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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 000-26124

IXYS Corporation

3540 Bassett Street

(408) 982-0700

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

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

     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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendments to this Annual Report on Form 10-K.     Yes o          No þ

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the last sale price on the Nasdaq National Market on September 30, 2002, was approximately $91,627,299. The number of shares of the Registrant’s Common Stock outstanding as of June 23, 2003 was 31,897,663.

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IXYS CORPORATION

ANNUAL REPORT ON FORM 10-K

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FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains forward-looking statements that include, but are not limited to, statements concerning projected revenues, expenses, gross profit and income, the need for additional capital and the outcome of pending litigation. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable expressions. These statements involve known and unknown risks and uncertainties that may cause our results, levels of activity, performance or achievements or our industry to be materially different than those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, our ability to compete successfully in our industry, to continue to develop new products on a timely basis, cancellation of customer orders, and other factors discussed below and under the caption “Risk Factors.” We disclaim any obligation to update any of the forward-looking statements contained in this report to reflect any future events or developments.

PART I

Item 1.     IXYS Business

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

      Our power semiconductor products have historically been divided into two primary categories, power MOS, and power bipolar products. Our power semiconductors are sold as individual units and are also packaged in high power modules that frequently consist of multiple semiconductor dies. In fiscal year 2003, power semiconductors constituted approximately 78.5% of our revenues, which included 29.7% from power MOS transistors and 48.5% from bipolar products. We also sell gallium arsenide power semiconductors and manufacture our proprietary direct copper bond, or DCB, substrate for use in our own power semiconductors as well as for sale to other power semiconductor manufacturers. Additionally, we sell integrated circuits, or ICs, that have applications in power management, telecommunications, and display products. In fiscal year 2003, ICs constituted approximately 19.3% of our revenues.

      IXYS’s power semiconductor products are used primarily to control electricity in:

	•	power conversion systems, including uninterruptible power supplies, or UPS, and switch mode power supplies, or SMPS, for communications infrastructure applications such as wireless base stations, network servers and telecommunication switching stations;
	•	motor drives for industrial applications such as industrial transportation, robotics, automation, and process control equipment; and
	•	medical electronics for sophisticated applications, such as defibrillators and medical imaging.
	•	renewable energy sources like wind turbines and solar systems.

      We design our products primarily for industrial and business applications, rather than for use in personal computers, mobile phones or other household appliances. In fiscal year 2003, we sold our products to over 2,000 customers worldwide. Our major customers include ABB, Astec, Delta Electronics, Eupec, Huawei, Guidant, Medtronics, Siemens and Still. In many cases, our customers incorporate our products into systems sold to their own customers, which include Ericsson, General Electric, Hewlett-Packard, IBM, Motorola and Sun Microsystems.

      Our predecessor was founded in 1983. We are organized as a Delaware corporation.

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      On June 10, 2002, we completed the acquisition of Clare, Inc., a provider of high voltage analog and mixed-signal semiconductor integrated circuits for use in telecommunication, industrial, and medical equipment applications. In connection with this acquisition, we issued approximately 4.89 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.

Industry Background

      The worldwide demand for electrical energy is currently increasing due to:

	•	proliferation of technology driven products that require electricity, including computers, telecommunications equipment and the infrastructure to support portable electronics;
	•	increased use of electronic content in traditional products such as airplanes, automobiles and home appliances;
	•	increased use of automation and electrical processes in industry and mass transit systems; and
	•	penetration of technology into developing countries.

      Not only is demand increasing, but the requirements for electricity are also changing. Electronic products in all markets are becoming increasingly sophisticated, offering more “intelligence” through the use of microprocessors and additional components. The increasing complexity of such products requires more precisely regulated power quality and greater power reliability. In addition, the increasing costs of electricity, coupled with governmental regulations and environmental concerns, have caused an increased demand for energy efficiency.

      Power semiconductors are used to provide the precisely regulated power required by sophisticated electronic products and equipment and address the growing demand for energy efficiency. In most cases, power semiconductors:

	•	convert or “rectify” alternating current, or AC, power delivered by electrical utilities to direct current, or DC, power which is required by most electronic equipment;
	•	convert DC power at a certain voltage level to DC power at a different voltage level to meet the specific voltage requirement for an application;
	•	invert DC power to high frequency AC power to permit the processing of power using substantially smaller electronic components; or
	•	rectify high frequency AC power from switch mode power supplies to meet the specific DC voltage required by an application.

      The more sophisticated the end product, the greater the need for specially formatted, finely regulated power, and the greater the need for a high performance power semiconductor.

      Power semiconductors improve system efficiency and reliability by processing and converting electrical energy into more usable, higher quality power. Specifically, power semiconductors are used primarily in controlling energy in power conversion systems, including switch mode power supplies, uninterruptible power supplies and motor drive controls. Switch mode power supplies efficiently convert power to meet the specific voltage requirements of an application, such as communications equipment. Uninterruptible power supplies provide a short term backup of electricity in the event of power failure. Motor drive controls regulate the voltage, current and frequency of power to a motor.

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Market Size and Trends

      The primary markets we serve are characterized by complex technological development and higher power level requirements. We believe the following key trends are driving the demand for our products:

      Growth in communications devices and infrastructure. The worldwide communications industry has experienced rapid growth in recent years, fueled largely by growth in the Internet, deregulation, competition, privatization and other technological advances, including the convergence of voice, video and data communication. The proliferation of electronic devices and the infrastructure to support them is resulting in increasing power level requirements and the demand for greater power reliability.

      Increased demand for energy efficiency in motor drives. Electronic motors consume approximately one-half of the world’s electricity. Due to costs and complexity, motor controls that permit variable speed operation, which in turn reduce energy consumption, have been predominantly used only in higher end applications. However, recent advancements in power management enable more cost effective, variable speed motor controls, which enhance energy efficiency and improve performance in a wide range of industrial and commercial applications, such as heating, ventilation and air conditioning systems.

      Emergence of new applications in medical electronics. Continued advancements in medical technologies are resulting in more sophisticated medical electronic devices. Power semiconductors can greatly reduce the size of equipment and improve the precision of medical measurements and functionality. For example, power semiconductors have enabled cardiac defibrillators to become much smaller and more portable, improving the ability to install these devices in more non-medical establishments, such as airplanes and office buildings.

