Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (03-16-08 12:32 PM)

The Daily Magic Formula Stock for 03/15/2008 is Supertex Inc. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is 50-75%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

This Annual Report on Form 10-K includes forward-looking statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, our beliefs, our assumptions, and our goals and objectives. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," and "estimates, " and variations of these words and similar expressions, are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following: ( 1) as we increase our new product introductions, we anticipate our sales in the coming years to increase; (2) we expect medical ultrasound market to continue to grow globally in fiscal 2008 and years beyond and we believe we will be a key player in this business; (3) we expect to continue to step up our research and development efforts in fiscal 2008 and we project a record number of new product introductions; (4) we believe that our activities substantially comply with present environmental regulations; (5) we are a leader in certain markets for our product families where we have a technological and/or cost advantage; (6) we expect our international sales to continue to account for a significant portion of our total sales; (7) it is anticipated that we will file amended tax returns for fiscal years 2004, 2005, and 2006; (8) we believe that current orders will be shipped in fiscal 2008; (9) we believe that we will be able to substantially meet our production needs from our wafer fabrication and testing facilities in the coming fiscal year; (10) we expect to introduce more new integrated pulser ICs as well as ultrasound receiver blocks; (11) custom high voltage pulsers are projected to contribute to our revenue growth in fiscal 2008; (12) we forecast sales to this market to continue to grow in fiscal 2008; and (13) we expect to keep R&D spending in fiscal year 2008 at 15% to 17% of net sales.

Supertex, Inc. (“Supertex” the “Company” “we” and “us”) is a producer of high voltage analog and mixed signal semiconductor components. We design, develop, manufacture, and market integrated circuits (ICs), utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. With respect to our DMOS transistor products, we have maintained an established position in key products for the telecommunication medical and automatic test equipment industries. We have also been an industry leader in high voltage integrated circuits (HVCMOS and HVBiCMOS), which take advantage of the best features of CMOS, bipolar and DMOS technologies and integrate them into the same chip. They are used by the flat panel display, printer, medical ultrasound imaging, telecommunications, industrial and consumer industries.

We market our products through direct sales personnel, independent sales representatives and distributors in the United States of America and abroad, primarily to original equipment manufacturers of electronic products. We were incorporated in California in October 1975 and conducted an initial public offering of Common Stock in December 1983. Our executive offices are located at 1235 Bordeaux Drive, Sunnyvale, California 94089, and our principal manufacturing facilities are located in San Jose, California and in Hong Kong. We have two design centers, one in our Sunnyvale headquarters and one in Hong Kong at our production test facility. We maintain eleven direct field sales offices located in the following areas: Tallman, New York; Irving, Texas; Oley, Pennsylvania; Chicago, Illinois; The United Kingdom; Germany; Shanghai, China; Shenzhen, China; Taiwan; Tokyo, Japan; Seoul, South Korea and in Hong Kong, China where we also have a distribution center. Our headquarters mailing address is 1235 Bordeaux Drive, Sunnyvale, California 94089 and the telephone number is (408) 222-8888. Our website address is www.supertex.com .

Products and Markets

Our high voltage analog and mixed signal integrated circuits are designed, developed, and manufactured utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies primarily for use in medical instruments, large commercial ink jet printers, light emitting diodes (LEDs), cell phone key pads and hand-held devices using electro-luminescent (EL) lamps, and applications for industrial, telecommunication and data communication markets. Our products are basically interface products, interfacing between low voltage logic circuits and high voltage “real world” media. We supply both standard and custom products. The typical gestation period of our new products from introduction through design-in by the customer to volume production is one year. Our new product introductions have been increasing. During calendar 2004, 2005 and 2006 we launched five, twenty-four and thirty new products, respectively. As we increase our new product introductions, we anticipate our sales in the coming years to increase.

We also provide custom processing services for the manufacture of integrated circuits, using customer-owned designs and mask toolings. Under this “custom processing service” arrangement, a tangible product is made and sold, and the Company bears the risk of loss until title is passed. Title to the product under the custom processing service arrangement is passed to the customer at the earlier of time of shipment or production completion at wafer bank. During fiscal 2007, sales of custom processed products represented approximately 14% of our total revenues, approximately the same percentage of total revenues in fiscal 2006.

Our three major product groups, imaging, medical electronics and telecommunications/data communication, currently generate most of the product revenues, while the fourth group, “Other” includes the LED driver ICs for lighting, which should see material product revenue in fiscal 2008 and therefore will be broken out into a separate category. Our major product groups are:

•

The Imaging Group, which consists of three product lines, namely:

(1)
A family of products for driving EL panels to back-light liquid crystal displays (LCD) in hand-held instruments, such as watches, monochrome screens and back light keypads for cell phones, PDAs, pagers, HPCs, MP3 players, and meters. Supertex is one of the key providers of EL drivers for cell phones, PDAs, and watches and we have a significant share of this market, due in no small part to the introduction of several inductorless EL drivers, ideally suited for use in space-constrained applications. We also offer custom processing services for charge-coupled devices (CCD) and CMOS imaging devices.

(2)
Interface products for driving flat panel displays. This product family is sold to flat panel manufacturers using electroluminescent (EL), plasma, carbon nano-tube field emission, vacuum fluorescent, cholesteric LCD, electrophoretic and light emitting diode (LED) technologies.

(3)
Driver ICs for driving non-impact printers and plotters, primarily using inkjet technologies. The printer product family is used in ink-jet and electrostatic types of printers and plotters that are mostly high-end products with full color capability, high resolution and high-speed output.

•
The Medical Electronics Group, which consists of:

A family of high voltage analog switches and multiplexers, high voltage pulser ICs, high-speed MOSFET drivers, and discrete high voltage FETs primarily for ultrasound diagnostic imaging equipment as well as selected portable instrument applications. In recent years, the overall ultrasound market has been shifting to transportable, hand-carried ultrasound (HCU) units, which has driven the ultrasound market growth along with product upgrades for stationary systems. These high-performance, portable, affordable systems are accelerating the proliferation of ultrasound imaging to medical specialties other than the traditional clinical segments of cardiology, radiology, and OB/GYN. The adoption of ultrasound imaging by new user groups is also spurring ultrasound market growth. Geographically, the market is expanding as well. Traditionally, the United States, Europe, and Japan were the main designers and producers of medical ultrasound machines. While the companies in those regions continue to grow and develop new machines, today there are significant opportunities with medical ultrasound companies in China, Korea and India. This market began to grow in fiscal 2007 and we expect this market to continue to grow globally in fiscal 2008 and years beyond. We are expanding our product development activities for the ultrasound market to serve this market growth in a timely manner. Along with our discrete product offerings, we believe we will be a key player in this business. We also offer custom processing service for pacemaker and defibrillator ICs.

•
The Telecommunications (Telecom)/Data Communication (Datacom) Group, which consists of two product lines:

(1)
Telecom line which includes interface products used in telephone handsets, solid-state relays, modems, fax, ISDN, networking, PABX, and PCMCIA cards, as well as diagnostic, curbside, set-top and central office equipment.

