potential contingent liabilities using SFAS No. 5, "Accounting for Contingencies," to determine whether a contingent liability should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the facts and circumstances in each matter, we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated. If we determine a loss is probable and estimable, we record a contingent loss in accordance with SFAS 5. In determining the amount of a contingent loss, we take into account advice received from experts for each specific matter regarding the status of legal proceedings, settlement negotiations (which may be ongoing), prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomes available, we may need to record additional contingent losses that could materially and adversely impact our results of operations. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does not occur, the contingent loss recorded would be reversed which could result in a favorable impact on results of operations.

Accounting for Stock-Based Compensation. Effective January 1, 2006, we adopted the provisions of SFAS No. 123R, Share-Based Payment, under the modified prospective method. SFAS 123R eliminates the alternative of applying the intrinsic value measurement provisions of Accounting Principles Board ("APB") Opinion 25 to stock compensation awards issued to employees. Rather, the standard requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). We currently use the Black-Scholes option-pricing model to estimate the fair value of our share-based payments. The Black-Scholes option-pricing model is based on a number of assumptions, including expected volatility for which we use the average volatility of a number of our competitors and combine them with our limited historical volatility to come up with an overall volatility that is used in the model. The Black-Scholes option pricing model also includes an assumption of expected life, risk-free interest rate and expected dividends. If these assumptions change, stock-

based compensation may differ significantly from what we have recorded in the past. The amount of stock-based compensation that we recognize is also based on an expected forfeiture rate. If there is a difference between the forfeiture assumptions used in determining stock-based compensation costs and the actual forfeitures which become known over time, we may change the forfeiture rate, which could have a significant impact on our stock-based compensation expense.

Results of Operations

The table below sets forth the data from our statement of operations as a
percentage of revenue for the periods indicated:



                                              Three months ended March 31,
                                                2007                 2006
      Revenue                                      100.0 %              100.0 %
      Cost of revenue                               36.6 %               37.9 %

      Gross profit                                  63.4 %               62.1 %
      Operating expenses:
      Research and development                      24.2 %               20.4 %
      Selling, general and administrative           25.3 %               30.0 %
      Patent litigation                             11.6 %               16.4 %

      Total operating expenses                      61.1 %               66.8 %

      Income (loss) from operations                  2.3 %               -4.7 %
      Other income (expense):
      Interest and other income                      4.1 %                2.4 %
      Interest and other expense                     0.0 %               -0.3 %

      Total other income, net                        4.1 %                2.1 %

      Income (loss) before income taxes              6.4 %               -2.6 %
      Income tax provision                           6.1 %               -1.0 %

      Net income (loss)                              0.3 %               -1.6 %

Revenue. Revenue for the three months ended March 31, 2007 was $24.5 million, a decrease of $0.3 million, or 1.1%, from $24.8 million for the three months ended March 31, 2006. The decrease in revenue resulted from decreased sales of our LCD backlight inverter products of $1.4 million caused by customer concerns resulting from the claims against us in our lawsuit with O2 Micro and the availability of alternative solutions from parties not involved in the litigation. The decrease in sales of our LCD backlight inverter products was substantially offset by increased sales of our DC to DC products and audio amplifiers, which increased $0.4 million, or 2.2%, and $0.7 million, or 78.0%, respectively. The increase in our DC to DC products was mainly due to higher sales volumes from existing products used in consumer electronic applications, including TVs and portable DVDs. Revenue for our audio amplifier product family increased primarily due to increased demand for new and existing products used in consumer electronic applications.

The following table illustrates changes in our revenue by product family:

                                                  For the three months ended March 31,
                                                  2007                             2006
                                       (in thousands        % of        (in thousands)      % of
                                          Amount)         Revenue           Amount         Revenue      Change
DC to DC Converters                   $         16,773        68.5 %    $        16,415       66.3 %       2.2 %
LCD Backlight Inverters                          6,041        24.7 %              7,403       29.9 %     -18.4 %
Audio Amplifiers                                 1,682         6.9 %                945        3.8 %      78.0 %

                                      $         24,496       100.0 %    $        24,763      100.0 %      -1.1 %

Gross Profit. Gross profit as a percentage of revenue, or gross margin, was 63.4% for the three months ended March 31, 2007 and 62.1% for the three months ended March 31, 2006. In the three months ended March 31, 2006, we incurred start-up costs for our Chengdu facilities in the amount of $0.5 million, which we did not incur in 2007. Excluding the effects of our Chengdu start-up costs, our margins declined during the three months ended March 31, 2007 relative to the same period in 2006 from a slight decrease in the average selling price of certain of our mature DC to DC products and an increase in the sales of our audio products, which have lower margins.

Research and Development.



                                                          For the three months ended March 31,
                                                          2007               2006
                                                              (in thousands)                Change
Revenue                                               $     24,496       $     24,763         -1.1 %
Research and development ("R&D") (including
stock-based compensation of $1,101 and $1,363 for
the three months ended
March 31, 2007 and 2006, respectively)                       5,932              5,067         17.1 %

R&D as a percentage of revenue                                24.2 %             20.5 %

R&D expenses were $5.9 million, or 24.2% of revenue, for the three months ended March 31, 2007 and $5.1 million, or 20.5% of revenue, for the three months ended March 31, 2006. This increase was due to costs associated with an increase in design engineering personnel as well as new product development activities both in the U.S. and Asia. The increase was partially offset by a decrease in stock-based compensation for the three months ended March 31, 2007.

