UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 000-26124

IXYS Corporation

(Exact name of Registrant as specified in its charter)

3540 Bassett Street

Santa Clara, California 95054-2704

(Address of principal executive offices and zip code)

(408) 982-0700

(Registrant’s telephone number, including area code)

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

None

(Title of Class)

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

Common stock, par value $.01 per share

(Title of Class)

     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 amendment 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, 2004, was approximately $188,753,476. The number of shares of the Registrant’s Common Stock outstanding as of May 16, 2005 was 33,360,205.

Documents Incorporated by Reference

      Portions of the Registrant’s proxy statement relating to its annual meeting of stockholders to follow its fiscal year ended March 31, 2005, to be filed subsequently — Part III.

IXYS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2005

TABLE OF CONTENTS

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” in Item 7. 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

      We are a multi-market integrated semiconductor company. We specialize in the development, manufacture and marketing of high performance power semiconductors, advanced mixed signal integrated circuits, or ICs, and radio frequency, or RF, power transistors and systems. 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 200 watts of power.

      Our power semiconductor products have historically been divided into two primary categories, power MOS, or metal oxide silicon, 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 die. In fiscal 2005, power semiconductors constituted approximately 74.2% of our revenues, which included 38.3% from power MOS transistors and 35.9% from bipolar products.

      We design and sell integrated circuits, or ICs, that have applications in telecommunications, display products, and power management. In our fiscal year ended March 31, 2005, or fiscal 2005, ICs constituted approximately 15.9% of our revenues.

      We also design and sell RF power devices that switch electricity at the high rates required by circuitry that generates radio frequencies.

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

      Our mixed signal ICs are used in telecommunications products, central office switching equipment, customer premises equipment, set top boxes, remote meter reading equipment, security systems, advanced flat

displays, medical electronics and defense aerospace systems. Our RF power devices are used in wireless infrastructure, industrial RF applications, medical systems and defense and space electronics.

      We design our products primarily for industrial and business applications, rather than for use in personal computers or mobile phones. In fiscal 2005, we sold our products to over 2,000 customers worldwide. Our major customers include ABB, Astec, Delta Electronics, Eupec, General Electric, Guidant, Huawei, LG, Medtronics, Samsung, 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.

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

Background

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

      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 solid-state 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:

      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 or 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.

      With the growth in telecommunications, data communications and wireless communications, the demand for analog and mixed signal ICs and RF power semiconductors has grown. Our mixed signal ICs address the interface between telecommunication and data communication components, both in the central office and in gateway applications, especially with the increased use of the Internet protocol, or IP. Our RF power semiconductors are used in wireless infrastructure and in other microwave communication applications. Technical advancement in the communication industries is expected to drive the demand for higher performance semiconductors.

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 the last decade, fueled largely by growth in the Internet and in wireless communication, deregulation, competition, privatization and 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, as well as the need for efficient solid state analog and mixed signal devices that address the interface between telecommunication and data communication components.

      Increased demand for energy efficiency in motor drives. Electric 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. They 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. Medical imaging systems, such as ultrasound and MRI, require high performance mixed signal ICs and RF power semiconductors to meet the technical requirements of the marketplace.

      Development of new technologies for power management. New technologies, such as the use of 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 power management products with higher power density, 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.

      Demand for new display technologies. The demand for flat and large televisions with better contrast ratio than that of LCD technology drives the demand for plasma display televisions, which demand high voltage power MOSFETs for plasma display control. Brighter and energy efficient flat panel displays for portable telephones and PDAs drive the demand for new ICs that control electronic ink-based displays.

IXYS’s Strategy

      We focus on meeting the needs of the high power, high performance segment of the power semiconductor market, serving it with our advanced power and IC technologies. We have diversified our business to introduce products into new markets, with an objective to achieve faster revenue growth than our competitors, while stabilizing the business and providing sustained growth. 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 enables 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. 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.

      Focus on niche markets. We focus on niche markets that are not adequately addressed by our larger competitors. Our larger competitors are often not flexible enough to address niche markets and smaller customers. We focus on these markets and customers, providing them with products configured to meet their specific needs.

      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 reduce 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.

      Pursue selective acquisition and investment strategy. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments, with the goal of integrating acquisitions into our business. For example, 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. The semiconductor products acquired with Clare are capable of integrating a number of functions previously provided by discrete components into one package and include product applications such as modem interfaces to the Internet, cable set top boxes, and voice over Internet protocol, or VOIP, applications, as well as mixed signal ASICs for the medical, flat display and military markets. Through another acquisition, we substantially increased our RF power products, by acquiring a product line of gallium arsenide devices that are useful in the amplification or reception of RF in wireless, medical, defense and space applications.

      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. 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.

Power Semiconductors

      Our power semiconductor products have historically been divided into two primary categories, power MOS transistors and bipolar products. Our power semiconductors are sold separately and are also packaged in high power modules that frequently consist of multiple semiconductor dies. In fiscal year 2005, power semiconductors constituted approximately 74.2% of our revenues, which included about 38.3% from power MOS transistors and about 35.9% from bipolar products. In fiscal 2004, power semiconductors constituted approximately 74.3% of our revenues, which included about 31.4% from power MOS transistors and about 42.9% from bipolar products. In fiscal 2003, power semiconductors constituted approximately 78.2% of our revenues, which included about 29.7% from power MOS transistors and about 48.5% from bipolar products.

      Power MOS transistors operate at much greater switching speeds, allowing the design of smaller and less costly end products. Power MOS transistors are activated by voltage rather than current, so they require less external circuitry to operate, making them more compatible with ICs 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 silicon 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 1,700 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 in a power device. We believe that as the power requirements of servers, base stations and other computers increase as the result of larger and more powerful processors and memory systems, the designers of power supplies will increasingly demand higher power density. MOSFETs accommodate this need by providing higher power with higher efficiency and by reducing the physical size of the power supplies incorporated into such 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 for high energy applications than power MOSFETs.

      Since inception, we have developed IGBTs for high voltage applications. Our current products are focused on voltage applications ranging from 300 volts to 2,500 volts. Our IGBTs are used principally in AC motor drives, power systems and defibrillators.

      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 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 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.

Integrated Circuits

      Our integrated circuits address the demand for analog and mixed signal interface solutions in the communication and other industries, mixed signal application specific ICs designed for specific customers as well as standard products, and power management and control. ICs accounted for 15.9% of our revenues in fiscal 2005, 17.6% in fiscal 2004 and 19.3% in fiscal 2003.

      We manufacture solid-state relays, or SSRs, that isolate the low current communication signal from the higher power circuit, while also switching to control the flow of current. Our SSRs, which include high voltage analog components, optocouplers and integrated packages, are utilized principally in telecommunication and video and data communication applications, as well as instrumentation, industrial control, and aerospace and automotive applications.

      A line card access switch, or LCAS, is a solid-state solution for a switching function traditionally performed by electromagnetic devices. Our LCAS products are used in central office switching applications to enable data and voice telephony. Data access arrangements, or DAAs, integrate a number of discrete components and are principally used in analog data communications that interface with telephone network applications. Our Litelink^tm products are DAAs for applications such as VOIP, wired communication lines and set top boxes.