(2)
Datacom line which includes hotswap and sequencer controller, power management, ring generators, high voltage protection & isolated switches, and optical micro-electro-mechanical system or MEMS driver ICs. In addition, we offer custom processing services for certain optical and ultrasound MEMS products.

•
Other . This group includes two lines of products or services:

(1)
A family of high voltage driver ICs for driving light emitting diodes or LEDs to backlight large Liquid Crystal Display or LCD panels and a family of converter integrated circuits or ICs for traffic lighting, general illumination, specialty lighting and automotive lighting. LEDs provide a number of advantages compared to traditional lighting and are enabling new applications within these markets. For example, using LEDs in traffic lights saves energy (more efficient) and reduces maintenance costs (longer lifetime). Compared to cold cathode fluorescent lamps or CCFLs that are currently used to backlight LCD displays, LEDs provide a wider color gamut than existing technologies, so colors appear more vibrant and life-like, and the contrast ratio is dramatically increased by turning off the LEDs during the LCD transition times in these LCD displays. In addition, they are more energy efficient and environmentally friendly (as they contain no mercury as in CCFL). LEDs in automotive brake lamps turn on quicker than incandescent bulbs, thereby increasing response time for other drivers to slow down, improving safety. LEDs are also planned for headlamps, turn-signal lamps, dome lights, and instrumentation panel backlighting. In the general lighting market, LEDs are energy efficient alternatives for all types of lighting, including fluorescent bay lighting, HID warehouse lighting, neon lighting, channel lettering, and architectural lighting. We are releasing new products targeting these emerging markets aimed at simplifying customers’ implementation of LEDs. We will separate the LED driver IC family from the “Other” group in fiscal 2008 when we expect sales to become material.

(2)
We also offer custom processing services for charge-coupled devices (CCD) and CMOS imaging services.

Net sales generated from each of these Groups are discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the “Net Sales” section.

As a leading provider of products to these specific niche markets, we have been able to work very closely with key customers to define new products and identify future market needs. Such close collaboration has facilitated our development of a wide range of leading edge new products and has allowed our customers to quickly develop new and more advanced products for their markets. While we work with certain customers to design a product, generally such products have broader applications so that they are useful to multiple customers.

In the DMOS transistor technology, we focus on certain niches such as very low threshold and low leakage devices where these features justify a premium and which are most suitable for medical ultrasound imaging, telecommunication, automatic test equipment, and hand-held applications. The DMOS transistor products also serve as building blocks and predecessors to a fully integrated solution such as high voltage integrated circuits.

We operate in one business segment. Information regarding Supertex, Inc.’s Segment Reporting can be found in Note 13 of the “Notes to Consolidated Financial Statements.”

Research and Development

We incurred expenses of $14,645,000, $11,540,000, and $9,780,000, on research and development activities during fiscal years 2007, 2006, and 2005, respectively. Our research and development activities in fiscal 2007 resulted in a total of thirty new product introductions versus twenty-four in fiscal 2006. Our products have experienced very good traction in the market place which has led to significant design wins in all our focused markets. Most of these design wins resulted from close collaboration with the tier-1 customers in the respective markets and a short design and development time to support our customers’ needs. We expect to continue to step up our research and development efforts in fiscal 2008 and we project a record number of new product introductions.

We believe that our position as a leading supplier in our targeted markets can only be maintained through continuous investments in research and development. We focus our efforts on designing new products with existing process technologies while also developing new process technologies to be used for future products. We continuously strive to effectively monitor and control our research and development programs in order to obtain improved performance and greater technological achievements at lower costs.

Manufacturing

Our manufacturing operations include wafer fabrication in San Jose, California; limited proto-type assembly and packaging in Sunnyvale, California; and product testing and quality control in Sunnyvale, California and Hong Kong, China. Of our long-lived assets, 13% were located in our Hong Kong facility at the end of both fiscal 2007 and 2006, with the balance located in the U.S. As of the end of the fiscal 2007, the carrying value of all our property, plant and equipment located in Hong Kong amounted to $1,135,000.

We subcontract most of our standard component packaging and limited testing to independent assemblers, principally in Thailand, Malaysia, Philippines and China. After assembly, packaged units are shipped back to our Hong Kong and Sunnyvale facilities for final product testing and quality control before shipment to customers. Although our offshore assemblies have not experienced any serious work stoppages, political instability or other epidemics in these countries may adversely affect our assembly and test operations. Although we have qualified assemblers in different countries to reduce risk, any prolonged work stoppage or other inability to assemble products would have a material adverse impact on our operating results. Furthermore, economic risks, such as changes in tariff or freight rates or interruptions in air transportation, could adversely affect our operating results. We also maintain a specialized assembly area at our manufacturing facilities to package engineering proto-types to ensure high priority deliveries and to assemble high reliability circuits required in military and other high reliability applications. We moved our production test operation to Hong Kong in fiscal 2002, but still maintain a small proto-type product testing and product engineering operation in Sunnyvale, California.

We believe that we are well positioned to fulfill our wafer manufacturing capacity needs for the near future because our fab is running at about sixty-six percent utilization and we are able to expand capacity through purchase of equipment and hiring additional manufacturing staff. We maintain an inventory balance based on current sales level and forecast of future demand. An amount for tactical inventory is kept in our die bank warehouse to reduce lead-time in fulfilling orders. In addition, we carry on our balance sheet inventory stored at hubs for two of our customers, as well as our distributors, both domestic and foreign.

Availability of raw silicon wafers was not a problem throughout fiscal 2007. As silicon wafers became in short supply due to high demand for solar cells, we were able to negotiate modest price increases and to date we have not experienced delivery problems. The availability of assembly, packaging, and testing services and raw materials used in the manufacturing of our products continues to be plentiful and subject to competitive pricing pressure. These materials and services are currently obtained from multiple sources.

Environmental Laws

Government regulations impose various environmental controls on the waste treatment and discharge of certain chemicals and gases after their use in semiconductor processing. We believe that our activities substantially comply with present environmental regulations. However, increasing attention has been focused on the environmental impact of semiconductor manufacturing operations. While we have not experienced any material adverse effects on our business or financial results from our compliance with environmental regulations and installation of pollution control equipment, there can be no assurance that changes in such regulations will not necessitate our acquisition of costly equipment or other requirements in the future. We work closely with pollution experts from federal, state, and local agencies, especially from the cities of Sunnyvale and San Jose, California, to help us comply with current requirements.

Marketing and Sales

We market our standard and custom products in the United States and abroad through our direct sales and marketing personnel in our headquarters, as well as through independent sales representatives and distributors supported by our field sales managers out of our sales offices in: New York; Texas; Pennsylvania; Illinois; the United Kingdom; Germany; Hong Kong, China; Shanghai and Shenzhen, China; Japan; Taiwan and Korea. During fiscal 2007, we established a sales office in Japan and another one in Shanghai, China.