Selling, General and Administrative.



                                                          For the three months ended March 31,
                                                          2007               2006
                                                              (in thousands)                Change
Revenue                                               $     24,496       $     24,763         -1.1 %
Selling, general and administrative ("SG&A")
(including stock-based compensation of $1,108 and
$1,179 for the three months ended March 31, 2007
and 2006, respectively)                                      6,197              7,427        -16.6 %

SG&A as a percentage of revenue                               25.3 %             30.0 %

SG&A expenses were $6.2 million, or 25.3% of revenue, for the three months ended March 31, 2007 and $7.4 million, or 30.0% of revenue, for the three months ended March 31, 2006. In 2006, SG&A expenses relating to professional services were incurred as a result of our 2005 restatements which we did not incur in 2007. Furthermore, our expenses related to compliance with Section 404 of the Sarbanes-Oxley Act decreased in the three months ended March 31, 2007 relative to the same period in 2006.

Patent Litigation.



                                                          For the three months ended March 31,
                                                          2007               2006
                                                              (in thousands)                Change
Revenue                                               $     24,496       $     24,763         -1.1 %
Patent litigation                                            2,847              4,064        -29.9 %

Patent litigation as a percentage of revenue                  11.6 %             16.4 %

Patent litigation expenses were $2.8 million, or 11.6% of revenue, for the three months ended March 31, 2007 as compared to $4.1 million, or 16.4% of revenue, for the three months ended March 31, 2006. The decrease in patent litigation expenses was due to the settlement of certain lawsuits in 2006 and a corresponding reduction in legal costs for those cases. For a more complete description of our litigation matters, please see Part I, Item 3 of our Form 10-K filed with the SEC on March 16, 2007 and our Form 8-Ks filed with the SEC on February 12, 2007, March 15, 2007 and April 10, 2007, and Item 1, Part II, of this Form 10-Q.

Income Tax Provision. The income tax provision for the three months ended March 31, 2007 was $1.5 million or 96.0% of the pre-tax income. This differs from the federal statutory rate of 34% primarily because we recorded a one-time write off of our deferred tax assets in the amount of $1.5 million as we no longer expect that any of our deferred tax assets will be realized.

Liquidity and Capital Resources.

As of March 31, 2007, we had working capital of $86.3 million, including cash and cash equivalents of $62.9 million, short-term investments of $24.5, and restricted cash of $0.1 million compared to working capital of $77.0 million, including cash and cash equivalents of $50.8 million and short-term investments of $27.7 million as of December 31, 2006. We financed our growth primarily with proceeds from the issuance of common stock through the exercise of stock options and cash generated from operating activities.

For the three months ended March 31, 2007, net cash provided by operating activities of $5.7 million was primarily due to changes in working capital in the amount of $6.6 million, which was offset by the excess tax benefit from stock options in the amount of $0.9 million. Net cash provided by operating activities was $2.5 million for the three months ended March 31, 2006. Cash provided by operating activities for the three months ended March 31, 2006 was primarily from increased revenues and related margin contributions.

For the three months ended March 31, 2007, net cash generated from investing activities was $1.9 million, primarily due to net proceeds from our investments in the amount of $3.2 million, partially offset by capital equipment purchases in the US and Chengdu. For the three months ended March 31, 2006, we incurred $3.1 million in investing activities, primarily due to the purchase of $2.6 million in capital equipment for our Chengdu, China facility.

We use professional investment management firms to manage the majority of our invested cash. Our fixed income portfolio is primarily invested in auction rate securities, municipal bonds, government securities and highly rated corporate notes. The balance of the fixed income portfolio is managed internally and invested primarily in money market funds for working capital purposes. All investments are made according to guidelines and policies approved by the Board of Directors.

Net cash provided by financing activities for the three months ended March 31, 2007 was $4.4 million, primarily from the proceeds related to the exercise of stock options in the amount of $2.7 million, proceeds from the purchase of stock through our employee stock purchase plan in the amount of $0.8 million and excess tax benefits related to the exercise of options in the amount of $0.9 million. Net cash provided by financing activities for the three months ended March 31, 2006 was $1.4 million. We generated cash from financing activities primarily through proceeds of $0.8 million from the exercise of stock options, $0.2 million from excess tax benefits related to the exercise of options and $0.4 million for the repayment of a note by a stockholder.

Although cash requirements will fluctuate based on the timing and extent of many factors such as those discussed above, we believe that cash generated from operations, together with the liquidity provided by existing cash balances and short term investments, will be sufficient to satisfy our liquidity requirements for the next 12 months. For further details regarding our operating, investing and financing activities, see our Condensed Consolidated Statement of Cash Flows.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defined fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently assessing the impact of SFAS No. 157 on our consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for . . .