      Development of new technologies for power management. New technologies such as the use of radio frequency, or RF, for nontraditional power applications are opening new markets for power semiconductors. For example, RF based semiconductor production equipment is migrating to high frequency power MOS transistors from traditional RF tubes. Additionally, material science developments, such as gallium arsenide, are enabling the production of higher power density power management products, such as those required for wireless base stations.

      Demand for increasing power density. The need for higher levels of power in end use applications is causing purchasers of power semiconductors to demand more power for their applications from the same physical space. In the communications industry, the growth in bandwidth demands is requiring communications equipment providers to add more equipment or more powerful equipment to confined spaces in highly populated areas. As a result, power semiconductor manufacturers are being required to design and produce products that enable their customers to expand power levels without expanding product footprints, or maintaining levels of power while shrinking product footprints.

IXYS’s Strategy

      We focus on meeting the needs of the high power, high performance segment of the power semiconductor market. Our ICs are similarly focused in their applications. We intend to continue building a leading position within our targeted segments of these markets by pursuing the following strategies:

      Maintain technological focus on high power, high performance markets. Our technological expertise enable us to focus on the high power, high performance markets. Due to technological complexities, fewer industry players compete in these markets, resulting in a more favorable competitive environment for us. We believe our technological expertise differentiates us from most of our competitors. This expertise encompasses a wide range of scientific disciplines and technical capabilities, including physics, mechanical engineering, chemistry, circuit design, material science and packaging. Using our technological expertise, we continually strive to introduce innovative products.

      Target rapid growth opportunities within the high power, high performance market. We select the specific markets where we intend to compete by evaluating their potential growth, our ability to establish an advantage based upon our technological capabilities and the performance of competing products. For example,

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      Continue to diversify markets, customers and products. We believe that diversifying the markets and customers we serve and the products we produce enables us to minimize the traditional cyclical effects of the semiconductor industry on our business. We have a significant market presence in Europe, North America and Asia, the three principal geographic markets for high performance power semiconductors. Moreover, our products are used in a broad range of applications, from communications infrastructure to industrial automation to medical electronics, thereby reducing our reliance on customers from any particular industry. Our product line spans a broad range of functionality and price, which allows us to provide an appropriate solution to most of our customers’ power semiconductor needs. This product diversity permits our customers to reduce the number of their suppliers by enabling them to purchase a substantial portion of their power semiconductor needs from us.

      Pursue selective acquisition and investment strategy. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments. For example, through the acquisition of Directed Energy, Inc., we added scientific expertise and additional products related to laser diode drivers, high voltage pulse generators and modulators. Through the acquisition of Westcode Semiconductors Limited, a UK-based power semiconductor manufacturer, we added a portfolio of very high power semiconductor products that supplemented our historical product line. Westcode’s products are used in a variety of applications including induction heating, welding, motion controls (AC and DC drives), traction, electric vehicles and HVDC. Through the acquisition of Clare, Inc., we expanded our product offerings into the semiconductor segment of the market that replaces electromagnetic relays, or EMRs, with solid state relays, or SSRs. Clare’s semiconductor products are capable of integrating a number of functions previously provided by discrete components into one package and including product applications such as modems, modem interfaces to the Internet, cable set top boxes, and other computer telephony uses such as voice mail systems. Our Clare Micronix subsidiary has developed mixed-signal ICs for the medical and military markets and for emerging flat panel displays based on organic light emitting diodes, or OLEDs. We also believe there may be significant opportunities to capitalize on our distribution system and market additional Clare products to many of our 2,000 customers.

      Collaborate with select companies on product development. We seek to enter into collaborative arrangements with existing and potential customers in attractive end user markets in order to optimize our products for their use. We believe that our ability to provide technical assistance to these companies in the design of their hardware and software systems encourages the incorporation of our products in their devices. For example, we partnered with manufacturers of portable defibrillators at an early stage in the development of this market, and we have become a leading supplier of power semiconductors for these devices.

      Optimize mix between internal and external manufacturing. We intend to continue using both internal wafer fabrication facilities and our external foundry relationships. We also seek to balance our product assembly through multiple sourcing relationships. We believe these strategies enable us to maximize our manufacturing efficiency and flexibility. We also believe that our internal manufacturing capabilities enable us to lower our manufacturing cost with respect to certain products, bring products to market more quickly than would be possible if we were required to rely exclusively on external foundries, retain certain proprietary aspects of our process technology and more quickly introduce new process and product innovations through close collaboration between our design and process engineers. Our alliances with external foundries and assembly subcontractors allow us to substantially reduce capital spending and manufacturing overhead expenses, obtain competitive pricing and technologies and expand manufacturing capacity more rapidly than could be achieved with internal facilities alone.

Products

      We focus on high power, high performance power semiconductors, and manage our business as a single segment. Within the segment, our power semiconductor products have historically been divided into two

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      Power MOS transistors offer significant price/performance benefits over traditional bipolar transistors. Power MOS transistors operate at much greater switching speeds, allowing the design of smaller and less costly end products, primarily due to the smaller and less expensive peripheral components required at higher switching frequencies. Power MOS transistors are activated by voltage rather than current, so they require less external circuitry to operate, making them more compatible with IC controls. Power MOS transistors also offer more reliable long term performance and are more rugged than traditional bipolar transistors, permitting them to better withstand adverse operating conditions. Our power MOS transistors consist of power MOSFETs and IGBTs.

      A power MOSFET, or metal oxide semiconductor field effect transistor, is a switch controlled by voltage at the gate. Power MOSFETs are used in combination with passive components to vary the amperage and frequency of electricity by switching on and off at high frequency.

      Our power MOSFETs are used primarily in power conversion systems and are focused on higher voltage applications ranging from 60 to 1,100 volts. Our power MOSFETs have on state resistance among the lowest available for a given die size and voltage. Lower on state resistance results in increased efficiency of a power semiconductor device. We believe that as the power requirements of workstations, servers and other computers increase as the result of larger and more powerful microprocessors, disk drives and CD/ ROMs, the designers of power supplies will increasingly demand higher power density. MOSFETs accommodate this need by providing higher power without increasing the physical size of the power supply incorporated into the equipment.

      IGBTs, or insulated gate bipolar transistors, also are used as switches. IGBTs have achieved many of the advantages of power MOSFETs and of traditional bipolar technology by combining the voltage controlled switching features of power MOSFETs with the superior conductivity and energy efficiency of bipolar transistors. For a given semiconductor die size, IGBTs can operate at higher currents and voltages, making them a more cost effective device compared to power MOSFETs for high energy applications. The principal tradeoff of IGBTs compared to power MOSFETs is the switching speed of IGBTs, which is slower than that of power MOSFETs. IGBTs are seldom used in applications where very fast switching is required, including SMPS operating at speeds over 150 kilohertz.

      Since inception, we have been a leader in the development of IGBTs for high voltage applications. Our current products are focused on voltage applications ranging from 300 volts to 2,000 volts. Our IGBTs are used principally in AC motor drives and defibrillators.

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     Bipolar Products

      Bipolar products are also used to process electricity, but are activated by current rather than voltage. Bipolar products are capable of switching electricity at substantially higher power levels than power MOS transistors. However, switching speeds of bipolar products are slower than those of power MOS transistors, and as a result, bipolar products are preferred where very high power is required. Our bipolar products consist of rectifiers and thyristors.

     Rectifiers

      Rectifiers convert AC power to DC power and are used primarily in input and output rectification and inverters. Our rectifiers are used in DC and AC motor drives, power supplies, lighting and heating controls and welding equipment.

      A subset of our rectifier product group is a very fast switching device known as a FRED, or fast recovery epitaxial diode. FREDs limit spikes in voltage across the power switch to reduce power dissipation and electromagnetic interference. Our FREDs are used principally in AC motor drives and power supplies.

     Thyristors

      Thyristors are switches that can be turned on by a controlled signal and turned off only when the output current is reduced to zero, which occurs in the flow of AC power. Thyristors are preferred over power MOSFETs and IGBTs in high voltage, low frequency AC applications because their on state resistance is lower than the on state resistance of power MOSFETs and IGBTs. Our thyristors are used in motor drives, defibrillators, power supplies, lighting and heating controls and welding.

     Gallium Arsenide Products

      Our gallium arsenide products are Schottky rectifiers, useful for high power density applications, such as power supplies for wireless communications base stations. Gallium arsenide offers higher frequency and higher temperature operation, enabling substantially greater power density than silicon-based solutions.

     Integrated Circuits.

      Our ICs include solid state relays, or SSRs, for telecommunications applications and power management and control ICs, such as current regulators, motion controllers, digital power modulators and power MOSFET and IGBT drivers.

     Other Products

      We manufacture our proprietary DCB substrates for use in our own semiconductor products as well as for sale to a variety of customers, including those in the power semiconductor industry. DCB technology cost effectively provides excellent thermal transfer while maintaining high electrical isolation. This technology addresses thermal fatigue and die cracking problems encountered by manufacturers of power semiconductor modules utilizing traditional copper base plates. Additionally, we manufacture and sell laser diode drivers, and high voltage pulse generators and modulators.

Customers and Applications

      Our power semiconductors are used primarily to control electricity in power conversion systems, motor drives and medical electronics. Our ICs are used mainly to interface with telecommunication lines, to control power semiconductors and to drive medical equipment and displays. The following table summarizes the

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      We also sell our power semiconductor chips and DCB substrates to other power semiconductor companies for use in their modules. These customers include Infineon, International Rectifier, Powersem and Tyco.

Sales and Marketing

      We sell our products through a worldwide selling organization that includes direct sales personnel, independent representatives and distributors managed through our Santa Clara, California, Beverly, Massachusetts, Lampertheim, Germany, Chippenham, UK and Biel, Switzerland offices. As of March 31, 2003, we employed 56 people in sales and marketing and customer support and service and used 20 sales representative organizations and 4 distributors in North and South America and 69 sales representative organizations and distributors in the rest of the world. Sales to distributors accounted for approximately 43% of net revenues in fiscal year 2001, 41% of net revenues in fiscal year 2002, and 36% of net revenues in fiscal year 2003.

      In fiscal year 2003, North American sales represented approximately 42.2%, and international sales represented approximately 57.8%, of our net revenues. Of our international sales in fiscal year 2003, approximately 68.1% were derived from sales in Europe and the Middle East and approximately 31.9% were derived from sales in Asia. No single end customer accounted for more than 10% of our net revenues in fiscal year 2003. For financial information about geographic areas for each of our last three fiscal years, see our Audited Consolidated Financial Statements, Note 13, Segment and Geographic Information provided elsewhere in this Annual Report on Form 10-K. We market our products through advertisements, technical articles and press releases that appear regularly in a variety of trade publications, as well as through the dissemination of brochures, data sheets and technical manuals. Additionally, we participate in industry trade shows on a regular basis. We also have a presence on the Internet through a worldwide web page that enables engineers to access and download technical information and data sheets.

Research and Development

      We believe that we successfully compete in the power semiconductor market because of our ability to design, develop and introduce to the market on a timely basis new products offering technological improvements. We are a pioneer in technology with respect to higher power MOSFETs, IGBTs, SSRs,

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      We are engaged in ongoing research and development efforts focused on enhancements to existing products and the development of new products. Currently, we are pursuing research and development projects with respect to:

	•	developing RF power MOSFETs;
	•	increasing the voltage operating range of our MOS and bipolar products;
	•	developing new gallium arsenide products;
	•	developing high efficiency solar cells;
	•	developing higher power IGBT modules;
	•	color OLED driver ICs;
	•	power solid state relays; and
	•	power management ICs based on our HVIC technology.

      Research and development activities are conducted in collaboration with manufacturing activities to help expedite new products from the development phase to manufacturing and to more quickly implement new process technologies.

      Our research and development efforts also include participation in technology collaborations with universities and research institutions. These technology collaborations allow research and development activities that would otherwise require potentially cost prohibitive capital expenditures since the necessary capital equipment is often available at research institutes and universities. Through these technology collaborations, we believe we are able to maximize our range of research and development activities without diffusing the focus of our internal research and development work.

Patents

      As of March 31, 2003, we held 138 issued patents, of which 89 that were issued in the U.S. and 49 were issued in international jurisdictions. As of March 31, 2003, we also held 114 pending patents, of which 60 were pending in the U.S. and 54 were pending in international jurisdictions. We rely on a combination of patent rights, copyrights and trade secrets to protect the proprietary elements of our products. Our policy is to file patent applications to protect technology, inventions and improvements that are important to our business. We also seek to protect our trade secrets and proprietary technology, in part, through confidentiality agreements with employees, consultants and other parties.

      While we believe that our intellectual property rights are valuable, we also believe that other factors, such as innovative skills, technical expertise, the ability to adapt quickly to new technologies and evolving customer requirements, product support and customer relations, are of greater competitive significance.

Manufacturing and Facilities

      The production of our products is a highly complex and precise process. We manufacture our products in our own manufacturing facilities and by utilizing external wafer foundries and subcontract assembly facilities. We divide our manufacturing operations into three key areas, wafer fabrication, assembly and test.

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     Wafer Fabrication

      We own an approximately 170,000 square foot facility in Lampertheim, Germany at which we fabricate all of our bipolar products. We also have an approximately 100,000 square foot facility in Chippenham, England where we fabricate the majority of our very high power devices, and an approximately 83,000 square foot facility in Beverly, Massachusetts, capable of manufacturing high voltage silicon on insulator ICs, where we fabricate our SSR products. We believe that our internal fabrication capabilities enable us to lower our manufacturing cost with respect to certain products, bring products to the market more quickly than would be possible if we were required to rely exclusively on external foundries, retain certain proprietary aspects of our process technology and more quickly introduce new process innovations.

      In addition to maintaining our own fabrication facilities, we have established alliances with selected foundries for wafer fabrication. This approach allows us to reduce substantial capital spending and manufacturing overhead expenses, obtain competitive pricing and technologies and expand manufacturing capacity more rapidly than could be achieved with internal foundries alone. We retain the flexibility to shift the production of our products to different or additional foundries for cost or performance reasons. Our product designs enable the production of our devices at multiple foundries using well established and cost effective processes.

      We relied on external foundries for approximately 37.2% of our wafer fabrication requirements in fiscal year 2003, and our utilization of external foundries is expected to grow. We have arrangements with seven external wafer foundries, two of which provide the wafers for power semiconductors that we purchase from external foundries. Our principal external foundry is Samsung Electronics’ s facility located in Kiheung, South Korea. Our relationship with Samsung Electronics extends over 18 years. We provide our foundries forecasts for wafer fabrication six months in advance and make firm purchase commitments one to two months in advance of delivery. Other than these firm commitments, we do not have any obligations to order any minimum quantities.

      Wafer fabrication of power semiconductors generally employs process technology and equipment already proven in IC manufacturing. Power semiconductors are manufactured using fabrication equipment that is one or more generations behind the equipment used to fabricate leading edge ICs. Used fabrication equipment can be obtained at prices substantially less than the original cost of such equipment or than the cost of current equipment applying the latest technology. Consequently, the fabrication of power semiconductors is less capital intensive than the fabrication of leading edge ICs.

     Assembly

      Packaging or assembly is the sequence of production steps that divide the wafer into individual chips and enclose the chips in external structures, termed packages, that make them useable in a circuit. Discrete manufacturing involves the assembly and packaging of single die devices. Module manufacturing involves the assembly of multiple devices within a single package. SSR products involve multiple chip assembly on a specialized lead frame. The resulting packages vary in configuration, but all have leads that are used to mount the package through holes in the customer’s printed circuit boards.

      Most of our wafers are sent to independent subcontract assembly facilities. We have equipment at, or manufacturing supply arrangements with, assembly subcontractors located in Asia and Europe in order to take advantage of low assembly costs. Approximately 65.3% of our products are assembled at external assembly facilities, and the remainder are assembled in our Lampertheim and Chippenham facilities.

     Test

      Generally, each die on our wafers is electrically tested for performance after wafer fabrication. Following assembly, our products are typically returned to our facilities for testing and final inspection prior to shipment to customers.

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Competition

      The semiconductor industry is intensely competitive and is characterized by price competition, technological change, limited fabrication capacity, international competition and manufacturing yield problems. The competitive factors in the market for our products include:

	•	product quality, reliability and performance;
	•	product features;
	•	price;
	•	timely delivery of products;
	•	breadth of product line;
	•	design and introduction of new products; and
	•	technical support and service.

      We believe that we are one of a limited group of companies focused on the development and marketing of high power, high performance semiconductors capable of performing all of the basic functions of power semiconductor design and manufacture. Our primary power semiconductor competitors include Advanced Power Technology, Fairchild Semiconductor, Fuji, International Rectifier, Infineon, On Semiconductor, Powerex, Semikron International, STMicroelectronics, Siemens and Toshiba. Our IC products compete principally with those of Agere, Legacy, NEC and Silicon Labs.

Backlog

      At March 31, 2003, our backlog of orders was approximately $49.8 million, as compared with $31.1 million at March 31, 2002. We reasonably expect our backlog of orders at March 31, 2003 to be filled within the current fiscal year. Backlog represents firm orders anticipated to be shipped within the next 12 months. Our business and, to a large extent, that of the entire semiconductor industry is characterized by short term order and shipment schedules. Because orders constituting our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty, backlog is not necessarily an indication of future revenues.

Employees

      At March 31, 2003, we employed 776 employees, of whom 108 were primarily engaged in engineering and research and development activities, 56 in marketing, sales and customer support, 559 in manufacturing and 53 in administration and finance. Of these employees, 103 hold engineering or science degrees, including 16 Ph.D.s. Certain employees at our Lampertheim facility and our Chippenham facility are subject to collective bargaining agreements. There have been no work stoppages at any of our facilities to date. We believe that our employee relations are good.

Available Information

      We file electronically with the United States Securities and Exchange Commission, or SEC, our annual report on Form 10-K, quarterly interim reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934. We currently make available through our website at http://www.IXYS.com, free of charge, copies of these reports as soon as reasonably practicable after submitting the information to the SEC. None of the information posted on our website is incorporated by reference into this Annual Report. You can also request free copies of such documents by contacting us at 408-982-0700 or by sending an e-mail to admins@IXYS.net.

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RISK FACTORS

      In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating us and our business. You should carefully consider the risks described below before making an investment decision. 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 you could lose all or part of your 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;
	•	competitive pressures on selling prices;
	•	market acceptance of our products;
	•	fluctuations in our manufacturing yields and significant yield losses;
	•	changes in the mix of products that our customers purchase;
	•	difficulties in forecasting demand for our products and the planning and managing of inventory levels;
	•	the amount and timing of costs associated with product warranties and returns;
	•	the amount and timing of investments in research and development;
	•	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
	•	availability of production capacity.

      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 Annual Report on Form 10-K, 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;
	•	significant price erosion;
	•	variations in manufacturing costs and yields;

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	•	rapid technological change and the introduction of new products; 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 slowdown in the U.S. economy.

      Due to the 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, which have been affected by the slowdown in the U.S. economy. In particular, the slowdown in telecommunications has adversely affected the sales of our ICs used in telecommunication applications, including our SSRs. If the economic slowdown continues, our business, financial condition and results of operations may be adversely affected.