      We design high voltage, analog and mixed signal application specific integrated circuits, or ASICs, for a variety of applications. Applying our technological expertise in ASICs, we also design and sell application specific standard products. In this regard, we have developed a line of source and gate drivers for E Ink and liquid crystal displays.

      We also design and sell power management and control ICs, such as current regulators, motion controllers, digital power modulators and drivers for power MOSFETs and IGBTs. These ICs typically manage, control or regulate power semiconductors and the circuits and subassemblies that incorporate them.

RF Power Semiconductors

      Our RF power devices switch electricity at the high rates necessary to enable the amplification or reception of radio frequencies. Our products include field effect transistors, or FETs, pseudomorphic high electron mobility transistors, or PHEMTs and Gunn diodes. These products are principally gallium arsenide devices, which remain efficient at the high heat and energy levels inherent in RF applications.

Other Products

      We manufacture our proprietary direct copper bond, or 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. Additionally, we manufacture and sell laser diode drivers, high voltage pulse generators and modulators, and high power subsystems that are principally based on our high power semiconductor devices.

Products and Applications

      Our power semiconductors are used primarily to control electricity in power conversion systems, motor drives, plasma display panels and medical electronics. Our ICs are used mainly to interface with telecommunication lines, to control power semiconductors and to drive medical equipment and displays. Our RF power semiconductors enable the amplification and reception of radio frequencies in telecommunication, industrial, defense and space applications. The following table summarizes the primary categories of uses for our products, some products used within the categories and some of the applications served within the categories.

      We also sell our power semiconductor chips and DCB substrates to other power semiconductor companies for use in their modules.

Sales and Marketing

      We sell our products through a worldwide selling organization that includes direct sales personnel, independent representatives and distributors. As of March 31, 2005, we employed 56 people in sales and marketing and customer support and service and used 18 sales representative organizations and 6 distributors in North and South America and 47 sales representative organizations and distributors in the rest of the world. Sales to distributors accounted for approximately 36% of net revenues in fiscal 2005, 37% of net revenues in fiscal 2004 and 36% of net revenues in fiscal 2003.

      In fiscal year 2005, United States sales represented approximately 28.2%, and international sales represented approximately 71.8%, of our net revenues. Of our international sales in fiscal year 2005, approximately 46.3% were derived from sales in Europe and the Middle East, approximately 49.4% were derived from sales in Asia and approximately 4.3% were derived from sales in Canada and the rest of the world. One customer, Samsung SDI Co., Ltd., accounted for more than 10% of our net revenues in fiscal year 2005. For financial information about geographic areas for each of our last three fiscal years, see our Audited Consolidated Financial Statements, Note 15, Segment and Geographic Information provided elsewhere in this Annual Report on Form 10-K. For a discussion of the risks attendant to our foreign operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors-Our international operations expose us to material risks,” provided elsewhere in this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1.

      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 our markets 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, E Ink and cholesteric driver ICs and direct-bonded substrates. While the time from initiation of design to volume production of new semiconductors often takes 18 months or longer, our power semiconductors typically have a product lifetime of years. Our research and development expenses were approximately $18.6 million in fiscal 2005, $15.8 million in fiscal 2004 and $12.8 million in fiscal 2003. As of March 31, 2005, we employed 91 people in engineering and research and development activities.

      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:

      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 and Other Intellectual Property Rights

      As of March 31, 2005, we held 137 issued patents, of which 102 were issued in the U.S. and 35 were issued 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.

      We own an approximately 170,000 square-foot facility in Lampertheim, Germany at which we fabricate all of our bipolar products 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, DAA and LCAS products. We also lease an approximately 100,000 square foot facility in Chippenham, England, where we fabricate the majority of our very high power devices, and an approximately 30,000 square foot facility in Fremont, California, where we manufacture our gallium arsenide RF power semiconductors. 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.

      Measured in dollars, we relied on external foundries for approximately 43% of our wafer fabrication requirements in fiscal year 2005, and our utilization of external foundries is expected to grow. We have arrangements with a number of external wafer foundries, three of which provide the wafers for power semiconductors that we purchase from external foundries. Our principal external foundry is Samsung Electronics’ facility located in Kiheung, South Korea. Our relationship with Samsung Electronics extends for

two decades. 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. In addition, we periodically jointly purchase equipment for manufacturing.

      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 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.

      For a discussion of risks attendant to our acquisition of wafers prior to fabrication, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors-We depend upon a limited number of suppliers for our wafers,” provided elsewhere in this Annual Report on Form  10-K, which information is incorporated by reference into this Item 1. For a discussion of environmental risks attendant to our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors-We may be affected by environmental laws and regulations,” provided elsewhere in this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1.

      Packaging or assembly refers to the sequence of production steps that divide the wafer into individual chips and enclose the chips in external structures, called packages, which make them useable in a circuit. Discrete manufacturing involves the assembly and packaging of single semiconductor, or 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 use assembly subcontractors located in Asia and Europe in order to take advantage of low assembly costs. Measured in dollars, approximately 54% of our products are assembled at external assembly facilities, and the rest are assembled in our Lampertheim, Chippenham and Fremont facilities.

      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.

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:

      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, Infineon, International Rectifier, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, Siemens and Toshiba. Our IC products compete principally with those of Agere Systems, Legerity, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices and RF Monolithics.

Backlog

      Our trade sales are made primarily pursuant to standard purchase orders that are booked months in advance of delivery. Generally, prices and quantities are fixed at the time of booking. Backlog as of a given date consists of existing orders from our customers. Backlog is influenced by several factors including market demand, pricing and customer order patterns in reaction to product lead times.

      In the semiconductor industry, backlog quantities and shipment schedules under outstanding purchase orders are frequently revised to reflect changes in customer needs. Agreements calling for the sale of specific quantities are either contractually subject to quantity revisions or, as a matter of industry practice, are often not enforced. Therefore, a significant portion of our order backlog may be cancelable. For these reasons, the amount of backlog as of any particular date may not be an accurate indicator of future results.

      We sell products to key customers pursuant to contracts that allow us to schedule production capacity in advance and allow the customers to manage their inventory levels consistent with just-in-time principles while shortening the cycle times required to produce ordered product. However, these contracts are typically amended to reflect changes in customer demands and periodic price renegotiations.

      At March 31, 2005, our backlog of orders was approximately $78.9 million, as compared with $77.3 million at March 31, 2004. Backlog represents firm orders expected to be shipped within the 12 months following March 31, 2005.

Employees

      At March 31, 2005, we employed 858 employees, of whom 91 were primarily engaged in engineering and research and development activities, 56 in marketing, sales and customer support, 653 in manufacturing and 58 in administration and finance. Of these employees, 112 hold engineering or science degrees, including 19 Ph.D.s. Certain employees at our Lampertheim and Chippenham facilities 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 currently make available through our website at http://www.IXYS.com, free of charge, copies of our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and amendments to those 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 investorrelations@IXYS.net.

      Our principal facilities are described below:

      We believe that our current facilities are suitable to our needs and will be adequate through at least fiscal year 2006 and that suitable additional or replacement space will be available in the future as needed on commercially reasonably terms.

      We currently are involved in a variety of legal matters that arise in the normal course of business. Were an unfavorable ruling to occur, there could be a material adverse impact on our financial condition, results of operations or cash flows.

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

      In 2002, the U.S. District Court entered a permanent injunction barring IXYS from making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by the subject patents and ruled that International Rectifier should be awarded damages of $9.1 million for IXYS’s alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that IXYS had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees.

      IXYS appealed and on March 19, 2004 the United States Court of Appeals for the Federal Circuit reversed or vacated all findings of patent infringement previously issued against IXYS by the U.S. District Court, and vacated the permanent injunction. On August 9, 2004, the Federal Circuit Court vacated the damages award. The case was remanded to the U.S. District Court for further proceedings. The case has been set for trial to commence on August 2, 2005.

      There can be no assurance of a favorable outcome in the International Rectifier suit. In the event of an adverse outcome, damages or injunctions awarded by the U.S. District Court would be materially adverse to IXYS’s financial condition, results of operations and cash flows. Management has not accrued any amounts for damages in the accompanying balance sheets for the International Rectifier matter described above.

      On April 10, 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc. in the Superior Court of Norfolk County, Massachusetts claiming breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, failure to perform services and violation of a Massachusetts statute prohibiting unfair and deceptive acts and practices, all purportedly resulting from Clare’s alleged breach of a contract to develop custom integrated circuits and a module assembly.

      In its complaint, LoJack sought damages in an amount to be determined at trial, an $890,000 refund of payments it made under the contract, all work product resulting from any work prepared by Clare and its attorneys’ fees in the suit. LoJack also sought to have its damages trebled under the Massachusetts statute.

      Clare answered the complaint denying any liability and counterclaiming for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, violation of the Massachusetts statute, promissory estoppel and negligent misrepresentation. Discovery in the litigation is largely complete. Motions for summary judgment have been briefed but not yet heard. A trial date of October 11, 2005 has been set.

      There can be no assurance of a favorable outcome in the LoJack suit. In the event of an adverse outcome, damages awarded by the court could be materially adverse to our financial condition, results of operations or cash flows. Management has not accrued any amounts for damages in the accompanying balance sheets for the LoJack matter described above.

      We do not provide any product or similar guarantees or warranties. However, we provide in the normal course of business indemnification to officers, directors and selected parties.

      The Annual Meeting of the Stockholders of the Company following the fiscal year ended March 31, 2004 (the “Annual Meeting”) was held on March 31, 2005.

      At the Annual Meeting, the stockholders elected each of the persons identified below to serve as a director of the Company until the next Annual Meeting of the Stockholders or until such person’s successor is elected (the “Director Proposal”) and ratified the appointment of BDO Seidman, LLP as the independent auditors of the Company for the fiscal year ending March 31, 2005 (the “Auditor Proposal”). The votes on the two proposals were as follows:

Executive Officers of the Registrant

      The executive officers, their ages and positions at IXYS, as well as certain biographical information of these individuals, are set forth below. The ages of the individuals are provided as of March 31, 2005.

      There are no family relationships among our directors and executive officers.

      Nathan Zommer. Dr. Zommer, our founder, has served as a Director since our inception in 1983, and has served as Chairman of the Board, President and Chief Executive Officer since 1993. From 1984 to 1993, Dr. Zommer served as our Executive Vice President. Prior to founding IXYS, Dr. Zommer served in a variety of positions with Intersil, Hewlett-Packard and General Electric, including as a scientist in the Hewlett-Packard Laboratories and Director of the Power MOS Division for Intersil/ General Electric. Dr. Zommer received his B.S. and M.S. degrees in Physical Chemistry from Tel Aviv University and a Ph.D. in Electrical Engineering from Carnegie Mellon University.

      Uzi Sasson. Mr. Sasson has served as our Vice President of Finance, Chief Financial Officer and Secretary since November 2004. From February to November 2004, Mr. Sasson was the Chief Executive Officer of Sagent Management, a tax and accounting consulting firm. Mr. Sasson also served as the interim Chief Financial Officer for Digital Power Corp., a manufacturer of switching power supplies, from June 2004 to November 2004. Mr. Sasson served as Vice President of Tax for Mercury Interactive Corporation, a provider of software and services for the business technology optimization marketplace, from 2001 to 2003. Prior to that, Mr. Sasson was a Senior Manager at PricewaterhouseCoopers LLP, an accounting firm, from 1992 to 2001. From August to November 2004, Mr. Sasson served as a director of IXYS. Mr. Sasson has a Masters of Science in Taxation and Bachelor of Science in Accounting from Golden Gate University and is a Certified Public Accountant in California.

      Peter H. Ingram. Mr. Ingram has served as our President of European Operations since 2000. From 1994 to 2000, he served as our Vice President of European Operations. From 1989 to 1994, he served as our Director of Wafer Fab Operations. Mr. Ingram worked with the semiconductor operations of ABB from 1982 until we acquired those operations in 1989. Mr. Ingram received an Honors degree in Chemistry from the University of Nottingham.

      Kevin McDonough. Mr. McDonough has served as our President of U.S. Operations since 2001. From 1999 to 2000, he served as our Vice President of U.S. Operations. From 1998 to 1999, he served as our Director of Quality Assurance and Product Engineering, and from 1990 to 1994, he served as our Director of Operations and Quality Assurance. From 1995 to 1998, Mr. McDonough served as Manager of Wafer Fab Foundries for Advanced Micro Devices. Mr. McDonough received his B.S. in Zoology from the University of California at Davis and his M.B.A. from Oregon State University.

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 May 16, 2005 was 486. To date, we have not declared or paid cash dividends. We have no plans to do so.

Equity Compensation Plans Information

      The information in the following table is as of March 31, 2005:

Issuer Purchases of Equity Securities

      The program effective during the period from January 1, 2005 to March 31, 2005 was announced on May 24, 2004 and expired on June 10, 2005. The purchase of up to 1,000,000 shares of common stock was approved. A new program was announced June 8, 2005 and will expire on June 3, 2006. The purchase of up to 1,000,000 shares of common stock was approved.

      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, 2005, 2004 and 2003 and the balance sheet data as of March 31, 2005 and 2004 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, 2002 and 2001 and the balance sheet data as of March 31, 2003, 2002 and 2001 are derived from our consolidated financial statements that are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results to be expected in any future period.

      This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in this Item 7. Actual results may differ materially from the results discussed in the forward-looking statements. For a discussion of risks that could affect future results, see “Risk Factors” below. All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Overview

      We are a multi-market integrated semiconductor company. Our three principal product groups are: power semiconductors; integrated circuits; and systems and RF 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 200 watts of power.

      We also design, manufacture and sell integrated circuits for a variety of applications. Our analog and mixed signal integrated circuits, or ICs, are principally used in telecommunications applications. Our mixed signal application specific ICs, or ASICs, address the requirements of the medical imaging equipment and display markets. Our power management and control ICs are used in conjunction with our power semiconductors.

      Our radio frequency, or RF, power semiconductors enable circuitry that amplifies or receives radio frequencies in wireless and other microwave communication applications, medical imaging applications and defense and space applications.

      In fiscal year 2005, United States sales represented approximately 28.2% and international sales represented approximately 71.8%, of our net revenues. Of our international sales, approximately 46.3% were derived from sales in Europe and the Middle East, approximately 49.4% were derived from sales in Asia and approximately 4.3% were derived from sales in Canada and the rest of the world. One customer, Samsung SDI Co., Ltd., accounted for more than 10% of our net revenues in fiscal year 2005.

      During the last fiscal year, we have seen a trend of increasing growth in revenues from the sale of power semiconductors, particularly those for inclusion in consumer products. With the increasing production resulting from these and other sales of power semiconductors, we have experienced increasing economies of scale and have been able to lower our unit cost of production. Since most of our customers that manufacture consumer products are located in Asia, we have seen a shift toward Asia in our revenues. Our power semiconductors for the consumer products market are manufactured at external foundries. Consequently, we

have seen an increase in the proportion of our products that are fabricated in external foundries rather than in our own facilities.

Critical Accounting Policies and Significant Management Estimates

      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the reasonableness of its estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      We believe the following critical accounting policies affect our more significant judgments and estimates used in preparing our consolidated financial statements.

      Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 36% of our revenues in fiscal 2005 and 37% of our revenues in fiscal 2004 were from distributors. We provide our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a form of price protection. We recognize revenue from product sales upon shipment provided that we have received an executed purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Reserves for allowances are also recorded at the time of shipment. Our management must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical returns 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 allowances. Significant management judgments and estimates must be made and used in connection with establishing the 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.

      For our nonrecurring engineering, or NRE, related 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 Statement of Financial Accounting Standards No. 68, “Research and Development Arrangements” Amounts offset against research and development costs totaled approximately $161,000 in fiscal 2005, $382,000 in fiscal 2004 and $329,000 in fiscal 2003.

      Allowance for sales returns. We maintain an allowance 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. Given that our revenues consist of a high volume of relatively similar products, our actual returns and allowances have not fluctuated significantly from period to period to date, and our returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction to gross revenues in the calculation of net revenues on the statement of operations.

      Allowance for stock rotation. We also provide “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous six months’ sales. In the fiscal years ended March 31, 2005, 2004, and 2003 approximately $1.1 million, $595,000, and $1.3 million, respectively, of products were returned to us under the program. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction to gross revenues in the calculation of net revenues on the statement of

operations. We establish the allowance based upon maximum allowable rotations, which is consistent with our historical experience.

      Allowance for doubtful accounts. We maintain an 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. This allowance is reported on the balance sheet as part of the accounts receivable allowance and is included on the statement of operations as part of selling, general and administrative expense. This allowance is based on historical losses and management’s estimates of future losses.

      Allowance for ship and debit. Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. We have no obligation to accept this request. However, it is our historical practice to allow some companies to obtain sales discounts for inventory held. Our distributors had approximately $4.5 million in inventory of our products on hand at March 31, 2005. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. In accordance with Staff Accounting Bulletin No. 104 Topic 13, “Revenue Recognition,” at the time we record sales to the distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. We receive periodic statements regarding our products held by our distributors. These procedures require the exercise of significant judgments. We believe that they enable us to make reliable estimates of future credits under the ship and debit program. Our actual results to date have approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction to gross revenues in the calculation of net revenues on the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates would be insufficient, which could significantly adversely affect results.

      Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period and reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the three years ended March 31, 2005 (in thousands):

      Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Consistent with Statement 3 of Accounting Research Bulletin 43, or

ARB 43, our accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. In accordance with Statement 4 of ARB 43, as it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, our inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production process. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs.

      We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. If our projected demand is over-estimated, we may be required to reduce the valuation of our inventories below cost. We regularly review inventory quantities on hand and record an estimated provision for excess inventory based primarily on our historical sales. We perform an analysis of inventories and compare the sales for the preceding two years. To the extent we have inventory in excess of the greater of two years’ historical sales, twice the most recent year’s historical sales or backlog, we recognize a reserve for excess inventories. However, for new products, we do not consider whether there is excess inventory until we develop sufficient sales history or experience a significant change in expected product demand based on backlog. 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 write-down of inventories may be materially different.

      During the economic downturn of fiscal 2002 and fiscal 2003, we built inventory beyond demand in our Santa Clara operation. At the end of fiscal 2003, excess inventory was measured by sets of related product part numbers rather than by individual product part numbers. These sets were used because it was thought that sales of such would be representative of the sales of the individual part numbers within any such set. The fiscal 2003 analysis resulted in a write-down of $7.3 million.

      For the fourth quarter of fiscal 2004, we recognized that sales by sets of related product part numbers were not revealing individual part numbers that were not selling at a similar rate and so we refined the calculation to examine excess inventory by individual part number. This resulted in an additional $2.1 million write-down during fiscal 2004. The fiscal 2005 charge is the result of the application of our normal policy.

      Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written-down inventory below cost, we do not write it up. We do not physically segregate excess inventory and assign unique tracking numbers to it in our accounting systems. Consequently, we cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, we are unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on our gross profit margin.

      The following table provides information on our excess inventory at cost (which has been fully reserved in our financial statements), including the sale of excess inventory valued at cost (in thousands):

      The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, we do not know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than 9,000 different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to potential value and because our products do not quickly become obsolete, we expect to hold excess inventory for potential future sale for years. Consequently, we have no set time line for the sale or scrapping of excess inventory.

      In addition, in accordance with the guidance in Statements 6 and 7 of ARB 43, our inventory is also being written down to lower of cost or market or net realizable value. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, the inventory is marked down accordingly. At March 31, 2005, our lower of cost or market reserve was $1.4 million.

      Furthermore, we perform an annual inventory count and periodic cycle counts for specific parts that have a high turnover. We also periodically consider any inventory that is no longer usable and write it off as scrap.

      Valuation of property, plant, equipment, and intangible assets. We regularly evaluate the recoverability of our property, plant, 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.” Actual useful lives and cash flows could be different from those estimated by our management. This could have a material effect on our operating results and financial position. Reviews are regularly performed to determine whether facts and circumstances exist indicating that the carrying amount of assets may not be recoverable or that the useful life is shorter than originally estimated. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.

      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, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations or cash flows.

      Goodwill. We regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill and, in any event, we conduct such evaluation at least annually as of December 31. In determining whether there is an impairment of goodwill, we calculate the estimated implied fair value of our company by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Then, if the carrying amount of the reporting unit exceeds its fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. We believe that we operate as a single business unit. We have one reporting unit. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. We determine the implied fair value of goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, we report the excess as an impairment loss. We believe the methodology we use in testing impairment of goodwill provides us with a reasonable basis in determining whether an impairment charge should be taken. To date, our goodwill has not been considered to be impaired based on the results of our analysis.

      Income tax. 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 estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We 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 establish a valuation allowance. A valuation allowance reduces our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. If we determine that we will not realize all or a portion of our remaining deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. Significant management judgment is required in determining our provision for income taxes and potential tax exposures, 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 a valuation allowance, which could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the need for a related valuation allowance are monitored on an ongoing basis.

      Defined benefit plans. We maintain pension plans covering certain of our employees in foreign locations. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increase for plan employees. Our assumptions are derived from actuarial projections and actual market data. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of our pension plans.

Recent Accounting Developments

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which addresses the accounting for share-based payment transactions. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB No. 25, and generally requires instead that such transactions be accounted and recognized in the statement of income based on their fair value. SFAS No. 123R will be effective for public companies as of the first fiscal year that begins after June 15, 2005. We will adopt SFAS No. 123R for our fiscal year beginning April 1, 2006. SFAS No. 123R offers us alternative methods of adopting this standard. At the present time, we have not yet determined which alternative method we will use and the resulting impact on our financial position or results of operations. We do not expect this accounting change to materially affect our liquidity, as equity-based compensation is a non-cash expense. The effect of expensing stock options on our results of operations and earnings per share using the Black-Scholes model is presented on a pro forma basis in the accompanying Note 2 to Consolidated Financial Statements.

      In December 2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 109-1, “Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The American Jobs Creation Act, or AJCA, introduces a special tax deduction on qualified production activities. FSP 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with Statement 109. Pursuant to AJCA, we are examining if we will be entitled to this special deduction in 2005. We do not expect the adoption of these new tax provisions to have a material impact on our consolidated financial position, results of operations or cash flows.

      In December 2004, the FASB Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The American Jobs Creation Act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to U.S. companies, provided certain criteria are met. FSP No. 109-2 provides accounting and disclosure guidance on the impact of the repatriation provision on a company’s income tax expense and deferred tax liability. We are currently studying the impact of the one-time favorable foreign dividend provision and intend to complete the analysis by the end of fiscal 2006. Accordingly, we have not adjusted our income tax expense or deferred tax liability to reflect the tax impact of any repatriation of non-U.S. earnings we may make.

      In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for idle facility expense, double freight, rehandling costs, and excessive spoilage. ARB 43 previously stated that such costs may be so abnormal as to require treatment as current period charges. SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they are “abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 2004. The provisions of this Statement should be applied prospectively. We will adopt SFAS No. 151 for our fiscal year beginning April 1, 2006. We are currently considering but have not yet determined what impact the adoption of this standard will have on our financial position and results of operations.

Results of Operations

      The following table sets forth selected consolidated statements of operations data for the fiscal years indicated and the percentage change in such data from year to year.

      The following table sets forth certain financial data as a percentage of net revenues for the fiscal years indicated. These historical operating results may not be indicative of the results for any future period.

      The 37% increase in net revenues from fiscal 2004 to fiscal 2005 reflects increased unit sales of power semiconductors, integrated circuits and systems and RF power semiconductors. The largest component of the increase in revenues was a $51.0 million increase in sales of power semiconductors. The increase in the power semiconductor group was due principally to an increase of $32.1 million in sales of semiconductors for the consumer products market, which also drove a shift in our product mix toward applications for the consumer products market. Revenues from the sale of integrated circuits increased in fiscal 2005 as compared to fiscal 2004 by $7.7 million as a result of a general strengthening in the IC business. The $10.5 million increase in

systems and RF power semiconductor revenues was principally related to the Microwave Technology acquisition, which provided $4.5 million of the increase in revenues in part because it was owned for a full year during fiscal 2005, while only about seven months during fiscal 2004.

      The following table sets forth the units and average selling price, or ASP, and revenues for each of our product groups for fiscal 2005 and compares such revenues against those of fiscal 2004:

      The $51.3 million increase in net revenues from fiscal 2003 to fiscal 2004 is primarily related to increased sales to traditional markets, the inclusion of revenues from acquired entities and the addition of revenues from new markets, including the plasma display panel market. The growth in revenues includes an approximate 27.0% increase in units shipped in fiscal 2004 in our traditional markets as compared to fiscal 2003, offset in part by an approximate 3.2% decrease in average selling prices across our traditional markets. The increase in revenues from fiscal 2003 to fiscal 2004 included the impact of two acquisitions. We acquired Microwave Technology in September 2003. Our fiscal 2004 revenues from Microwave Technology were $6.7 million. We acquired Clare in June 2002. In fiscal 2004, in part because we owned Clare for a full year, our revenues from Clare were $6.3 million greater than our revenues from Clare in fiscal 2003.

      Over the three year period, our revenues have shifted towards Asia. Of our net revenues, 35.5% were in Asia in fiscal 2005, as compared to 23.6% in fiscal 2004 and 17.0% in fiscal 2003. The increase in revenues from sales to Asian customers is, in part, related to our increasing sales of semiconductors for inclusion in consumer products, as most of our customers for these applications are located in Asia.

      In each of the three fiscal years, our revenues were reduced by allowances for sales returns, stock rotations and ship and debit. See “Critical Accounting Policies and Significant Management Estimates” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      The $36.4 million increase in gross profit expressed in dollars from fiscal 2004 to fiscal 2005 is primarily the result of increased revenues and related improvements in economies of scale in production. Of the increase in gross profit, $8.3 million was caused by the increase in our sales to the consumer products market. The acquisition of Microwave Technology in September 2003 resulted in a $2.3 million increase in gross profit in fiscal 2005 as compared to fiscal 2004. Gross profit margin increased to 31.1% during fiscal 2005 as compared to 23.2% in fiscal 2004 principally because of reductions in the cost to manufacture our products related to increasing economies of scale, as well as a decrease from $10.5 million in fiscal 2004 to $2.8 million in fiscal 2005 in the additional provision for excess inventory, combined with an increase in the sales of excess inventory. The addition for the full period of higher margin RF power product lines from the Microwave Technology acquisition also favorably affected gross profit margin.

      The $14.8 million increase in gross profit expressed in dollars from fiscal 2003 to fiscal 2004 is primarily the result of increased revenues. The acquisition of Microwave Technology resulted in a $3.2 million increase in gross profit in fiscal 2004 as compared to fiscal 2003. Gross profit margin increased to 23.2% during fiscal 2004 as compared to 21.1% in fiscal 2003, principally because of the addition of higher margin RF power product lines from the Microwave Technology acquisition, partially offset by provisions for excess and obsolete inventory and scrap. In addition, the fiscal 2004 gross profit margin was negatively impacted by changes in the

product mix. During fiscal 2004, we commenced significant sales of semiconductors for inclusion in consumer products, which carry lower gross profit margins than our other products.

      In each of the three years, our gross profit and gross profit margin were increased by the sale of excess inventory, which had previously been written-down. See “Critical Accounting Policies and Significant Management Estimates — Inventories” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      From fiscal 2004 to fiscal 2005, research, development and engineering expenses increased due to an increase in the number of projects underway, including projects for gallium arsenide devices and devices for the consumer products market, and Microwave Technology having been a part of our business for a full year, but declined as a percentage of revenues due to our revenue growth. Although we expect an increase in research, development and engineering expenses as we fund more development projects, we do not expect a material increase in such expenses when expressed as a percentage of revenues. In fiscal 2004 as compared to fiscal 2003, the dollar and percentage increases were due to additional funded development projects to support our growth in revenues and the Microwave Technology acquisition during fiscal 2004, but declined as a percentage of revenues due to our revenue growth.

      In fiscal 2005, the amount spent on selling, general and administrative expenses increased principally due to an increase of $2.0 million in professional fees for regulatory compliance. Selling, general and administrative expenses declined as a percentage of revenues in fiscal 2005 as compared to fiscal 2004, mainly due to economies of scale and our cost control efforts. While selling, general and administrative expenses may increase in future periods, we do not expect a material increase in such expenses when expressed as a percentage of revenue. In fiscal 2004 as compared to fiscal 2003, our selling, general and administrative expenses increased, principally due to an increase in sales commissions corresponding to our growth in revenues, expenses associated with the implementation of mandated internal controls and writeoffs of $642,000 for offices vacated when we moved our Clare sales function from Belgium to Germany. Selling, general and administrative expenses declined as a percentage of revenues from fiscal 2003 to fiscal 2004 principally as a result of our efforts to control costs, combined with the impact of our growth in revenues.

      In June 2002, we adopted a corporate restructuring program to reduce expenses and preserve our cash. The restructuring mainly related 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 during fiscal 2003. The separation cost was 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.

      Other income, net, including loss on foreign currency transactions and interest income, net, in fiscal 2005 was $152,000, as compared to other expense of $1.0 million in fiscal 2004 and $568,000 in fiscal 2003. Other income (expense), net improved in fiscal 2005 as compared to fiscal 2004 because of a decrease in foreign currency transaction losses and an increase in interest income, net. Other expense, net increased in fiscal 2004 as compared to fiscal 2003 due to reduced interest income, net.

      Interest income, net was $633,000 in fiscal 2005 as compared to $310,000 in fiscal 2004. Interest income, net grew because of an increase in short-term interest rates and our increasing cash balances. Interest income, net declined in fiscal 2004, as compared to $720,000 in fiscal 2003 because of reduced short-term interest rates.

      In fiscal 2005, the provision for income taxes reflected an effective tax rate of 37%, as compared to a benefit from income taxes reflecting an effective tax rate of 27% in fiscal 2004 and 32% in fiscal 2003. The fiscal 2005 rate, as compared to fiscal 2004, was primarily higher because of valuation allowances booked against deferred tax assets offset by research and development credits. The higher valuation allowance in fiscal 2005 was based on our assessment that a portion of our foreign net operating losses would not be realizable. The lower tax benefit rate for fiscal 2004, as compared to fiscal 2003, was primarily due to lower net operating loss carryforwards for state income taxes.

      As of March 31, 2005, cash and cash equivalents were $58.1 million, as compared to $42.1 million at March 31, 2004 and $40.1 million at March 31, 2003. The increase in cash and cash equivalents during fiscal 2005 and fiscal 2004 was primarily due to cash generated by operations. Over the past three fiscal years, the cash generated by our operations has provided sufficient liquidity for our needs.

      Net cash provided by operating activities in fiscal 2005 was $23.3 million, as compared to $5.7 million in fiscal 2004 and $2.4 million in fiscal 2003. During fiscal 2005, the principal working capital use of cash was to fund accounts receivable. Accounts receivable increased from March 31, 2004 to March 31, 2005 by 24.9%, primarily due to higher revenues. No one customer accounted for more than 10% of our receivables at March 31, 2005. Our net inventory at March 31, 2005 increased from March 31, 2004 by 7.0%, principally because of increased production to meet expected sales. Accrued expenses and other liabilities increased from March 31, 2004 to March 31, 2005 principally because of an increase in liabilities for income taxes. During fiscal 2004 and fiscal 2003, working capital was principally used to fund accounts receivable in connection with the growth in revenues.

      We used $4.9 million in net cash for investing activities during fiscal 2005, as compared to $1.9 million used for investing activities in fiscal 2004 and $5.0 million provided by investing activities in fiscal 2003. During fiscal 2005, we spent $5.8 million in capital expenditures, as compared to $3.7 million in 2004 and $2.5 million in 2003. We expect capital expenditures during fiscal 2006 to continue at about the same level as fiscal 2005. Our fiscal 2004 use of cash for investing activities reflected the purchase of plant and equipment, while our fiscal 2003 cash flows provided by investing activities reflected the cash acquired with Clare.

      For 2005, net cash used in financing activities was $2.7 million, as compared to net cash used in financing activities of $2.3 million in fiscal 2004 and $284,000 in fiscal 2003. During the three years, we used cash from financing activities principally to pay capital lease obligations. In addition, in fiscal 2005 we used $1.1 million to purchase our common stock and $800,000 to repay our note payable to the bank. In fiscal 2005, the principal sources of cash from financing activities were proceeds from the exercise of stock options and from the payment of notes receivable. In fiscal 2004, the principal sources of cash from financing activities were proceeds from the exercise of stock options and from purchases under the employee stock purchase plan. In fiscal 2003, the principal sources of cash from financing activities were proceeds from loans and from the exercise of stock options.

      Another potential source of liquidity is available borrowings under existing lines of credit. At March 31, 2005, we had available credit aggregating $6.6 million.

      At March 31, 2005, our debt, consisting of capital lease obligations and loan payable, was $7.3 million, representing 12.6% of our cash and cash equivalents and 4.4% of our stockholders equity. Over the past three fiscal years, satisfying our payment obligations for debt has not materially affected our ability to fund our operating needs.

      At March 31, 2005, we maintain two defined benefit pension plans: one for the United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. The Company deposits funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrues for the unfunded portion of the obligations. See Note 12

Pension Plans of the Consolidated Financial Statements for a discussion of the investment return assumptions, the underlying estimates and the expected future cash flows associated with the pension plans.

      As of March 31, 2005, we had $58.1 million in cash and cash equivalents. Since March 31, 2005, we have spent or committed to spend $14.1 million to purchase two of our facilities. To substantially cover the cash spent or to be spent to purchase those facilities, we have borrowed Euro 10.0 million, or about $12.1 million, from a German bank, repayable over 15 years. We believe that our cash, combined with 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.

      On May 4, 2005, we accelerated the vesting of the right to purchase 128,250 shares of our common stock pursuant to previously granted stock options. The accelerated options were at exercise prices in excess of our closing price on May 4, 2005 of $10.28. The vesting was accelerated to avoid future accounting charges under SFAS No. 123R.

Disclosures about Contractual Obligations and Commercial Commitments

      Details of our contractual obligations and commitments as of March 31, 2005 to make future payments under contracts are set forth below (in thousands):

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. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition.

      Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could negatively affect our operating results in any given quarter. Our operating results

may fluctuate significantly. For example, in comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. Some of the factors that may affect our quarterly and annual results are:

      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 materially adverse fluctuations in our future operating results on a quarterly or annual basis.

      Business conditions in the semiconductor industry may rapidly change from periods of strong demand and insufficient production to periods of weakened demand and overcapacity. The industry is characterized by:

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

      Semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. We are limited in our ability to reduce fixed costs quickly in response to any shortfall in revenues. If we are unable to utilize our manufacturing and testing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in higher average unit costs and

lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.

      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 and issued a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly infringing products. The United States Court of Appeals for the Federal Circuit vacated those rulings and remanded the litigation to the U.S. District Court for further action consistent with the opinion of the Federal Circuit. The litigation is expected to continue at the U.S. District Court and could result in another damages award and injunction. We continue to contest International Rectifier’s claims vigorously but the outcome of this litigation remains uncertain. See “Item 3. Legal Proceedings” provided elsewhere in this Annual Report on Form 10-K.

      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 and suppliers with respect to the infringement of third party intellectual property rights by our products. We could incur substantial costs defending ourselves and our customers and suppliers from any such claim. Infringement claims or claims for indemnification, whether or not proven to be true, could 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 development, 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, results of operations or cash flows.

      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 from our core business operations.

      Our semiconductors are incorporated into our customers’ products, and the demand for our semiconductors is dependent upon the demand for our customers’ products. Demand for our customers’ products may level or decline due to technological change in our customers’ industries, price or quality of their products or other competitive factors. If sales of our customers’ products level or fall, our sales of semiconductors intended for such products will also likely level or decline. We have recently sold more semiconductors for inclusion in consumer products than was our historical practice. We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than the products of many of our other customers. In particular, in recent years we have sold semiconductors for inclusion in the plasma display panels of a small number of manufacturers. Plasma display panels are one of several technologies for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels, our operating results could be adversely affected. Moreover, our operating results could be adversely affected if those plasma display panel manufacturers that have selected our semiconductors for inclusion in their products are not successful in their competition against other manufacturers of plasma display panels.

      During fiscal year 2005, our product sales by region were approximately 28.2% in the United States, approximately 33.2% in Europe and the Middle East and approximately 35.5% in Asia and approximately 3.1% in Canada and the rest of the world. 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:

      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. We generally 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 management assessed our internal control over financial reporting and concluded that five material weaknesses existed as of March 31, 2005:

      The deficiencies in the number of accounting personnel have resulted in a number of designed controls not operating properly. The deficiencies in the number of accounting staff during the initial year of Sarbanes-Oxley compliance placed an extra burden upon the existing division controllers and their accounting staff, which led to controls not being performed properly.

      The material weakness related to the costing and valuation of inventory resulted from the incorrect calculation of inventory yields and overhead absorption, causing erroneous production variances, at our facility in Lampertheim, Germany, errors in capitalized variances at our facilities in Chippenham, England and Lampertheim, Germany and errors in calculating inventory reserves in our facility in Fremont, California. The net effect of the corrections of these errors on our financial statements for the year ended March 31, 2005 was an increase in cost of goods sold on our statement of operations of $624,000, a decrease in inventory of $122,000 and $502,000 distributed over a number of other accounts.

      The material weakness related to spreadsheets occurred when division controllers made modifications to the template spreadsheets for periodic reporting sent to them by corporate accounting personnel, and the modifications and the impact of the modifications were not identified by corporate accounting personnel when accounting information was submitted by the divisions. As a result of these items, reported income taxes and miscellaneous other matters changed approximately $105,000 and $332,000, respectively. In addition, the spreadsheets used to compute key financial statement items did not have adequate validation controls.

      In part because a financial analyst resigned without notice, our controls relating to review of consolidations, inputs, foreign currency translations and recurring journal entries did not function properly. As a consequence of the unexpected departure of the financial analyst, our senior financial analyst, who is responsible for our consolidation process, had to do her work as well as that of the departed financial analyst. Thus, a layer of control in the consolidation process was eliminated. Due to a lack of personnel resources, supervisory review of the senior financial analyst’s work was inadequate. As a result of these deficiencies, our auditors found differences in our reports requiring a reduction in deferred tax assets and income tax payable of approximately $8.2 million and adjustments to foreign exchange totaling $145,000. These deficiencies were assessed to be a material weakness.

      We have determined that a number of duties have not been segregated properly within our cycle of activities whereby we purchase and pay for goods and services. In particular, at several of our facilities, the same individual was able to update vendor files, control purchase orders and process vendor invoices. These deficiencies in segregation of duties constituted a material weakness. The material weakness arises from the limited number of accounting personnel at a number of our facilities and our historical practice of only having accounting personnel perform traditional accounting functions.

      Existence of these or other material weaknesses in our internal control could result in a material misstatement of our financial condition, results of operations or cash flows. Whether or not a misstatement occurs, the existence of one or more material weaknesses could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our controls over financial reporting, which ultimately could negatively impact the market price of our shares.

      Based on its assessment and as set forth in the Section 404 management report included in this annual report, our management determined that our internal controls over financial reporting were ineffective. Our management further determined that our disclosure controls and procedures were ineffective. See “Item 9A. Controls and Procedures,” elsewhere in this Annual Report on Form 10-K.

      Our efforts to correct the deficiencies in our disclosure and internal controls have required, and will continue to require, the commitment of significant financial and managerial resources. In addition, we anticipate the costs associated with the testing and evaluation of our internal controls will be significant and material in fiscal year 2006 and may continue to be material in future fiscal years as these controls are maintained and continually evaluated and tested.

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

      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.

      In the normal course of business, we frequently engage in discussions with parties relating to possible acquisitions. As a result of such transactions, our financial results may differ from the investment community’s expectations in a given quarter. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows, and stock price could be negatively impacted.

      Of our revenues in fiscal year 2005, 43% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We currently have arrangements with a number of wafer

foundries, three 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. If growth in demand for our products occurs, these foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. 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 could be reduced or their growth limited. 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:

      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.

      The semiconductor industry has been characterized by periodic limitations on production capacity. Although we may be able to 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.

      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:

      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.

      The markets for our products are characterized by:

      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.

      Products or technologies developed by others may render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets would have a material adverse effect on our competitive position within the industry.

      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. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark office, which can demand significant financial and management resources and could harm our financial results. Also, 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. See “Item 3. Legal Proceedings” in Part I of this Annual Report on Form 10-K.

      Many of our 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 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.

      The time from initiation of design to volume production of new semiconductors 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.

      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.

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

      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 our products 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, Infineon, International Rectifier, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, Siemens and Toshiba. Our IC products compete principally with those of Agere Systems, Legerity, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices and RF Monolithics. 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 cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased price competition.

      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, 2005, no distributor accounted for greater than 10% of our outstanding receivables. Nonetheless, if any significant 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 success depends upon our ability to attract and retain highly-skilled technical, managerial, marketing and finance personnel, and, 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. 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. If we grow, we expect increased demands on our resources, and growth would 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.

      Presently, because of past acquisitions, we are operating a number of different information systems that are not integrated. In part because of this, we use spreadsheets, which are prepared by individuals rather than automated systems, in our accounting. Consequently, in our accounting, we perform many manual reconciliations and other manual steps, which result in a high risk of errors. For a further discussion of issues relating to spreadsheets, see Item 9A “Controls and Procedures.”

      If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including Sarbanes-Oxley Act of 2002, requires an effective planning and management system and process. We will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively in the future.

      In improving our operational and financial systems, procedures and controls, we would expect to 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 compatible with the upgraded system. During any transition, we could experience errors, delays and other inefficiencies, which could adversely affect our business. Any delay in the implementation of, or disruption in the transition to, any new or enhanced systems, procedures or controls, could harm our ability to forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and record and report financial and management information on a timely and accurate basis. In addition, as we add additional functionality, new problems could arise that we have not foreseen. Such problems could adversely impact our ability to do the following in a timely manner: provide quotes; take

customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and our results of operations, cash flows, and stock price could be negatively impacted.

      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.

      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 in the event of:

      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.

      We depend on independent subcontractors for the assembly and testing of our products. The majority of our products are assembled by independent subcontractors located outside of the United States. Our reliance on these subcontractors involves the following significant risks:

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

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

      Our 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 our own expectations for customer demand. Actual customer demand, however, can be 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 purchase the bulk of our silicon wafers from three vendors with whom we do not have long-term supply agreements. Any of these suppliers could reduce 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.

      From time to time we may need to 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.

      Any such event may disrupt our operations or those of our customers or suppliers. Our markets currently include South Korea, Taiwan and Israel, which are experiencing political instability. Additionally, our principal external foundry is located in South Korea.

      Our operations and those of our suppliers 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 facilities in California are located near major earthquake faults and have experienced earthquakes in the past. If any of these events

occurs, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations or cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

      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 could significantly increase. Our failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

      From time to time, we have received notices of tax assessments from certain governments of countries in which we operate. These governments or other government entities may serve future notices of assessments on us and the amounts of these assessments or our failure to favorably resolve such assessments may have a material adverse effect on our financial condition or results of operations.

      Approximately 10.1% of our net revenues in fiscal year 2005 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 cannot be sure that the insurance that we maintain against product liability will be adequate to cover our losses. Any defects in our semiconductors used in these devices, or in any other product, could result in significant replacement, recall or product liability costs to us.

      Nathan Zommer, Ph.D., our president and chief executive officer, beneficially owned, as of May 16, 2005, approximately 20% of the outstanding shares of our common stock. As a result, Dr. Zommer can exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. His 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.

      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 10.1% of our revenues in fiscal year 2005 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.

      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, 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.

      We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, we have on occasion utilized derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes.

      We currently keep our funds in accounts and instruments that, for accounting purposes, are cash and cash equivalents and do not carry interest rate risk to the fair market value of principal. We may, in the future, choose to place our funds in investments in high quality debt securities, potentially consisting of debt instruments of the United States or state or local governments or investment grade 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 could 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. Should we establish one, our investment portfolio would be categorized as available-for-sale and accordingly presented at fair value on the balance sheet.

      We intend to manage our exposure to interest rate, market and credit risk in any 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 any investment portfolio.

      We are also exposed to short-term fluctuations in interest rates as the accounts and instruments in which we invest our cash have variable interest rates. Although an increase in interest rates would have an adverse impact on our interest expense, our cash and cash equivalents 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.

      The impact on the fair market value of our cash equivalents and our earnings from a hypothetical 100 basis point adverse change in interest rates as of the end each of fiscal 2005 and 2004 would have had the effect of reducing our annual net income as of the end of each of fiscal 2005 and fiscal 2004 by an amount less

than $1.0 million. As our cash and cash equivalents have historically been held in accounts and instruments where the principal is not subject to interest rate risk and our cash and cash equivalents greatly exceed our variable rate borrowings, this sensitivity analysis was accomplished by offsetting our variable rate borrowings against our cash and cash equivalents and then estimating the impact of a 100 basis point reduction in interest rates on such adjusted cash balances.

      Revenues from our foreign subsidiaries were approximately 38.8% of total revenues in fiscal year 2005. 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. Our principal foreign subsidiaries use their respective local currencies as their functional currency.

      Although we have entered into a limited number of foreign exchange forward contracts to help manage foreign currency exchange risk associated with certain of our operations, we do not generally hedge foreign currency exchange rates. The foreign exchange forward contracts we have entered into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results.

      It is possible that our future financial results could be directly affected by changes in foreign currency exchange rates. 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 were to rise in comparison to the local currency, which could make it more difficult to sell our products in that market. We will continue to face foreign currency exchange risk in the future. Therefore, our financial results could be directly affected by weak economic conditions in foreign markets. In addition, a strengthening of the U.S. dollar, the Euro or the British pound could make our products less competitive in foreign markets. Also, since March 31, 2005, we have borrowed Euro 10 million, or about $12.1 million. Changing foreign exchange rates could adversely affect the repayment of this loan. A hypothetical 10% adverse change in the value of the Euro against the U.S. dollar and the British pound against the U.S. dollar would have had the effect of reducing our annual net income as of the end of each of fiscal 2005 and 2004 by an amount less than $1.0 million.

      Because of the operation of our principal foreign units in their own functional currencies, this sensitivity analysis was undertaken by examining the net income or loss of the foreign units incorporated into our statement of operations and testing the impact of the hypothetical change in exchange rates on such income or loss. The hypothetically derived net income or loss of the foreign units was then calculated with our statement of operations data to derive the hypothetical impact on our net income.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Stockholders,

IXYS Corporation

Santa Clara, California

      We have audited the accompanying consolidated balance sheet of IXYS Corporation as of March 31, 2005, and the related consolidated statements of operations, stockholders’ equity, comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IXYS Corporation as of March 31, 2005, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of IXYS Corporation’s internal control over financial reporting as of March 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 3, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting.

June 3, 2005

except for Note 16 which is as of June 23, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of IXYS Corporation

      In our opinion, the consolidated balance sheet as of March 31, 2004 and the related consolidated statement of operations, of comprehensive income (loss), of cash flows and of changes in stockholders’ equity for each of the two years in the period ended March 31, 2004 (appearing in this Form 10-K) present fairly, in all material respects, the financial position of IXYS Corporation and its subsidiaries at March 31, 2004, and the consolidated results of operations, comprehensive income (loss) and cash flows of IXYS Corporation and its subsidiaries at March 31, 2004 and for each of the two years in the period ended March 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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.

PricewaterhouseCoopers LLP

San Jose, CA

May 18, 2004

IXYS CORPORATION

CONSOLIDATED BALANCE SHEETS

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY