IXYS CORP /DE/ - 10-Q Quarterly Report

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 PERIOD
ENDED DECEMBER 31, 2002

[ ] 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 0-26124

IXYS CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		77-0140882 (IRS Employer identification No.)

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

(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 FEBRUARY 11, 2003 WAS 31,930,776.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 99.1

IXYS CORPORATION
INDEX


			PAGE NO.

PART I — FINANCIAL INFORMATION				3
	ITEM 1.	FINANCIAL STATEMENTS		3
		CONDENSED CONSOLIDATED BALANCE SHEETS		3
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS		4
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)		5
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		7
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13
		RISK FACTORS		18
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK		26
	ITEM 4.	CONTROLS AND PROCEDURES		27
PART II — OTHER INFORMATION				28
	ITEM 1.	LEGAL PROCEEDINGS		28
	ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS		29
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		29
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		29
	ITEM 5.	OTHER INFORMATION		29
	ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K		29
SIGNATURES				30
CERTIFICATION				31
EXHIBIT INDEX				33

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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


			December 31,			March 31,
			2002			2002

			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	37,147		$	32,111
Restricted cash				2,432			205
Accounts receivable, net of allowance for doubtful accounts of $3,530 at December 31, 2002 and $1,045 at March 31, 2002				21,346			16,697
Inventories				59,100			46,317
Prepaid expenses				1,772			596
Deferred income taxes				2,344			2,553

	Total current assets			124,141			98,479

Plant and equipment, net				29,816			19,238
Goodwill and intangible assets, net				24,065			1,896
Other assets				5,191			2,932
Deferred income taxes				3,035			2,015

	Total assets		$	186,248		$	124,560

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations			$	3,157		$	2,391
Notes payable to bank				700			700
Accounts payable				9,744			5,606
Accrued expenses and other liabilities				9,842			8,383

	Total current liabilities			23,443			17,080

Capitalized lease obligations, net of current portion				5,683			4,888
Pension liabilities				9,024			7,373

	Total liabilities			38,150			29,341

Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value:
	Authorized: 5,000,000 shares; none issued and outstanding			—			—
Common stock, $0.01 par value:
	Authorized: 80,000,000 shares; 31,889,666 issued and 31,814,666 outstanding at December 31, 2002 and 26,902,192 issued and 26,827,192 outstanding at March 31, 2002			319			268
Additional paid-in capital				144,656			92,785
Deferred compensation				(34	)		—
Notes receivable from stockholders				(853	)		(853	)
Retained earnings				985			5,827
Accumulated other comprehensive income (loss)				3,470			(2,363	)

				148,543			95,664
Less cost of treasury stock: 75,000 common shares at December 31, 2002 and 75,000 common shares at March 31, 2002				(445	)		(445	)

	Total stockholders’ equity			148,098			95,219

		Total liabilities and stockholders’ equity	$	186,248		$	124,560

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

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


		Three Months Ended						Nine Months Ended
		December 31,						December 31,

		2002			2001			2002			2001

		(unaudited)						(unaudited)
Net revenues		$	35,544		$	16,082		$	98,292		$	62,427
Cost of goods sold			25,610			11,132			71,115			42,139

	Gross Profit		9,934			4,950			27,177			20,288

Operating expenses:
Research, development and engineering			3,473			1,429			9,288			3,848
Selling, general and administrative			7,156			2,916			19,878			9,461
Restructuring charge			—			—			750			—

	Total operating expenses		10,629			4,345			29,916			13,309

Operating income (loss)			(695	)		605			(2,739	)		6,979
Interest income			245			110			687			726
Interest expense			(29	)		—			(100	)		—
Other expense, net			(831	)		(885	)		(3,388	)		(3,640	)

Income (loss) before income tax provision (benefit)			(1,310	)		(170	)		(5,540	)		4,065
Provision (benefit) for income tax			(258	)		(65	)		(698	)		1,545

Net income (loss)		$	(1,052	)	$	(105	)	$	(4,842	)	$	2,520

Net income (loss) per share-basic		$	(0.03	)	$	(0.00	)	$	(0.16	)	$	0.09

Weighted average shares used in per share calculation—basic			31,797			26,728			30,505			26,696

Net income (loss) per share-diluted		$	(0.03	)	$	(0.00	)	$	(0.16	)	$	0.09

Weighted average shares used in per share calculation—diluted			31,797			26,728			30,505			28,993

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

IXYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)


	Three Months Ended						Nine Months Ended
	December 31						December 31

	2002			2001			2002			2001

	(unaudited)						(unaudited)
Net income (loss)	$	(1,052	)	$	(105	)	$	(4,842	)	$	2,520
Other comprehensive income/(loss):
Foreign currency translation adjustments		1,463			(2,311	)		5,833			992

Comprehensive income/(loss)	$	411		$	(2,416	)	$	991		$	3,512

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

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


		Nine Months Ended
		December 31,

		2002			2001

		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(4,842	)	$	2,520
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			8,804			2,617
Provision for doubtful accounts			1,898			(4	)
Provision for excess and obsolete inventories			167			1,138
(Gain) loss on foreign currency transactions			(1,248	)		(1,137	)
Changes in operating assets and liabilities:
Accounts receivable			(782	)		12,402
Inventories			642			(7,992	)
Prepaid expenses			(934	)		93
Other assets			(2,057	)		(325	)
Accounts payable			(529	)		(7,497	)
Accrued expenses and other liabilities			(2,798	)		(3,454	)
Pension liabilities			301			408

	Net cash (used in) provided by operating activities		(1,378	)		(1,231	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Decrease in restricted cash			110			17
Acquisition of Clare, Inc., net of cash acquired			7,905			—
Purchase of plant and equipment			(3,552	)		(1,175	)

	Net cash (used in) provided by investing activities		4,463			(1,158	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital lease obligations			606			372
Principal payments on capital lease obligations			(315	)		(1,327	)
Proceeds from notes payable from bank			—			457
Repayment of notes payable to bank			—			(54	)
Stock repurchase			—			(384	)
Other			467			675

	Net cash (used in) provided by financing activities		758			(261	)

Effect of foreign exchange rate fluctuations on cash and cash equivalents			1,193			149
Net increase in cash and cash equivalents			5,036			(2,501	)
Cash and cash equivalents at beginning of period			32,111			44,795

Cash and cash equivalents at end of period		$	37,147		$	42,294

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

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 presented have been made. The interim financial statements should 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, as amended. Interim results are not necessarily indicative of the operating results expected for later quarters of a given fiscal year or the full fiscal year.

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 the Company’s 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 or Disposal of Long-Lived Assets.” The Company continues to assess the value of its long-lived assets, which could result in an impairment charge in the future. 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:


		Three Months Ended			Nine Months Ended
		December 31, 2001			December 31, 2001

Reported net income (loss)		$	(105	)	$	2,520
Add back: Goodwill amortization			176			528

Pro forma net income		$	71		$	3,048

Reported net income
	Basic income per common share	$	0.00		$	0.09
	Diluted income per common share	$	0.00		$	0.09
Add back: Goodwill amortization per share
	Basic income per common share	$	0.01		$	0.02
	Diluted income per common share	$	0.01		$	0.02
Pro forma net income per share
	Basic income per common share	$	0.01		$	0.11
	Diluted income per common share	$	0.01		$	0.11

2. Foreign Currency Translation

The local currency is considered to be the functional currency of the operations of IXYS’ 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.

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 resulted 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):


Value of IXYS common stock issued	$	47,658
Value of Clare options assumed by IXYS		3,676
Estimated direct merger cost		1,741

Total purchase price	$	53,075

IXYS has finalized the fair values of identifiable intangible assets acquired and plant and equipment. Replacement cost has been used to determine the fair value of the plant and equipment acquired. However, IXYS is still in the process of determining the deferred taxes associated with the acquisition. IXYS has allocated the purchase price to identifiable intangible assets, tangible assets, liabilities assumed and goodwill as follows (in thousands):


Fair value of tangible assets acquired:
	Current assets		$	24,861
	Deferred tax assets — short term			2,742
		Plant and equipment		10,271
		Other assets		111

			$	37,985
						Estimated useful
Amortizable intangible assets:						lives:
	Core technology		$	2,700		5 to 6 years
	Tradename/trademarks			900		3 years
	Other			715		3 months to 6 years

				4,315

Total assets acquired				42,300
Fair value of liabilities assumed				(8,746	)

Net assets acquired				33,554
Goodwill				19,521

Total purchase price			$	53,075

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 acquisition had occurred on April 1, 2002 and 2001. On a pro forma basis, the results of operations of Clare for the nine-month periods ended December 31, 2002 and 2001 are consolidated with IXYS results for the same periods. 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 that may occur in the future.


	December 31,

	2002			2001

Revenue	$	104,749		$	96,616
Net loss	$	(12,862	)	$	(16,165	)
Net loss per share — basic	$	(0.40	)	$	(0.51	)
Net loss per share — diluted	$	(0.40	)	$	(0.51	)
Shares used in per share calculation		31,768			31,590

4. Restructuring

In June 2002, the Company adopted a corporate restructuring program to reduce expenses and preserve the Company’s cash. The restructuring mainly relates to a reduction in the workforce designed to eliminate redundant positions at Clare. The restructuring charge, which consists mainly of involuntary employee separation costs of $750,000, was recorded in operating expense in the nine months ended December 31, 2002. The separation cost is for 33 employees worldwide: 5 in sales and marketing, 7 in research and development, 3 in general and administrative and 9 in operations functions in the United States; and 8 in sales and marketing and 1 in general and administrative outside the United States.


	December 31,
	2002

Accrual for restructuring cost	$	750
Less: Amount paid		(750	)

Balance, December 31, 2002	$	—

5. Recent Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 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 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for long-lived assets to be disposed of. SFAS 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 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 144, and the adoption did not have a material impact on its financial position and results of operations.

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 Emerging Issues Task Force (“EITF”) release No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). (“EITF No. 94-3”) 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 adopted 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. SFAS No. 146 has not had a material impact on its financial position and results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 is not anticipated to have a material impact on the Company's financial position or results of operations.

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EIFT Issue No. 00-21”). EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of this standard will not have a material impact on its financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS 148”). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format.

Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. SFAS 148 is not anticipated to have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company believes that the adoption of this standard will not have a material impact on its financial statements.

6. Inventories

Inventories consist of the following (in thousands):


		December 31,		March 31,
		2002		2002

		(unaudited)
Raw materials		$	9,938	$	5,494
Work in process			37,455		32,299
Finished goods			11,707		8,524

	Total	$	59,100	$	46,317

7. Goodwill and Intangible Assets, Net


	December 31,			December 31,
	2002			2001

	(unaudited)
Goodwill	$	21,417		$	1,896

Intangible assets		3,546			—
Less: Amortization		(898	)		—

		2,648			—

Total	$	24,065		$	1,896

8. Computation of Net Income (Loss) Per Share

Basic earnings per share (“EPS”) is computed by dividing net income 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. Diluted 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):


	Three Months Ended						Nine Months Ended
	December 31,						December 31,

	2002			2001			2002			2001

	(unaudited)						(unaudited)
BASIC:
Weighted, average shares outstanding for the period		31,797			26,728			30,505			26,696

Shares used in computing per share amounts		31,797			26,728			30,505			26,696

Net income (loss) available for common stockholders	$	(1,052	)	$	(105	)	$	(4,842	)	$	2,520

Net income (loss) per share available for common stockholders	$	(0.03	)	$	(0.00	)	$	(0.16	)	$	0.09

DILUTED:
Weighted, average shares outstanding for the period		31,797			26,728			30,505			26,696
Net effective dilutive stock options and warrants based on treasury stock method using average market price		—			—			—			2,297

Shares used in computing per share amounts		31,797			26,728			30,505			28,993

Net income (loss) available for common stockholders	$	(1,052	)	$	(105	)	$	(4,842	)	$	2,520

Net income (loss) per share available for common stockholders	$	(0.03	)	$	(0.00	)	$	(0.16	)	$	0.09

9. 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 the Company’s 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 Company’s business or for disclosure. IXYS’ net revenue by major geographical area (based on destination) were as follows:


		Three Months Ended		Nine Months Ended
		December 31,		December 31,

		2002		2002

		(unaudited)		(unaudited)
North America		$	14,868	$	41,882
Europe and the Middle East			13,698		38,840
Japan			1,172		2,848
Asia Pacific			5,336		13,488
Other			470		1,234

	Total	$	35,544	$	98,292

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. Revenue 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):


		Three Months Ended						Nine Months Ended
		December 31,						December 31,

		2002			2001			2002			2001

		(unaudited)						(unaudited)
Net Revenue:
	Foreign	$	21,796		$	8,356		$	59,877		$	30,612
	U.S		13,748			7,726			38,415			31,815

	Total	$	35,544		$	16,082		$	98,292		$	62,427

Net Income:
	Foreign	$	857		$	(265	)	$	665		$	254
	U.S		(1,909	)		160			(5,507	)		2,266

	Total	$	(1,052	)	$	(105	)	$	(4,842	)	$	2,520

Tangible long-lived assets by geographical locations are as follows (in thousands):


		December 31,		March 31,
		2002		2002

		(unaudited)
Germany		$	15,772	$	13,550
Switzerland			2,858		2,543
United States			12,571		4,869
United Kingdom			3,806		1,208

	Total	$	35,007	$	22,170

10. 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 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.

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 had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees. IXYS has appealed the damages award. The United States Court of Appeals for the Federal Circuit has granted IXYS’ motion to stay the damages award pending disposition of the related appeals and has suspended briefing of IXYS’ appeal from the damages award pending outcome of other prior appeals.

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. 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, stating that IXYS had shown a likelihood of success on appeal. On October 15, 2002, the District Court found contempt against Samsung as its “final ruling in this matter.” Subsequently, the District Court received briefing on the subject of monetary sanctions. IXYS intervened in these damages proceedings against Samsung.

It remains IXYS’ intent to continue to vigorously contest the claims of International Rectifier. Furthermore, IXYS expects to appeal any final ruling of contempt, including any monetary sanctions awarded against its foundry, Samsung.

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. While IXYS believes that neither it nor Samsung are or could be in violation of the injunction for various reasons that 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 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. Subsequently, IXYS brought similar actions in Italy and the United Kingdom.

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 infringement by International Rectifier of 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. Trial is currently set to begin on October 6, 2003. IXYS’ lawsuit seeks damages and an injunction against continued infringement by International Rectifier.

In August 2002, IXYS filed an action for patent infringement against Advanced Power Technology, Inc. (“APT”) in the United States District Court for the Northern District of California, claiming that APT is infringing two of IXYS’ patents. APT has denied IXYS’ claim of infringement, has asserted several affirmative defenses and has filed a counterclaim against IXYS, claiming that IXYS is infringing one of APT’s patents.

IXYS is currently a party to various legal proceedings, including those noted above. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on IXYS’ financial position or overall trends of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

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

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 elsewhere in this Item 2. 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.

OVERVIEW

We develop and market power semiconductors and control integrated circuits that are used to convert and control electrical power efficiently and reliably, primarily in telecommunication infrastructure, motor drives, medical systems and transportation. We also serve emerging markets with a combination of digital and analog control integrated circuits, principally for flat panel displays, medical instruments and telecommunications products.

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.

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.

In the three-month period ended December 31, 2002, North American sales represented approximately 42%, and international sales represented approximately 58%, of our net revenues. Of our international sales, approximately 66% were derived from sales in Europe and the Middle East and approximately 34% were derived from sales in Asia and other locations. In the nine-month period ended December 31, 2002, North American sales represented approximately 43%, and international sales represented approximately 57%, of our net revenues. Of our international sales, approximately 69% were derived from sales in Europe and the Middle East and approximately 31% were derived from sales in Asia and other locations. No single end customer accounted for more than 10% of our net revenues in the three-month and nine-month periods ended December 31, 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, accounting for income taxes and accounting for non-recurring engineering work. A discussion of all of these critical accounting policies except for non-recurring engineering work 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, as amended, and a discussion of the critical accounting policy relating to non-recurring engineering work can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002.

Results of Operations-Three Month and Nine Month Periods Ended December 31, 2002 and December 31, 2001

Net Revenues. Net revenues in the three-month period ended December 31, 2002 were $35.5 million, a 121% increase from net revenues of $16.1 million in the three-month period ended December 31, 2001. Net revenues in the nine-month period ended December 31, 2002 were $98.3 million, a 57.5% increase from net revenues of $62.4 million in the nine-month period ended December 31, 2001. The increase in net revenues in both the three-month period and nine-month period ended December 31, 2002, as compared to the respective periods in the prior fiscal year, was due to the inclusion of revenue from the Westcode and Clare acquisitions, and the increase in net revenues in the nine-month period ended December 31, 2002 also reflected a 2.3% increase in average selling prices across our traditional product line as compared to the same period in the prior fiscal year. The increase in net revenues in the three-month period ended December 31, 2002, as compared to the three-month period ended December 31, 2001, was partially offset by an 8.3% decrease in average selling prices from our traditional product line.

Gross Profit. Gross profit was $9.9 million, or 27.9% of net revenues, in the three-month period ended December 31, 2002, as compared to $5.0 million, or 30.8% of net revenues, in the three-month period ended December 31, 2001. Gross profit was $27.2 million, or 27.6% of net revenues, in the nine-month period ended December 31, 2002, as compared to $20.3 million, or 32.5% of net revenues, in the nine-month period ended December 31, 2001. The decrease in gross margin is primarily due to underutilization of manufacturing capacity. The increase in dollar amount of gross profit in both the three-month period and the nine-month period ended December 31, 2002, as compared to the respective periods in the prior fiscal year, was due to the inclusion of gross profit from the Westcode and Clare acquisitions, and the increase in gross profit in the nine-month period ended December 31, 2002 also reflected a 2.3% increase in average selling prices across our traditional product line as compared to the same period in the prior fiscal year. The increase in gross profit in the three-month period ended December 31, 2002, as compared to the three-month period ended December 31, 2001, was partially offset by an 8.3% decrease in average selling prices from our traditional product line.

Research, Development and Engineering. During the three-month period ended December 31, 2002, research, development and engineering (“R&D”) expense was $3.5 million, representing 9.8% of net revenues, as compared to $1.4 million, representing 8.9% of net revenues, in the three-month period ended December 31, 2001. During the nine-month period ended December 31, 2002, R&D expense was $9.3 million, representing 9.4% of net revenues, as compared to $3.8 million for the nine-month period ended December 31, 2001, representing 6.2% of net revenues. The increase in dollar amount of R&D expense was primarily due to the inclusion of R&D expense incurred by Westcode and Clare as well as the increase in the number of R&D projects.

Selling, General and Administrative. During the three-month period ended December 31, 2002, selling, general and administrative (“SG&A”) expense was $7.2 million, or 20.1% of net revenues, as compared to $2.9 million, or 18.1% of net revenues, in the three-month period ended December 31, 2001. During the nine-month period ended December 31, 2002, SG&A expense was $19.9 million, or 20.2% of net revenues, as compared to $9.5 million, or 15.2% of net revenues, in the nine-month period ended December 31, 2001. The increase in dollar amount of SG&A expenses for both the three- and nine-month periods was primarily due to the inclusion of SG&A expense incurred by Westcode and Clare. The dollar amount of SG&A expense is not expected to change substantially in future quarters as the cost cutting measures we have instituted are expected to be offset by increasing costs of compliance.

Restructuring Charges. In June 2002, we adopted a corporate restructuring program to reduce expenses and preserve cash. The restructuring mainly relates to a reduction in the workforce designed to eliminate redundant positions at Clare. The restructuring charge, which consists mainly of involuntary employee separation costs of $750,000, was recorded in the nine months ended December 31, 2002. The separation cost are for 33 employees worldwide: 5 in sales and marketing, 7 in research and development, 3 in general and administrative and 9 in operations functions in the United States; and 8 in sales and marketing and 1 in general and administrative outside the United States.

Interest Income (Expense), Net. During the three-month period ended December 31, 2002, interest income, net was $216,000, as compared to interest income, net of $110,000 in the three-month period ended December 31, 2001. During the nine-month period ended December 31, 2002, interest income, net was $587,000, as compared to interest income, net of $726,000 in the nine-month period ended December 31, 2001.

Other Expense, Net. Other expense, net, including gain on foreign currency transactions, in the three-month period ended December 31, 2002 was $831,000 as compared to $885,000 of other expense, net in the three-month period ended December 31, 2001. Other expense, net, including gain on foreign currency transactions, in the nine-month periods ended December 31, 2002 and 2001 were $3.4 million and $3.6 million, respectively. For the nine-month periods ended December 31, 2002 and 2001, other expenses, net included $2.8 million and $3.5 million of legal expenses, respectively.

Provision For Income Taxes. The provision for income taxes in the three-month period and the nine-month period ended December 31, 2002 reflects an effective tax rate of 19.7% and 12.6%, respectively, compared to the effective tax rate in the prior fiscal year of 38.0%. In the six-month period ended September 30, 2002, IXYS recorded tax expense of approximately $1.2 million to reflect the outcome of a tax assessment in Germany for the years 1997 through 2002. In the three-month period ended December 31, 2002, IXYS recorded an additional tax expense of approximately $400,000 to provide for tax risk resulting from international operations.

Liquidity and Capital Resources

Cash and Cash Equivalents. As of December 31, 2002, our cash and cash equivalents were $37.1 million, an increase of $5.0 million from cash and cash equivalents of $32.1 million at March 31, 2002. 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 used in operating activities in the nine-month period ended December 31, 2002 was $1.4 million, which represents an increase of $147,000 from net cash used in operating activities of $1.2 million in the nine-month period ended December 31, 2001. The increase in net cash used in operating activities was primarily attributable to the net loss from operations.

Cash Flows Used in Investing Activities. Net cash provided by investing activities in the nine-month period ended December 31, 2002 was $4.5 million, an increase of $5.6 million from the $1.2 million used in investing activities in the nine-month period ended December 31, 2001. This increase in net cash from investing activities is primarily due to cash acquired in the acquisition of Clare.

Cash Flows from Financing Activities. During the nine-month period ended December 31, 2002, net cash provided by financing activities was $758,000, an increase of $1.0 million from net cash used in financing activities of $261,000 during the nine-month period ended December 31, 2001. The increase in net cash from financing activities is primarily due to a reduction in the amount of principal repayment of capital lease obligations.

We have a number 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 automatically renewed on a monthly basis. The line bears interest at the bank’s prime rate (4.25% at December 31, 2002). The line is collateralized by certain assets and contains certain general and financial covenants. At December 31, 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 automatically renewed on a monthly basis. 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 December 31, 2002, we had drawn $100,000 against this line of credit.

As of December 31, 2002, Clare had $2.0 million of letters of credit outstanding under a revolving credit facility in connection with certain leases. The letters of credit were collateralized by $2.2 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 December 31, 2002.

In Germany, at December 31, 2002, we had a $5.0 million line of credit with a German bank. We had drawn $303,000 against this line of credit as of December 31, 2002. This line supports a letter of credit facility.

In July 2000, a German bank issued to us a commitment letter for a Euro 3.8 million (approximately $3.8 million) equipment lease facility. Our existing equipment leases, Euro 2.8 million (approximately $2.9 million) at December 31, 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 $533,000 deposited with the bank at December 31, 2002.

In July 2000, in the same commitment letter discussed above, the bank also committed to issue a credit line to us of up to Euro 5.1 million (approximately $5.3 million) for a wafer fabrication facility in Germany, including leasehold improvements, clean room construction and fabrication, computer and office equipment. At December 31, 2002, we had drawn Euro 241,000 (approximately $238,000) 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.

As of December 31, 2002, we had $37.1 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 our contractual obligations and commitments, as of December 31, 2002 to make future payments under contracts are set forth below:

Payments Due by Period


Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Line of Credit	$	800	$	800	$	—	$	—	$	—
Term Loan		134		—		—		—		134
Capital Lease Obligations		8,840		3,157		5,318		365		—
Operating Leases		12,097		5,017		6,189		891		—
Purchase Obligations		1,458		1,458		—		—		—

Total Contractual Cash Obligations	$	23,329	$	10,432	$	11,507	$	1,256	$	134

On September 22, 2000, we entered into a guaranty for $5.0 million in favor of Commerzbank AG to obtain the line of credit granted by Commerzbank AG to IXYS Semiconductor GmbH described above. At December 31, 2002, the available amount under the line of credit was $5.0 million.

New Accounting Standards

In October 2001, the FASB issued 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 144 addresses financial accounting and reporting for the impairment of certain long-lived assets and for the disposition of long-lived assets. SFAS 144 supersedes SFAS No. 121 and APB Opinion No. 30; however, SFAS 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 144 and the adoption did not have a material impact on its financial position and results of operations.

In June 2002, the FASB issued SFAS 146, “Accounting for Exit or Disposal Activities.” 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 adopted 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. SFAS No. 146 has not had a material impact on our financial position and results of operations.

In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. We do not believe that the adoption of this standard will have a material impact on our financial statements.

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We do not believe that the adoption of this standard will have a material impact on our financial statements.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation, Transition and Disclosure”. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. We do not believe that the adoption of this standard will have a material impact on our financial position or results of operations.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not believe that the adoption of this standard will have a material impact on its financial statements.

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;

• 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 continue to 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 successful in our acquisitions.

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 our ongoing business;

• the potential strain on our managerial and internal 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 and 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.

We 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 Item 1 to this 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.

Thirty-eight percent of our revenues in the first nine 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 several wafer foundries, two of which produce the majority of the wafers that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry.

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 nine months of fiscal year 2003, our product sales by region were approximately 42.6% in North America, approximately 39.5% in Europe and the Middle East and approximately 16.6% in Asia Pacific, including Japan. We expect revenues from foreign markets to continue to represent a significant portion of total revenues. IXYS maintains significant operations in Germany and the United Kingdom and contracts with suppliers, assemblers 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;

• economic or political instability; and

• disruptions resulting from military actions, insurrections or war.

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 products are incorporated into customers’ products or systems at the design stage. The value of any design win largely depends upon the decision of the customer to manufacture and sell its designed product, the commercial success of the customer’s product and 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 our 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;

• 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 December 31, 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. The process of implementation is complex and requires, among other things, that data from our existing systems be made compatible with the upgraded systems. During a transition to an 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:

• 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 nine 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;

• 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 and integrated circuits are occasionally 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 and integrated circuits 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.

A portion of our revenues in the first nine 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. In particular, 10.0% of our revenues in the period were derived from sales to defibrillator manufacturers. 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 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 or other parts of the world that experience earthquakes or other natural disasters, and are subject to similar 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.

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.

A portion of our net revenues in the first nine months of fiscal year 2003 were derived from sales of products used in medical devices. In particular, 10.0% of our revenues in the period were derived from sales to defibrillator manufacturers. 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 February 11, 2003, approximately 38% 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

We are exposed to the impact of interest rate changes, foreign currency fluctuations, and change in the market values of our investments.

Interest Rate Risk.

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest our excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk.

Investments in both fixed rate and floating rate interest-earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

Foreign Currency Risk.

International revenues from our foreign subsidiaries were approximately 47.7% of total revenues for the nine months ended December 31, 2002. International sales are made mostly from our German subsidiary and are typically denominated in the local currency of Germany. Our German subsidiary also incurs most of its expenses in the local currency. Accordingly, our foreign subsidiaries use their respective local currencies as their functional currency.

Our international business is subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) within 90 days of the filing date of this Report, have concluded that our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company, including our consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Form 10-Q was being prepared.

Changes in Internal Controls. In connection with its review of the Company’s financial statements for the quarter ended December 31, 2002, Pricewaterhouse Coopers LLP (“PwC”) identified reportable conditions relating to the Company’s recently acquired subsidiary, Clare, Inc. (“Clare”), and the consolidation and reconciliation of accounts by the Company. The reportable conditions at Clare primarily related to timeliness in the preparation of accounting records before the commencement of PwC’s review, the need for additional accounting personnel, errors in or the absence of closing procedures, reconciliations and adjustments, the need to review and update certain reserves and expenses and communication among accounting personnel. Regarding the Company, the reportable conditions related to the inadequacy of review of the preparation of accounting records and the untimely reconciliation of intercompany accounts due to the illness of a key member of the Company’s accounting staff. PwC’s conclusions and recommendations were presented to the Audit Committee of the Board of Directors. The Company intends to respond to the reportable conditions by providing additional time for the preparation of accounting records before the commencement of PwC’s quarterly reviews, by improving communication among personnel, educating accounting personnel and employing additional accounting personnel.

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 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 had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees. We have appealed the damages award. The United States Court of Appeals for the Federal Circuit has granted our motion to stay the damages award pending disposition of the related appeals and has suspended briefing of our appeal from the damages award pending outcome of other prior appeals.

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. 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, stating that we had shown a likelihood of success on appeal. On October 15, 2002, the District Court found contempt against Samsung as its “final ruling in this matter.” Subsequently, the District Court received briefing on the subject of monetary sanctions. We intervened in these damages proceedings against Samsung.

It remains our intent to continue to vigorously contest the claims of International Rectifier. Furthermore, we expect to appeal any final ruling of contempt, including any monetary sanctions awarded against our foundry, Samsung.

In light of the August 2, 2002 decision by the Federal Circuit, we believe that 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. 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 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. While we believe that neither we nor Samsung are or could be in violation of the injunction for various reasons that we believe 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 us on the ultimate issue of contempt, or if we are obligated to 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. Our lawsuit sought damages and an injunction prohibiting the continued infringement by International Rectifier. Subsequently, we brought similar actions in Italy and the United Kingdom.

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 infringement by International Rectifier of 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. Trial is currently set to begin on October 6, 2003. Our lawsuit seeks damages and an injunction against continued infringement by International Rectifier.

In August 2002, we filed an action for patent infringement against Advanced Power Technology, Inc. (“APT”) in the United States District Court for the Northern District of California, claiming that APT is infringing two of our patents. APT has denied our claim of infringement, has asserted several affirmative defenses and has filed a counterclaim against us, claiming that we are infringing one of APT’s patents.

We are currently a party to various legal proceedings, including those noted above. While our management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

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

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) The Annual Meeting of the Stockholders of the Company was held on November 15, 2002.

(c) At the Annual Meeting, the stockholders (i) elected each of the persons identified below to serve as a director of the Company until the next Annual Meeting of the Stockholders or until such person’s successor is elected (the “Director Proposal”) and (ii) ratified the appointment of PricewaterhouseCoopers LLP as the independent auditors of the Company for the fiscal year ending March 31, 2003 (the “Auditor Proposal”).

PROPOSAL 1: THE DIRECTOR PROPOSAL


Director		Votes For	Votes Withheld

Arnold Agbayani		24,644,674	3,674,549
Donald Feucht		27,950,485	368,738
Andreas Hartmann		28,024,570	294,653
Samuel Kory		27,947,966	371,257
S. Joon Lee		28,023,544	295,679
Nathan Zommer		24,646,173	3,673,050

PROPOSAL 2: THE AUDITOR PROPOSAL

Votes in Favor:	28,204,554
Votes Against:	108,495
Abstentions:	6,174
Broker Non-Votes:	0

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) See Index to Exhibits.

(b) None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		IXYS CORPORATION

	By:	/s/ Arnold P. Agbayani

		Arnold P. Agbayani, Senior Vice President of Finance and Administration and Chief Financial Officer (Principal Financial Officer)

Date: February 12, 2003

CERTIFICATIONS

I, Nathan Zommer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003


		/s/ Nathan Zommer
		Nathan Zommer President, Chief Executive Officer and Chairman (Principal Executive Officer)

I, Arnold P. Agbayani, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IXYS Corporation;

Date: February 12, 2003


		/s/ Arnold P. Agbayani
		Arnold P. Agbayani Senior Vice President, Finance and Administration and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX


		Sequential Page
Exhibit Number	Description of Exhibit	Number

3.1	Amended and Restated Certificate of Incorporation of the Registrant(1)
3.2	Amended and Restated Bylaws of the Registrant(2)
99.1	Certification

(1) Filed as Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated herein by reference.

(2) Filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q for the period ended September 30, 2002 and incorporated herein by reference.

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•		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;

•		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.

•		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.

•		diversion of management’s attention during the acquisition process;

•		disruption of our ongoing business;

•		the potential strain on our managerial and internal 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 and 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.

•		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.

•		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.

•		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;

•		economic or political instability; and

•		disruptions resulting from military actions, insurrections or war.

•		product quality, reliability and performance;

•		product features;

•		timely delivery of products;

•		price;

•		breadth of product line;

•		design and introduction of new products; and

•		technical support and service.

•		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.

•		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.

•		changing technologies;

•		changing customer needs;

•		frequent new product introductions and enhancements;

•		increased integration with other functions; and

•		product obsolescence.

		(a) The Annual Meeting of the Stockholders of the Company was held on November 15, 2002.

		(c) At the Annual Meeting, the stockholders (i) elected each of the persons identified below to serve as a director of the Company until the next Annual Meeting of the Stockholders or until such person’s successor is elected (the “Director Proposal”) and (ii) ratified the appointment of PricewaterhouseCoopers LLP as the independent auditors of the Company for the fiscal year ending March 31, 2003 (the “Auditor Proposal”).

		PROPOSAL 1: THE DIRECTOR PROPOSAL

		a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

		b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

		c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

		a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

		b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and