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 financial and managerial controls and reporting systems and procedures;
	•	unanticipated expenses and potential delays related to integration of an acquired business;
	•	failure to successfully integrate the operations of an acquired company with our own;
	•	the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;
	•	the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;
	•	the risks of entering new markets in which we have limited experience;
	•	difficulties in expanding our information technology systems to accommodate the acquired businesses;
	•	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 policies, benefits and compliance programs;
	•	customer dissatisfaction or performance problems with an acquired company;
	•	the cost associated with acquisitions and the integration of acquired operations; and
	•	assumption of known or unknown liabilities or other unanticipated events or circumstances.

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

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

      As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We have been sued on occasion for purported patent infringement and are currently defending against a number of such claims. For example, we have been sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. After trial, the U.S. District Court awarded damages to International Rectifier of $27.2 million, plus attorney fees. In addition, the U.S. District Court has issued a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly-infringing products. IXYS has appealed the injunction and the award of

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      Additionally, in the future, we could be accused of infringing the intellectual property rights of International Rectifier or 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 power MOSFET 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 power MOSFET litigation would, and in any other infringement action 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.

      Of our revenues in fiscal year 2003, 37.2% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We have arrangements with seven wafer foundries, two of which produce the wafers for power semiconductors that we purchase from external foundries. Samsung Electronics’s 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 required, either contractually or as a practical business matter, to utilize all of that capacity or incur penalties or an adverse effect on the business relationship. The costs related to maintaining foundry capacity 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.

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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:

	•	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 fiscal year 2003, our product sales by region were approximately 42.2% in North America, approximately 39.4% in Europe and the Middle East and approximately 18.4% in Asia. 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 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;
	•	longer payment cycles;
	•	challenges in collecting accounts receivable;
	•	cultural and language differences;
	•	employment regulations;
	•	transportation delays;
	•	work stoppages; and
	•	economic or political instability.

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

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

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

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

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

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

Our backlog may not result in future revenues.

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

The markets in which we participate are intensely competitive.

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

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

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	•	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 power semiconductor competitors include Advanced Power Technology, Fairchild Semiconductor, Fuji, International Rectifier, Infineon, On Semiconductor, Powerex, Semikron International, STMicroelectronics, Siemens and Toshiba. Our IC products compete principally with those of Agere, Legacy, NEC and Silicon Labs. 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 to distributors and through 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 March 31, 2003, no distributor accounted for greater than 10% of our outstanding receivables. If this or any other 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 for power semiconductors 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 conversion process from one system to another is complex and requires, among other things, that data from the existing system be made

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      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. See “Item 5 — Market for Registrant’s Common Equity and Related Stockholders Matters” provided elsewhere in this Annual Report on Form 10-K. 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 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 fiscal year 2003, the majority of our products were assembled by independent subcontractors located outside of the United States. 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;
	•	potential misappropriation of our intellectual property; and
	•	economic or political instability in foreign countries.

      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

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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.

We depend on a limited number of suppliers for our wafers.

      We purchase silicon wafers from three vendors with whom we do not have long term supply agreements. Any of these suppliers could eliminate or terminate our supply of wafers at any time. Our reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon wafers and reduced control over the price, timely delivery, reliability and quality of the silicon wafers. We cannot assure that problems will not occur in the future with suppliers.

Our ability to access capital markets could be limited.

      From time to time we access the capital markets to obtain long-term financing. Although we believe that we can continue to access the capital markets on acceptable terms and conditions, our flexibility with regard to long-term financing activity could be limited by: our existing capital structure, our credit ratings, and the health of the semiconductor industry. In addition, many of the factors that affect our ability to access the capital markets, such as the liquidity of the overall capital markets and the current state of the economy, are outside of our control. There can be no assurances that we will continue to have access to the capital markets on favorable terms.

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

      The semiconductor industry has been characterized by periodic limitations on production capacity. Although we can currently obtain the capacity necessary to meet present demand, if we are unable to increase our production capacity to meet possible future demand, some of our customers may seek other sources of supply or our future growth may be limited.

Regulations may adversely affect our ability to sell our products.

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

      In addition, approximately 17.1% of our revenues in fiscal year 2003 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

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

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

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

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

We may be affected by environmental laws and regulations.

      We are subject to a variety of laws, rules and regulations in the United States, England and 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

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

      Approximately 17.1% of our net revenues in fiscal year 2003 were derived from sales of products used in medical devices such as defibrillators. Product liability risks may exist even for those medical devices that have received regulatory approval for commercial sale. We do not currently carry product liability insurance, and any defects in our products used in these devices could result in significant recall or product liability costs to us.

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

      ABB AG and Nathan Zommer, Ph.D., our president and chief executive officer, collectively beneficially own, as of May 15, 2003, approximately 40.0% 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. See “Item 12 — Security Ownership of Certain Beneficial Owners and Management” provided elsewhere in this Annual Report on Form 10-K.

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.

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      Our principal facilities are described below:

(1)	Owned, not leased.

We hold an option to extend our lease on the Santa Clara, California facility for five years. We believe that our current facilities will be adequate through at least fiscal year 2004 and that suitable additional or replacement space will be available in the future as needed on commercially reasonable terms.

      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. Our appeal from the award of permanent injunction, including the finding of infringement upon which it is based, was argued on July 7, 2003 and the outcome is pending.

      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 the appeals argued on July 7, 2003.

      In light of the August 2, 2002 decision by the Federal Circuit, we believe our 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

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      International Rectifier also contends that our importation into the United States of certain MOSFET products of our design manufactured for us by Samsung Electronics Co., Ltd. is in violation of a consent decree and injunction entered against Samsung in another lawsuit to which we were not a party. International Rectifier sought enforcement of the Samsung injunction against Samsung and us, 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. This appeal was heard on July 7, 2003. 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. Following oral argument in April 2003, the District Court took the matter under submission. On July 7, 2003 it issued an order awarding International Rectifier monetary damages for contempt and attorneys fees of $350,000. Under the order, if we are found to infringe, Samsung is liable for a net amount of damages equal to $2.5 million. International Rectifier has agreed to a stay of the contempt award pending resolution of the appeal. 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 the final ruling of contempt, including the monetary sanctions awarded against our foundry, Samsung.

      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 our designed parts in the consent decree, there can be no assurance of a favorable outcome. In the event of an adverse ruling against us on the ultimate issue of contempt, or if we are obligated to 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.

      On January 17, 2002, we sued International Rectifier in the United States District Court for the Northern District 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, including patents that relate to modules. In addition, the patents include our patents for direct copper bond technology. After suit was filed, International Rectifier introduced a new product which purported to replace the originally accused product. The District Court has granted International Rectifier’s motions for summary judgment of non-infringement as to the new product. The District Court has also granted in part and denied in part International Rectifier’s motion for summary judgment as to pre-complaint damages for the original product. 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.

      In August 2002, we filed an action for patent infringement against Advanced Power Technology, Inc., or 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 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, 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.

      No matter was submitted to a vote of our stockholders during the fourth quarter of 2002.

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PART II

      The following table presents, for the periods indicated, the high and low sale prices per share of our common stock as reported by The Nasdaq National Market:

      The number of record holders of our common stock as of June 23, 2003 was 288.

Dividends

      To date, we have never declared or paid cash dividends.

Securities Authorized for Issuance Under IXYS Equity Compensation Plans

(1)	Includes options to purchase 438,677 shares of our common stock with a weighted average exercise price of $14.78 that were assumed in business combinations. It is our understanding that the stockholders of the acquired companies approved the plans from which these options were granted.

      The following selected consolidated financial information should be read in conjunction with our Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended March 31, 2003, 2002 and 2001 and the balance sheet data as of March 31, 2003 and 2002 are derived from our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The statements of operations data for the years ended March 31, 2000 and 1999 and the balance sheet data as of March 31, 2001, 2000 and 1999 are derived

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(1)	During the fiscal year ended March 31, 2003, the company completed its acquisition of Clare, Inc.
(2)	During the fiscal year ended March 31, 2002, the company completed its acquisition of Westcode Semiconductors Ltd.
(3)	During the fiscal year ended March 31, 2001, the company completed its acquisition of Directed Energy, Inc.
(4)	Shares used in per share calculation in fiscal year 1999 have been restated to reflect IXYS shares outstanding as a result of the Paradigm Technology, Inc. merger, as described in the IXYS Annual Report on Form 10-K for the year ended March 31, 2001. In the Paradigm merger, each outstanding share was converted into 0.115684 shares.

      For an understanding of the significant factors that influenced our performance during the past three years, the following discussion should be read in conjunction with the consolidated financial statements and the other information appearing elsewhere in this report.

Overview

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

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

      In fiscal year 2003, North American sales represented approximately 42.2%, and international sales represented approximately 57.8%, of our net revenues. Of our international sales, approximately 68.1% were derived from sales in Europe and the Middle East and approximately 31.9% were derived from sales in Asia. No single end customer accounted for more than 10% of our net revenues in fiscal year 2003. We do not hedge

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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 are as follows:

      Allowance for sales returns. We maintain allowances for sales returns for estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, current economic trends, changes in customer demand, known returns we have not received and other assumptions. If we make different judgments or utilize different estimates, the amount and timing of our revenue could be materially different.

      Allowance for doubtful accounts. We maintain allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We evaluate our allowance for doubtful accounts based on the aging of our accounts receivable, the financial condition of our customers and their payment history, our historical write-off experience and other assumptions. If we were to make different judgments of the financial condition of our customers or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

      Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Our policy for valuation of inventory, including the determination of excess inventory, requires us to estimate the future demand for our products within specific time horizons, generally twelve to twenty four months or less. We typically plan our production and inventory levels based on internal forecasts of customer demand, which is difficult to predict and can fluctuate substantially. The estimates of future demand that we use in the valuation of inventory are the basis for our published revenue forecast, which is also consistent with our short-term manufacturing plan. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write downs, which would have a negative impact on our gross margin. Our inventories include high technology parts and components that are specialized in nature or subject to technological obsolescence. We regularly review inventory quantities on hand and record a write down for obsolete inventory. Our write down for obsolete inventories includes on hand finished goods inventory with a date of manufacture of greater than three years old. Actual demand and market conditions may be different from those projected by our management. This could have a material effect on our operating results and financial position. If we make different judgments or utilize different estimates, the amount and timing of our inventory write-downs may be materially different.

      Warranty accrual. Our products are generally subject to warranty and we provide for the estimated future costs of repair, replacement or customer accommodation upon shipment of the product in the accompanying statements of operations. Our warranty accrual is estimated based on historical claims compared to historical revenues and assumes that we have to replace products subject to a claim. For new products, we use our historical percentage for the appropriate class of product. Should actual product failure rates differ from our estimates, revisions to the estimated warranty liability would be required.

      Valuation of Plant, Equipment, and Intangible Assets. We evaluate the recoverability of our plant and equipment and intangible assets in accordance with Statement of Financial Accounting Standards No. 144, or SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The standard retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of

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      Revenue Recognition. We recognize revenue from product sales upon shipment provided that we have received an executed purchase order, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Reserves for sales returns and allowances are recorded at the time of shipment. Specifically, our management must make estimates of potential future product returns and allowance for so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical returns discounts and ship and debit transactions, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates.

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

      Goodwill. We regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill. In determining whether there is an impairment of goodwill, we calculate the estimated fair value of our company based on the closing sales price of our common stock and projected discounted cash flows as of the date we perform the impairment tests. We allocate a portion of the total fair value to different reporting units based on discounted cash flows. We then compare the resulting fair values of reporting units to their respective net book values, including goodwill. If the net book value of our company exceeds its fair value, we measure the amount of the impairment loss by comparing the implied fair value of our goodwill with the carrying amount of that goodwill. To the extent that the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, we recognized a goodwill impairment loss. We perform this impairment test annually and whenever facts and circumstances indicate that there is a possible impairment of goodwill. We have completed the required annual impairment test, which resulted in no impairment for fiscal year 2003. We believe the methodology we use in testing impairment of goodwill provides us with reasonable basis in determining whether an impairment charge should be taken.

      Pension Obligation. The determination of our obligation and expense for pension and other postretirement benefits is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 10 to the Consolidated Financial Statements and include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expenses and recorded obligations in such future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement obligations and our future expenses.

      Legal Contingencies. We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate,

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      Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current exposure together with assessing temporary differences resulting from differing treatment of items, such as pensions or capital leases, for tax and accounting purposes. These differences result in differed tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

      Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to establish an additional valuation allowance which could materially impact our financial position and results of operations.

Results of Operations

      Net Revenues. Net revenues for fiscal year 2003 were $136.1 million, a 64.3% increase from net revenues of $82.8 million in fiscal year 2002. International net revenues were $78.6 million for fiscal year 2003, or 57.8% of net revenues, as compared to $55.6 million for fiscal year 2002, or 67.1% of net revenues. The increase in net revenues for fiscal year 2003 from fiscal year 2002 is primarily related to the inclusion of revenues from acquired entities and includes an approximate 3.4% increase in units shipped in fiscal year 2003 in our traditional product line as compared to fiscal year 2002 and an approximate 4.1% increase in average selling prices across our traditional product line (which does not include products from our acquired entities, Clare and Westcode). Net revenues for fiscal year 2002 were $82.8 million, a 25.6% decrease from net revenues of $111.4 million in fiscal year 2001. International net revenues were $55.6 million for fiscal year 2002, or 67.1% of net revenues, as compared to $66.8 million for fiscal year 2001, or 60.0% of net revenues. The decrease in net revenues for fiscal year 2002 from fiscal year 2001 is primarily related to an approximately 18.1% decrease in units shipped in fiscal year 2002 in our traditional product line as compared to fiscal year 2001 and an approximately 14.9% decrease in average selling prices across our traditional product line. We believe that the decrease in unit sales volume in 2002 was largely attributable to decreased demand for power conversion systems for communications infrastructure applications.

      Gross Profit. Gross profit was $28.7 million, or 21.1% of net revenues in fiscal year 2003, as compared to $25.9 million, or 31.3% of net revenues, in fiscal year 2002. The decrease in margins was primarily due to a $7.3 million write down of excess inventories, an increase in unabsorbed manufacturing overhead from acquired entities, and offset by an approximate 4.1% increase in average selling prices across our traditional product line. Our excess inventory write off in 2003 of $7.3 million reflects our assessment of the marketplace for our traditional products sold in the U.S. Work in process and finished goods inventory are determined to be excess based on a demand forecast within a specific time horizon, generally 12 to 24 months or less. Inventory in excess of saleable amounts is written down and carried at no value, and the remaining inventory is valued at the lower of cost or market. Gross profit was $25.9 million, or 31.3% of net revenues in fiscal year 2002, as compared to $41.4 million, or 37.2% of net revenues, in fiscal year 2001. The decrease in margins was primarily due to a 14.9% decrease in average selling price as well as a change in the mix of product sold.

      Research, Development and Engineering. During fiscal year 2003, research, development and engineering, or R&D, expense was $12.8 million, or 9.4% of net revenues, as compared to $5.7 million, or 6.9% of net revenues, in fiscal year 2002. The dollar and percentage increases were due to the addition of the Clare and Westcode engineering teams. During fiscal year 2002, R&D expense was $5.7 million, or 6.9% of net revenues, as compared to $6.1 million, or 5.5% of net revenues, in fiscal year 2001. The dollar decrease was due to a

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      Selling, General and Administrative. During fiscal year 2003, selling, general and administrative, or SG&A, expense was $27.7 million, or 20.4% of net revenues, as compared to $12.9 million, or 15.6% of net revenues, in fiscal year 2002. The percentage and dollar amount increase is caused mainly by the acquisition of Clare and Westcode. During fiscal year 2002, SG&A expense was $12.9 million, or 15.6% of net revenues, as compared to $14.0 million, or 12.5% of net revenues, in fiscal year 2001. The dollar amount decrease reflects a decrease in expenses to support a lower revenue level. As a percentage of revenues, SG&A expense increased as a result of such expenses decreasing at a relatively slower rate than revenues.

      Restructuring. In June 2002, we adopted a corporate restructuring program to reduce expenses and preserve our 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 for the year ended March 31, 2003. 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.

      Interest Income (Expense), Net. During fiscal year 2003, interest income (expense), net, was $0.7 million, as compared to interest income (expense), net, of $1.3 million in fiscal year 2002. The decrease is mainly due to reduced interest rates on invested balances. During fiscal year 2002, interest income (expense), net, was $1.3 million, as compared to $1.0 million in fiscal year 2001. The increase is mainly due to interest received from the investment of the net proceeds from our secondary public offering during the whole fiscal year 2002.

      Other Income (Expense), Net. Other income (expense), net, including gain (loss) on foreign currency transactions, in fiscal year 2003 was $(6.0 million), as compared to $(5.5 million) in fiscal year 2002. The increase in other expenses was primarily due to the fluctuation in the Euros and UK pound sterling against the US dollar. Other income (expense), net, including gain on foreign currency transactions, in fiscal year 2002 was $(5.5 million) as compared to $(504,000) in fiscal year 2001. The increase in other expense was mainly due to litigation defense costs of $4.6 million.

      Benefit from (Provision For) Income Taxes. In fiscal year 2003, the benefit from income taxes reflects an effective tax rate of 32%, as compared to a provision for 38% in fiscal 2002. The lower tax benefit rate for 2003 was primarily related to income tax allowances related to losses incurred in certain foreign jurisdictions. The fiscal year 2002 provision for income taxes reflects an effective tax rate of 38% in fiscal year 2002, which remained unchanged from fiscal 2001.

Liquidity and Capital Resources

      Cash and Cash Equivalents. As of March 31, 2003, cash and cash equivalents were $40.1 million, an increase of $8.0 million from cash and cash equivalents of $32.1 million at March 31, 2002, which was a decrease of $12.7 million from cash and cash equivalents of $44.8 million at March 31, 2001. The increase in cash and cash equivalents from fiscal years 2002 to 2003 was primarily due to cash received in the acquisition of Clare. The decrease in cash and cash equivalents from fiscal years 2001 to 2002 was related to the acquisition of additional manufacturing equipment and cash used in the acquisition of Westcode.

      Cash flows from operating activities. Net cash provided by operating activities in fiscal year 2003 was $2.4 million, which was relatively unchanged from $2.2 million in fiscal year 2002. Net cash provided by operating activities in fiscal year 2002 decreased $1.0 million from the $3.1 million provided in fiscal year 2001.

      Cash flows from investing activities. Net cash provided by investing activities in fiscal year 2003 was $2.4 million, primarily resulting from the net cash acquired in the acquisition of Clare offset by purchases of manufacturing equipment. In fiscal years 2002 and 2001, net cash used in investing activities was $16.0 million and $4.0 million, respectively. Net cash used in investing activities in 2002 was principally used for the

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      Cash flows from financing activities. During fiscal year 2003, net cash provided by financing activities was $2.4 million, which was mainly due to proceeds from loans and exercises of stock options, offset in part, by an increase in restricted cash. In fiscal years 2002 and 2001, net cash provided by financing activities was $1.3 million and $36.6 million, respectively. Net cash provided by financing activities in 2002 was principally proceeds from capital lease obligations, while in 2001 it was primarily proceeds from a secondary offering of our common stock, reduced by the repayment of bank debt.

      There are three lines of credit facilities available to us. We have one line of credit with a U.S. bank that consists of a $5.0 million commitment amount which is available through September 2003. The line bears interest at the bank’s prime rate (4.25% at March 31, 2003). The line is collateralized by certain assets and contains certain general and financial covenants. At March 31, 2003, we had drawn $700,000 against such line of credit. As of March 31, 2003, we were not in compliance with financial covenants and we received a waiver of non-compliance from the lender.

      We have another line of credit with a U.S. bank that consists of a $100,000 commitment, which is available through September 2003. 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 March 31, 2003, there were no amounts being drawn against such line of credit.

      In 2001, IXYS Semiconductor GmbH obtained a $5.0 million line of credit with a German bank. This line supports a letter of credit facility. At March 31, 2003 there are no amounts outstanding under this line.

      In 2000, a German bank issued to IXYS a commitment letter for a (EUR) 3.8 million equipment lease facility. The equipment leases facility provides 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 the general asset of IXYS Semiconductor GmbH and unrestricted amounts deposited with the bank.

      In 2000, in the same commitment letter discussed above, the bank also committed to issue a credit line to IXYS GmbH up to (EUR) 5.1 million for a wafer fabrication facility in Germany, including leasehold improvements, clean room construction and fabrication, computer and office equipment. At March 31, 2003, we had drawn (EUR) 204,000 under this commitment. The security interest of the bank under the equipment lease facility also collateralizes this line.

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

      Our accounts receivable at March 31, 2003 were $21.5 million, an increase of 28.6% as compared to $16.7 million at March 31, 2002. Our inventories at March 31, 2003 were $49.2 million, an increase of 6.1% as compared to $46.3 million at March 31, 2002. Net plant and equipment at March 31, 2003 were $28.7 million, an increase of 49.3% as compared to $19.2 million at March 31, 2002.

      As of March 31, 2003, we had $40.1 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.

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Disclosures about Contractual Obligations and Commercial Commitments

      Details of our contractual obligations and commitments as of March 31, 2003 to make future payments under contracts are set forth below:

      On September 22, 2000, IXYS Corporation entered into a guaranty for $5.0 million in favor of Commerzbank AG to obtain a line of credit granted by Commerzbank AG to IXYS Semiconductor GmbH. At March 31, 2003, there were no amounts outstanding under this line of credit.

New Accounting Standards

      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supercedes previous accounting guidance, principally Emerging Issues Task Force Issue, or EITF, No. 94-3. SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of the entity’s commitment to an exit plan. SFAS No. 146 also requires that the liability be initially measured and recorded at fair value. SFAS No. 146 was effective for exit or disposal activities that are initiated after December 31, 2002. We adopted SFAS No. 146 in the fourth quarter of fiscal 2003, and its adoption did not have a material impact on our results of operations and financial condition.

      In November 2002, the FASB issued Interpretation No. 45, or FIN 45, entitled “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. “It expands previously issued accounting guidance and disclosure requirements for certain guarantees. FIN 45 requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. We do not expect this interpretation to have a material impact on its consolidated results of operations or financial position. We have included additional disclosures in accordance with FIN 45 in the footnotes to these consolidated financial statements.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 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 No. 148 requires disclosure of the pro forma effect in interim financial statements. The additional disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. We will continue to account for stock-based compensation in accordance with APB Opinion No. 25. We have included additional disclosures in accordance with SFAS No. 148 in the footnotes to these consolidated financial statements.

      In January 2003, the FASB issued FASB Interpretation No. 46, or FIN 46, entitled “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities

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      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. We do not expect the adoption of SFAS No. 150 to have a significant impact on our financial position or results of operations.

      We are exposed to interest rate, market and credit risk and related change in the market values of our investment portfolio. We place our investment portfolio primarily in debt instruments of the United States government and high quality corporate issuers. Investments in both fixed and floating rate securities have some degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted by increases in interest rates. Floating rate securities may produce less income than anticipated if interest rates fall. As a result, changes in interest rates may cause us to incur losses in principal if we are forced to sell securities that have declined in market value or may result in lower than anticipated investment income. Our investment portfolio is categorized as available-for-sale and accordingly is presented at fair value on the balance sheet.

      We manage our exposure to interest rate, market and credit risk in the investment portfolio with investment policies and procedures that limit such things as term, credit rating and the amount of credit exposure to any one issue, issuer and type of instrument. We have not used derivative financial instruments in our investment portfolio.

      We are also exposed to short-term fluctuations in interest rates as our lines of credit have variable interest rates. An increase in interest rates would have an adverse impact on our interest expense. However, our cash and marketable securities greatly exceed the balances that we borrow through lines of credit and, if necessary to limit the burden of interest expense, we could reduce our borrowing.

      During the year ended March 31, 2003, the effects of changes in interest rates on the fair market value of our marketable investment securities and our earnings were insignificant. The impact on the fair market value of our securities and our earnings from a hypothetical 100 basis point adverse change in interest rates as of the end each of fiscal 2003 and 2002 would not have been significant.

      International revenues from our foreign subsidiaries were approximately 47.7% of total revenues in fiscal year 2003. These revenues come from our German and UK subsidiaries and are primarily denominated in Euros and British pounds, respectively. Our foreign subsidiaries also incur most of their expenses in the local currency. Certain of our foreign subsidiaries use their respective local currencies as their functional currency. We have not entered into foreign currency hedging transactions, although if circumstances warrant, we may consider such transactions.

      It is possible that our future financial results could be directly affected by changes in foreign currency exchange rates, and the prices of our products would become more expensive in a particular foreign market if the value of the U.S. dollar, the Euro or the British pound rises in comparison to the local currency, which may make it more difficult to sell our products in that market. We will continue to face foreign currency

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Financial Statements

      Our financial statements required by this Item are set forth at the pages indicated in the accompanying index.

IXYS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors IXYS Corporation

      In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of IXYS Corporation and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of IXYS’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 5 to the Consolidated Financial Statements, IXYS Corporation changed its method of accounting for goodwill and other intangible assets effective April 1, 2002.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

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IXYS CORPORATION

CONSOLIDATED BALANCE SHEETS

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

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IXYS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS