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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
		OR
[_]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                           TO

COMMISSION FILE NUMBER 000-26124

IXYS CORPORATION
(Exact name of registrant as specified in its charter)

3540 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054-2704
(Address of principal executive offices and Zip Code)

(408) 982-0700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [_]

THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF AUGUST 12, 2002, WAS 31,826,692.

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IXYS CORPORATION

INDEX

PART I - FINANCIAL INFORMATION							1
ITEM 1.				FINANCIAL STATEMENTS			1
				CONDENSED CONSOLIDATED BALANCE SHEETS			1
				CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS			2
				CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME			3
				CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			4
				NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			5
ITEM 2.				MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION			12
ITEM 3.				QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			24
PART II - OTHER INFORMATION							25
ITEM 1.				LEGAL PROCEEDINGS			25
ITEM 2.				CHANGES IN SECURITIES AND USE OF PROCEEDS			26
ITEM 3.				DEFAULTS UPON SENIOR SECURITIES			26
ITEM 4.				SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			26
ITEM 5.				OTHER INFORMATION			26
ITEM 6.				EXHIBITS AND REPORTS ON FORM 8-K			26
SIGNATURES							27

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IXYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IXYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements include the accounts of IXYS Corporation (“IXYS” or the “Company”) and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. It is recommended that the interim financial statements be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2002 contained in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year. Certain reclassifications have been made to the prior period’s condensed consolidated financial statements to conform to the current period’s presentation. Such reclassifications had no effect on previously reported results of operations or retained earnings.

Effective as of the beginning of the first quarter of fiscal year 2003, the Company completed the adoption of Statement of Financial Accounting Standards (SFAS) No. 141 (SFAS 141), “Business Combinations,” and SFAS No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. As required by SFAS 142, the Company discontinued amortizing the remaining balance of goodwill as of the beginning of fiscal year 2003. All remaining and future acquired goodwill will be subject to impairment tests, annually or earlier if indicators of potential impairment exist, using a fair-value-based-approach. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, “Accounting for the impairment of Disposal of Long-lived Assets.” In conjunction with the implementation of SFAS 142, the Company has completed a goodwill impairment review as of the beginning of fiscal year 2003 and found no impairment. Had SFAS 142 been implemented at the beginning of the first quarter of fiscal year 2002, the pro forma effect of excluding goodwill amortization expense would have been as follows:

2. Foreign Currency Translation

The local currency is considered to be the functional currency of IXYS’ wholly owned foreign subsidiaries. Accordingly, assets and liabilities are translated at the exchange rate in effect at period-end and revenues and expenses are translated at average rates during the period. Adjustments resulting from the translation of the accounts of IXYS’ foreign subsidiaries into U.S. dollars are included in cumulative translation adjustment, a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included as a component of non-operating income and expense.

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3. Acquisition of Clare, Inc.

On June 10, 2002, IXYS completed its acquisition of Clare, Inc. (“Clare”). The acquisition of Clare was intended to allow the combined organization to be more competitive and to achieve greater financial strength, operational efficiencies, access to capital and growth potential than either company could separately achieve. In connection with the acquisition, (a) each outstanding share of Clare common stock was converted into the right to receive 0.49147 of a share of IXYS common stock, which will result in the issuance of approximately 4.9 million shares of IXYS common stock, and (b) each option to purchase Clare common stock outstanding immediately prior to the consummation of the acquisition was converted into an option to purchase 0.49147 of a share of IXYS common stock, resulting in the assumption of options exercisable for approximately 1.0 million shares of IXYS Common Stock.

The estimated total purchase price is as follows (in thousands):

IXYS is in the process of determining the fair values of identifiable intangible assets acquired and plant and equipment. IXYS is in the process of determining reasonable replacement costs to determine the fair value of plant and equipment acquired. IXYS is further determining the benefits achievable from contractual agreements to determine their fair value at the acquisition date. Based on preliminary estimates and draft valuations, IXYS preliminarily allocated the purchase price to identifiable intangible assets, tangible assets, liabilities assumed and goodwill as follows (in thousands):

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Pro Forma Disclosure (in thousands, except per share data):

The following unaudited pro forma combined amounts give effect to the acquisition of Clare as if the acquisitions had occurred on April 1, 2002 and 2001. On a pro forma basis, the results of operations of Clare for the three-month periods ended June 30, 2002 and 2001 are consolidated with IXYS results for the three-month periods ended June 30, 2002 and 2001. The pro forma amounts do not purport to be indicative of what would have occurred had the acquisition been made as of the beginning of each period or of results which may occur in the future.

4. Recent Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board (FASB)  issued SFAS No. 144, (SFAS 144) “Accounting for Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS No. 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121 “Accounting for the Impairment of long-lived Assets and Long-Lived Assets to be Disposed of” and Accounting Principles Board (APB) Opinion No. 30; however, SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that has either been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. IXYS has adopted SFAS No. 144 and the adoption did not have a material impact on its financial position and results of operations.

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In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities’” (SFAS 146). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002, and early application is encouraged. IXYS will adopt SFAS 146 during the second quarter of this fiscal year. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. SFAS 146 will change, on a prospective basis, the time when restructuring charges are recorded from a commitment date approach to when the liability is incurred. IXYS does not expect the adoption of SFAS No. 146 to have a material impact on its financial position and results of operations.

5. Balance Sheet Components

Inventories consist of the following (in thousands):

     Other assets consist of the following (in thousands):

6. Computation of Net Income (Loss) Per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of other securities into common stock. Dilutive net loss per share does not include the weighted average effect of potential common shares, including options and warrants to purchase common stock, because the effect is anti-dilutive.

Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):

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7. Segmental Information

Statement of Financial Accounting Standards No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related Information,” establishes annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographic areas and major customers. The method for determining the information to be reported under SFAS 131 is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-makers are considered to be the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). The CEO and CFO review financial information for purposes of making operational decisions and assessing financial performance. IXYS’ chief decision makers currently review operating results on a consolidated basis only, and therefore believe that IXYS operates in one industry segment. Segment reporting based on product groups is impractical and not meaningful for management of the business and for disclosure. IXYS’ net revenue by major geographical area (based on destination) were as follows:

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IXYS’ foreign operations mainly consist of those of its subsidiaries, IXYS GmbH and IXYS Berlin in Germany, IXYS CH in Switzerland and Westcode Semiconductors Limited in the United Kingdom. Sales and net income of IXYS CH were not significant and are combined with German operations. The following table summarizes the sales of IXYS’ U.S. and Foreign operations (in thousands):

Tangible long-lived assets by geographical locations are as follows:

8. Commitments and Contingencies

Legal Proceedings

On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain of IXYS’ products sold in the United States infringe U.S. patents owned by International Rectifier. International Rectifier’s complaint against IXYS contended that IXYS’ alleged infringement of International Rectifier’s patents has been and continues to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’ power MOSFETs and IGBTs infringe certain claims of each of three International Rectifier U.S. patents.

On May 21, 2002, the U.S. District Court entered a permanent injunction, which became effective June 5, 2002, barring IXYS from making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by the subject patents. On August 2, 2002, a three-judge panel of the United States Court of Appeals for the Federal Circuit permanently granted IXYS’ motion to stay, pending appeal, the permanent injunction issued by the U.S. District Court. In granting this motion, the panel stated, among other things, that IXYS had shown a strong likelihood of success regarding its challenge to the U.S. District Court’s finding that IXYS infringes the International Rectifier patents.

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On August 5, 2002, the U.S. District Court entered its ruling that International Rectifier should be awarded damages of $9.1 million for IXYS’ alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that IXYS has been guilty of willful infringement. The U.S. District Court is considering International Rectifier’s motion for the damages to be increased to an aggregate amount up to three times the $9.1 million award, and attorney fees. In light of the Federal Circuit’s determination that IXYS has shown a strong likelihood of success regarding its challenge to the U.S. District Court’s finding of infringement, IXYS expects to ask the Federal Circuit to stay any damages judgments pending appeal.

International Rectifier also contends that IXYS’ importation into the United States of certain IXYS-designed MOSFET products manufactured for IXYS by Samsung Electronics Co., Ltd. (“Samsung”) is in violation of a consent decree and injunction entered against Samsung in another lawsuit to which IXYS was not a party (the “Samsung Injunction”). International Rectifier sought enforcement of the Samsung Injunction against IXYS and Samsung, a contempt citation and a fine. The U.S. District Court deferred a decision about whether IXYS and Samsung were in contempt. On March 19, 2002, the U.S. District Court decided, among other things, that IXYS is bound by, and IXYS devices are not excepted from, the Samsung Injunction. On June 12, 2002, the Federal Circuit stayed the application of the Samsung Injunction to IXYS.

It remains IXYS’ intent to continue to contest the claims of International Rectifier vigorously. Furthermore, IXYS expects to appeal any ruling of contempt. In light of the August 2, 2002 decision by the Federal Circuit, IXYS believes its defenses to the various claims and its arguments on appeal are meritorious. However, there can be no assurance of a favorable outcome. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court could be materially adverse to IXYS’ financial condition and results of operations. Management has not accrued any amounts in the accompanying balance sheets for the International Rectifier matter described above.

In response to International Rectifier’s claims, Samsung contends that IXYS is contractually obligated under the terms of IXYS’ wafer supply agreement with Samsung to defend it against the contempt claims made by International Rectifier and indemnify and hold Samsung harmless in connection with such claims. IXYS is considering Samsung’s request in light of the terms of the wafer supply agreement. While IXYS believes that neither it nor Samsung are or could be in violation of the injunction for various reasons IXYS believes to be meritorious, including an express reservation as to IXYS’ designed parts in the consent decree, there can be no assurance of a favorable outcome. In the event of an adverse ruling against IXYS on the ultimate issue of contempt, or if IXYS is obligated to defend and indemnify Samsung, any damages awarded or injunction entered by the U.S. District Court could be materially adverse to IXYS’ financial condition and results of operations.

In November 2000, IXYS filed a lawsuit for patent infringement against International Rectifier GmbH in the County Court of Mannheim, Germany. The lawsuit charged International Rectifier with infringing at least two of IXYS’ German patents. These patents cover key design features of IXYS’ proprietary integrated power module technology. The lawsuit sought damages and an injunction prohibiting the continued infringement by International Rectifier.

On April 27, 2001, the County Court of Mannheim rendered a judgment in IXYS’ favor that enjoined International Rectifier from marketing, utilizing, importing or possessing two of IXYS’ German patents, and imposed a fine of up to (EUR) 256,000 to the state or imprisonment of International Rectifier’s managing director for each violation of the injunction. International Rectifier was also ordered to pay attorney fees and past and future damages and unjustified enrichment resulting from International Rectifier’s infringing practices. International Rectifier appealed the judgment to the Court of Appeals in Karlsruhe. After a hearing on this appeal in March, the Court of Appeals in Karlsruhe ruled in favor of IXYS and the judgment entered by the County Court of Mannheim is now final. International Rectifier has a right to appeal the ruling of the Appeals Court in Karlsruhe.

On February 8, 2001, IXYS filed a lawsuit against International Rectifier Italia S.p.A. in the Civil Court of Monza, Italy, for patent infringement of at least two of IXYS’ European patents, which correspond to the German patents involved in the above-described legal proceeding in Germany. The lawsuit seeks the seizure of semiconductor modules produced by International Rectifier that infringe on IXYS’ patents and an injunction against further production of such modules by International Rectifier in Italy. On June 27, 2001, the Civil Court of Monza rendered a preliminary injunction in IXYS’ favor with respect to certain claims of infringement by International Rectifier S.p.A. Under the terms of this preliminary injunction, IXYS is permitted to seize, and International Rectifier S.p.A. is prohibited from distributing, certain of the allegedly infringing semiconductor modules. The injunction is an interlocutory measure that remains in effect until there has been a judgment on the merits. Hearings on the merits of the law suit were held on December 12, 2001, January 24, 2002 and February 21, 2002. It could be as long as several years before a judgment on the merits is rendered.

While IXYS believes its claims against International Rectifier in the Civil Court of Monza, Italy are meritorious, there can be no assurance of a favorable outcome. IXYS does not believe that an adverse ruling by the Civil Court of Monza would have a significant negative impact on the results of operations, financial performance or liquidity of IXYS.

On January 17, 2002, IXYS sued International Rectifier in the United States District Court for the Northern District Court of California for infringement of three IXYS U.S. patents. On April 1, 2002, IXYS amended its complaint to assert a modified group of five IXYS U.S. patents. The asserted patents include those corresponding to IXYS’ module patents asserted in the litigation in Germany and Italy. In addition, the patents include IXYS’ patents for direct copper bond technology. On July 12, 2002, the U.S. District Court denied International Rectifier’s motions to dismiss and for summary judgment and set the matter for trial to begin on June 2, 2003. IXYS’ lawsuit seeks damages and an injunction against continued infringement.

Discussions of additional details relating to the above-described legal proceedings may be found in IXYS’ prior SEC filings and reports.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including without limitation those described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2002, which was filed with the Securities and Exchange Commission (the “SEC”) on June 28, 2002. Actual results may differ materially from the results discussed in the forward-looking statements. All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Important factors affecting our ability to achieve future revenue growth include whether and the extent to which demand for our products increases and reflects real end-user demand; whether customer cancellations and delays of outstanding orders increase; and whether we are able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether we are able to achieve our new product development and introduction goals, including, without limitation, goals for recruiting, retaining, training, and motivating engineers, particularly design engineers, and goals for conceiving and introducing timely new products that are well received in the marketplace; and whether we are able to successfully commercialize our new technologies, which we have been investing in by designing and introducing new products based on these new technologies.

Other important factors that could cause actual results to differ materially from those predicted include overall economic conditions, such as the economic issues affecting Asian countries; fluctuations in currency exchange ratios as we sell products in currencies other than the U.S. dollar; demand for electronic products and semiconductors generally; demand for the end-user products for which our semiconductors are suited; the level of utilization of our production capacity; timely availability of, and changes in the cost of, raw materials, equipment, supplies and services; unanticipated manufacturing problems; problems in obtaining products from outside foundries that manufacture for us; increases in production and engineering costs associated with initial manufacture of new products; technological and product development risks; competitors’ actions; and other risk factors described in our filings with the SEC on Form 10-K or set forth in this Form 10-Q.

The impact of these and other factors on our revenues and operating results in any future period cannot be forecast with certainty. Our expense levels are based, in part, on its expectations as to future revenues. Because our sales are generally made pursuant to purchase orders that are subject to cancellation, modification, quantity reduction or rescheduling on short notice and without significant penalties, our backlog as of any particular date may not be indicative of sales for any future period, and such changes could cause our net sales to fall below expected levels. If revenue levels are below expectations, operating results are likely to be materially adversely effected. Net income, if any, and gross margins may be disproportionately affected by a reduction in net sales because a proportionately smaller amount of our expenses varies with its revenues.

OVERVIEW

We are a leading company in the design, development, manufacture and marketing of high power, high performance power semiconductors. Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 500 watts of power.

The semiconductor industry is cyclical and has from time to time experienced depressed business conditions. The semiconductor industry has historically experienced a decrease in average selling prices of products over time. Additionally, a number of factors can result in quarter to quarter fluctuations in operating results, including: the reduction, rescheduling or cancellation of orders by customers; fluctuations in the timing and amount of customer requests for product shipments; fluctuations in the manufacturing yields and significant yield losses; and availability of production capacity.

On June 10, 2002, we completed the acquisition of Clare, Inc., a provider of high-voltage analog and mixed-signal semiconductor integrated packages and discrete components for use in electronic communications, computer, and industrial equipment. In connection with this acquisition, we issued approximately 4.9 million shares of IXYS common stock to the holders of outstanding shares of Clare common stock and assumed options to purchase approximately 1.0 million shares of IXYS common stock.

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In the three-month period ended June 30, 2002, North American sales represented approximately 42%, and international sales represented approximately 58%, of our net revenues. Of our international sales, approximately 74% were derived from sales in Europe and the Middle East and approximately 26% were derived from sales in Asia. No single end customer accounted for more than 10% of our net revenues in the three-month periods ended June 30, 2002 and 2001.

Critical Accounting Policies

     Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Our critical accounting policies include inventories, valuation of plant, equipment and intangible assets, revenue recognition, accounting for legal contingencies, and accounting for income taxes. A discussion of these critical accounting policies can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2002.

     In addition, in connection with the acquisition of Clare, we adopted a critical accounting policy for nonrecurring engineering (“NRE”) work. NRE work relates to engineering work performed by our Micronix division, which was acquired in the Clare transaction, to design chip prototypes that will later be used to produce required units. Customers enter into arrangements with Micronix to perform engineering work for a fixed fee. Micronix generally performs these services at a reduced margin with the expectation that additional revenue will be earned at higher margins once production for these units commences. Micronix records fixed-fee payments during the development phase from customers in accordance with Emerging Issues Task Force Abstracts (“EITF”) 99-5, “Accounting for Pre-production Costs Related to Long-term Supply Arrangements. Micronix records research and development costs as expenses are incurred. Micronix then credits research and development expenses for payments made by the customer. Up-front payments made by the customer are initially recorded as customer deposits and are charged to the statement of income as expenses for the project as costs are incurred.

Results of Operations — Three Month Periods Ended June 30, 2002 and June 30, 2001

Net Revenues. Net revenues in the three month period ended June 30, 2002 were $27.4 million, a 7.2% increase from net revenues of $25.6 million in the three month period ended June 30, 2001. International net revenues were $15.9 million in the three month period ended June 30, 2002, or 57.9% of net revenues, as compared to $17.1 million, or 66.7% of net revenues, in the three month period ended June 30, 2001. The increase in net revenues was due to the inclusion of one quarter of Westcode revenue and three weeks of Clare revenue, which were not included in the prior year quarter, offset by a decrease of approximately 20.5% in units sold of traditional IXYS devices, related to adverse economic conditions.

Gross Profit. Gross profit was $7.5 million, or 27.2% of net revenues, in the three month period ended June 30, 2002, as compared to $8.3 million, or 32.4% of net revenues, in the three month period ended June 30, 2001. The decrease in margins was primarily due to a 2.7% decrease in average selling prices from the same quarter in the prior fiscal year, as well as lower levels of overhead absorption. Furthermore, Clare’s products contributed lower gross profits as a percentage of revenue than traditional IXYS products.

Research, Development and Engineering. During the three month period ended June 30, 2002, research, development and engineering (“R&D”) expense was $2.2 million, or 8.0% of net revenues, as compared to $1.2 million, or 4.6% of net revenues, in the three month period ended June 30, 2001. The increase in R&D expenses was due to the inclusion of R&D expenses incurred by Westcode and Clare. R&D expenditures for the traditional IXYS units were relatively flat as compared to the quarter ended June 30, 2001.

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Selling, General and Administrative. During the three month period ended June 30, 2002, selling, general and administrative (“SG&A”) expense was $5.1 million, or 18.6% of net revenues, as compared to $3.4 million, or 13.4% of net revenues, in the three month period ended June 30, 2001. The increase in SG&A expenses was caused primarily by the inclusion of SG&A expenses incurred by Westcode and Clare. SG&A expenditures for the traditional IXYS units were relatively flat as compared to the quarter ended June 30, 2001.

Interest Income (Expense), Net. During the three month period ended June 30, 2002, interest income (expense), net was $164,000, as compared to interest income (expense), net of $146,000 in the three month period ended June 30, 2001.

Other (Expense) Income, Net. Other (expense) income, net, including gain on foreign currency transactions, in the three month period ended June 30, 2002 was $1.4 million of other expense, as compared to $1.2 million of other expense in the three month period ended June 30, 2001. The increase in other income (expense), net is primarily due to legal fees of $1.2 million incurred in the three month period ending June 30, 2002.

Income Taxes. The provision for income taxes in the period ended June 30, 2002, reflects an effective tax rate of 36.0%, as compared to 38.0% in the same quarter of the prior fiscal year. The change in effective tax rate from 2001 to 2002 reflects the limitation on certain income tax deductions related to net loss periods.

Liquidity and Capital Resources

Cash and cash equivalents. As of June 30, 2002, cash and cash equivalents were $42.8 million, an increase of $10.7 million from cash and cash equivalents of $32.1 million at March 31, 2001. The increase in cash and cash equivalents was primarily due to cash provided by the acquisition of Clare.

Cash flows from operating activities. Net cash provided by operating activities in the three month period ended June 30, 2002 was $67,000, which represents an increase of $3.5 million from net cash used in operating activities of $3.4 million in the three month period ended June 30, 2001. The increase in net cash provided by operating activities was primarily attributable to lower levels of inventory on hand and an increase in accounts payable as compared to accounts payable in the same quarter of the prior fiscal year, partially offset by an increase in accounts receivable. The increase in accounts payable resulted primarily from the timing of our receipt of invoices from our suppliers and not from any material delay in the time in which we pay our outstanding accounts payable.

Cash flows from investing activities. Net cash provided by investing activities in the three month period ended June 30, 2002 was $10.2 million, an increase of $10.9 million from $0.7 million used in investing activities in the three month period ended June 30, 2001. This increase in net cash provided by investing activities is primarily due to cash acquired in the acquisition of Clare and a tax refund received for loss carrybacks related to Clare’s operations.

Cash flows from financing activities. During the three month period ended June 30, 2002, net cash used in financing activities was $0.5 million, an increase of $0.3 million from net cash used in financing activities of $0.3 million during the three month period ended June 30, 2001. The increase in net cash used in financing activities was primarily due to smaller amounts generated by the exercise of stock options and the issuance of shares under our Employee Stock Purchase Plan as compared to the same quarter of the prior fiscal year.

There are three lines of credit facilities available to us. We have one line of credit with a U.S. bank that consists of a $5.0 million commitment amount, which is available through September 2002. The line bears interest at the bank’s prime rate (4.75% at June 30, 2002). The line is collateralized by certain assets and contains certain general and financial covenants. At June 30, 2002, we had drawn $700,000 against such line of credit.

We have another line of credit with a U.S. bank that consists of a $100,000 commitment, which is available through September 2002. The line bears interest at a fixed rate of 9.5%. The line is collateralized by a $100,000 certificate of deposit that we have with the bank. At June 30, 2002, we had drawn $100,000 against such line of credit.

As of June 30, 2002, Clare had $2.1 million of letter of credits outstanding under a revolving credit facility in connection with certain leases. The letters of credit were collateralized by $2.3 million cash on deposit. The letters of credit expire through July 2003 and will automatically renew annually at the discretion of the lessor. The cash collateral is included in restricted cash in the accompanying condensed balance sheet at June 30, 2002.

In Germany, at June 30, 2002, we had a $5.0 million line of credit with a German bank with no outstanding balance. This line supports a letter of credit facility.

In July 2000, a German bank issued to us a commitment letter for a (DM) 7.5 million (approximately $3.9 million) equipment lease facility. Our existing equipment leases, (DM) 5.5 million (approximately $2.8 million) at June 30, 2002, were charged against the facility. The equipment leases provide financing at varying pricing for periods up to 48 months. In addition to the rights to the equipment, the bank holds a security interest in other assets and up to $512,000 deposited with the bank.

In July 2000, in the same commitment letter discussed above, the bank also committed to issue a credit line to us of up to (DM) 9.9 million (approximately $5.0 million) for a wafer fabrication facility in Germany, including leasehold improvements, clean room construction and fabrication, computer and office equipment. At June 30, 2002, we had drawn (DM) 507,200 (approximately $256,000) under this commitment. The security interest of the bank under the equipment lease facility also collateralizes this line.

In December 2001, IXYS entered into a term loan with a Swiss bank in the amount of SFR 200,000 (approximately $134,000). The loan bears interest of 5.25% and is due in November 2006.

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Our accounts receivable at June 30, 2002 were $23.1 million, a decrease of 3.0% as compared to $23.8 million at June 30, 2001. Our inventories at June 30, 2002 were $55.4 million, an increase of 49.0% as compared to $37.1 million at June 30, 2001. Net plant and equipment at June 30, 2002 were $34.3 million, an increase of 131.7% as compared to $14.8 million at June 30, 2001. The increase in inventories and plant and equipment is mainly due to the acquisition of Clare.

As of June 30, 2002, we had $42.8 million in cash and cash equivalents. We believe that these balances, including interest to be earned thereon, and borrowings available under our credit facilities will be sufficient to fund our working and other capital requirements, including potential investments in other companies and other assets to support the strategic growth of our business, over the next twelve months. In the ordinary course of business, we evaluate opportunities to acquire businesses, products and technologies and we expect to use our cash to fund these types of activities in the future. In the event additional needs for cash arise, we may raise additional funds from a combination of sources including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all, particularly in light of the recent decline in the capital markets. If adequate funds were not available or were not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.

Disclosures about Contractual Obligations and Commercial Commitments

Details of IXYS’ contractual obligations and commitments as of June 30, 2002 to make future payments under contracts are set forth below:

     On September 22, 2000, IXYS Corporation entered into a guaranty for $5.0 million in favor of Commerzbank AG to obtain a line of credit granted by Commerzbank AG to IXYS Semiconductor GmbH. At June 30, 2002, the available amount under the line of credit was $5.0 million.

New Accounting Standards

In October 2001, FASB issued SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal periods. SFAS No. 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for the disposition of long-lived assets. SFAS No. 144 supersedes SFAS No. 121 and APB Opinion No. 30; however, SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that has either been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. We have adopted SFAS No. 144 and the adoption did not have a material impact on its financial position and results of operations.

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In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities” (SFAS 146). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. We will adopt SFAS 146 during the second quarter of this fiscal year. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. SFAS 146 will change, on a prospective basis, the time when restructuring charges are recorded from a commitment date approach to when the liability is incurred. We do not expect the adoption of SFAS No. 146 to have a material impact on our financial position and results of operations.

RISK FACTORS

In addition to the other information in this Quarterly Report on Form 10-Q, the following risk factors should be considered carefully in evaluating us and our business. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition. The trading price of our common stock could decline at any time due to any of these risks, and investors could lose all or part of their investment.

Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.

Our operating results may fluctuate significantly. Some of the factors that may affect our quarterly and annual results are:

	•		the reduction, rescheduling or cancellation of orders by customers;
	•		fluctuations in timing and amount of customer requests for product shipments;
	•		the cyclical nature of the semiconductor industry;
	•		fluctuations in our manufacturing yields and significant yield losses;
	•		availability of production capacity;
	•		changes in the mix of products that our customers purchase;
	•		competitive pressures on selling prices;
	•		the amount and timing of costs associated with product warranties and returns;
	•		the amount and timing of investments in research and development;

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	•		market acceptance of our products;
	•		changes in our product distribution channels and the timeliness of receipt of distributor resale information;
	•		the impact of vacation schedules and holidays, largely during the second and third fiscal quarters of our fiscal year; and
	•		difficulties in forecasting demand for our products and the planning and managing of inventory levels.

As a result of these factors, many of which are difficult to control or predict, as well as the other risk factors discussed in this Quarterly Report on Form 10-Q, we may experience material adverse fluctuations in our future operating results on a quarterly or annual basis.

The semiconductor industry is cyclical, and an industry downturn could adversely affect our operating results.

Business conditions in the semiconductor industry have rapidly changed from periods of strong demand. The industry is characterized by:

	•		periods of overcapacity and production shortages;
	•		cyclical demand for semiconductors;
	•		changes in product mix in response to changes in demand;
	•		variations in manufacturing costs and yields;
	•		rapid technological change and the introduction of new products;
	•		significant price erosion; and
	•		significant expenditures for capital equipment and product development.

These factors could harm our business and cause our operating results to suffer.

Our ability to grow and sustain growth levels may be adversely affected by the recent slowdown in the U.S. economy.

Due to the recent decrease in corporate profits, capital spending and consumer confidence, we have experienced weakness in certain of our end markets. We market our products to several commercial markets, including telecommunications infrastructure, medical electronics and industrial motor drives, that have been affected by the recent slowdown in the U.S. economy. If the economic slowdown continues, our business, financial condition and results of operations may be adversely affected.

Our gross margin and net income may be negatively affected if we are not able to fully utilize, or reduce the expenses of, our Beverly, Massachusetts wafer fabrication facility.

As a result of our acquisition of Clare, we have assumed Clare’s lease of its wafer fabrication facility in Beverly, Massachusetts. Historically, customer demand for wafer fabrication was not adequate to allow Clare to utilize the Beverly fabrication facility’s full capacity and, as a result, Clare incurred substantial negative cash flow associated with the facility. If we are not able to increase the utilization of the fabrication facility, identify new customers for the fabrication services, expand orders from current customers or reduce expenses at the facility, then we could incur significant negative cash flow. If we attempt to shift fabrication of any of our current products to the Beverly fabrication facility, we may incur costs, such as costs associated with qualifying the facility with customers. As a result, fabrication at the Beverly facility could be more costly than our current fabrication suppliers.

We may not be able to acquire additional production capacity to meet the present or future demand for our products.

The semiconductor industry has been characterized by periodic limitations on production capacity. Our current customer demand exceeds our ability to manufacture internally or externally products to meet this demand. If we are unable to increase our production capacity to meet demand, some of our customers may seek other sources of supply or our future growth may be limited.

We may not be successful in our acquisitions.

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We have in the past made, and may in the future make, acquisitions. These acquisitions involve numerous risks, including:

	•		diversion of management’s attention during the acquisition process;
	•		disruption of IXYS’ ongoing business;
	•		the potential strain on our financial and managerial controls and reporting systems and procedures;
	•		unanticipated expenses and potential delays related to integration of an acquired business;
	•		failure to successfully integrate the research and development, sales and marketing efforts of an acquired company with our own;
	•		failure to retain key personnel of the acquired business;
	•		the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate systems, policies, benefits and compliance programs;
	•		customer dissatisfaction or performance problems with an acquired company;
	•		the cost associated with acquisitions and the integration of acquired operations; and
	•		assumption of known or unknown liabilities or other unanticipated events or circumstances.

We cannot assure you that we will be able to successfully acquire other businesses or product lines or integrate them into our operations without substantial expense, delay in implementation or other operational or financial problems.

IXYS could be harmed by litigation involving patents and other intellectual property rights.

As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. Although none of our patents or other intellectual property rights has been successfully challenged to date, we have been sued on occasion for purported patent infringement. For example, we have been sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. The U.S. District Court has enjoined us from continuing infringement and has awarded damages against us for the infringement of International Rectifier’s patents. We have appealed the injunction, and the United States Court of Appeals for the Federal Circuit has stayed the injunction pending appeal. We intend to appeal the U.S. District Court’s rulings (including the award of damages), and to contest International Rectifier’s claims vigorously, but the outcome of this litigation remains uncertain. See “Commitments and Contingencies — Legal Proceedings” provided elsewhere in this Item 1 to the Quarterly Report on Form 10-Q.

Additionally, in the future, we could be accused of infringing the intellectual property rights of other third parties. We also have certain indemnification obligations to customers with respect to the infringement of third party intellectual property rights by our products. No assurance can be provided that any future infringement claims by third parties or claims for indemnification by customers or end users of our products resulting from infringement claims will not be asserted or that assertions of infringement, if proven to be true, will not harm our business.

In the event of any adverse ruling in any intellectual property litigation, including the pending litigation with International Rectifier, we could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license from the third party claiming infringement with royalty payment obligations by us. An adverse decision in the International Rectifier litigation or any other infringement could materially and adversely affect our financial condition and results of operations.

Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, is costly and may divert the efforts and attention of our management and technical personnel.

We depend on external foundries to manufacture many of our products.

Forty percent of our revenues in the first three months of fiscal year 2003 came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We have arrangements with four wafer foundries, two of which produce substantially all of the wafers that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry.

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Our relationships with our external foundries do not guarantee prices, delivery or lead times, or wafer or product quantities sufficient to satisfy current or expected demand. These foundries manufacture our products on a purchase order basis. We provide these foundries with rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundry’s available capacity. At any given time, these foundries could choose to prioritize capacity for their own use or other customers or reduce or eliminate deliveries to us on short notice. Accordingly, we cannot be certain that these foundries will allocate sufficient capacity to satisfy our requirements. In addition, we cannot be certain that we will continue to do business with these or other foundries on terms as favorable as our current terms. If we are not able to obtain additional foundry capacity as required, our relationships with our customers could be harmed and our revenues would likely be reduced. Moreover, even if we are able to secure additional foundry capacity, we may be obligated to utilize all of that capacity or incur penalties. These penalties could be expensive and could harm our operating results. Other risks associated with our reliance on external foundries include:

	•		the lack of control over delivery schedules;
	•		the unavailability of, or delays in obtaining access to, key process technologies;
	•		limited control over quality assurance, manufacturing yields and production costs; and
	•		potential misappropriation of our intellectual property.

Our requirements typically represent a small portion of the total production of the external foundries that manufacture our wafers and products. We cannot be certain these external foundries will continue to devote resources to the production of our wafers and products or continue to advance the process design technologies on which the manufacturing of our products is based. These circumstances could harm our ability to deliver our products on time or increase our costs.

Our success depends on our ability to manufacture our products efficiently.

We manufacture our products in facilities that are owned and operated by us, as well as in external wafer foundries and independent subcontract assembly facilities. The fabrication of semiconductors is a highly complex and precise process, and a substantial percentage of wafers could be rejected or numerous die on each wafer could be nonfunctional as a result of, among other factors:

	•		minute levels of contaminants in the manufacturing environment;
	•		defects in the masks used to print circuits on a wafer;
	•		manufacturing equipment failure; or
	•		wafer breakage.

For these and other reasons, we could experience a decrease in manufacturing yields. Additionally, as we increase our manufacturing output, we may also experience a decrease in manufacturing yields. As a result, we may not be able to cost effectively expand our production capacity in a timely manner.

We may not be able to protect our intellectual property rights adequately.

Our ability to compete is affected by our ability to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect our intellectual property rights. Despite these efforts, we cannot be certain that the steps we take to protect our proprietary information will be adequate to prevent misappropriation of our technology, or that our competitors will not independently develop technology that is substantially similar or superior to our technology. More specifically, we cannot assure you that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties. Nor can we assure you that, if challenged, our patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. Furthermore, others may independently develop similar products or processes, duplicate our products or processes or design their products around any patents that may be issued to us.

Our international operations expose us to material risks.

During the first three months of fiscal year 2003, our product sales by region were approximately 42% in North America, approximately 43% in Europe and the Middle East and approximately 15% in Asia. We expect revenues from foreign markets to continue to represent a significant portion

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of total revenues. IXYS maintains significant operations in Germany and the United Kingdom and contracts with suppliers and manufacturers in South Korea, Japan and elsewhere in Europe and Asia. Some of the risks inherent in doing business internationally are:

	•		foreign currency fluctuations;
	•		changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;
	•		trade restrictions;
	•		transportation delays; work stoppages; and
	•		economic or political instability.

Our sales of products manufactured in our Lampertheim, Germany facility and our costs at that facility are denominated in Euros, and sales of products manufactured in our Chippenham, U.K. facility and our costs at that facility are primarily denominated in British pounds and Euros. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant impact on our balance sheet and results of operations, including our net income. We currently do not enter into foreign currency hedging transactions to control or minimize these risks. Fluctuations in currency exchange rates could cause our products to become more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. If we expand our international operations or change our pricing practices to denominate prices in other foreign currencies, we could be exposed to even greater risks of currency fluctuations.

In addition, the laws of certain foreign countries may not protect our products or intellectual property rights to the same extent as do U.S. laws regarding the manufacture and sale of our products in the U.S. Therefore, the risk of piracy of our technology and products may be greater when we manufacture or sell our products in these foreign countries.

Our revenues are dependent upon our products being designed into our customers’ products.

Some of our new products are incorporated into customers’ products or systems at the design stage. The value of any design win largely depends upon the commercial success of the customer’s product and on the extent to which the design of the customer’s electronic system also accommodates incorporation of components manufactured by our competitors. In addition, our customers could subsequently redesign their products or systems so that they no longer require our products. We may not achieve design wins or our design wins may not result in future revenues.

Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.

The time from initiation of design to volume production of new power semiconductor products often takes 18 months or longer. We first work with customers to achieve a design win, which may take nine months or longer. Our customers then complete the design, testing and evaluation process and begin to ramp up production, a period which may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.

Our backlog may not result in future revenues.

Our business is characterized by short term orders and shipment schedules. Customer orders typically can be cancelled or rescheduled without penalty to the customer. As a result, our backlog at any particular date is not necessarily indicative of actual revenues for any succeeding period. A reduction of backlog during any particular period, or the failure of our backlog to result in future revenues, could harm our results of operations.

The markets in which we participate are intensely competitive.

Certain of our target markets are intensely competitive. Our ability to compete successfully in our target markets depends on the following factors:

•	product quality, reliability and performance;
•	product features;
•	timely delivery of products;
•	price;

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•	breadth of product line;
•	design and introduction of new products; and
•	technical support and service.

In addition, our competitors or customers may offer new products based on new technologies, industry standards or end user or customer requirements, including products that have the potential to replace, or provide lower cost or higher performance alternatives to, our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.

Our primary competitors include Advanced Power Technology, Fuji, International Rectifier, Infineon, On Semiconductor, Semikron International, Powerex, STMicroelectronics, Siemens and Toshiba. Many of our competitors have greater financial, technical, marketing and management resources than we have. Some of these competitors may be able to sell their products at prices below which it would be profitable for us to sell our products or benefit from established customer relationships that provide them with a competitive advantage.

We rely on our distributors and sales representatives to sell many of our products.

A substantial majority of our products are sold through distributors and sales representatives. Our distributors and sales representatives could reduce or discontinue sales of our products. They may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. In addition, we depend upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives.

At June 30, 2002, no distributor accounted for greater than 10% of our outstanding receivables. If any distributor or sales representative experiences financial difficulties, or otherwise becomes unable or unwilling to promote and sell our products, our business could be harmed.

Our future success depends on the continued service of management and key engineering personnel and our ability to identify, hire and retain additional personnel.

Our success depends, to a significant extent, upon the efforts and abilities of Nathan Zommer, Ph.D., our president and chief executive officer, and other members of senior management. The loss of the services of one or more of our senior management or other key employees could adversely affect our business. We do not maintain key person life insurance on any of our officers, employees or consultants. There is intense competition for qualified employees in the semiconductor industry, particularly for highly skilled design, applications and test engineers. Competition is especially intense in the Silicon Valley, where our U.S. design facility is located. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our business or to replace engineers or other qualified individuals who could leave us at any time in the future. Our anticipated growth is expected to place increased demands on our resources, and will likely require the addition of new management and engineering staff as well as the development of additional expertise by existing management employees. If we lose the services of or fail to recruit key engineers or other technical and management personnel, our business could be harmed.

Periods of rapid growth and expansion could continue to place a significant strain on our resources, including our employee base.

To manage our possible future growth effectively, we will be required to continue to improve our operational, financial and management systems. In doing so, we will periodically implement new software and other systems that will affect our internal operations regionally or globally. Presently, we are upgrading our enterprise resource planning software to integrate our operations worldwide. The conversion process is complex and requires, among other things, that data from our existing system be made compatible with the upgraded system. During the transition to this upgrade, we could experience delays in ordering materials, inventory tracking problems and other inefficiencies, which could cause delays in shipments of products to our customers.

Future growth will also require us to successfully hire, train, motivate and manage our employees. In addition, our continued growth and the evolution of our business plan will require significant additional management, technical and administrative resources. We may not be able to effectively manage the growth and evolution of our current business.

Our stock price is volatile.

The market price of our common stock has fluctuated significantly to date. The future market price of our common stock may also fluctuate significantly due to:

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	•		variations in our actual or expected quarterly operating results;
	•		announcements or introductions of new products;
	•		technological innovations by our competitors or development setbacks by us;
	•		conditions in the communications and semiconductor markets;
	•		the commencement or adverse outcome of litigation;
	•		changes in analysts’ estimates of our performance or changes in analysts’ forecasts regarding our industry, competitors or customers;
	•		announcements of merger or acquisition transactions or a failure to achieve the expected benefits of an acquisition as rapidly or to the extent anticipated by financial or analysts; or
	•		general economic and market conditions.

In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, including semiconductor companies. These fluctuations have often been unrelated or disproportionate to the operating performance of companies in our industry, and could harm the market price of our common stock.

Our dependence on independent subcontractors to assemble and test our products subject us to a number of risks, including an inadequate supply of products and higher materials costs.

We depend on independent subcontractors for the assembly and testing of our products. During the first three months of fiscal year 2003, the majority of our products were assembled by independent subcontractors. Our reliance on these subcontractors involves the following significant risks:

	•		reduced control over delivery schedules and quality;
	•		the potential lack of adequate capacity during periods of excess demand;
	•		difficulties selecting and integrating new subcontractors;
	•		limited warranties by subcontractors or other vendors on products supplied to us;
	•		potential increases in prices due to capacity shortages and other factors; and
	•		potential misappropriation of our intellectual property.

These risks may lead to delayed product delivery or increased costs, which would harm our profitability and customer relationships.

In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experiences financial, operational, production or quality assurance difficulties, we could experience a reduction or interruption in supply. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors.

Our markets are subject to technological change and our success depends on our ability to develop and introduce new products.

The markets for our products are characterized by:

	•		changing technologies;
	•		changing customer needs;

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	•		frequent new product introductions and enhancements;
	•		increased integration with other functions; and
	•		product obsolescence.

To develop new products for our target markets, we must develop, gain access to and use leading technologies in a cost effective and timely manner and continue to expand our technical and design expertise. Failure to do so could cause us to lose our competitive position and seriously impact our future revenues.

Our operating expenses are relatively fixed, and we may order materials in advance of anticipated customer demand. Therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls.

Our operating expenses are relatively fixed, and, therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, our operating results will be harmed if our revenues do not meet our revenue projections.

We also typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. From time to time, in response to anticipated long lead times to obtain inventory and materials from our external suppliers and foundries, we may order materials or production in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write downs if expected orders fail to materialize.

Regulations may adversely affect our ability to sell our products.

Power semiconductors with operating voltages above 40 volts are subject to regulations intended to address the safety, reliability and quality of the products. These regulations relate to processes, design, materials and assembly. For example, in the United States some high voltage products are required to pass Underwriters Laboratory recognition for voltage isolation and fire hazard tests. Sales of power semiconductors outside of the United States are subject to international regulatory requirements that vary from country to country. The process of obtaining and maintaining required regulatory clearances can be lengthy, expensive and uncertain. The time required to obtain approval for sale internationally may be longer than that required for U.S. approval, and the requirements may differ.

In addition, approximately 8% of our revenues in the first three months of fiscal year 2003 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

Our business could also be harmed by delays in receiving or the failure to receive required approvals or clearances, the loss of previously obtained approvals or clearances or the failure to comply with existing or future regulatory requirements.

Business interruptions may damage our facilities or those of our suppliers.

Our operations are vulnerable to interruption by fire, earthquake and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and do not have backup generators. Our corporate headquarters in California is located near major earthquake fault lines and has experienced earthquakes in the past. California also has recently been subject to shortages of electrical power and is subject to power outages. If power outages occur, our ability to conduct administrative matters and test our products could be seriously impaired, which could harm our business, financial condition and results of operations. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

In addition, some of our suppliers are located in California and are subject to the same earthquake and power outage risks. A fire, major earthquake or other natural disaster near one or more of our facilities or those of our major suppliers could disrupt our operations and those of our suppliers, which could in turn limit the supply of our products and harm our business.

We may be affected by environmental laws and regulations.

We are subject to a variety of laws, rules and regulations in the United States and in Germany related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process.

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Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs could significantly increase. Our failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

We face the risk of financial exposure to product liability claims alleging that the use of devices that incorporate our products resulted in adverse effects.

Approximately 8% of our net revenues in the first three months of fiscal year 2003 were derived from sales of products used in medical devices such as defibrillators. Product liability risks may exist even for those medical devices that have received regulatory approval for commercial sale. We do not currently carry product liability insurance, and any defects in our products used in these devices could result in significant recall or product liability costs to us.

ABB AG and Nathan Zommer, Ph.D. own a controlling interest in our common stock.

ABB AG and Nathan Zommer, Ph.D., our president and chief executive officer, collectively beneficially own, as of August 12, 2002, approximately 41.4% of the outstanding shares of our common stock. As a result, ABB AG and Dr. Zommer, acting together, could exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. These concentrated holdings could result in a delay of, or serve as a deterrent to, possible changes in control of IXYS, which may reduce the market price of our common stock.

The anti-takeover provisions of our amended and restated certificate of incorporation and of the Delaware General Corporation Law may delay, defer or prevent a change of control.

Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control because the terms of any issued preferred stock could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction, without the approval of the holders of the outstanding shares of preferred stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders.

Our stockholders must give substantial advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to our stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The Delaware statute makes it more difficult for us to be acquired without the consent of our board of directors and management.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

There has been no change to the quantitative and qualitative disclosures of market risk made in our Report on Form 10-K for the fiscal year ended March 31, 2002.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against us in the United States District Court for the Central District of California, alleging that certain of our products sold in the United States infringe U.S. patents owned by International Rectifier. International Rectifier’s complaint against us contended that our alleged infringement of International Rectifier’s patents has been and continues to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of our power MOSFETs and IGBTs infringe certain claims of each of three International Rectifier U.S. patents.

On May 21, 2002, the U.S. District Court entered a permanent injunction, which became effective June 5, 2002, barring us from making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by the subject patents. On August 2, 2002, a three-judge panel of the United States Court of Appeals for the Federal Circuit permanently granted our motion to stay, pending appeal, the permanent injunction issued by the U.S. District Court. In granting this motion, the panel stated, among other things, that we had shown a strong likelihood of success regarding our challenge to the U.S. District Court’s finding that we infringe the International Rectifier patents.

On August 5, 2002, the U.S. District Court entered its ruling that International Rectifier should be awarded damages of $9.1 million for our alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that we have been guilty of willful infringement. The U.S. District Court is considering International Rectifier’s motion for the damages to be increased to an aggregate amount up to three times the $9.1 million award, and attorney fees. In light of the Federal Circuit’s determination that we have shown a strong likelihood of success regarding our challenge to the U.S. District Court’s finding of infringement, we expect to ask the Federal Circuit to stay any damages judgments pending appeal.

International Rectifier also contends that our importation into the United States of certain IXYS-designed MOSFET products manufactured for us by Samsung Electronics Co., Ltd. (“Samsung”) is in violation of a consent decree and injunction entered against Samsung in another lawsuit to which we were not a party (the “Samsung Injunction”). International Rectifier sought enforcement of the Samsung Injunction against us and Samsung, a contempt citation and a fine. The U.S. District Court deferred a decision about whether we and Samsung were in contempt. On March 19, 2002, the U.S. District Court decided, among other things, that we are bound by, and our devices are not excepted from, the Samsung Injunction. On June 12, 2002, the Federal Circuit stayed the application of the Samsung Injunction to us.

It remains our intent to continue to contest the claims of International Rectifier vigorously. Furthermore, we expect to appeal any ruling of contempt. In light of the August 2, 2002 decision by the Federal Circuit, we believe our defenses to the various claims and our arguments on appeal are meritorious. However, there can be no assurance of a favorable outcome. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court could be materially adverse to our financial condition and results of operations.

In response to International Rectifier’s claims, Samsung contends that we are contractually obligated under the terms of our wafer supply agreement with Samsung to defend it against the contempt claims made by International Rectifier and indemnify and hold Samsung harmless in connection with such claims. We are considering Samsung’s request in light of the terms of the wafer supply agreement. While we believes that neither we nor Samsung are or could be in violation of the injunction for various reasons we believe to be meritorious, including an express reservation as to our designed parts in the consent decree, there can be no assurance of a favorable outcome. In the event of an adverse ruling against us on the ultimate issue of contempt, or if we are obligated to defend and indemnify Samsung, any damages awarded or injunction entered by the U.S. District Court could be materially adverse to our financial condition and results of operations.

In November 2000, we filed a lawsuit for patent infringement against International Rectifier GmbH in the County Court of Mannheim, Germany. The lawsuit charged International Rectifier with infringing at least two of our German patents. These patents cover key design features of our proprietary integrated power module technology. The lawsuit sought damages and an injunction prohibiting the continued infringement by International Rectifier.

On April 27, 2001, the County Court of Mannheim rendered a judgment in our favor that enjoined International Rectifier from marketing, utilizing, importing or possessing two of our German patents, and imposed a fine of up to (EUR) 256,000 payable to the state or imprisonment of International Rectifier’s managing director for each violation of the injunction. International Rectifier was also ordered to pay attorney fees and past and future damages and unjustified enrichment resulting from International Rectifier’s infringing practices. International Rectifier appealed the judgment to the Court of Appeals in Karlsruhe. After a hearing on this appeal in March, the Court of Appeals in Karlsruhe ruled in favor of us and the judgment entered by the County Court of Mannheim is now final. International Rectifier has a right to appeal the ruling of the Appeals Court in Karlsruhe.

On February 8, 2001, we filed a lawsuit against International Rectifier Italia S.p.A. in the Civil Court of Monza, Italy, for patent infringement of at least two of our European patents, which correspond to the German patents involved in the above-described legal proceeding in Germany. The lawsuit seeks the seizure of semiconductor modules produced by International Rectifier that infringe on our patents and an injunction against further production of such modules by International Rectifier in Italy. On June 27, 2001, the Civil Court of Monza rendered a preliminary injunction in our favor with respect to certain claims of infringement by International Rectifier S.p.A. Under the terms of this preliminary injunction, we are permitted to seize, and International Rectifier S.p.A. is prohibited from distributing, certain of the allegedly infringing semiconductor modules. The injunction is an interlocutory measure that remains in effect until there has been a judgment on the merits. Hearings on the merits of the law suit were held on December 12, 2001, January 24, 2002 and February 21, 2002. It could be as long as several years before a judgment on the merits is rendered.

While we believe our claims against International Rectifier in the Civil Court of Monza, Italy are meritorious, there can be no assurance of a favorable outcome. We do not believe that an adverse ruling by the Civil Court of Monza would have a significant negative impact on our results of operations, financial performance or liquidity.

On January 17, 2002, we sued International Rectifier in the United States District Court for the Northern District Court of California for infringement of three of our U.S. patents. On April 1, 2002, we amended our complaint to assert a modified group of five of our U.S. patents. The asserted patents include those corresponding to our module patents asserted in the litigation in Germany and Italy. In addition, the patents include our patents for direct copper bond technology. On July 12, 2002, the U.S. District Court denied International Rectifier’s motions to dismiss and for summary judgment and set the matter for trial to begin on June 2, 2003. Our lawsuit seeks damages and an injunction against continued infringement.

Discussions of additional details relating to the above-described legal proceedings may be found in our prior SEC filings and reports.

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

(a)		A special meeting of the stockholders of the Company was held on June 10, 2002.
(c)		The only order of business of the special meeting was to vote on the proposal to approve the issuance of the Company common stock in the merger of Teacup Acquisition Corp., a wholly-owned subsidiary of the Company, with and into Clare, Inc. There were 22,546,421 votes cast for the proposition, 105,117 votes cast against the proposition and 71,992 abstentions.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)		See Index to Exhibits.
(b)		The Company filed a Current Report on Form 8-K on June 17, 2002 to announce the completion of the acquisition of Clare, Inc. and that the United States Court of Appeals for the Federal Circuit entered an order staying an injunction previously entered by the Federal District Court in Los Angeles, California, in the matter of International Rectifier Corporation v. IXYS Corporation.
		The Company filed a Current Report on Form 8-K on June 7, 2002 to announce that the Federal District Court in Los Angeles, California, in the matter of International Rectifier Corporation v. IXYS Corporation, entered on May 21, 2002, a permanent injunction, which became effective on June 5, 2002, that effectively prohibited the Company from selling and distributing certain IXYS MOSFET and IGBT devices in the United States.
		The Company filed a Current Report on Form 8-K on May 20, 2002 to announce financial results for the fourth quarter of its fiscal year ended March 31, 2002 as well as for the fiscal year ended March 31, 2002.
		The Company filed a Current Report on Form 8-K on April 25, 2002 to announce that, on April 22, 2002, the Company entered into a definitive Agreement and Plan of Merger and Reorganization, by and among the Company, Teacup Acquisition Corp., a Massachusetts corporation and wholly-owned subsidiary of the Company, and Clare, Inc., a Massachusetts corporation.