Our marketing organization also creates customer demand and manages the tactical and strategic efforts of the company. Tactical marketing focuses on customer fulfillment for requests of literature, samples and applications assistance, as well as generating of quotes for pricing. Strategic marketing encompasses the gathering of information to anticipate external forces such as in the market and economy and competitor activity for timely execution of future opportunities. We are focusing on shifting our efforts towards a stronger standard product line as opposed to a mix of standard and custom products that require a great deal of resources to support. We will need to maintain strategic marketing activities in order to keep pace with future customer requirements and technology advancements and to stay abreast of competition.

Net sales is the sum of our direct sales to original equipment manufacturers (OEMs) and our distributors’ resale of our products. We recognize revenue from direct product sales to end-user customers upon transfer of title and risk of loss, which is upon shipment of the product, provided persuasive evidence of an arrangement exists, the price is fixed or determinable, no significant obligations remain, and collection of the resulting receivable is reasonably assured. For sales to OEMs, we use either a binding purchase order or signed agreement as evidence of an arrangement. For those customers which have a hub arrangement, we recognize sales when our products are transferred from the hub to the customer’s manufacturing facility. Sales through our distributors are evidenced by a distributor agreement governing the relationship together with binding purchase orders on a transaction-by-transactio n basis. Because of the uncertainty associated with pricing concessions and possible returns, we defer the recognition of such sales and the related costs of sales until our distributors have sold the merchandise to their end-user customers. Our distributors provide us an inventory balance report at the end of each period, which allows us to determine products sold to their end-customers.

A significant portion of our sales are to a small number of customers. A distributor accounted for 12% of net sales in both fiscal 2006 and 2007, respectively. We estimate that our OEM customer, Motorola Inc. accounted for a total of 24% and 23% of our net sales from both direct and indirect channels (“combined sales”) for the fiscal year 2007 and 2006, respectively. Combined sales to another OEM, General Electric Company, accounted for approximately 11% of net sales in fiscal 2007. In fiscal 2006, a contract manufacturer accounted for 13% of net sales. In fiscal 2005, a Japanese distributor accounted for 12% of net sales. No other direct or indirect customers accounted for more than 10% of net sales in fiscal 2007, 2006 and 2005.

International sales represented 70%, 63%, and 44% of net sales in fiscal years 2007, 2006, and 2005, respectively, and are made primarily through independent distributors to customers in Europe and Asia. Sales are attributed to a geographic area based on destination locations. International sales are denominated only in U.S. dollars. Although export sales are subject to certain governmental commodity controls and restrictions for national security purposes, we have not had any material adverse effects on our business or financial results because of these limitations.

Seasonality

Some of our markets are seasonally weaker in the first half of a calendar year. In the past two fiscal years, we experienced a peaking of sales to the Medical Electronics market during the second quarter of our fiscal year. This has been attributed largely to the effect of increased demand of our customers’ products in their December quarter. The budget process and consequential buying practices of hospitals result in increased demand for components by equipment manufacturers in the quarter before the purchase by the hospitals. With more new products and design wins in our Medical Ultrasound Imaging Group in the past year, the seasonality impact may be mitigated.

Backlog

Our backlog at March 31, 2007 was approximately $31,492,000 compared with $22,222,000 and $10,114,000 at April 1, 2006 and April 2, 2005, respectively. We expect that almost all of the current backlog will be shipped in fiscal 2008. However, customers may cancel or reschedule orders without significant penalty, and the price of products may be adjusted between the time the purchase order is booked into backlog and the time the product is shipped to the customer. In addition, the orders contained in our backlog may cover periods of various lengths. For these reasons, we believe that backlog is not meaningful in predicting our actual net revenue for any future period.

Competition

In general, competition among suppliers of semiconductor components is intense, including in the imaging, medical, telecom and LED lighting markets we primarily serve. We compete with several analog semiconductor companies including Maxim, Hitachi and Durel Division of Rogers although we face different competitors in different markets or for different products.

Our products are generally not sold pursuant to long term contracts, enabling our customers to switch suppliers if they choose and making us more vulnerable to competitors. Competition in the industry is based primarily upon factors such as product prices, product performance and diversity of product lines, delivery capabilities, customer relationships and the ability to adapt to rapid technological change in the development of new and improved products. The weighting of these factors varies depending on the specific needs of a customer at any given point in time. We believe we are competitive with respect to these factors, however market statistics are not generally available for many of our products. Many of our domestic and foreign competitors have larger facilities, more financial, technical and human resources and more diverse product lines.

Among our competitive advantages and core competencies are high voltage analog and mixed signal circuit design and device intellectual property; high voltage DMOS, HVCMOS and HVBiCMOS wafer fabrication processes that are high yielding and low cost and do not require fabs with the latest geometries; owning and operating our own fab; and close working relationships with our customers. We capitalize on our leadership positions in the niche markets we focus on by working very closely with our customers to help them with next generation products, thereby achieving design-wins in order to maintain or grow market-share in our focus markets. We compete primarily on the basis of product innovation and responsiveness to changing needs of customers, including both product specifications and delivery requirements.

Patents and Licenses

We hold fifteen United States patents which will expire between 2008 to 2020, and we have additional United States patent applications pending. Although we believe that our patents may have value, there can be no assurance that our current patents or any additional patents that we may obtain in the future will provide meaningful protection from competition. We believe that our success depends primarily on the experience, creative skills, technical expertise, and marketing ability of our personnel rather than on the ownership of patents. Patents may, however, be useful for cross-license purposes and have served us well in the past.

We are not aware of any products infringing on any valid patent or other proprietary rights of third parties but we cannot be certain that they do not. If infringement would be alleged, there could be no assurance that the necessary licenses could be obtained, or if obtained, would be on terms or conditions that would not have a material adverse effect on the Company.

Employees

At March 31, 2007, we had 401 full time employees primarily located in Northern California and Hong Kong. Many of our employees are highly skilled, and we believe our continued growth and success will depend in part on our ability to attract and retain such employees. At times, like other semiconductor manufacturers, we experience difficulty in hiring and retaining sufficient numbers of skilled personnel, especially experienced analog integrated circuit designers. Engineers with analog circuit experience and training are scarcer than experienced digital engineers. Analog and mix-signal expertise tends to be learned over time based on experience and on-the-job-training, whereas, digital expertise is extensively taught in universities due to its overall market size. Engineers with high voltage analog circuit experience are even scarcer. We often recruit top college graduates directly from universities and train them ourselves.

We believe that the compensation, benefits, and incentives offered to our employees are competitive with those generally offered throughout the semiconductor industry. There are no collective bargaining agreements between us and our employees, and there has been no work stoppage due to labor difficulties. We consider our employee relations to be good.

CEO BACKGROUND

Henry C. Pao is a founder of Supertex and has served as President, Chief Executive Officer and as a Director since the Company's formation in fiscal 1976. He served as Acting Chief Financial Officer until October 2006. Previously, he worked at Fairchild Semiconductor, Raytheon, Sperry Rand and IBM. He has B.S., M.S., and Ph.D. degrees in Electrical Engineering from the University of Illinois at Champaign-Urbana.

Benedict C. K. Choy , a founder of the Company, joined Supertex in fiscal 1976 as Vice President, Device Technology and Process Development, and has served as Senior Vice President since February 1988. Previously, he worked at Fairchild Semiconductor, National Semiconductor, and Raytheon. He has a B.S. degree in Electrical Engineering from the University of California, Berkeley.

William P. Ingram joined Supertex in April 1995 as its Director of Wafer Fab Operations. Prior to joining Supertex, he was Vice President of Technology Development at Crosspoint Solutions, before which he held management positions at Fairchild and National Semiconductor. He began his career at National Semiconductor after receiving his B.S. degree in Electrical Engineering with honors from the North Carolina State University.

Franklin Gonzalez joined Supertex in November 1990 as a Process Development Manager. In 1994, he was promoted to Director of Process Technology. Prior to joining Supertex, he held various R&D management positions spanning over seventeen years with such companies as ECI Semiconductor, Telmos and Harris Semiconductor where he began his career. He has a Masters in Electrical Engineering from Stanford University and a Ph.D. in Electrical Engineering from the University of Florida.

Michael Lee re-joined Supertex in October 1993 as Director of I.C. Design and was promoted to Vice President of I.C.Design in 1999. Before that, he had a combined total of fifteen years of industry experience in I.C. Design. He began his career at Supertex in 1978 after receiving his Masters in Electrical Engineering from University of California, Berkeley.

Dilip Kapur joined Supertex in March 1984 and has managed Marketing, Applications, Marketing Communications and Product Engineering Departments. He was promoted to Director of Marketing in 1990 and promoted to Vice President Standard Products in December 2000. He has previously held Application Engineering and Marketing positions at Computer Power Inc. and Advani Oerlikon Ltd. He has a B.S. degree in Electrical Engineering from MACT, Bhopal and a Diploma in International Trade from Indian Institute of Foreign Trade, New Delhi.

William Petersen first joined Supertex in 1984 as Sales Manager for the Central Region of the United States. From 1990 through 1994, he was the Company's National Sales Manager, overseeing sales operations throughout the United States. Mr. Petersen re-joined Supertex in September 1999 as Director of Sales. He was promoted to Vice President of Worldwide Sales in April 2001. Prior to working at Supertex, he worked at Siemens as Central Area Manager from 1980-1984. Mr. Petersen attended the University of Iowa.

Ahmed Masood joined Supertex in September 2004. He has over 20 years industry experience in design, marketing, and business unit management. He has held senior management positions at On Semiconductor, Temic/Siliconix, and National Semiconductor. He holds a Bachelor of Science degree in Electrical Engineering from Columbia University and an MBA from UCLA, Anderson Graduate School of Management.

Michael Tsang joined Supertex in 1995 as a Product Engineer. He was promoted to Engineering Director in 2000, managing our Power, Analog, Ringer, and Telecom (P.A.R.T.) Product Engineering. Prior to joining Supertex, he previously held positions in Process Engineering, Product Marketing Engineering, and Device Engineering at Siliconix. He holds a Bachelor of Science degree in Electrical Engineering from California State University, San Jose and an MBA from University of Southern California, Marshall School of Business.

Phillip A. Kagel joined Supertex in October 2006 as its Vice President of Finance and Chief Financial Officer. Prior to that, he consulted with Supertex on financial and accounting matters for eighteen months. Phil has held various executive financial positions at Ultra Clean Holdings, Sipex, Solectron and Akashic Memories Corporation. He is a Certified Management Accountant and has a B.S. in Mathematics from Brigham Young University and an MBA from the University of Missouri.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We design, develop, manufacture, and market high voltage analog and mixed signal integrated circuits utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. We supply standard and custom interface products primarily for use in the imaging, medical electronics and telecommunications markets. We also provide custom processing services for the manufacture of integrated circuits for customers using customer-owned designs and mask toolings.

We operate in one business segment comprising the design, development, manufacturing and marketing of high voltage semiconductor devices including analog and mixed signal integrated circuits (ICs) and transistors.

Critical Accounting Policies and Estimates

Our discussion and analysis of 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 United States of America. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Significant estimates in these financial statements include revenue recognition, provision for sales returns and allowances, allowance for doubtful accounts, estimates for useful lives associated with long lived assets, asset impairments, net realizable value of inventories, certain accrued liabilities and provision for income taxes and tax valuation allowance. 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 judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We consider the accounting policies described below to be our critical accounting policies. Our critical accounting policies are those that both (1) are most important to the portrayal of the financial condition and results of operations and (2) require management’s most difficult, subjective, or complex judgments, often requiring estimates about matters that are inherently uncertain. These critical accounting policies reflect our significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements. Our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors and the audit committee has reviewed our disclosures in relation to this report.

Revenue Recognition

We recognize revenue from direct product sales to end-user customers upon transfer of title and risk of loss, which is upon shipment of the product provided persuasive evidence of an arrangement exists, the price is fixed or determinable, no significant obligations remain and collection of the resulting receivable is reasonably assured. For sales to original equipment manufacturers (OEMs), we use either a binding purchase order or signed agreement as evidence of an arrangement. For those customers which have a hub arrangement, we recognize sales when our products are transferred from the hub to the customer’s manufacturing facility. Sales through our distributors are evidenced by a distributor agreement governing the relationship together with binding purchase orders on a transaction-by-transactio n basis. Because of the uncertainty associated with pricing concessions and possible returns, we defer the recognition of sales to all our distributors, domestic and foreign, and the related costs of sales until our distributors have sold the merchandise to their end-user customers. Our distributors provide us an inventory balance report at the end of each period, which enables us to determine products sold to their end-customer.

We recognize revenue from our NRE contracts upon completion of contract milestones, which corresponds to when we provide the services and/or products. Revenue is deferred for any amounts received prior to completion of contract milestones, such as amounts received upon delivery of proto-type, if such a delivery is an agreed upon milestone. Some of our NRE contracts include formal customer acceptance provisions. In this case, at the end of each period, we determine whether customer acceptance has been obtained for the specific milestone. If customer acceptance has not been obtained, we defer the recognition of such revenue until customer acceptance is obtained.

Sales Returns and Other Allowances

We record a provision for estimated sales returns and allowances on product sales in the same period as the related revenues are recorded. We base these estimates on historical experience, analyses of outstanding Return Material Authorization and Allowance Authorization data and any other form of notification we receive of pending returns. We continuously monitor and track product returns and in circumstances where we are aware of a specific customer return or allowance which is over and above normal historical sales returns, we record a specific allowance against the amounts due, to reduce our net receivable from such customer. While our sales returns have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Any significant increase in product failure rates and the resulting credit returns could have a material adverse impact on our operating results for the period or periods in which such returns occur.

Allowance for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, we evaluate specific accounts where we have information that a specific customer may have an inability to meet its financial obligations to us (for example due to bankruptcy, etc.). In these cases, significant management judgments and estimates must be made, based on the best available facts and circumstances. We record a specific allowance for that customer against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Second, a minimum allowance is established for all other customer receivables as a percentage applied to outstanding accounts receivable. This percentage is based on our historical collection and write-off experience.

Inventory Valuation

Our inventories are stated at the lower of cost (determined on a first-in, first-out basis) or net realizable value and include high technology parts and components that are specialized in nature and subject to rapid technological obsolescence. Standard manufacturing cost includes materials, labor, and overhead costs including depreciation, and includes factors for estimated production yield and throughput time. We determine net realizable value of our inventories based on the last selling price, net of selling cost, of our products prior to the balance sheet date. If there has been no recent sale of a particular product, the expected selling price, net of selling cost is deemed as the net realizable value. Inventory balances are adjusted to approximate the lower of our standard manufacturing cost or net realizable value. Any adjustment to write down inventory to net realizable value is charged to the cost of sales in the period that the adjustment is made.

Additionally, we evaluate our ending inventories for excess quantities and obsolescence at each balance sheet date. This evaluation includes analyses of sales levels by product and projections of future demand during the next twelve months, which involves a great deal of management judgment on our part. Inventories on hand in excess of forecasted demand and inventories that we consider obsolete are reserved. In addition, we age our inventory based on start date. Inventory that has been inactive for more than one year is considered slow moving inventory and is also reserved. Additions to the provision are charged to the cost of sales. Subsequent changes in facts and circumstances do not result in the reduction of the allowance until these inventories are subsequently sold or scrapped. Any proceeds received will favorably impact gross margins.

While we have programs to minimize the required inventories on hand and consider technological obsolescence when estimating amounts required to reduce recorded amounts to market values, it is possible that such estimates could change in the near term. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and will be reflected in cost of sales in the period the revision is made.

Accounting for Investments

From time to time we may make investments in privately held companies, which require us to determine the carrying value of such investments. On April 1, 2006 we held stock in a privately held company whose carrying value is zero. This investment was liquidated in fiscal 2007. As of March 31, 2007, we do not have any investments in privately held companies.

Impairment of Long-Lived Assets

We routinely consider whether indicators of impairment of long-lived assets are present. If such indicators are present, we determine whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than their carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, we recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset's carrying value. The fair value of the asset then becomes the asset's new carrying value, which we depreciate or amortize over the remaining estimated useful life of the asset where appropriate. We may incur impairment losses in future periods if factors influencing our estimate change.

Accounting for Income Taxes

Income taxes are accounted for under the asset and liability method. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain deferred tax assets and liabilities, which arise from timing differences in the recognition of revenue and expense for tax and financial statement purposes. Such deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base, operating losses and tax credit carry-forwards. Changes in tax rates affect the deferred income tax assets and liabilities and are recognized in the period in which the tax rates are enacted.

Our management must determine the probability that it will be able to utilize its deferred tax assets. If we determine that recovery is unlikely, then a valuation allowance against its deferred tax asset must be recorded by increasing income tax expense. As of March 31, 2007, we believe that our deferred tax assets recorded on our balance sheet will be utilized. However, should there be a change in our ability to utilize or recover our deferred tax assets, an additional income tax expense would be incurred in the period in which it was determined that the recovery is not probable.

We maintain within our income tax payable account reserves for tax contingencies. The reserves amount was determined with considerable judgment and estimation, and is continuously monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases, ongoing tax audits, and other information. IRS examinations of our tax returns for fiscal years 2002 and 2003 are ongoing. We believe we have adequately provided in our financial statements for additional taxes that we estimate may be required to be paid as a result of these examinations. If the resulting tax assessment exceeds our estimate of tax liabilities, an additional charge to expense will result. If payment proves unnecessary, the reversal of tax liabilities would result in tax benefits being recognized in the period we determine the liabilities are no longer necessary. See “Provision for Incomes Taxes” of this section and “Note 8 - Income Taxes” to the Consolidated Financial Statements for further discussion.

Effective April 1, 2007, we will be required to adopt FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes - an interpretation of SFAS 109” (“FIN No. 48”). In July 2006, the FASB issued FIN No. 48, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the consolidated financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of application of FIN No. 48, they will be accounted for as an adjustment to retained earnings. We are currently assessing the impact of FIN No. 48 on our consolidated financial position and results of operations.

Stock-Based Compensation

In fiscal years 1995 through 2006, we included in the Notes to our Consolidated Financial Statements a pro forma disclosure of the impact stock options would have on net income (loss) using the fair value stock option expense recognition method, as allowed under Statement of Financial Accounting Standards No. 123 and using an intrinsic value method, as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. A revised standard, SFAS No.123 (revised 2004), “Share Based Payment” (“SFAS 123R”), which requires all companies to measure compensation cost for all share-based payments (including stock options) at fair value, was effective for us beginning with the first quarter of fiscal year 2007, which began on April 2, 2006. The adoption of SFAS 123R required us to apply a valuation model, which includes estimates and assumptions on the rate of forfeiture and expected life of options and stock price volatility. See “Note 1 - Nature of Business and Significant Accounting Policies” to the Consolidated Financial Statements for additional information regarding the adoption of SFAS 123R. If any of the assumptions used in the valuation model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period and actual results may differ from estimates.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto which begin on page 35 of this Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles.

Recent Developments

We operate in the highly cyclical global semiconductor market, evidenced by fluctuating demand cycles for our products. From a net sales trough in fiscal year 2004, demand has increased steadily in each of the past three fiscal years. In fiscal 2006, we experienced significant sales improvement partly due to the general economy and partly due to our many new products starting to ramp up production. This improvement in net sales and demand for our products continued in fiscal 2007. Quote activity and design wins have been strong in all the markets we serve. Our backlog is strong and our book-to-bill is greater than one. These are encouraging indicators for sales growth into fiscal 2008. Book-to-bill ratio is defined as sales orders received divided by orders shipped during the fiscal quarter. We believe that current booked orders will be shipped in fiscal 2008. However, our customers may cancel or reschedule orders without significant penalty, and the price of products may be adjusted between the time the purchase order is booked into backlog and the time the product is shipped to the customer, although these cases have been rare. For these reasons, purchase orders received are not necessarily reliable indicators of future sales. We believe that we will be able to substantially meet our production needs from our wafer fabrication and testing facilities in the coming fiscal year.

Results of Operations

Fiscal 2007 vs. Fiscal 2006

Net Sales

Net sales for the fiscal year 2007 were $98,020,000, a 22% increase compared to $80,098,000 for the prior fiscal year.

We operate in one business segment comprising of the design, development, manufacturing and marketing of high voltage analog and mixed signal integrated circuits. A breakdown of our total sales to customers in the Imaging, Medical Electronics, Telecom and Other markets as well as year-over-year changes are shown below (in thousands) : The Company has a broad base of customers, which in some cases manufacture end products spanning multiple markets. As such, the assignment of revenue to the aforementioned markets requires the use of estimates, judgment, and extrapolation.

Overall demand for our products in fiscal 2007 was higher compared to fiscal 2006 in all four of our major markets, which are Imaging, Medical Electronics, Telecom and Other. The increase in net sales of 22% is primarily due to higher unit shipments in our four major focus markets as several of our products, launched in fiscal 2005 through 2007, continued to ship in increasing volumes.

Sales to the Imaging market in fiscal 2007 showed an increase of 19% over the prior year primarily due to the continued increase in unit demand for EL drivers for cellular phones. We are one of the key providers of EL drivers for cell phones, PDAs, and watches. Sales of our EL drivers for other products and non-impact inkjet printers and plotters also grew in fiscal 2007. We are the leading supplier in the high-end industrial printer market, with both standard and custom products.

Our sales to the Medical Electronics market in fiscal 2007 increased 30% compared to the prior fiscal year. The sales increase is attributed to an increase in ultrasound units shipped, primarily due to an increasing ultrasound market worldwide and design wins of our analog switches and multiplexers as well as our high voltage pulser ICs. In recent years, the ultrasound market experienced significant growth in the transportable, hand-carried ultrasound (HCU) units. These high-performance, portable, affordable systems are accelerating the proliferation of ultrasound imaging to medical specialties other than the traditional clinical applications. Geographically, the market is expanding as well, as China, Korea and India are now designing and producing medical ultrasound machines. We believe that sales of our high voltage analog switches and multiplexers, high voltage pulser ICs, high-speed MOSFET drivers, and discrete high voltage FETs to this market will continue to increase as the ultrasound market continues to expand globally. We are heavily investing in product development for the ultrasound market and we expect to introduce more new integrated pulser ICs as well as ultrasound receiver blocks. Custom high voltage pulsers are projected to contribute to our revenue growth in fiscal 2008.

Sales to the Telecom market in fiscal 2007 increased 7% compared to the prior fiscal year. The increase in sales was the result of increased demand for our depletion transistors for switching equipment, DC-to-DC converters, long haul ring generators, line protection devices, voltage sequencer ICs and high voltage amplifier arrays for the optical-to-optical telecom market. We project flat to moderate growth in this market during fiscal 2008.

Sales to the Other market in fiscal 2007 increased 48% compared to the prior fiscal year. The increase was primarily due to introduction of our new line of LED and LED backlight drivers for flat screen TVs and general lighting. We expect increasing sales in this market, especially in the second half of fiscal 2008 and plan to report LED and LED backlight drivers as a separate market focus beginning in the first quarter of fiscal 2008.

Net sales to international customers in fiscal 2007 were $68,755,000, or 70% of our net sales as compared to $50,296,000 or 63% of net sales for the prior fiscal year . The increases in sales to China and the Asian region are due to the growth in our overall business and the continuing transfer of our United States customer manufacturing from North Americas to international locations, mainly the Pacific Rim Region. The increase in sales to Europe is primarily due to design wins in Germany. The decrease in sales to our “Other” customers is primarily due to products reaching the end of life. Additional discussion regarding our sales based on geographic areas can be found in Note 13 of the “Notes to Consolidated Financial Statements.”

Gross Profit

Gross profit represents net sales less cost of sales. Cost of sales includes the cost of purchasing raw silicon wafers; cost associated with assembly, packaging, test, quality assurance and product yields; the cost of personnel, facilities, and equipment associated with manufacturing support; and net charges for excess or obsolete inventory.

Gross profit for fiscal year 2007 was $58,349,000 compared to $44,640,000 in fiscal year 2006.

As a percentage of net sales, gross margin was 60% for fiscal 2007 compared to 56% in the prior fiscal year. The improvement in gross margin was primarily attributed to higher sales, an increase in plant capacity utilization with economy of scale, and to a lesser degree a favorable product mix, which consisted of higher sales of our newer products replacing declining sales of the lower margin legacy products.

Depreciation expense in fiscal 2007 was essentially flat with fiscal 2006. During fiscal 2007, capital spending consisted primarily of replacement equipment with an approximate 10% capacity increase during the fourth fiscal quarter.

Gross profit benefit resulting from the sale of inventory previously written down was $1,645,000 or 1.7% of net sales, compared to $1,136,000 or 1.4% of net sales in fiscal 2006.

In fiscal 2007, we adopted the Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R) which required us to recognize compensation expense for all employee stock-based compensation beginning in the quarter ending April 2, 2007. This recognition of additional compensation expense reduced our gross profit by $302,000.

Research and Development

Research and development (R&D) expenses include payroll and benefits, processing costs, and depreciation. We also expense proto-type wafers and mask sets related to new products as R&D expenses until new products are released to production.

Expenditures for R&D were $14,645,000 and $11,540,000 in fiscal 2007 and 2006, respectively. The net increase of $3,105,000 in R&D expense for the current year was primarily due to increased payroll and benefits in support of development activities for advanced manufacturing processes and experimental proto-type products. Approximately $1,382,000 of the increase in payroll and benefits expense resulted from adoption of SFAS 123R. Design-win activities remained strong in fiscal 2007 as we introduced thirty new products.

R&D expenses were 15% and 14% of net sales in fiscal 2007 and 2006, respectively. We expect to keep R&D spending in fiscal year 2008 at 15% to 17% of net sales.

Selling, General and Administrative (SG&A)

SG&A expenses consist primarily of employee related expenses, commissions to sales representatives, occupancy expenses including expenses associated with our regional sales offices, cost of advertising and publications, and outside services such as legal, auditing, tax and compliance services related to Sarbanes-Oxley Act of 2002. In absolute dollars, SG&A expenses were $15,800,000 in fiscal 2007 compared to $13,568,000 in fiscal 2006.

The $2,232,000 increase in SG&A expenses results primarily from a $968,000 increase in payroll-related expenses of which $735,000 is attributable to employee stock-based compensation associated with adoption of SFAS 123R; an increase of approximately $655,000 in professional services expense including audit and Sarbanes-Oxley compliance; an increase in commissions and sales incentives of $361,000 and an increase in provision for doubtful accounts of $300,000.

SG&A expenses are expected to increase in absolute dollars as the Company expands sales and marketing presence worldwide to support the expected strong growth. SG&A expenses may fluctuate as a percentage of net sales.

Interest Income and Other Income, Net

Interest income and other income, net for fiscal year 2007 was $5,594,000 compared to $3,673,000 in fiscal 2006.

Interest Income Interest income, which consists primarily of interest income from our cash, cash equivalents and short-term investments, was $4,887,000 in fiscal 2007 compared to $2,959,000 in fiscal 2006. The increase in interest income in fiscal 2007 was due to higher interest rates on investments and to increases in cash, cash equivalents and short-term investments .

Other Income, Net Other income, net of $707,000 for fiscal 2007 was comparable to $714,000 for fiscal 2006.

Provision for Income Taxes The provision for incomes taxes represents Federal, state and foreign taxes. The provision for income taxes for fiscal 2007 was $12,071,000 at the estimated effective tax rate of 36% compared to $7,328,000, or a 32% effective tax rate for fiscal 2006. The higher effective tax rate in fiscal 2007 resulted from non-deductible stock based compensation expense under Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R), and the accrual of additional tax reserves related to prior year R&D tax credits as a result of ongoing tax audits. Our effective tax rate of 36% is less than the combined federal and state tax rate due to the benefit of tax exempt investment income and R&D tax credits, offset by the adverse impact of stock based compensation expenses.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Net Sales

We operate in one business segment comprising the design, development, manufacturing and marketing of high voltage semiconductor devices including analog and mixed signal integrated circuits (ICs). We have a broad base of customers, who in some cases manufacture end products spanning multiple markets. As such, the assignment of revenue to the aforementioned markets requires the use of estimates, judgment, and extrapolation. Actual results may differ from those reported . During the first fiscal quarter of 2008 we reviewed our assignment of products to markets and have made adjustments by including a new market, “LED lighting,” renaming “Other” to “Industrial/other,” and making certain changes to product market assignments. We expect that the LED lighting market, which includes drivers for LED backlights for TV flat screens and monitors as well as drivers for LED automotive and general lighting applications, will grow during the fiscal 2008 and beyond to become a significant market for Supertex. The Industrial/other market includes discretes and ICs for industrial controls and many general applications.

Net sales for the three months ended December 29, 2007 were $20,147,000, a 16% decrease compared to $24,098,000 for the same period of the prior fiscal year. The year-over-year decrease in net sales is primarily attributed to a decrease in EL inverter sales, and to a lesser extent a decrease in foundry unit shipments, due to reduced demand for these products from our customers. Net sales decreased 9% from $22,029,000 when compared to the quarter ended September 29, 2007 due to a decrease in LED backlight driver sales and to a lesser extent reduced sales of medical ultrasound drivers and display drivers, due to reduced demand for these products from our customers, as well as a reduction in average selling prices in certain products.

Net sales for the nine months ended December 29, 2007 were $62,938,000, a 16% reduction compared to $75,184,000 for the same period of fiscal 2007. This resulted from a decrease in our EL inverter and foundry unit shipments due to reduced demand for these products from our customers, and reduction in average selling prices in certain products.

The Medical Electronics market accounted for the highest sales of all of our markets for the three months and nine months ended December 29, 2007. Sales to the Medical Electronics market for the three months ended December 29, 2007 were $7,590,000, which were 5% higher than the same period of the prior year from growth in shipments of our integrated pulsers launched during the past year, as well as foundry unit shipments. Sales to the medical electronics market in our third fiscal quarter were lower by 5% compared to our second fiscal quarter due to typical seasonality decline from hospital budgetary patterns.

For the nine months ended December 29, 2007 our Medical Electronics sales were $23,790,000, an increase of $1,351,000, or 6%, compared to the same period in the prior fiscal year. The year-over-year increase in net sales is due to higher demand reflected in strong shipments of our high voltage pulser circuits and chipsets and due to higher foundry shipments. We expect sales in this market to increase in the fourth fiscal quarter.

In recent years, the ultrasound market experienced significant growth in the transportable, hand-carried ultrasound units. These high-performance, portable, affordable systems are accelerating the proliferation of ultrasound imaging to medical specialties other than the traditional clinical applications. Geographically, the market is expanding as well, as China, Korea and India are now designing and producing medical ultrasound machines. We believe that sales of our high voltage analog switches and multiplexers, high voltage pulser ICs, high-speed MOSFET drivers, and discrete high voltage FETs to this market will continue to increase as the ultrasound market continues to expand globally. We are heavily investing in product development for the ultrasound market and we expect to introduce more new integrated pulser ICs as well as ultrasound receiver blocks. Custom high voltage pulsers are projected to contribute to our revenue growth in the fourth quarter of fiscal 2008.

Sales in the Imaging market for the three and nine months ended December 29, 2007 were $6,804,000 and $20,413,000, a decrease of 35% and 37%, respectively, when compared to the same periods in the last fiscal year. These decreases in net sales are primarily due to reduced demand reflected in lower shipments to a major customer due to reduced end user demand of that customer’s mobile phones. Sales for the three months ended December 29, 2007, when compared to the prior fiscal quarter, were lower by $596,000, due to reduced foundry sales and reduced EL inverter sales. Sales of EL inverters are expected to decline sequentially.

Sales in the Industrial/other market for the three and nine months ended December 29, 2007 of $2,867,000 and $9,760,000 decreased 34% and 29%, respectively, when compared to the same periods a year ago and decreased 3% sequentially. The year-over-year and sequential decreases are primarily due to reduced foundry shipments.

Sales to the Telecom market increased 46% during the three months ended December 29, 2007 to $2,380,000 compared to the same period a year ago and increased 9% sequentially. The increase in year-over-year sales is primarily due to higher shipments for a military radio application and for optical MEMS drivers. The sequential increase in sales is primarily due to an increase in demand for optical MEMS drivers, and for ring generators. For the nine months ended December 29, 2007, Telecom sales were $6,103,000, or 7% higher than the same period last year due to higher shipments for a military radio application and for optical MEMS drivers.

Sales in LED backlighting driver ICs and driver ICs for lighting were $506,000 and $2,872,000 for the three and nine months ended December 29, 2007 compared to $468,000 and $891,000, respectively, for the same periods last year. The increases in year-over-year are due primarily to introduction of our new line of LED backlight driver ICs for flat screen TVs and for general lighting. Sales in the LED lighting and backlighting market decreased $987,000 sequentially, due to reduced unit sales to our major flat screen TV OEM.

Our current growth strategy relies on the successful transition of our new products, and our ability to continuously and successfully introduce and market new products and technologies that meet our customers’ requirements.

Net sales to international customers for the three and nine months ended December 29, 2007 were $12,881,000 and $40,868,000 or 64% and 65%, respectively, of net sales as compared to $17,216,000 and $53,414,000, or 71% of net sales for the same periods of the prior fiscal year and $14,809,000 or 67% for the three months ended September 29, 2007. Sales to international customers for the three and nine months ended December 29, 2007 decreased 25% and 23%, respectively, compared to the same periods last year and decreased 13% sequentially. The decrease in international sales year-over-year and sequentially are primarily due to reduced shipments of EL backlighting drivers to customers whose contract manufacturing vendors are located primarily in China. The sequential decrease is due primarily to a reduction in shipments of our LED backlighting drivers to a major flat screen TV OEM in Korea.

Net sales to domestic customers for the three and nine months ended December 29, 2007 increased 6% and 1%, respectively, compared to the same periods last year and increased 1% sequentially.

Our assets are primarily located in the United States.

Gross Profit

Gross profit represents net sales less cost of sales. Cost of sales includes the cost of raw silicon wafers; the costs associated with assembly, packaging, test, quality assurance and product yields; the cost of personnel, facilities and depreciation on equipment associated with manufacturing support; and charges for excess or obsolete inventory.

Gross profit for the quarter ended December 29, 2007 was $11,232,000, compared to $14,238,000 for the same period of fiscal 2007, and $13,009,000 for the prior quarter. The quarterly year-over-year and sequential reductions in gross profit were primarily attributable to reduced sales and a $700,000 reserve for excess inventory of LED backlight drivers due to reduced shipments to our major LCD TV OEM. For the nine months ended December 29, 2007, gross profit was $36,927,000 compared to $45,182,000 for the same period of last fiscal year. The decrease in gross profit is primarily attributable to reduced sales and a reduction in selling prices for certain products.

Gross margin, which is gross profit as a percent of net sales, was 56% for the three months ended December 29, 2007 compared to 59% for both the same period of the prior fiscal year and for the prior quarter of fiscal 2008. The decrease in gross margin for the three months ended December 29, 2007 compared to the same period in fiscal 2007 is primarily attributable to lower sales, reduced capacity utilization in the fab, and a $700,000 write-down for excess inventory of LED backlight drivers we built for our major LCD TV OEM who subsequently reduced its demand. The sequential reduction in gross margin is primarily due to lower sales and a $700,000 write-down for excess inventory of LED backlight drivers and reduced capacity utilization in the fab. For the nine months ended December 29, 2007, gross margin was 59% compared to 60% for the same period in the last fiscal year.

We wrote down inventory totaling $1,235,000 and $2,085,000 for the three and nine months ended December 29, 2007, respectively. For the comparable periods in fiscal 2007, we wrote down inventory totaling $697,000 and $1,886,000, respectively. We realized gross margin benefits of $287,000 and $1,065,000 for the three and nine months ended December 29, 2007 due to sales of previously reserved, or written-down, inventory. Such benefits were $351,000 and $1,301,000 for the three and nine months ended December 30, 2006.

Research and development (R&D) expenses include payroll and benefits, processing costs, and depreciation. We also expense proto-type wafers and mask sets related to new products as R&D expenses until such new products are released to production.

Expenditures for R&D were $3,358,000 and $10,981,000 for the three and nine months ended December 29, 2007, respectively, compared to $3,688,000 and $11,295,000, respectively, for the same period last year. The net decrease of $330,000 for the third fiscal quarter compared to the prior year resulted primarily from a decrease in payroll and benefits of $380,000, including a decrease of $218,000 in employee stock-based compensation expense and a decrease of $192,000 in the expense due to a change in the fair market value of our deferred compensation plan.

For the nine months ended December 29, 2007, R&D expenses were $314,000 lower when compared to same period last year, primarily due to lower payroll and benefits of $1,195,000, including decreases in employee stock-based compensation expense of $536,000 and engineering supplies and services of $199,000. This was partially offset by a higher usage of fab equipment of $674,000, higher depreciation expense of $265,000 and higher outside services costs of $136,000.

Compared to the prior quarter, R&D expenses decreased by $500,000 due to lower usage of fab equipment.

Some aspects of our R&D efforts require significant short-term expenditures. As such, timing of such expenditures may cause fluctuations in our R&D expenses. We have increased R&D activities in order to increase the number of new products we introduce and meet current and future technological requirements of our customers and markets. R&D expenses as a percentage of net sales may fluctuate.

SG&A expenses consist primarily of employee related expenses, commissions to sales representatives, occupancy expenses including expenses associated with our regional sales offices, cost of advertising and publications, and outside services such as legal, auditing and tax.

SG&A expenses for the three months ended December 29, 2007 were $3,888,000 or a decrease of $264,000 when compared to $4,152,000 for the comparable period last year. This decrease is primarily due to lower employee payroll and benefits of $421,000, including a reduction of the fair market value of our deferred compensation plan. This was partially offset by an increase in professional services of $110,000.

For the nine months ended December 29, 2007, SG&A expenses were $11,726,000, essentially flat with the same period last year. Increased sales and marketing salaries of $390,000, due to recruitment of sales professionals in Asia, were offset by lower employee benefits of $687,000, including a reduction of the expense due to a change in the fair market value of our deferred compensation plan of $589,000 and reduced professional services.

SG&A expenses for the third fiscal quarter of 2008 compared to the prior quarter were higher by $304,000. This sequential decrease resulted primarily from reduced payroll and benefits expense of $191,000 and a reduction in professional services of $71,000 for audit and tax consulting expenses. SG&A expenses are expected to increase in the fourth quarter of fiscal year 2008.

Interest income, which consists primarily of interest income from our cash, cash equivalents and short-term investments, was $1,664,000 and $4,485,000 for the three and nine months ended December 29, 2007, respectively compared to $1,263,000 and $3,576,000, respectively, for the same periods last fiscal year. These increases in interest income are primarily a result of higher investment yields and higher cash investment balances. We expect our interest income during the fourth quarter to decline due to the lower interest rates resulting from recent cuts in the Federal funds rate by the Federal Reserve Board.

Other expense, net, for the three months ended December 29, 2007 was $332,000 and consisted primarily of a $304,000 decrease in fair value of investments held by our Supplemental Executive Retirement Plan (SERP). For the comparable period in fiscal 2007, other income, net was $387,000 and consisted primarily of a $358,000 increase in fair market value of investment held by our SERP.

Other expense, net for the nine months ended December 29, 2007 was $59,000, consisting primarily of a decrease in fair value of investments held by our SERP. For the comparable period in fiscal 2007, other income, net was $330,000, consisting primarily of a $471,000 increase in fair market value of investments held by SERP, a $246,000 gain from proceeds of the sale of an investment previously written off, proceeds of $90,000 from an insurance claim for damages caused by a contractor and a currency gain of $90,000; partially offset by a $512,000 charge for uncollectible sales tax and interest expenses accrued related to the sales tax and IRS audits, and other miscellaneous expenses of $56,000.

Provision for Income Taxes

The income tax provision for the interim period represents federal, state and foreign taxes and reflects our computed estimated annual effective tax rate. It differs from the taxes computed at the federal and state statutory rates primarily due to the effect of non-deductible stock-based compensation expense, tax exempt interest income, and research and development credits. The provision for income taxes for the three months ended December 29, 2007 was $1,641,000 at the effective tax rate of 31%. The tax provision for the comparable period in fiscal 2007 was $2,555,000 at an effective tax rate of 32%. The provision for income taxes for the nine months ended December 29, 2007 was $5,995,000 at an effective tax rate of 32% compared to $9,607,000 or 37% for the same period in the prior fiscal year. The decrease in estimated effective tax rate for the nine months ended December 29, 2007 reflects higher tax benefit from tax-exempt investments and the domestic production activities deduction partially offset by non-deductible stock based compensation expense. For the three months ended December 29, 2007, the change is insignificant.

The provision for income taxes for the three months ended December 30, 2006 reflected a tax benefit due to the reinstatement of the federal research and development credits that were retroactive to January 1, 2006. The effective tax rate for the nine months ended December 30, 2006 was impacted by an adjustment to provide for contingencies related to an IRS audit net of the federal tax credit for research and development activities from the last quarter of fiscal 2006.

We maintain liabilities for uncertain tax positions within our income taxes payable account. The determination of the liability amount involves considerable judgment and estimation, and is continuously monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information. We are currently under IRS examination for the fiscal 2002 and 2004 tax returns. We believe that we have adequately recorded tax liabilities in our financial statements for additional taxes we may be required to pay as a result of the examinations. If the resulting tax assessment exceeds the estimate of tax liabilities, an additional charge to expense will result. If payment proves unnecessary, the reversal of tax liabilities would result in tax benefits being recognized in the period we determine such liabilities are no longer necessary.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

3370 Views