IXYS CORP /DE/ (Form: 10-K, Received: 06/22/2006 06:04:54)

Position(s)

Nathan Zommer

Chairman of the Board, President and Chief Executive Officer

Uzi Sasson

Vice President of Finance, Chief Financial Officer and Secretary

Peter H. Ingram

President of European Operations

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended March 31, 2006

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission file number 000-26124

IXYS Corporation

(Exact name of Registrant as specified in its charter)


Delaware		77-0140882
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer þ Non-accelerated Filer o

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

The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by reference to the last sale price on the Nasdaq National Market on September 30, 2005 was approximately $283,945,020. For purpose of this calculation, shares held by directors and executive officers have been excluded because they may be deemed to be “affiliates.” This determination is used for convenience and is not conclusive for any purpose. The number of shares of the Registrant’s Common Stock outstanding as of May 16, 2006 was 34,156,143.

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, 2006, to be filed subsequently — Part III.

IXYS CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2006

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		3
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		26
Item 2.	Properties		26
Item 3.	Legal Proceedings		26
Item 4.	Submission of Matters to a Vote of Security Holders		28
	Executive Officers of the Registrant		28
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
Item 6.	Selected Financial Data		30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 8.	Financial Statements and Supplementary Data		46
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		83
Item 9A.	Controls and Procedures		83
Item 9B.	Other Information		88
PART III
Item 10.	Directors and Executive Officers of the Registrant		88
Item 11.	Executive Compensation		88
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		88
Item 13.	Certain Relationships and Related Transactions		88
Item 14.	Principal Accounting Fees and Services		89
PART IV
Item 15.	Exhibits and Financial Statement Schedules		89
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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 1A. We disclaim any obligation to update any of the forward-looking statements contained in this report to reflect any future events or developments.

PART I


Item 1.	*Business*

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, application specific integrated circuits, or ASICs, 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 our fiscal year ended March 31, 2006, or fiscal 2006, power semiconductors constituted approximately 76.0% of our revenues, which included 36.4% from power MOS transistors and 39.6% from bipolar products.

We design and sell ICs that have applications in telecommunications, display products, and power management. In fiscal 2006, ICs constituted approximately 16.5% 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:


	•	power conversion systems, including uninterruptible power supplies, or UPS, and switch mode power supplies, or SMPS, for applications such as communications infrastructure, including wireless base stations, network servers and telecommunication switching stations;

	•	motor drives for industrial applications such as industrial transportation, robotics, automation, and process control equipment;

	•	plasma display panels;

	•	medical electronics for sophisticated applications, such as defibrillators and MRI and CT equipment; and

	•	renewable energy sources like wind turbines and solar systems.

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 2006, 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:


	•	proliferation of technology-driven products that require electricity, including computers, telecommunications equipment and the infrastructure to support portable electronics;

	•	increased use of electronic content in traditional products such as airplanes, automobiles and home appliances;

	•	increased use of automation and electrical processes in industry and mass transit systems;

	•	the growth of the Internet and mobile telecommunications demand; and

	•	penetration of technology into developing countries.

Not only is demand increasing, but the requirements for electricity are also changing. Electronic products in all markets are becoming increasingly sophisticated, offering more “intelligence” through the use of microprocessors and additional 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:


	•	convert or “rectify” alternating current, or AC, power delivered by electrical utilities to the direct current, or DC, power that is required by most electronic equipment;

	•	convert DC power at a certain voltage level to DC power at a different voltage level to meet the specific voltage requirement for an application;

	•	invert DC power to high frequency AC power to permit the processing of power through the use of substantially smaller electronic components; or

	•	rectify high frequency AC power from switch mode power supplies to meet the specific DC voltage and frequency required by an application.

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

Power semiconductors improve system efficiency and reliability by processing and converting electrical energy into more usable, higher quality power. Specifically, our power semiconductors are used primarily in controlling energy in power conversion systems, including switch-mode power supplies and uninterruptible power supplies, and in 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.

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, 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 application specific ICs, or 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 2006, power semiconductors constituted approximately 76.0% of our revenues, which included about 36.4% from power MOS transistors and about 39.6% from bipolar products. In fiscal year 2005, power semiconductors constituted approximately 76.0% of our revenues, which included about 39.9% from power MOS transistors and about 36.1% 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.


	*Power MOS Transistors.*

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.


	Power MOSFETs.

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.

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.*

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


	Rectifiers.

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

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


	Thyristors.

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

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 16.5% of our revenues in fiscal 2006, 15.9% of our revenues in fiscal 2005, and 17.6% in fiscal 2004.


	Solid State Relays.

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.


	LCAS and DAA integrated products.

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.


	Application Specific Integrated Circuits.

We design high voltage, analog and mixed signal 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.


	Power Management and Control ICs.

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, sometimes known as modules or stacks, 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, medical electronics and plasma display panels. 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.


Category	IXYS Products	End User Applications

Power Conversion Systems	FRED	SMPS and UPS for:
	IGBT	Wireless base stations
	Module	Internet facilities
	MOSFET	Storage area networks
	Rectifier	RF generators
	IC Driver
Motor Drives	FRED	Automation
	IGBT	Robotics
	Module	Process control equipment
	MOSFET	Machine tools
	Thyristor	Electric trains
	IC Driver


Category	IXYS Products	End User Applications

Medical Electronics	IGBT	Defibrillators
	MOSFET	Medical imaging devices
	Thyristor	Laser power supplies
	IC	Ultrasound
	GaAs FET	Hearing aids
Telecommunications	SSR	Point-of-sale terminals
	LCAS	Modems
	GaAs FET	Set top boxes
	DAA	Wireless base stations
		Central office
Display	MOSFET	Plasma display panels
	IC driver	E-books

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, 2006, we employed 56 people in sales, marketing, customer support and service and used 22 sales representative organizations and seven distributors in North and South America and 48 sales representative organizations and distributors in the rest of the world. Sales to distributors accounted for approximately 44% of net revenues in fiscal 2006, 36% of net revenues in fiscal 2005, and 37% of net revenues in fiscal 2004.

In fiscal year 2006, United States sales represented approximately 31.5%, and international sales represented approximately 68.5%, of our net revenues. Of our international sales in fiscal year 2006, approximately 48.5% were derived from sales in Europe and the Middle East, approximately 44.2% were derived from sales in Asia and approximately 7.3% were derived from sales in Canada and the rest of the world. No one customer accounted for more than 10% of net revenues in fiscal 2006. For financial information about geographic areas for each of our last three fiscal years, see our Audited Consolidated Financial Statements, Note 13, Segment and Geographic Information provided elsewhere in this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1. For a discussion of the risks attendant to our foreign operations, see “Risk Factors-Our international operations expose us to material risks,” provided in Item 1A of 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 semiconduc-

tors often takes 18 months or longer, our power semiconductors typically have a product lifetime of years. Our research and development expenses were approximately $17.5 million in fiscal 2006, $18.6 million in fiscal 2005, and $15.8 million in fiscal 2004. As of March 31, 2006, we employed 101 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:


	•	developing RF power MOSFETs and GaAs FETs;

	•	increasing the operating range of our MOS and bipolar products;

	•	developing new gallium arsenide products;

	•	developing high efficiency solar cells;

	•	developing higher power IGBT modules;

	•	developing power solid state relays;

	•	extending and developing product family of power management ICs based on our HVIC technology;

	•	developing low voltage Trench MOSFETs for automotive and portable markets;

	•	developing next generation IGBTs for white goods and consumer markets; and

	•	developing module products for automotive markets.

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, 2006, we held 143 issued patents, of which 106 were issued in the U.S. and 37 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.

We are currently engaged in patent litigation. See “Item 3. Legal Proceedings.”

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.


	*Wafer Fabrication.*

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 30,000 square foot facility in Fremont, California, where we manufacture our gallium arsenide RF power semiconductors, and an approximately 100,000 square foot facility in Chippenham, England. 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 39% of our wafer fabrication requirements in fiscal year 2006, 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 more than 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 “Risk Factors -We depend upon a limited number of suppliers for our wafers,” provided in Item 1A of 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 “Risk Factors-We may be affected by environmental laws and regulations,” provided in Item 1A of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1.


	*Assembly.*

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 63% of our products are assembled at external assembly facilities, and the rest are assembled in our Lampertheim, Chippenham and Fremont facilities.


	*Test.*

Generally, each die on our wafers is electrically tested for performance after wafer fabrication. Following assembly, our products undergo testing and final inspection, either internally or externally, 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:


	•	proper new product definition;

	•	product quality, reliability and performance;

	•	product features;

	•	timely delivery of products;

	•	price;

	•	breadth of product line;

	•	design and introduction of new products;

	•	market acceptance of our products and those of our customers; and

	•	technical support and service.

We believe that we are one of a limited group of companies focused on the development and marketing of high power, high performance semiconductors capable of performing all of the basic functions of power semiconductor design and manufacture. Our primary power semiconductor competitors include Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, 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, 2006, our backlog of orders was approximately $81.3 million, as compared with $78.9 million at March 31, 2005. Backlog represents firm orders expected to be shipped within the 12 months following March 31, 2006.

Employees

At March 31, 2006, we employed 965 employees, of whom 101 were primarily engaged in engineering and research and development activities, 56 in marketing, sales and customer support, 747 in manufacturing and 61 in administration and finance. Of these employees, 125 hold engineering or science degrees, including 20 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.

Other

Over the years, we have experienced a pattern, although not consistently, in our September and December quarters of reduced revenues or reduced growth in revenues from quarter to sequential quarter because of summer vacation and year-end holiday schedules in our and our customers’ facilities, particularly in our European operations. In recent periods, we have been increasing inventory to become responsive to customer demand for shorter lead times for the delivery of orders, in light of our customers’ desire to manage their inventories on a “just-in -time” basis.

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.


Item 1A.	*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 our business and us. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition.


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

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 seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter to quarter and year to year. For example, comparing fiscal 2002 to fiscal 2001, net revenues fell by 25.6% and net income fell by 85.7%. Further, from fiscal 2002 to fiscal 2003 and from fiscal 2005 to fiscal 2006, net income in one year shifted to net loss in the next year. Some of the factors that may affect our quarterly and annual results are:


	•	the reduction, rescheduling or cancellation of orders by customers;

	•	fluctuations in timing and amount of customer requests for product shipments;

	•	changes in the mix of products that our customers purchase;

	•	loss of key customers;

	•	the cyclical nature of the semiconductor industry;


	•	competitive pressures on selling prices;

	•	damage awards or injunctions as the result of litigation;

	•	market acceptance of our products and the products of our customers;

	•	fluctuations in our manufacturing yields and significant yield losses;

	•	difficulties in forecasting demand for our products and the planning and managing of inventory levels;

	•	the availability of production capacity;

	•	the amount and timing of investments in research and development;

	•	changes in our product distribution channels and the timeliness of receipt of distributor resale information;

	•	the impact of vacation schedules and holidays, largely during the second and third fiscal quarters of our fiscal year; and

	•	the amount and timing of costs associated with product returns.

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.


	*Our gross margin is dependent on a number of factors, including our level of capacity utilization.*

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, assembly 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.


	*IXYS could be harmed by litigation.*

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 such a claim. For example, we were sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. After a trial in September and October 2005, the U.S. District Court awarded damages to International Rectifier of $6.2 million plus 6.5% of revenues from infringing products between September 30, 2005 and February 14, 2006. In addition, a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly infringing products, was issued by the U.S. District Court, although its enforcement has been temporarily stayed. IXYS is appealing the damage award and the injunction. We continue to contest International Rectifier’s claims vigorously but the outcome of this litigation remains uncertain.

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, may divert the efforts and attention of our management and technical personnel from our core business operations and could otherwise harm our business.

In the event of an adverse outcome 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

outcome 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 and cash flows.

In addition, our subsidiary, Clare, Inc. was sued in Massachusetts state court in 2003 over a dispute between it and LoJack Corporation relating to a contract for the design, development and purchase of application specific integrated circuits and assemblies. On February 8, 2006, the jury found that Clare was liable for damages in the amount of $36.7 million.

Under Massachusetts law, a jury’s award is increased for pre-judgment interest. The Court determined the method for calculating the pre-judgment interest and, at March 31, 2006, it was $6.2 million. In addition, the Court determined the attorney’s fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys fees and costs, at the rate of 12% per annum simple interest.

Clare sought post-judgment relief from the trial court and, if necessary, intends to file an appeal. The trial court has yet to rule on Clare’s post-trial motions. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. Post-judgment proceedings and/or appeals may take several months or even years to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

We cannot predict the final outcome of this litigation matter. An adverse outcome would materially and adversely affect our financial condition, results of operations and cash flows. Although we recorded an additional $42.8 million in litigation provision during the year ended March 31, 2006, there can be no assurance that our aggregate accrual of $43.6 million is sufficient for any actual losses that may be incurred as a result of this litigation.


	*Semiconductors for inclusion in consumer products have short product life cycles.*

We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than other types of products sold by our customers. Shorter product life cycles result in more frequent design competitions for the inclusion of semiconductors in next generation consumer products, which may not result in design wins for us.

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 used for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels that incorporate our products, 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. As plasma display panels cycle into next generation products, we must achieve new design wins for our semiconductors to be included in the next generation plasma display panels. New design wins may not occur.


	*Our international operations expose us to material risks.*

During fiscal 2006, our product sales by region were approximately 31.5% in the United States, approximately 33.2% in Europe and the Middle East, approximately 30.3% in Asia and approximately 5.0% 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:


	•	foreign currency fluctuations;

	•	changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;

	•	trade restrictions;


	•	longer payment cycles;

	•	challenges in collecting accounts receivable;

	•	cultural and language differences;

	•	employment regulations;

	•	limited infrastructure in emerging markets;

	•	transportation delays;

	•	seasonal reduction in business activities;

	•	work stoppages;

	•	terrorist attack or war; and

	•	economic or political instability.

Our sales of products manufactured in our Lampertheim, Germany facility and our costs at that facility are denominated in Euros, and sales of products manufactured in our Chippenham, U.K. facility and our costs at that facility are primarily denominated in British pounds and Euros. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant impact on our balance sheet and results of operations. 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.


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

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 in general is characterized by:


	•	alternating periods of overcapacity and production shortages;

	•	cyclical demand for semiconductors;

	•	changes in product mix in response to changes in demand;

	•	significant price erosion;

	•	variations in manufacturing costs and yields;

	•	rapid technological change and the introduction of new products; and

	•	significant expenditures for capital equipment and product development.

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


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

Our operating expenses are relatively fixed, and, therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, our operating results will be harmed if we 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 significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and 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. This risk has increased in recent periods. As our customers have increasingly demanded “just-in -time” deliveries that cannot be accommodated in the time required for a normal production cycle, we have increased our inventory produced in expectation of future orders. If anticipated demand fails to materialize, we may have to write down excess inventory, which would hurt our financial results.


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

The semiconductor industry has been characterized by periodic limitations on production capacity. Although we 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 have a material weakness in our internal control over financial reporting that could result in a material misstatement of our financial condition, results of operations and cash flows.*

Our management assessed our internal control over financial reporting and concluded that a material weakness existed as of March 31, 2006 as a result of the absence of a financial accounting professional with sufficient skills and experience to make estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America (“US GAAP”) during the closing process.

During the closing process, we were unable to support some of our estimates and judgments about non-routine transactions with appropriate analysis. Our initial analysis of goodwill under SFAS 142 was not sufficiently robust to support our conclusions. We drew an inappropriate conclusion regarding the presentation of a non-cash related item of $15.3 million in the cash flow from operating activities of our consolidated statements of cash flows. In connection with the settlement of litigation after the end of a period but prior to filing financial statements with the SEC, we inappropriately concluded that aspects of the settlement should be recorded in a future period, as opposed to being accounted for as a subsequent event that should be reflected in the current period financial statements. As a result of the errant judgment, we understated our accounts payable at March 31, 2006 by $560,000 and overstated our income before income taxes for the quarter ended March 31, 2006 by $560,000.

We have not concluded that this material weakness was remediated at March 31, 2006. Existence of this material weakness or other material weaknesses in our internal control could result in a material misstatement of our financial condition, results of operations and 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 included in this Annual Report on Form 10-K, our management determined that our internal control over financial reporting was not effective as of March 31, 2006. Our management further determined that our disclosure controls and procedures were not effective as of March 31, 2006. For additional

information on our internal control over financial reporting and our disclosure controls and procedures, 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 2007 and may continue to be material in future fiscal years as these controls are maintained and continually evaluated and tested.


	*We may not be successful in our acquisitions.*

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


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

	•	disruption of our ongoing business;

	•	the potential strain on our financial and managerial controls and reporting systems and procedures;

	•	unanticipated expenses and potential delays related to integration of an acquired business;

	•	the risk that we will be unable to develop or exploit acquired technologies;

	•	failure to successfully integrate the operations of an acquired company with our own;

	•	the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;

	•	the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;

	•	the risks of entering new markets in which we have limited experience;

	•	difficulties in expanding our information technology systems or integrating disparate information technology systems to accommodate the acquired businesses;

	•	failure to retain key personnel of the acquired business;

	•	the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate policies, benefits and compliance programs;

	•	customer dissatisfaction or performance problems with an acquired company’s products or personnel;

	•	adverse effects on our relationships with suppliers;

	•	the reduction in financial stability associated with the incurrence of debt or the use of a substantial portion of our available cash;

	•	the costs associated with acquisitions, including in-process R&D charges and amortization expense related to intangible assets, and the integration of acquired operations; and

	•	assumption of known or unknown liabilities or other unanticipated events or circumstances.

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

As a result of an acquisition, 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, or stock price could be negatively impacted.


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

Of our revenues for fiscal 2006, 39% 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’ 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:


	•	the lack of control over delivery schedules;

	•	the unavailability of, or delays in obtaining access to, key process technologies;

	•	limited control over quality assurance, manufacturing yields and production costs; and

	•	potential misappropriation of our intellectual property.

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


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

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


	•	contaminants in the manufacturing environment;

	•	defects in the masks used to print circuits on a wafer;

	•	manufacturing equipment failure; or

	•	wafer breakage.

For these and other reasons, we could experience a decrease in manufacturing yields. Additionally, if 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.


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

The markets for our products are characterized by:


	•	changing technologies;

	•	changing customer needs;

	•	frequent new product introductions and enhancements;

	•	increased integration with other functions; and

	•	product obsolescence.

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

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.


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

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


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

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. The development of the next generation of products by our customers generally results in new design competitions for semiconductors, which may not result in design wins for us, potentially leading to reduced revenues and profitability. We may not achieve design wins or our design wins may not result in future revenues.


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

The time from initiation of design to volume production of new 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 that may last an additional nine months or longer. As a result, a significant period of time may elapse between

our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.


	*Our backlog may not result in future revenues.*

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


	*The markets in which we participate are intensely competitive.*

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


	•	proper new product definition;

	•	product quality, reliability and performance;

	•	product features;

	•	price;

	•	timely delivery of products;

	•	breadth of product line;

	•	design and introduction of new products;

	•	market acceptance of our products and those of our customers; and

	•	technical support and service.

In addition, our competitors or customers may offer new products based on new technologies, industry standards or end-user or customer requirements, including products that have the potential to replace 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 Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, 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.


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

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

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

Our success depends 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.


	*Growth and expansion place a significant strain on our resources, including our information systems and our employee base.*

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. Manual steps also increase the probability of control deficiencies and material weaknesses.

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 those adopted under the 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 could require, 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.

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


	*Our stock price is volatile.*

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


	•	variations in our actual or expected quarterly operating results;

	•	announcements or introductions of new products;

	•	technological innovations by our competitors or development setbacks by us;

	•	conditions in the communications and semiconductor markets;

	•	the commencement or adverse outcome of litigation;

	•	changes in analysts’ estimates of our performance or changes in analysts’ forecasts regarding our industry, competitors or customers;

	•	announcements of merger or acquisition transactions or a failure to achieve the expected benefits of an acquisition as rapidly or to the extent anticipated by financial analysts;

	•	terrorist attack or war;

	•	sales of our common stock by one or more members of management, including Nathan Zommer, Ph.D., our President and Chief Executive Officer; or

	•	general economic and market conditions.

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


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

We depend on independent subcontractors for the assembly and testing of our products. 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:


	•	reduced control over delivery schedules and quality;

	•	the potential lack of adequate capacity during periods of excess demand;

	•	difficulties selecting and integrating new subcontractors;

	•	limited or no warranties by subcontractors or other vendors on products supplied to us;

	•	potential increases in prices due to capacity shortages and other factors;

	•	potential misappropriation of our intellectual property; and

	•	economic or political instability in foreign countries.

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

In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experiences financial, operational, production or quality assurance 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.


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

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.


	*Our ability to access capital markets could be limited.*

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 assurance that we will continue to have access to the capital markets on favorable terms.


	*Geopolitical instability, war, terrorist attacks, terrorist threats, and government responses thereto, may negatively affect all aspects of our operations, revenues, costs and stock prices.*

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 currently experiencing political instability. Additionally, our principal external foundry is located in South Korea.


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

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 and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.


	*We may be affected by environmental laws and regulations.*

We are subject to a variety of laws, rules and regulations in the United States, England and Germany related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process. Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs 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.


	*Our tax liability has been in dispute from time to time.*

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.


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

Approximately 15% of our net revenues in fiscal 2006 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. owns a significant interest in our common stock.*

Nathan Zommer, Ph.D., our President and Chief Executive Officer, beneficially owned, as of May 16, 2006, 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, any change in control of IXYS, which may reduce the market price of our common stock.


	*Regulations may adversely affect our ability to sell our products.*

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

In addition, approximately 15% of our revenues in fiscal 2006 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.


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

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

Our stockholders must give substantial advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to our stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The

Delaware statute makes it more difficult for us to be acquired without the consent of our board of directors and management.


Item 1B.	*Unresolved Staff Comments*

Not Applicable.


Item 2.	*Properties*

Our principal facilities are described below:


	Approximate
	Square
Principal Facilities	Footage		Lease Expiration	Use

Aliso Viejo, California		27,000	(1)	Research and development, sales and distribution
Beverly, Massachusetts		83,000	(1)	Research and development, manufacturing, sales and distribution
Chippenham, England		100,000	December 2022	Research and development, manufacturing, sales and distribution
Fremont, California		30,000	November 2008	Research and development, manufacturing, sales and distribution
Lampertheim, Germany		170,000	(1)	European headquarters, research and development, manufacturing, sales and distribution
Santa Clara, California		20,000	January 2009	Corporate headquarters, research and development, sales and distribution


(1)	Owned, not leased.

We believe that our current facilities are suitable to our needs and will be adequate through at least fiscal year 2007 and that suitable additional or replacement space will be available in the future as needed on commercially reasonably terms.


Item 3.	*Legal Proceedings*

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.

International Rectifier

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 had been and continued to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’s power MOSFETs and IGBTs infringed certain claims of each of three International Rectifier U.S. patents.

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. Trial commenced in the U.S. District Court on September 6, 2005. On September 15, 2005, the jury specifically found that IXYS was not guilty of willful infringement.

International Rectifier has accused IXYS of infringing its 4,959,699 (“699”), 5,008,725 (“725”) and 5,130,767 (“767”) patents. The claims of these patents fall into two groups. The jury ruled that one of the groups of claims was infringed by the doctrine of equivalents; however, the claims in this group are minor claims and are not expected to have a material financial impact on IXYS.

As to the other group of claims, the jury found that IXYS did not infringe the 725 and 767 patents, but did infringe the 699 patent by the doctrine of equivalents. If upheld on appeal, this finding would have a material financial impact on IXYS. However, the jury also made a specific finding that IXYS’s devices do not infringe the 725 and 767 patents because they include an “annular source region,” which we believe is inconsistent with the conclusion that the 699 patent is infringed. The U.S. District Court awarded International Rectifier $6.2 million as damages for the infringement plus 6.5% of revenues from infringing products after September 30, 2005. The U.S. District Court also issued a permanent injunction barring IXYS from selling or distributing the infringing products. The enforcement of the damages award and the injunction have been temporarily stayed by the Federal Circuit Court and IXYS has sought a permanent stay, the granting of which is uncertain. If the permanent stay is not granted, IXYS will have to either pay into escrow or bond the damages award and cease sale of the purportedly infringing products.

There can be no assurance of a favorable final outcome in the International Rectifier suit. In the event of an adverse outcome, damages or the injunction 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 based on its conclusion that it is less than probable that we will lose on appeal.

LoJack

On April 10, 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc., now a subsidiary of IXYS, 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. The trial commenced on January 30, 2006. On February 8, 2006, the jury awarded LoJack $36.7 million in damages.

accrues on the total judgment, inclusive of the pre-judgment interest, attorneys’ fees and costs, at the rate of 12% per annum simple interest.

Clare sought post-trial relief from the trial court and, if necessary, intends to file an appeal. The trial court has yet to rule on Clare’s post-trial motions. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. Post-judgment proceedings and/or appeals may take from several months to one or more years to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

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.


Item 4.	*Submission of Matters to a Vote of Security Holders*

Not Applicable.

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, 2006.

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.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our common stock is traded on the Nasdaq National Market under the symbol “SYXI.” 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:


		High		Low

Fiscal year ending March 31, 2006
	First Quarter	$	14.96	$	9.24
	Second Quarter	$	15.01	$	9.46
	Third Quarter	$	12.74	$	9.65
	Fourth Quarter	$	13.48	$	8.75
Fiscal year ending March 31, 2005
	First Quarter	$	10.81	$	7.53
	Second Quarter	$	7.98	$	6.11
	Third Quarter	$	10.61	$	6.66
	Fourth Quarter	$	11.67	$	9.19

The number of record holders of our common stock as of May 16, 2006 was 441. To date, we have not declared or paid cash dividends. We have no plans to do so.

Issuer Purchases of Equity Securities


	Total					Total Number of Shares		Maximum Number of
	Number of		Average Price			Purchased as Part of		Shares that may yet be
	Shares		Paid per			Publicly Announced		Purchased Under the
Period	Purchased		Share			Plans or Programs		Plans or Programs

January 1, 2006 — January 31, 2006		—		(1	)		—		748,000
February 1, 2006 — February 28, 2006		25,000	$	10.09			25,000		723,000
March 1, 2006 — March 31, 2006		—		(1	)		—		723,000

Total		25,000	$	10.09			25,000


(1)	Not applicable

The program effective during the period from January 1, 2006 to March 31, 2006 was approved on June 3, 2005 and ended on May 12, 2006. It authorized the purchase of up to 1,000,000 shares of common stock. A new program was approved on May 12, 2006 and will end on June 15, 2007. The purchase of up to 2,000,000 shares of common stock has been approved under this program.


Item 6.	*Selected Financial Data*

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, 2006, 2005 and 2004 and the balance sheet data as of March 31, 2006 and 2005 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, 2003 and 2002 and the balance sheet data as of March 31, 2004, 2003 and 2002 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.


			Years Ended March 31,

			2006			2005			2004(1)			2003(2)			2002(3)

			(In thousands, except per share amounts)
Statement of operations data:
Net revenues			$	251,487		$	256,620		$	187,442		$	136,111		$	82,821
Cost of goods sold				169,792			176,710			143,948			107,371			56,918

	Gross profit			81,695			79,910			43,494			28,740			25,903
Operating expenses:
	Research, development and engineering			17,523			18,574			15,811			12,846			5,728
	Selling, general and administrative			38,371			35,707			32,742			32,437			17,614
	Restructuring charge			—			—			—			750			—
	Litigation provision			42,810			—			—			—			—

Total operating expenses				98,704			54,281			48,553			46,033			23,342

		Operating (loss) income		(17,009	)		25,629			(5,059	)		(17,293	)		2,561
Other income (expense):
	Interest income, net			2,182			633			310			720			1,318
	Other income (expense):			1,810			(481	)		(1,324	)		(1,288	)		(757	)

(Loss) income before income taxes				(13,017	)		25,781			(6,073	)		(17,861	)		3,122
Benefit from (provision for) income tax				6,911			(9,539	)		1,641			5,716			(1,184	)

	Net (loss) income		$	(6,106	)	$	16,242		$	(4,432	)	$	(12,145	)	$	1,938

	Net (loss) income per share — basic		$	(0.18	)	$	0.49			(0.14	)	$	(0.39	)	$	0.07

	Weighted average shares used in per share calculation — basic			33,636			33,093			32,434			30,889			26,745

	Net (loss) income per share — diluted		$	(0.18	)	$	0.46			(0.14	)	$	(0.39	)	$	0.07

	Weighted average shares used in per share calculation — diluted			33,636			35,085			32,434			30,889			29,004


		As of March 31,

		2006			2005			2004(1)			2003(2)			2002(3)

		(In thousands)
Selected operating data:
	Gross profit margin		32.5	%		31.1	%		23.2	%		21.1	%		31.3	%
	Depreciation and amortization	$	8,543		$	10,639		$	11,186		$	9,297		$	5,835
Balance sheet data:
	Cash and cash equivalents		78,192			58,144			42,058			40,094			32,111
	Working capital		118,815			124,063			96,246			95,425			81,399
	Total assets		279,987			219,891			198,269			183,057			124,560
	Total long-term obligations		28,023			16,796			15,120			14,966			12,261
	Total stockholders’ equity		159,973			165,277			145,531			138,809			95,219
Cash flow data:
	Cash provided by operating activities		31,143			23,730			5,679			2,404			2,151
	Cash (used in) provided by investing activities		(23,264	)		(4,966	)		(1,929	)		5,012			(11,594	)
	Cash provided by (used in) financing activities		13,722			(2,734	)		(2,311	)		(284	)		(3,147	)


(1)	During fiscal 2004, we completed our acquisition of Microwave Technology, Inc.

(2)	During fiscal 2003, we completed our acquisition of Clare, Inc.

(3)	During fiscal 2002, we completed our acquisition of Westcode Semiconductors, Ltd.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in this Form 10-K and, in particular, in Item 1A hereof. 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 “Item 1A. Risk Factors.” 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 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 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.

Over the past fiscal year, our revenues from the sales of semiconductors for the consumer products market have declined while our revenues from the sale of semiconductors for the medical electronics market have increased. Geographically, over the same period, our revenues in the United States increased because of increased sales into the medical electronics market, our revenues in Europe declined slightly in large part

because of the appreciation of the dollar against the pound and the euro and, because of a decline in sales to the consumer product market, our revenues in Asia declined substantially in the first half of the year and then stabilized. Gross profit margins increased during the fiscal year as the mix of products shifted to higher margin product lines. Selling, general and administrative expenses increased in the fiscal year, in large part due to increasing costs of compliance with laws and regulations. Distribution revenue increased during the fiscal year as revenues shifted to applications that are traditionally bought through distributors, such as industrial and commercial applications, while our revenues from semiconductors for the consumer products market, which are typically purchased directly from us, declined. During the fiscal year, we increased inventory to become more responsive to customer demand for shorter lead times for the delivery of orders, in light of our customers’ desire to manage their inventories on a “just-in -time” basis. With the shortening of order lead times, our visibility as to the timing of revenues and product mix has declined.

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 materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require that we make significant judgments and estimates in preparing our consolidated financial statements.

Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 44% of our revenues in fiscal 2006, 36% of our revenues in fiscal 2005 and 37% of our revenues in fiscal 2004 were from distributors. We provide some of our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a sales incentive program for products previously shipped to distributors. 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. Our shipping terms are generally FOB shipping point. 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. Different judgments or estimates would result in material differences in the amount and timing of our revenue for any period.

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 $363,000 in fiscal 2006, $161,000 in fiscal 2005, and $382,000 in fiscal 2004.

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 were to 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, to date our actual returns and allowances have not fluctuated significantly from period to period, 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, 2006, 2005, and 2004 approximately $962,000, $1.1 million, and $595,000, 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 management’s best estimate of future returns.

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 pricing adjustments for inventory held. Our distributors had approximately $5.1 million in inventory of our products on hand at March 31, 2006. 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, 2006 (in thousands):


Balance March 31, 2003		$	483
	Additions		2,189
	Deductions		(2,248	)

Balance March 31, 2004			424
	Additions		2,742
	Deductions		(2,613	)

Balance March 31, 2005			553
	Additions		2,300
	Deductions		(2,400	)

Balance March 31, 2006		$	453

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 processes. 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 and expectations for future use. 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 were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

During the fourth quarter of fiscal 2004, we refined our calculation of excess inventory to examine excess inventory by individual part number. This resulted in $2.1 million write-down in fiscal 2004.

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 subsequently 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):


Balance at March 31, 2003		$	17,224
	Sale of excess inventory		(2,624	)
	Scrap of excess inventory		(504	)

Balance of excess inventory			14,096
	Additional accrual of excess inventory		10,536

Balance at March 31, 2004			24,632
	Sale of excess inventory		(3,685	)
	Scrap of excess inventory		(2,555	)

Balance of excess inventory			18,392
	Additional accrual of excess inventory		2,849

Balance at March 31, 2005			21,241
	Sale of excess inventory		(1,991	)
	Scrap of excess inventory		(3,860	)

Balance of excess inventory			15,390
	Additional accrual of excess inventory		3,987

Balance at March 31, 2006		$	19,377

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 the 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, 2006, our lower of cost or market reserve was $260,000.

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

Valuation of Goodwill and Intangible Assets. We value goodwill and intangible assets in accordance with Statement of Financial Accounting Standards No. (SFAS) 142, “Goodwill and Other Intangible Assets.”

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 have two reporting units for which we have a balance in goodwill. 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.

For fiscal 2006, we reduced goodwill and intangible assets by $14.0 million and $1.3 million, respectively. The reduction resulted from valuation allowance releases on deferred tax assets, accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” This is discussed in Note 11, “Income Taxes” in the Notes to Consolidated Financial Statements.

Valuation of property, plant and equipment. 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. We had reserves for litigation at March 31, 2006 of approximately $43.6 million related to our litigation with LoJack Corporation.

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 reduce goodwill, intangible assets or 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.

In the fourth quarter, based on available positive and negative evidence, management evaluated the valuation allowance established for certain deferred tax assets and released $42.3 million in accordance with SFAS 109, “Accounting for Income Taxes.” This was reflected as a reduction in goodwill of $14.0 million, in intangibles of $1.3 million and in income tax expense of $27.0 million. The reduction in valuation allowance primarily relates to two factors. First, management assessed the release of valuation allowance placed on domestic net operating losses of $13.4 million to be appropriate. Based on our income over eight of the last ten years, we believe that we can generate adequate taxable income over the next seven years to utilize our net operating losses available during the period. Second, management concluded that $24.4 million in deferred tax assets, consisting of non-utilizable net operating losses due to the limitations under section 382 of the US tax code resulting from change in ownership, should be written off and the corresponding valuation allowance released. Further, we are in the process of implementing tax planning strategies in the form of migrating foreign intellectual property rights to lower tax jurisdictions. This may cause the effective tax rate in future years to fluctuate. In accordance to SFAS 5, “Accounting for Contingencies,” we reassessed our tax contingency reserves at the end of the year and recorded the appropriate adjustments.

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 Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or 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. We will adopt SFAS No. 123R for the fiscal year beginning April 1, 2006. SFAS No. 123R offers alternative methods of adopting this standard. We plan to apply the modified prospective method of adoption of SFAS No. 123R, under which the effects of SFAS No. 123R will be reflected in our GAAP financial statement presentations for and after the first quarter of fiscal 2007, but will not be reflected in results for prior periods. We expect that this accounting will result in a charge to the income statement of around $2 million from fiscal 2007. However, we do not expect this accounting change to materially affect liquidity, as equity-based compensation is a non-cash expense. We accelerated the vesting of stock options in fiscal 2006, to avoid future accounting charges under SFAS No. 123R. The effect of expensing stock options on the 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 the Condensed Consolidated Financial Statements.

In March 2005, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 107, or SAB No. 107, “Share-Based Payment,” which expresses views of the Staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. SAB No. 107 also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. We will evaluate the requirements of SAB No. 107 in connection with our adoption of SFAS No. 123R.

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. We will adopt SFAS No. 151 for the 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.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154 in the fiscal year beginning April 1, 2006.

Results of Operations

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


		Years Ended March 31,

		2006		% Change			2005		% Change		2004

Net revenues		$	251,487		(2.0	)	$	256,620		36.9	$	187,442
Cost of goods sold			169,792		(3.9	)		176,710		22.8		143,948

	Gross profit		81,695		2.2			79,910		83.7		43,494

Operating expenses:
	Research, development and engineering		17,523		(5.7	)		18,574		17.5		15,811
	Selling, general and administrative		38,371		7.5			35,707		9.1		32,742
	Litigation provision		42,810		nm			—		—		—

	Total operating expenses		98,704		81.8			54,281		11.8		48,553

nm — not meaningful

The following table sets forth selected statement of operations 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.


		Years Ending March 31,

		2006			2005			2004
		% of Net			% of Net			% of Net
		Revenues			Revenues			Revenues

Net revenues			100.0			100.0			100.0
Cost of goods sold			67.5			68.9			76.8

	Gross profit		32.5			31.1			23.2

Operating expenses:
	Research, development and engineering		7.0			7.2			8.4
	Selling, general and administrative		15.3			13.9			17.5
	Litigation provision		17.0			—			—

	Total operating expenses		39.3			21.1			25.9

	Operating (loss) income		(6.8	)		10.0			(2.7	)
Other income (expense), net			1.6			—			(0.5	)

	(Loss) income before benefit from (provision for) income tax		(5.2	)		10.0			(3.2	)
Benefit from (provision for) income tax			2.7			(3.7	)		0.9

Net (loss) income			(2.5	)		6.3			(2.3	)


	*Revenues.*

The following table sets forth the revenues for each of our product groups for the three fiscal years ended March 31, 2006:


	Year Ended March 31,

			% Change				% Change
			from 2005 to				from 2004 to
Revenues	2006		2006		2005		2005		2004

	(000)				(000)				(000)
Power Semiconductors	$	191,105		(2.1)	$	195,148		40.1	$	139,312
ICs		41,493		1.8		40,759		23.3		33,058
Systems and RF Power Semiconductors		18,889		(8.8)		20,713		37.4		15,072

Total	$	251,487		(2.0)	$	256,620		36.9	$	187,442

The following tables set forth the units and average selling prices, or ASPs for fiscal 2006 and fiscal 2005:


	Year Ended March 31,

			% Change
			from 2005 to
Average Selling Price (ASPs)	2006		2006			2005

Power Semiconductors	$	2.27		2.3		$	2.22
ICs	$	0.83		(4.6	)	$	0.87
Systems and RF Power Semiconductors	$	12.94		(11.4	)	$	14.60


	Year Ended March 31,

			% Change
			from 2005 to
Units	2006		2006			2005

	(000)					(000)
Power Semiconductors		84,117		(4.2	)		87,846
ICs		49,970		6.2			47,054
Systems and RF Power Semiconductors		1,460		2.9			1,419

Total		135,547		(0.6	)		136,319

The 2% decline in net revenues from fiscal 2005 to fiscal 2006 resulted primarily from a reduction in our revenues from the sales of systems and RF power semiconductors. Revenues in systems and RF power semiconductors declined by $1.8 million principally due to substantial price erosion in RF power semiconductors and the loss of a significant customer for RF power semiconductors. While our revenues from power semiconductors were largely unchanged from fiscal 2005 to fiscal 2006, the number of units sold declined. The decline in units was offset by an increase in ASPs in large part as the result of a shift in our product mix, as shipments of product for inclusion in plasma display panels declined while shipments for the medical electronics market increased. Integrated circuit revenues increased slightly as a consequence of an increase in unit shipments. The increase in unit shipments was partially offset by a decrease in ASPs caused by price erosion across the standard product line.

The 37% increase in net revenues from fiscal 2004 to fiscal 2005 reflected increased unit sales of power semiconductors, integrated circuits and systems and RF power semiconductors. The largest component of the increase in revenues was a $55.8 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 $5.6 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.

For fiscal 2006, sales to customers in the United States represented approximately 31.5% and sales to international customers represented approximately 68.5%, of our net revenues. Of our international sales in fiscal 2006, approximately 48.5% were derived from sales in Europe and the Middle East, approximately 44.2% were derived from sales in Asia and approximately 7.3% were derived from sales in Canada and the rest of the world. By comparison, for fiscal 2005, sales to customers in the United States represented approximately 28.2% and sales to international customers represented approximately 71.8%, of our net revenues. Of our international sales in fiscal 2005, approximately 46.3% were derived from sales in Europe and the Middle East, approximately 47.2% were derived from sales in Asia and approximately 6.5% were derived from sales in Canada and the rest of the world. In fiscal 2004, sales to customers in the United States represented approximately 33.1%, and sales to international customers represented approximately 66.9%, of our net revenues. Of our international sales in fiscal 2004, approximately 56.8% were derived from sales in Europe and the Middle East, approximately 33.9% were derived from sales in Asia and approximately 9.3% were derived from sales in Canada and the rest of the world. From fiscal 2005 to fiscal 2006, our revenues in the United States increased because of increased sales into the medical electronics market, our revenues in Europe declined slightly in large part because of the depreciation of the dollar against the pound sterling and the euro and, because of a decline in sales to the consumer products market, our revenues in Asia declined substantially in the first half of the year and then stabilized. From fiscal 2004 to 2005, our revenues increased in each region of the world, but on a percentage basis, shifted towards Asia because of a substantial increase in our revenues from the sale of semiconductors for the consumer products market.

None of our customers accounted for more than 10% of our net revenues in fiscal 2006 or fiscal 2004. In fiscal 2005, one customer, Samsung SDI Co., Ltd. accounted for more than 10% of our net revenues.

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.


	*Gross Profit.*

From fiscal 2005 to fiscal 2006, gross profit expressed in dollars increased by $1.8 million and gross profit margin increased from 31.1% to 32.5% primarily as the result of a shift in our product mix towards higher margin semiconductors for medical electronics and away from lower margin semiconductors for plasma display panels.

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.

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.


	*Research, Development and Engineering.*

Research, development and engineering expenses typically consisted of internal engineering efforts for product development. From fiscal 2005 to fiscal 2006, research, development and engineering expenses decreased by $1.0 million and declined slightly from 7.2% to 7.0% as a percentage of revenues due to a substantial decline in our research, development and engineering expenses related to gallium arsenide products. From fiscal 2004 to fiscal 2005, research, development and engineering expenses increased by $2.8 million as a result of 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 research, development and engineering expenses may increase as we fund more development projects, we do not expect a material increase in such expenses when expressed as a percentage of revenues.


	*Selling, General and Administrative.*

In fiscal 2006 as compared to fiscal 2005, selling, general and administrative expenses increased by $2.7 million and from 13.9% to 15.3% as a percentage of net revenues. The increases were principally the result of increased litigation expenses and increased professional and consulting expenses. Litigation expenses increased by $725,000 from fiscal 2005 to fiscal 2006 and professional and consulting expenses increased by $2.6 million. In fiscal 2005 as compared to fiscal 2004, the amount spent on selling, general and administrative expenses increased principally due to an increase of $2.0 million in professional and consulting fees for regulatory compliance. Selling, general and administrative expenses decreased as a percentage of revenues, mainly due to an increase in revenues plus 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.


	*Litigation Provision.*

For the year ended March 31, 2006, we recorded a litigation provision of $42.8 million, reflecting an estimate of the potential loss in the LoJack litigation. See Item 3 for a description of the current status of this litigation matter.


	*Other Income (Expense), Net.*

Other income, net, including interest income, net, and changes in foreign currency transactions, in fiscal 2006 was $4.0 million, as compared to other income, net of $152,000 in fiscal 2005 and other expense, net of $1.0 million in fiscal 2004. Other income, net increased from fiscal 2005 to fiscal 2006 principally because of an increase in interest income, net and $510,000 for our share in equity income of an investment accounted for under the equity method. Other income (expense), net improved in fiscal 2005 as compared to fiscal 2004 because of decrease in foreign currency transaction losses and an increase in interest income, net.

Interest income, net was $2.2 million in fiscal 2006 as compared to $633,000 in fiscal 2005 and $310,000 in fiscal 2004. Interest income, net grew principally because of higher short-term interest rates and our increasing cash balances.


	*Benefit from (Provision for) Income Taxes.*

In fiscal 2006, the benefit from income taxes reflected an effective tax rate of 53% as compared to a provision for income taxes reflecting an effective tax rate of (37%) in fiscal 2005 and a benefit from income taxes reflecting an effective tax rate of 27% in fiscal 2004. The fiscal 2006 rate, as compared to the fiscal 2005 rate, changed because of the release of valuation allowances booked against deferred tax assets for a benefit of 175%, the write-off of non-utilizable net operating losses for a provision of (175%) and the statutory tax benefit rate of 44% due to the loss for the year, as well as other tax benefits of 9%. Further, we are in the process of implementing tax planning strategies in the form of migrating foreign intellectual property rights to lower tax jurisdictions. This may cause future effective tax rates to fluctuate from year to year. The higher valuation allowance in fiscal 2005 as compared to fiscal 2004 was the principal cause of the change in the effective tax rate from year to year and was based on our assessment that a portion of our foreign net operating losses would not be realizable.


	*Liquidity and Capital Resources*

As of March 31, 2006, cash and cash equivalents were $78.2 million as compared to $58.1 million, at March 31, 2005, and $42.1 million at March 31, 2004. The increase in cash and cash equivalents during fiscal 2006 and fiscal 2005 was primarily due to cash generated by operations and a loan of $12 million. 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 2006 was $31.1 million as compared to $23.4 million in fiscal 2005 and $5.7 million in fiscal 2004. During fiscal 2006, the principal working capital use of cash was to fund inventories and accounts receivable. Our net inventory at March 31, 2006 increased from March 31, 2005 by 17.4%, principally to meet our customers’ demand for shorter lead times. Accounts receivable increased from March 31, 2005 to March 31, 2006 by 3.3%. No one customer accounted for more than 10% of our receivables at March 31, 2006. Accrued expenses and other liabilities increased from March 31, 2005 to March 31, 2006 by 12.5% principally because of an increase in liabilities for income taxes. In addition, a charge of $42.8 million was recognized for the potential loss in the LoJack litigation. During fiscal 2005 and fiscal 2004, working capital was principally used to fund accounts receivable in connection with the growth in revenues.

We used $23.3 million in net cash for investing activities during fiscal 2006, as compared to $5.0 million used in investing activities in fiscal 2005 and $1.9 million used in investing activities in fiscal 2004. During fiscal 2006, we spent $21.1 million in capital expenditures, principally for the purchase of two buildings, as compared to $5.9 million in fiscal 2005 and $3.7 million in fiscal 2004. We expect capital expenditures during

fiscal 2007 to be closer to the capital expenditures of fiscal 2005 than fiscal 2006. In all three fiscal years, our uses of cash for investing activities reflected principally the purchase of plant and equipment.

For fiscal 2006, net cash provided by financing activities was $13.7 million, as compared to net cash used in financing activities of $2.7 million in fiscal 2005 and $2.3 million in fiscal 2004. In fiscal 2006, our principal use of cash in financing activities was to purchase $2.9 million of our common stock. During fiscal 2006, the principal sources of cash were proceeds from loans, including proceeds from a € 10 million loan, and from exercises of options. During fiscal 2005 and 2004, we used cash in 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.

Another potential source of liquidity is available borrowings under existing lines of credit. At March 31, 2006, we had available credit aggregating $922,000.

At March 31, 2006, our debt, consisting of capital lease obligations and loans payable, was $17.7 million, representing 22.6% of our cash and cash equivalents and 11.1% 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, 2006, 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. We deposit funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrue for the unfunded portion of the obligations. See our Audited Consolidated Financial Statements, Note 10, “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, 2006, we had $78.2 million in cash and cash equivalents. We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirement for the next 12 months. Our liquidity could be negatively affected by decline in demand for our products, the need to invest in new product development, one or more acquisitions or the payment of damages and related interest and attorneys’ fees, including the damages of at least $6.2 million awarded to International Rectifier and the potential loss of $43.6 million in the LoJack litigation. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us.

During fiscal 2006, we accelerated the vesting of the right to purchase 920,250 shares of our common stock pursuant to previously granted stock options. The accelerated options were at an average exercise price of $12.99 and had exercise prices in excess of our closing price on the date of the acceleration. 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, 2006 to make future payments under contracts are set forth below (in thousands):


	Payments Due by Period

			Less Than						After 5
Contractual Obligations(1)	Total		1 Year		1-3 Years		3-5 Years		Years

Long term debt	$	11,502	$	816	$	1,631	$	1,610	$	7,445
Capital Lease Obligations(2)		6,516		2,749		3,404		363		—
Operating Lease Obligations		10,762		1,500		2,492		1,474		5,296
Pension Obligations(3)		13,894		869		2,256		2,458		8,311
Inventory Purchase Obligations		18,853		18,853		—		—		—
Other Liabilities		194		194		—		—		—

Total	$	61,721	$	24,981	$	9,783	$	5,905	$	21,052


(1)	Amount accrued for LoJack litigation of $43.6 million has not been considered in this disclosure.

(2)	Includes anticipated interest payments totalling $500,000.

(3)	Pension obligations indicate the benefits estimated to be paid


Item 7A.	*Quantitative and Qualitative Disclosures about Market Risk*

We are exposed to various risks, including fluctuations in interest and foreign currency rates. In normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risks, credit risks and legal risks that are not discussed or quantified in the following analyses.

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 of fiscal 2006 would have had the effect of increasing our net loss 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 39.3% of total revenues in fiscal year 2006. These revenues come from our German and UK subsidiaries and are primarily denominated in Euros and British pounds, respectively. Our risk to European currencies is partially offset by the natural hedge of manufacturing and selling goods in local currency. 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 in the past 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.

We have foreign currency rate risk and interest rate risk from a € 10 million, or approximately $12 million, loan taken by IXYS Semiconductor GmbH, a German subsidiary of IXYS, from IKB Deutsche Industriebank for a term of 15 years. We borrowed these funds, to improve our liquidity in light of the funds spent to purchase the Clare and Micronix facilities.

The interest rate on the loan is determined by adding the then effective 3-month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, the interest rate may not exceed 4.1%, and, if the Euribor rate falls below 2%, the interest rate may not be lower than 3%. Thereafter, the interest rate is recomputed annually. The interest rate at March 31, 2006 was 3.547%. See Note 2 to the Condensed Consolidated Financial Statements for further information regarding fair value.

Each fiscal quarter during the first five years of the loan, a principal payment of Euro 167,000, or about $200,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany. At March 31, 2006, we were in compliance with the financial covenants of the loan documents.

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 increasing our net loss as of the end of fiscal 2006 by approximately $1.5 million.

It is possible that our future financial results could be directly affected by changes in foreign currency exchange rates. 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.

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.


Item 8.	*Financial Statements and Supplementary Data*

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders,

IXYS Corporation

Santa Clara, California

We have audited the accompanying consolidated balance sheets of IXYS Corporation as of March 31, 2006 and 2005 and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for the years 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 audits.

We conducted our audits 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 audits provide 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, 2006 and 2005, and the results of its operations and its cash flows for the years 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, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 15, 2006 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.


	BDO Seidman, LLP

	San Francisco, California
	June 15, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of IXYS Corporation

In our opinion, the related consolidated statement of operations, of comprehensive income, of cash flows and of changes in stockholders’ equity the year ended March 31, 2004 (appearing in this Form 10-K) present fairly, in all material respects, the consolidated results of operation of IXYS Corporation and its subsidiaries at 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 audit. We conducted our audit 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 audit provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Jose, CA

May 18, 2004

IXYS CORPORATION

CONSOLIDATED BALANCE SHEETS


			March 31,

			2006			2005

			(In thousands, except
			share data)
ASSETS
Current assets:
	Cash and cash equivalents		$	78,192		$	58,144
	Restricted cash			313			155
	Accounts receivable, net of allowances of $2,609 in 2006 and $2,629 in 2005			42,774			41,388
	Inventories			60,357			51,411
	Prepaid expenses and other current assets			4,121			4,134
	Deferred income taxes, net			25,049			6,649

		Total current assets		210,806			161,881
Property, plant and equipment, net				40,049			27,814
Other assets				5,099			5,907
Deferred income taxes, net				16,552			2,787
Goodwill				7,481			21,502

		Total assets	$	279,987		$	219,891


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of capitalized lease obligations		$	2,255		$	2,733
	Current portion of loans payable			973			—
	Accounts payable			20,259			12,962
	Accrued expenses and other liabilities			24,889			22,123
	Litigation reserve			43,615			—

		Total current liabilities		91,991			37,818
Capitalized lease obligations, net of current portion				3,762			4,409
Long term loans, net of current portion				10,685			157
Pension liabilities				13,576			12,230

		Total liabilities		120,014			54,614

Commitments and contingencies (Note 6)
Stockholders’ equity
	Preferred stock, $0.01 par value:
	Authorized: 5,000,000 shares; none issued and outstanding			—			—
	Common stock, $0.01 par value:
	Authorized: 80,000,000 shares; 34,677,834 issued and 34,152,343 outstanding in 2006 and 33,586,446 issued and 33,359,444 outstanding in 2005			347			336
	Additional paid-in capital			161,118			153,376
	Treasury stock, at cost: 525,491 and 227,002 common shares in 2006 and 2005			(4,454	)		(1,552	)
	Deferred compensation			—			(4	)
	Notes receivable from stockholders			(59	)		(355	)
	(Accumulated deficit)/ retained earnings			(614	)		5,492
	Accumulated other comprehensive income			3,635			7,984

		Total stockholders’ equity		159,973			165,277

		Total liabilities and stockholders’ equity	$	279,987		$	219,891

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


			Year Ended March 31,

			2006			2005			2004

			(In thousands, except per share data)
Net revenues			$	251,487		$	256,620		$	187,442
Cost of goods sold				169,792			176,710			143,948

		Gross profit		81,695			79,910			43,494

Operating expenses:
	Research, development and engineering			17,523			18,574			15,811
	Selling, general and administrative			38,371			35,707			32,742
	Litigation provision			42,810			—			—

	Total operating expenses			98,704			54,281			48,553

		Operating (loss) income		(17,009	)		25,629			(5,059	)
Other income (expense):
	Interest income			2,504			1,341			615
	Interest expense			(322	)		(708	)		(305	)
	Other income (expenses)			1,810			(481	)		(1,324	)

(Loss) income before income tax				(13,017	)		25,781			(6,073	)
Benefit from (provision for) income tax				6,911			(9,539	)		1,641

Net (loss) income			$	(6,106	)	$	16,242		$	(4,432	)

Net (loss) income per share — basic			$	(0.18	)	$	0.49		$	(0.14	)

Weighted average shares used in per share calculation — basic				33,636			33,093			32,434

Net (loss) income per share — diluted			$	(0.18	)	$	0.46		$	(0.14	)

Weighted average shares used in per share calculation — diluted				33,636			35,085			32,434

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)


		Year Ended March 31,

		2006			2005		2004

		(In thousands)
Net (loss) income		$	(6,106	)	$	16,242	$	(4,432	)
Other comprehensive income (loss):
	Unrealized gain on available-for-sale investments securities, net of taxes, $0		327			—		—
	Minimum pension liability, net of taxes, $646		(1,159	)		—		—
	Foreign currency translation adjustments		(3,517	)		1,263		5,363

Comprehensive (loss) income		$	(10,455	)	$	17,505	$	931

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


					Additional										Retained Earnings						Accumulated Other
					Paid-In		Treasury		Treasury			Notes Receivable			(Accumulated			Deferred			Comprehensive Gain		Total Stockholders’
	Shares		Amount		Capital		Shares		Amount			from Stockholders			Deficit)			Compensation			(Loss)		Equity

	(In thousands)
Balances, March 31, 2003		31,957	$	320	$	144,835		95	$	(447	)	$	(913	)	$	(6,318	)	$	(26	)	$	1,358	$	138,809
Exercise of stock options		233		2		841		—		—			—			—			—			—		843
Issuance of common stock under employee stock purchase plan		62		1		561		—		—			—			—			—			—		562
Issuance of common stock for the acquisition of Microwave Technology, Inc		767		8		4,348		—		—			—			—			—			—		4,356
Interest accrued on notes receivable		—		—		475		—		—			(475	)		—			—			—		—
Deferred compensation		—		—		14		—		—			—			—			(14	)		—		—
Amortization of deferred compensation		—		—		—		—		—			—			—			30			—		30
Foreign currency translation adjustments		—		—		—		—		—			—			—			—			5,363		5,363
Net loss		—		—		—		—		—			—			(4,432	)		—			—		(4,432	)

Balances, March 31, 2004		33,019		331		151,074		95		(447	)		(1,388	)		(10,750	)		(10	)		6,721		145,531
Exercise of stock options		480		4		1,509		—		—			—			—			—			—		1,513
Issuance of common stock under employee stock purchase plan		87		1		614		—		—			—			—			—			—		615
Interest accrued on notes receivable		—		—		60		—		—			(60	)		—			—			—		—
Compensation expense on shareholder loans		—		—		119		—		—			—			—			—			—		119
Repayment of notes receivable		—		—		—		—		—			1,039			—			—			—		1,039
Interest forgiven on notes receivable		—		—		—		—		—			54			—			—			—		54
Amortization of deferred compensation		—		—		—		—		—			—			—			6			—		6
Repurchase of common stock		—		—		—		132		(1,105	)		—			—			—			—		(1,105	)
Foreign currency translation adjustments		—		—		—		—		—			—			—			—			1,263		1,263
Net income		—		—		—		—		—			—			16,242			—			—		16,242

Balances, March 31, 2005		33,586	$	336	$	153,376		227	$	(1,552	)	$	(355	)	$	5,492		$	(4	)	$	7,984	$	165,277

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


															Retained Earnings						Accumulated Other
					Additional		Treasury		Treasury			Notes Receivable			(Accumulated			Deferred			Comprehensive Gain			Total Stockholders’
	Shares		Amount		Paid-In Capital		Shares		Amount			from Stockholders			Deficit)			Compensation			(Loss)			Equity

	(In thousands)
Balances, March 31, 2005		33,586	$	336	$	153,376		227	$	(1,552	)	$	(355	)	$	5,492		$	(4	)	$	7,984		$	165,277
Exercise of stock options		1,014		10		4,582		—		—			—			—			—			—			4,592
Issuance of common stock under employee stock purchase plan		78		1		687		—		—			—			—			—			—			688
Tax benefit on employee equity incentive plan						2,465																			2,465
Purchase of treasury stock		—		—		—		298		(2,902	)		—			—			—			—			(2,902	)
Amortization of deferred compensation		—		—		—		—		—			—			—			4			—			4
Interest accrued on notes receivable		—		—		8		—		—			(8	)		—			—			—			—
Repayment of note receivable		—		—		—		—		—			304			—			—			—			304
Unrealized gain on available-for-sale investments net of taxes		—		—		—		—		—			—			—			—			327			327
Foreign currency translation adjustments		—		—		—		—		—			—			—			—			(3,517	)		(3,517	)
Minimum pension liability, net of taxes		—		—		—		—		—			—			—			—			(1,159	)		(1,159	)
Net loss		—		—		—		—		—			—			(6,106	)		—			—			(6,106	)

Balances, Mar. 31, 2006		34,678	$	347	$	161,118		525	$	(4,454	)	$	(59	)	$	(614	)	$	—		$	3,635		$	159,973

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

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


				Year Ended March 31,

				2006			2005			2004

				(In thousands)
Cash flows from operating activities:
	Net (loss) income			$	(6,106	)	$	16,242		$	(4,432	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			8,543			10,639			11,186
		Provision for receivables allowances			5,578			4,994			4,261
		Movement in inventory reserves			6,434			2,917			2,057
		Litigation provision			42,810			—			—
		Foreign currency translation on intercompany transactions			194			1,399			670
		Deferred income taxes			(14,426	)		7,885			(4,424	)
		Tax benefit from employee equity incentive plans			2,465			—			—
		Compensation expense for notes from stockholders			4			119			—
		Interest forgiven on notes from stockholders			—			54			—
		(Gain) loss on disposal of fixed assets			(2	)		225			4
	Changes in operating assets and liabilities:
		Accounts receivable & other receivable			(9,515	)		(12,568	)		(13,262	)
		Inventories			(17,078	)		(5,286	)		2,253
		Prepaid expenses and other current assets			1,371			(2,134	)		144
		Other assets			826			(335	)		(618	)
		Accounts payable			7,805			(2,702	)		2,096
		Accrued expenses and other liabilities			1,256			2,258			4,828
		Pension liabilities			984			(337	)		916

			Net cash provided by operating activities		31,143			23,370			5,679

Cash flows from investing activities:
	Change in restricted cash				(159	)		986			1,607
	Purchase of investments				(2,081	)		—			—
	Purchases of plant and equipment				(21,121	)		(5,952	)		(3,679	)
	Proceeds from sale of fixed assets				97			—			—
	Acquisition of Microwave Technology, Inc., net of cash acquired				—			—			143

			Net cash used in investing activities		(23,264	)		(4,966	)		(1,929	)

Cash flows from financing activities:
	Principal payments on capital lease obligations				(696	)		(3,996	)		(3,918	)
	Repayments of notes payable from bank				—			(800	)		(10	)
	Proceeds from loans				12,344			—			—
	Repayment of loans				(608	)		—			—
	Purchase of treasury stock				(2,902	)		(1,105	)		—
	Proceeds from employee equity plans				5,280			2,128			1,405
	Collection of notes from stockholders				304			1,039			212

			Net cash provided by (used in) financing activities		13,722			(2,734	)		(2,311	)

	Effect of foreign exchange rate fluctuations on cash and cash equivalents				(1,553	)		416			525

	Net increase in cash and cash equivalents				20,048			16,086			1,964
	Cash and cash equivalents at beginning of the year				58,144			42,058			40,094

	Cash and cash equivalents at end of the year			$	78,192		$	58,144		$	42,058

Supplemental Disclosure of Cash Flow Information
	Cash paid during the period for interest			$	322		$	149		$	138
	Cash paid during the period for income taxes			$	1,008		$	721		$	108
Supplemental Disclosure of Noncash Investing and Financing Activities
	Purchase of fixed assets under capital lease			$	2,508		$	264		$	683
	Common stock issued for Microwave Technology, Inc. net assets			$	—		$	—		$	4,356

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

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Formation and Business of IXYS:

IXYS Corporation (“IXYS” or the “Company”) designs, develops, manufactures and markets power semiconductors and digital and analog integrated circuits (“ICs”). Power semiconductors are used primarily in controlling energy in motor drives, power conversion (including uninterruptible power supplies (“UPS”) and switch mode power supplies (“SMPS”)) and medical electronics. IXYS’s power semiconductors convert electricity at relatively high voltage and current levels to create efficient power as required by a specific application. IXYS’s target market includes segments of the power semiconductor market that require medium to high power semiconductors, with a particular emphasis on high power semiconductors. IXYS’s power semiconductors include power metal oxide silicon field effect transistors (“Power MOSFETs”), insulated gate bipolar transistors (“IGBTs”), thyristors and rectifiers, including fast recovery epitaxial diodes (“FREDs”). IXYS’s ICs include solid-state relays (“SSRs”) for telecommunications applications and power management and control ICs, such as current regulators, motion controllers, digital power modulators and power MOSFET and IGBT drivers.

IXYS sells products in North America, Europe, and Asia through an organization that includes direct sales personnel, independent representatives and distributors. The Company is headquartered in Northern California with principal operations in California, Massachusetts, Germany and the United Kingdom. Each site has manufacturing, research and development and sales and distribution activities. The Company also makes use of subcontract manufacturers for fabrication of wafers and for assembly and test operations.


2.	Summary of Significant Accounting Policies:


	*Principles of Consolidation:*

The consolidated financial statements include the accounts of IXYS and its wholly owned subsidiaries after elimination of all intercompany balances and transactions.


	*Use of Estimates:*

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from IXYS’s estimates.


	*Revenue Recognition:*

IXYS complies with the guidance summarized in Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”

Revenue from power semiconductor and IC product sales is recognized upon shipment, provided that a signed purchase order has been received, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining significant obligations. Reserves for sales returns and allowances, including allowances for so called “ship and debit” transactions, are recorded at the time of shipment, based on historical levels of returns and discounts, current economic trends and changes in customer demand. Transactions with sale terms of FOB shipping point are recognized when the products are shipped and transactions with sale terms of FOB destination are recognized upon arrival.

IXYS sells to distributors and original equipment manufacturers. Approximately 44% of the Company’s revenues in fiscal 2006 were from distributors. IXYS provides its distributors with the following programs: stock rotation and ship and debit. Ship and debit is a form of price protection. IXYS recognizes revenue from product sales upon shipment provided that it has received an executed purchase order, the price is fixed and

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. The management of IXYS must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Management analyzes historical returns and ship and debit transactions, current economic trends and changes in customer demand and acceptance of the Company’s 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 the Company’s revenue for any period if management made different judgments or utilized different estimates.

Allowance for sales returns. IXYS maintains an allowance for sales returns for estimated product returns by its customers. The Company estimates its allowance for sales returns based on its historical return experience, current economic trends, changes in customer demand, known returns it has not received and other assumptions. If IXYS were to make different judgments or utilize different estimates, the amount and timing of its revenue could be materially different. Given that the Company’s revenues consist of a high volume of relatively similar products, to date its actual returns and allowances have not fluctuated significantly from period to period, and its 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. The Company also provides “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, 2006, 2005, and 2004 approximately $962,000, $1.1 million, and $595,000, respectively, of products were returned to IXYS 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. IXYS establishes the allowance based upon maximum allowable rotations, which is management’s best estimate of future returns.

Trade accounts receivable and allowance for doubtful accounts. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is IXYS’s best estimate of the amount of probable credit losses in the existing accounts receivable. IXYS determines the allowance based on the aging of its accounts receivable, the financial condition of its customers and their payment history, its historical write-off experience and other assumptions. The allowance for doubtful accounts is reviewed quarterly. Past due balances and other specified accounts as necessary are reviewed individually. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a selling, general and administrative expense in the statement of operations. This allowance is based on historical losses and management’s estimate of future losses.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends IXYS sees in its direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. The Company receives periodic statements regarding its products held by distributors. These procedures require the exercise of significant judgments. IXYS believes that they enable the Company to make reliable estimates of future credits under the ship and debit program. Actual results to date have approximated the estimates. At the time the distributor ships the part from stock, the distributor debits IXYS 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, 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, the allowance for ship and debit during the three years ended March 31, 2006 (in thousands):


Balance March 31, 2003		$	483
	Additions		2,189
	Deductions		(2,248	)

Balance March 31, 2004			424
	Additions		2,742
	Deductions		(2,613	)

Balance March 31, 2005			553
	Additions		2,300
	Deductions		(2,400	)

Balance March 31, 2006		$	453

For nonrecurring engineering, or NRE, related to engineering work performed by the 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 $363,000 in fiscal 2006, $161,000 in fiscal 2005, and $382,000 in fiscal 2004.


	*Foreign Currency Translation:*

The local currency is considered to be the functional currency of IXYS’s wholly owned international subsidiaries, IXYS Semiconductor GmbH (“IXYS GmbH”), IXYS Berlin GmbH (“IXYS Berlin”) and Westcode Semiconductors Limited (“Westcode”). Accordingly, assets and liabilities are translated at the exchange rate in effect at year-end and revenues and expenses are translated at average rates during the year. Adjustments resulting from the translation of the accounts of IXYS GmbH, IXYS Berlin and Westcode into U.S. dollars are included in accumulated other comprehensive income, a separate component of stockholders’ equity. The Company’s Swiss subsidiary utilizes the US dollar as its functional currency. Foreign currency transaction gains and losses are included as a component of other income or expense.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Cash and Cash Equivalents:*

IXYS considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents include investments in commercial paper and money market accounts at banks.


	*Inventories:*

Inventories, consisting primarily of wafers, bipolar devices, transistors, diodes and integrated circuits, are recorded at the lower of a currently adjusted 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, the Company’s 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. Shipping and handling costs, when incurred, are included in the cost of inventory and in the cost of goods sold. 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, the Company’s inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. IXYS reviews its standard costs on an as-needed basis but in any event at least once a year, and updates them as appropriate to approximate actual costs. Work in process and finished goods inventory are determined to be saleable based on a demand forecast within a specific time horizon, generally 12 to 24 months. Inventories in excess of saleable amounts are not valued.

The Company typically plans its production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of its inventories is dependent on its estimate of future demand as it relates to historical sales. If the Company’s projected demand is over-estimated, IXYS may be required to reduce the valuation of its inventories below cost. IXYS regularly reviews inventory quantities on hand and records an estimated provision for excess inventory based primarily on its historical sales. IXYS performs an analysis of inventories and compares the sales for the preceding two years. To the extent the Company has inventory in excess of the greater of two years’ historical sales, twice the most recent year’s historical sales or backlog, it recognizes a reserve for excess inventories. However, for new products, the Company does not consider whether there is excess inventory until it develops sufficient sales history or experiences a significant change in expected product demand, based on backlog. Actual demand and market conditions may be different from those projected by IXYS’s management. This could have a material effect on the Company’s operating results and financial position. If IXYS were to make different judgments or utilizes different estimates, the amount and timing of the write-down of inventories could be materially different.

In the fourth quarter of fiscal 2004, IXYS refined the calculation of excess inventory to examine excess inventory by individual part number. This resulted in an additional $2.1 million write-down in fiscal 2004.

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 inventory is written down below cost, it is not written up. IXYS does not physically segregate excess inventory and assign unique tracking numbers to it in the Company’s accounting systems. Consequently, IXYS cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, IXYS is 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 its gross profit margin.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


Balance at March 31, 2003		$	17,224
	Sale of excess inventory		(2,624	)
	Scrap of excess inventory		(504	)

Balance of excess inventory			14,096
	Additional accrual of excess inventory		10,536

Balance at March 31, 2004			24,632
	Sale of excess inventory		(3,685	)
	Scrap of excess inventory		(2,555	)

Balance of excess inventory			18,392
Additional accrual of excess inventory			2,849

Balance at March 31, 2005			21,241
	Sale of excess inventory		(1,991	)
	Scrap of excess inventory		(3,860	)

Balance of excess inventory			15,390
	Additional accrual of excess inventory		3,987

Balance at March 31, 2006		$	19,377

The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, the Company does 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 the products of the Company do not quickly become obsolete, IXYS expects to hold excess inventory for potential future sale for years. Consequently, IXYS has 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, the inventory of the Company is also being written down to lower of cost or market or net realizable value. IXYS reviews its 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 the selling price is lower than current cost, the inventory is marked down accordingly. At March 31, 2006, the Company’s lower of cost or market reserve was $260,000.

The Company periodically identifies any inventory that is no longer usable and writes it off.


	*Property, Plant and Equipment:*

Property, plant and equipment, including equipment under capital leases, is stated at cost less accumulated depreciation. Equipment under capital lease is stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or the fair value of the leased assets at the inception of the lease. Depreciation is computed using the straight-line method over estimated useful lives of three to 13 years for equipment and 20 years for plant. Property is depreciated over 40 to 49 years. Upon disposal, the assets and related accumulated depreciation are removed from IXYS’s accounts and the resulting gains or losses are reflected in the statements of operations. Repairs and maintenance costs are charged to

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expense. Depreciation of leasehold improvements is provided on the straight-line method over the shorter of the estimated useful life or the term of the lease.

As required by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” IXYS evaluates the recoverability of the carrying amount of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment is assessed when the forecasted undiscounted cash flows derived for the operation to which the assets relate are less than the carrying amount including associated intangible assets of the operation. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted expected cash flows used to assess impairments and the fair value of an impaired asset. The dynamic economic environment in which IXYS operates and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests.

On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed € 10.0 million, or about $12 million, from IKB Deutsche Industriebank for a term of 15 years. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany. Refer to Note 5 “Borrowing Arrangements” for more details.


	*Other Assets:*

Other assets include marketable equity securities classified as available-for-sale and long term equity investment accounted under the equity method. In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” unrealized gains and losses on these investments are included as a separate component of stockholders’ equity. Realized gains and losses and declines in value of these investments judged by management to be other than temporary, if any, are included in interest income and expense. The Company has a 45% equity interest in Powersem GmbH (“Powersem”), a semiconductor manufacturer based in Germany. This investment is accounted for using the equity method. The Company recognized its share of the income of Powersem, $510,000, during fiscal 2006 and no income was recognized in fiscal 2005 or 2004. See Note 9 for further details.

An impairment loss is recorded when there has been a loss in value of the investment that is other than temporary.


	*Goodwill and Intangible Assets:*

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired. IXYS values goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The costs of acquired intangible assets are recorded at fair value at acquisition. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, normally three to six years, and evaluated for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Goodwill and intangible assets with indefinite lives are carried at fair value and reviewed at least annually for impairment as of December 31, or more frequently if events and circumstances indicate that the asset might be impaired, in accordance with SFAS No. 142. The Company has determined that it has two reporting units for which it has a balance in goodwill. An impairment loss would be recognized to the extent that the carrying amount exceeds the fair value of the the reporting unit. There are two steps in the determination. The first step compares the carrying amount of the net assets to the fair value of the reporting unit. The second step, if necessary, recognizes an impairment loss to the extent the carrying amount of the

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

reporting unit’s net assets exceed the fair value of the reporting unit. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business Combinations.” The residual fair value after this allocation is the implied fair value of the reporting units’ goodwill. IXYS has not recorded an impairment of goodwill or intangible assets.

The Company reduced goodwill and intangible assets by $14.0 million and $1.3 million, respectively. The reductions resulted from valuation allowance releases on deferred tax assets, accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” This is discussed in Note 11 “Income Taxes” below. These deferred tax assets were from loss carry forwards of acquired entities. At March 31, 2006 the Company had goodwill of $7.5 million and intangible assets of $782,000. The Company made an adjustment of approximately $279,000 to goodwill in fiscal 2005 related to the acquisition of Microwave Technology


	*Foreign Exchange Contracts:*

Although the majority of IXYS’s transactions are in U.S. dollars, IXYS enters into currency forward contracts to manage foreign currency exchange risk associated with its operations. From time to time, IXYS purchases short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for operating expenses denominated in foreign currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on the results of operations. The contracts generally have maturity dates that do not exceed three months. IXYS does not purchase short-term forward exchange contracts for trading purposes. The Company elected not to designate these forward exchange contracts as accounting hedges and any changes in fair value are marked to market and recorded in the results of operations in other income. IXYS did not enter into any foreign exchange contracts in the year ended March 31, 2006.


	*Defined Benefit Plans:*

IXYS maintains pension plans covering certain of its employees. 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 increases for plan employees. 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 the Company’s pension plans.


	*Advertising:*

IXYS expenses advertising as the costs are incurred. Advertising expense for the years ended March 31, 2006, 2005, and 2004 was $603,000, $451,000, and $408,000, respectively. Advertising expense is included in selling, general and administrative expense.


	*Research and Development:*

Research and development costs are charged to operations as incurred.


	*Income Taxes:*

IXYS’s provision for income taxes is comprised of its current tax liability and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

valuation allowance, IXYS considers estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which it operates. If IXYS determines that it will not realize all or a portion of its remaining deferred tax assets, it will increase its valuation allowance with a charge to income tax expense. Conversely, if IXYS determines that it 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 as either a credit to goodwill or non-current intangible assets or income tax expense. Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In the event that actual results differ from these estimates or IXYS adjusts these estimates in future periods, IXYS may need to establish an additional valuation allowance that could materially impact its financial position and results of operations. IXYS’s ability to utilize its deferred tax assets and the continuing need for a related valuation allowance are monitored on an ongoing basis.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). Incorporated into the provisions, the Act includes a temporary incentive for U.S. corporations to repatriate accumulated income earned overseas. IXYS presently does not intend to repatriate any foreign income under the Act.


	*Other Income and Expense:*

Other income and expense primarily consists of gains and losses on foreign currency transactions and interest income and expense, including our share of income under investments accounted for on equity method.


	*Indemnification:*

The Company does not provide product guarantees or warranties. On occasion, the Company provides limited indemnification to customers against intellectual property infringement claims related to the Company’s products. To date, the Company has not experienced significant activity or claims related to such indemnifications. The Company does provide in the normal course of business indemnification to its officers, directors and selected parties. The Company is unable to estimate any potential future liability, if any; therefore, no liability for these indemnification agreements has been recorded as of March 31, 2006 and 2005.


	*Legal Contingencies:*

The Company is 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. IXYS evaluates, 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 the Company’s financial position, results of operations or cash flows. Refer to the “Legal Proceedings” paragraph in Note 6 “Commitments and Contingencies.”


	*Net Income (Loss) per Share:*

Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the exercise of options into common stock. The calculation of dilutive net income (loss) per share excludes potential shares if their effect is anti-dilutive; that is, when the exercise price of the option exceeds the market price. Potential shares consist of incremental common shares issuable upon the exercise of stock options.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Recent Accounting Pronouncements:*

In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or 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 Accounting Principles Board Opinion No. 25, or 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. The Company will adopt SFAS No. 123R for the fiscal year beginning April 1, 2006. SFAS No. 123R offers alternative methods of adopting this standard. We plan to apply the modified prospective method of adoption of SFAS No. 123R, under which the effects of SFAS No. 123R will be reflected in our GAAP financial statement presentations for and after the first quarter of fiscal 2007, but will not be reflected in results for prior periods. The Company expects that this accounting will result in an additional charge to the income statement of around $2 million from fiscal 2007. However, the Company does not expect this accounting change to materially affect liquidity, as equity-based compensation is a non-cash expense. The Company accelerated the vesting of stock options in fiscal 2006, to avoid future accounting charges under SFAS No. 123R.The effect of expensing stock options on the results of current operations and earnings per share using the Black-Scholes model is presented on a pro forma basis in the accompanying Note 2 to the Condensed Consolidated Financial Statements.

In March 2005, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 107, or SAB No. 107, “Share-Based Payment,” which expresses views of the Staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. SAB No. 107 also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company will evaluate the requirements of SAB No. 107 in connection with the adoption of SFAS No. 123R.

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. IXYS will adopt SFAS No. 151 for the fiscal year beginning April 1, 2006. The Company is currently considering but has not yet determined what impact the adoption of this standard will have on its financial position and results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of this Statement are

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 in the fiscal year beginning April 1, 2006.


	*Other Comprehensive Income:*

Other Comprehensive income or loss represents foreign currency translation adjustments, unrealized gain or loss on equity investments classified as “available for sale” and the additional minimum liability recognized for the Company’s pension obligation, net of tax.


	*Concentration and Business Risks:*


	Dependence on Third Parties for Wafer Fabrication and Assembly:

IXYS manufactures approximately 61% of its wafers, an integral component of its products, in its facilities in Germany, the UK, Massachusetts and California. IXYS relies on third party suppliers to provide the remaining 39%. The principal external foundry is Samsung Electronics’ facility in Kiheung, South Korea. There can be no assurance that material disruptions in supply will not occur in the future. In such event, IXYS may have to identify and secure additional foundry capacity and may be unable to identify or secure sufficient foundry capacity to meet demand. Even if such capacity is available from another manufacturer, the qualification process could take six months or longer. If IXYS were unable to qualify alternative manufacturing sources for existing or new products in a timely manner or if such sources were unable to produce semiconductor devices with acceptable manufacturing yields and at acceptable prices, IXYS’s business, financial condition and results of operations would be materially and adversely affected.


	Dependence on Suppliers:

IXYS purchases silicon wafers from five vendors with whom IXYS does not have long-term supply agreements. Any of these suppliers could terminate their relationship with IXYS at any time. IXYS’s 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. There can be no assurance that problems will not occur in the future with suppliers.


	Employees Covered by Collective Bargaining Arrangements:

Approximately 153 IXYS employees in the United Kingdom and 270 in Germany have their annual pay increases negotiated by a labor union.


	Concentration of Credit Risk:

IXYS invests its excess cash primarily in short-term time deposit accounts with a major German bank and money market accounts with a U.S. bank. Additionally, IXYS invests in commercial paper with financial institutions that management believes to be creditworthy. These securities mature within ninety days or less and bear minimal credit risk. IXYS has not experienced any losses on such investments.

IXYS sells its products primarily to distributors and original equipment manufacturers. IXYS performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for potential credit losses is maintained by IXYS and such losses have not been material. See Note 13 for a discussion of revenues by geography.

During the years ended March 31, 2006 and March 31, 2004, no single end-user customer accounted for more than 10% of net revenues. In the year ended March 31, 2005, one customer represented 11.5% of net revenues. At March 31, 2006 and 2005, no customer accounted for greater than 10% of accounts receivable.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Financial instruments that potentially subject IXYS to credit risk comprise principally cash and cash equivalents and trade accounts receivable. IXYS invests its excess cash in accordance with its investment policy that has been approved by the Board of Directors and is reviewed periodically by management to minimize credit risk. The policy authorizes the investment of excess cash in government securities, tax exempt municipal securities, Eurodollar notes and bonds, time deposits, certificates of deposit, commercial paper rated Aa or better and other specific money market accounts and corporate instruments of similar liquidity and credit quality.


	*Fair Value of Financial Instruments:*

Carrying amounts of certain of IXYS’s financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. Based on borrowing rates currently available to IXYS for loans with similar terms, the carrying value of notes payable to banks, loans payable and notes receivable from stockholders approximate fair value.


	*Stock-Based Compensation Plans:*

IXYS accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of IXYS’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. IXYS’s policy is to grant options with an exercise price equal to the quoted market price of IXYS’s stock on the grant date. Accordingly, no compensation has been recognized for its stock option plans. IXYS provides additional pro forma disclosures as required under SFAS No. 123, “Accounting for Stock-Based Compensation.”

Had compensation cost for its stock plans been determined based on the fair value at the grant date for awards in fiscal years 2006, 2005 and 2004 consistent with the provisions of SFAS No. 123, IXYS’s net (loss) income and net (loss) income per share for fiscal years 2006, 2005 and 2004 would have decreased to the pro forma amounts indicated below (in thousands, except per share amounts):


	Year Ended March 31,

	2006			2005			2004

Net (loss) income	$	(6,106	)	$	16,242		$	(4,432	)
Less: Total stock-based compensation determined under fair value based methods for all awards to employees, net of tax		(4,235	)		(1,870	)		(2,580	)

Pro forma net (loss) income	$	(10,341	)	$	14,372		$	(7,012	)

As reported net (loss) income per share — basic	$	(0.18	)	$	0.49		$	(0.14	)

Pro forma net (loss) income per share — basic	$	(0.31	)	$	0.43		$	(0.22	)

As reported net (loss) income per share — diluted	$	(0.18	)	$	0.46		$	(0.14	)

Pro forma net (loss) income per share — diluted	$	(0.31	)	$	0.41		$	(0.22	)

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of option grants has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year Ended March 31,

	2006	2005	2004

Risk-free interest rate	3.76% to 4.08%	3.15% to 3.49%	1.72% to 3.22%
Expected term	4.0 years	4.0 years	4.0 years
Volatility	63%	64%	100%
Dividend yield	0%	0%	0%


3.	Acquisitions


	*Microwave Technology, Inc.:*

On September 5, 2003, IXYS completed its acquisition of 100% of the voting equity interests of Microwave Technology, Inc. (“MwT”), a manufacturer of discrete gallium arsenide field effect transistors (“FETs”) based in the United States. The acquisition of MwT expanded the Company’s line of radio frequency, or RF, products by adding MwT’s gallium arsenide semiconductor products and increased IXYS’s presence in RF power semiconductors. The acquisition was intended to allow the combined organization to be more competitive and to achieve greater financial strength, operational efficiencies, access to capital and growth potential than either company could separately achieve. These factors contributed to the purchase price in excess of the fair value of MwT’s net tangible and intangible assets acquired, and, as a result, IXYS has recorded goodwill in connection with this transaction. The acquisition was a stock-for-stock exchange. As such, none of the goodwill is expected to be deductible for tax purposes. MwT has been included in the Company’s statement of operations since September 5, 2003. In connection with the acquisition, approximately 767,000 shares of IXYS common stock and options exercisable for approximately 26,000 shares of IXYS common stock were issued. The total purchase price was as follows (in thousands):


Value of IXYS common stock issued		$	4,189
Value of IXYS options issued			167
Direct merger cost			321

	Total purchase price	$	4,677

The fair value of IXYS’s common stock issued was determined using an average of the closing sales prices of a share of the common stock on the Nasdaq National Market for the five trading days before and after the definitive agreement was signed. The fair value of the options assumed in the transaction was determined using the Black-Scholes option pricing model using an expected life of 2 years, risk-free rate of 2% and expected volatility of 66% and no expected dividend rate.

In fiscal 2004, IXYS allocated the purchase price to identifiable intangible assets, tangible assets, liabilities assumed and goodwill as follows (in thousands):


Fair value of tangible assets acquired:
	Current assets	$	2,182
	Deferred tax assets — short-term		559
	Plant and equipment		91

			2,832

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Estimated Useful
					Lives

Amortizable intangible assets:
	Core technology		300			5 to 6 years
	Existing technology		1,300			5 to 6 years
	Contract and related customers’ relationships		400			5 to 6 years
	Tradename		200			5 to 6 years
	Backlog		200			3 to 6 months

			2,400
Total assets acquired			5,232
Fair value of liabilities assumed			(2,415	)

	Net assets acquired		2,817
Goodwill			1,860

	Total purchase price	$	4,677

In fiscal 2006, the Company reduced goodwill and intangible assets by $2.1 million and $1.3 million, respectively. The reductions resulted from valuation allowance releases on deferred tax assets, accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The Company made an adjustment of approximately $279,000 to goodwill in fiscal 2005 related to the acquisition of Microwave Technology.


4.	Balance Sheet Details:


	*Allowances Movement:*


		Balance at										Balance at
		Beginning							Translation			End of
		of Year		Additions		Deductions			Adjustments			Year

		(In thousands)
Allowances for accounts receivable and for doubtful accounts
	Year ended March 31, 2006	$	2,629	$	5,578	$	(5,536	)	$	(62	)	$	2,609
	Year ended March 31, 2005	$	2,654	$	4,994	$	(5,057	)	$	38		$	2,629
	Year ended March 31, 2004	$	3,169	$	4,261	$	(4,849	)	$	73		$	2,654


	*Inventories:*

Inventories consist of the following (in thousands):


	March 31,

	2006		2005

Raw materials	$	16,648	$	13,386
Work in process		28,583		25,304
Finished goods		15,126		12,721

	$	60,357	$	51,411

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Property, Plant and Equipment:*

Property, plant and equipment consists of the following (in thousands):


	March 31,

	2006			2005

Property and plant (useful life of 20 to 49 years)	$	21,520		$	6,367
Equipment owned (useful life of 3 to 13 years)		57,182			55,300
Equipment capital leases (useful life of 3 to 13 years)		16,960			16,102
Leasehold improvements (useful life of up to 5 years)		1,003			2,954

		96,665			80,723
Accumulated depreciation — owned plant, equipment, and leasehold improvements		(45,758	)		(43,804	)
Accumulated amortization — capital leases		(10,858	)		(9,105	)

	$	40,049		$	27,814

Depreciation and amortization expense for fiscal years ended March 31, 2006, 2005 and 2004 amounted to $8.5 million, $10.6 million and $11.2 million, respectively.

IXYS leases certain equipment under capital lease arrangements expiring through fiscal year 2011 at interest rates of 5.0% to 13.7%.


	*Other Assets:*

Other assets consist of the following (in thousands):


	March 31,

	2006		2005

Investments held as “available for sale”	$	2,423	$	15
Long term equity investment		1,107		639
Intangible assets, net of accumulated amortization of $3.3 million		782		2,994
Loans to vendors and others		787		2,259

	$	5,099	$	5,907

Investments available for sale have been stated at their fair value as at March 31, 2006 and include an unrealized gain of $326,000 (net of taxes $0) for fiscal 2006 and unrealized gain of $0 for fiscal 2005 and 2004. Amortization of purchased intangible assets was approximately $959,000 in fiscal 2006. The amortization of intangible assets is expected to be $517,000, $235,000 and $30,000 in fiscal 2007, 2008 and 2009, respectively.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Accrued Expenses and Other Liabilities:*

Accrued expenses and other liabilities consist of the following (in thousands):


	March 31,

	2006		2005

Compensation and vacation	$	5,433	$	6,374
Legal, audit and tax preparation		611		2,449
Commission, royalties, deferred revenue and other		2,269		2,511
Income taxes		10,970		5,958
Uninvoiced goods and services		5,606		4,831

	$	24,889	$	22,123


5.	Borrowing Arrangements:

On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed € 10.0 million, or about $12 million, from IKB Deutsche Industriebank for a term of 15 years.

The interest rate on the loan is determined by adding the then effective three month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, the interest rate may not exceed 4.1%, and, if the Euribor rate falls below 2%, the interest rate may not be lower than 3%. Thereafter, the interest rate is recomputed annually. The interest rate at March 31, 2006 was 3.547%.

Each fiscal quarter beginning September 2005, during the first five years of the loan, a principal payment of € 167,000, or about $200,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At March 31, 2006, the Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.


6.	Commitments and Contingencies:


	*Commitments:*

IXYS leases certain equipment under capital lease arrangements expiring through fiscal year 2011 at interest rates of 5.0% to 13.7%.

IXYS rents certain of its facilities under operating leases expiring through fiscal 2022.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum lease payments under capital and operating leases are (in thousands):


		Capital			Operating
Fiscal Year Ending March 31,		Leases			Leases

	2007	$	2,749		$	1,500
	2008		1,997			1,298
	2009		1,407			1,194
	2010		352			740
	2011		11			734
	Thereafter		—			5,296

Total minimum payments			6,516		$	10,762

Less: Interest			(499	)

			6,017
Less: current portion			(2,255	)

		$	3,762

Rent expense for fiscal years ended March 31, 2006, 2005, and 2004 amounted to $1.5 million, $2.8 million and $2.6 million, respectively.

As of March 31, 2006 and 2005, IXYS had cash deposits with financial institutions of $313,000 and $155,000, respectively, which were restricted as to use and represent compensating balances for current or future discounted acceptances and letters of credit. These balances are included in restricted cash on the Company’s balance sheets.

As of March 31, 2006, IXYS is committed to purchase approximately $18.9 million of inventory from suppliers of IXYS.

IXYS Corporation guarantees the $5.0 million line of credit issued by a German bank to IXYS Semiconductor GmbH to support a letter of credit facility. At March 31, 2006, there were approximately $4.5 million of open letters of credit to support inventory purchases.


	*Legal Proceedings:*

IXYS currently is 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 the Company’s financial condition, results of operations and cash flows.


	*International Rectifier*

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

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

International Rectifier had accused IXYS of infringing its 4,959,699 (“699”), 5,008,725 (“725”) and 5,130,767 (“767”) patents. The claims of these patents fall into two groups. The jury ruled that one of the groups of claims was infringed by the doctrine of equivalents; however, the claims in this group are minor claims and are not expected to have a material financial impact on IXYS.


	*Lojack*

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Court determined the attorneys’ fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys’ fees and costs, at the rate of 12% per annum simple interest.

IXYS cannot predict the outcome of the litigation. An adverse outcome would be materially adverse to its financial condition, results of operations and cash flows. IXYS recorded an additional $42.8 million in litigation provision during the year ended March 31, 2006, which amount includes interest and attorneys’ fees in addition to the jury’s award. The $42.8 million provision was booked in the last two quarters of fiscal 2006. A charge of $51.5 million was recorded in the quarter ended December 31, 2005 and a credit adjustment of $8.7 million was recorded in the quarter ended March 31, 2006 based on the judgment entered by the Court. While the ultimate amount payable in the LoJack litigation may be less than the aggregate accrual of $43.6 million, there can be no assurance that this amount is sufficient for any actual losses that may be incurred as a result of this litigation.


7.	Stockholders’ Equity:


	*Stock Purchase and Stock Option Plans:*

IXYS has the 1999 Equity Incentive Plan and the 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plans”) under which stock options may be granted for not less than 85% of fair market value at the time of grant. The options, once granted, expire ten years from the date of grant. Options granted to employees under the 1999 Equity Incentive Plan typically vest over four years, the initial option grants under the 1999 Non-Employee Directors’ Equity Incentive Plan vests over four years and subsequent annual grants vest over one year. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. No options have been granted below fair market value.

Since inception, the cumulative amount authorized for the 1999 Equity Incentive Plan was approximately 9.6 million shares. The Plan has an evergreen feature that adds up to 1,000,000 shares to the total shares authorized each year at the discretion of the board. The 1999 Non-Employee Directors’ Equity Incentive Plan had a total of 500,000 shares authorized at its inception date.

During the fiscal 2006, the Company awarded 10,000 shares to directors from the plans.

Stock option activity under the Plans is summarized below (in thousands, except share and per share data):


					Options Outstanding

																Weighted Average
		Shares Available			Number of			Exercise Price								Exercise Price
		for Grant			Shares			Per Share					Total			Per Share

Balances, March 31, 2003			2,701,792			4,985,011							$	30,462		$	6.11
	Options assumed					25,741		$	1.83	-	$	3.66	$	87		$	3.38
	New shares authorized		1,000,000
	Options granted		(746,000	)		746,000		$	6.75	-	$	10.63	$	6,313		$	8.46
	Options exercised					(232,862	)	$	1.02	-	$	7.73	$	(843	)	$	3.62
	Options cancelled		185,676			(185,676	)	$	3.63	-	$	31.54	$	(2,314	)	$	12.46
	Options expired		27,650			(27,650	)	$	3.63	-	$	29.50	$	(309	)	$	11.18

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Options Outstanding

																Weighted Average
		Shares Available			Number of			Exercise Price								Exercise Price
		for Grant			Shares			Per Share					Total			Per Share

Balances, March 31, 2004			3,169,118			5,310,564							$	33,396		$	6.29
	New shares authorized		1,000,000
	Options granted		(453,000	)		453,000		$	6.65	-	$	9.15	$	3,687		$	8.14
	Options exercised					(480,751	)	$	1.69	-	$	7.38	$	(1,551	)	$	3.23
	Options cancelled		61,640			(61,640	)	$	4.64	-	$	31.54	$	(560	)	$	9.09
	Options expired		20,100			(24,098	)	$	2.16	-	$	19.00	$	(247	)	$	10.25

Balances, March 31, 2005			3,797,858			5,197,075							$	34,725		$	6.68
	New shares authorized		1,000,000
	Options granted		(804,000	)		804,000		$	10.22	-	$	15.81	$	10,714		$	13.33
	Options exercised					(1,003,525	)	$	1.69	-	$	13.73	$	(4,592	)	$	4.58
	Stock grants		(10,000	)		—						—
	Options cancelled		74,424			(74,424	)	$	1.69	-	$	36.24	$	(526	)	$	7.06
	Options expired		78,634			(78,634	)	$	3.66	-	$	32.30	$	(1,140	)	$	14.50

Balances, March 31, 2006			4,136,916			4,844,492							$	39,181		$	8.09

The following table summarizes information about stock options outstanding at March 31, 2006:


Options Outstanding										Options Exercisable

								Weighted Average				Weighted
Exercise Price				Number of		Weighted Average		Exercise Price		Number of		Average Exercise
Per Share				Shares		Contractual Life		Per Share		Shares		Price Per Share

$	1.69	-	2.34		718,283		3.5	$	2.22		717,248	$	2.22
$	3.46	-	4.88		893,651		4.0	$	3.84		876,382	$	3.82
$	5.23	-	7.79		1,226,075		6.6	$	7.08		924,021	$	7.10
$	8.01	-	11.70		1,079,059		8.1	$	9.41		783,584	$	9.60
	12.21	-	17.30		727,535		7.7	$	14.33		727,535	$	14.33
	18.44	-	21.36		105,499		3.8	$	19.18		105,499	$	19.18
	28.49	-	36.24		94,390		3.7	$	30.40		94,390	$	30.40

$	1.69	-	36.24		4,844,492		6.0	$	8.09		4,228,659	$	8.12

The fair value of option grants has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year Ended March 31,

	2006	2005	2004

Risk-free interest rate	3.76% to 4.08%	3.15% to 3.49%	1.72% to 3.22%
Expected term	4.0 years	4.0 years	4.0 years
Volatility	63%	64%	100%
Dividend yield	0%	0%	0%

No dividend yield is assumed as IXYS has never paid cash dividends and has no plans to do so.

The weighted average expected term was calculated based on the vesting period and the expected life of the grant using historic experience. The risk free interest rate was calculated based on rates prevailing during grant periods and the expected life of the options at the date of grants. The weighted average fair values of

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

options granted to employees during the fiscal years ended March 31, 2006, 2005, and 2004 were $6.68, $3.81 and $8.46, respectively.

In November 1995, IXYS sold 6,750,395 shares of common stock to certain members of IXYS’s management. The shares were purchased through recourse promissory notes at a purchase price of $0.11 per share. Interest was due on the notes at a rate of 5.79% per annum through September 15, 2000 and 6.25% per annum after that date, with the balance outstanding due in full September 2005. In September 2005, these notes were paid in full.

In August 2001, IXYS sold 8,250 shares of common stock to a director. The shares were purchased through a recourse promissory note at a purchase price of $3.625 per share. Interest is due on the note at a rate of 6.75% per annum, with the balance outstanding due in full in August 2006. At March 31, 2006, $59,000 was receivable on this note.

In May 1999, IXYS approved the 1999 Employee Stock Purchase Plan (“Purchase Plan”) and reserved 500,000 shares of common stock for issuance under the Purchase Plan and terminated all prior Paradigm employee stock purchase plans. Under the Purchase Plan, substantially all employees may purchase the Company’s common stock at a price equal to 85.0% of the lower of the fair market value at the beginning or the end of each specified six-month offering period. Stock purchases are limited to 15.0% of an employee’s eligible compensation. During the year ended March 31, 2006, there were approximately 78,000 shares purchased under the Purchase Plan, leaving 150,000 shares available for purchase under the plan in the future.

The fair value for the purchase rights issued under the Purchase Plan was determined using the Black-Scholes valuation model with the following weighted average assumptions:


	Year Ended March 31,

	2006		2005		2004

Risk-free interest rate		2.42		1.28%		1.02%
Expected life		0.8 years		0.5 years		0.5 years
Volatility		57%		57%		100%
Dividend yield		0%		0%		0%

The weighted average fair value per share of those purchase rights granted in 2006, 2005 and 2004 was $3.59, $2.66, and $6.16, respectively.

During fiscal 2006, IXYS accelerated the vesting of the right to purchase 920,250 shares of its common stock pursuant to previously granted stock options. The accelerated options were at an average exercise price of $12.99 and the exercise prices were excess of the closing price on the date of the acceleration. The vesting was accelerated to avoid future accounting charges under SFAS No. 123R.


8.	Employee Savings and Retirement Plan:

IXYS has a 401(k) plan, known as the “IXYS Corporation and Subsidiary Employee Savings and Retirement Plan.” Eligibility to participate in the plan is subject to certain minimum service requirements. Employees may voluntarily contribute up to 20% of yearly compensation and IXYS may make matching contributions as determined by the Board of Directors in a resolution on or before the end of the fiscal year. Employees are 100% vested immediately in any contributions by IXYS. For the years ended March 31, 2006, 2005 and 2004, IXYS contributed $396,000, $407,000, and $378,000, respectively.


9.	Related Party Transactions:

IXYS owns 45% of the outstanding equity of Powersem, a module manufacturer based in Germany. The investment is accounted for using the equity method. In fiscal 2006 and 2005, IXYS recorded revenues of

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$1.5 million and $1.5 million, respectively, from sales of products to Powersem for use as components in their products. In fiscal 2006 and 2005, IXYS purchased $3.1 million and $3.2 million, respectively, from Powersem. At March 31, 2006 and 2005, the accounts receivable balance from IXYS’s sales to Powersem was $143,000 and $117,000, respectively. The accounts payable of IXYS to Powersem, as of March 31, 2006 and 2005, was $129,000 and $133,000, respectively. IXYS loaned Powersem $30,000, interest free in fiscal 2003. The loan was repaid in full on April 12, 2006.

ABB Ltd. was a principal stockholder of IXYS until December 2004. In fiscal years 2005 and 2004, IXYS generated revenues of $3.6 million and $2.7 million, respectively, from sales of products to ABB and ABB affiliates for use as components in their products. At March 31, 2005 and 2004, the accounts receivable balances from these sales were $535,000 and $704,000, respectively. ABB was not a related party during fiscal 2006.

Omni Microelectronics, a sales representative company majority owned by S. Joon Lee, was paid sales commissions by Samsung Electronics on $37.1 million and $39.8 million received by Samsung Electronics from the Company in respect of fiscal 2006 and fiscal 2005. Samsung Electronics serves as a wafer foundry for the Company. Mr. Lee is a director of the Company.


10.	Pension Plans:

IXYS maintains 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. The measurement date for the projected benefit obligations and the plan assets is March 31, 2006.


	*Net Period Pension Cost:*

The net periodic pension expense includes the following components:


	Year Ended March 31,

	2006			2005			2004

	(In thousands)
Service cost	$	837		$	878		$	750
Interest cost on projected benefit obligation		1,667			1,713			1,397
Expected return on plan assets		(1,189	)		(1,166	)		(762	)
Recognized actuarial loss		54			118			181

Net periodic pension expense	$	1,369		$	1,543		$	1,566

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Funded Status:*


		Year Ended March 31,

		2006			2005

		(In thousands)
Change in benefit obligation
	Projected benefit obligation at the beginning of the year	$	33,774		$	30,499
	Service cost		837			878
	Interest cost		1,667			1,713
	Plan participants contribution		173			195
	Actuarial (gain) loss		3,453			(96	)
	Benefits paid		(835	)		(976	)
	Foreign currency adjustment		(2,125	)		1,561

Projected benefit obligation at the end of the year		$	36,944		$	33,774


		Year Ended March 31,

		2006			2005

		(In thousands)
Change in plan assets
	Fair value of plan assets at the beginning of the year	$	18,035		$	13,452
	Actual return on plan assets		4,134			1,553
	Employer contribution		1,187			1,152
	Plan participant contribution		173			195
	Benefits paid		(440	)		(668	)
	Foreign currency adjustment		(1,346	)		2,351

Fair value of plan assets at the end of the year		$	21,743		$	18,035


			Year Ended March 31,

			2006			2005

			(In thousands)
Funded status of plan
	Plan obligations in excess of plan assets			(15,201	)		(15,739	)
	Unrecognized actuarial loss			3,430			3,128
	Net loss			—			381

		Accrued benefit		(11,771	)		(12,230	)
		Additional minimum pension liability		(1,805	)		—

Pension liability				(13,576	)		(12,230	)

Other comprehensive income, net of taxes $0.6 million				1,159			—


		Year Ended March 31,

		2006		2005

Assumptions
	Discount rate		4.25-5.0%		5.50%
	Expected long-term rate of return on assets		3.9-6.8%		4.0-7.0%
	Salary scale		1.0-4.0%		1.0-4.4%

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Approximately 69% of the accrued pension liability relates to the German plan and 31% to the United Kingdom plan. The total accumulated benefit obligation at March 31, 2006 was approximately $35.3 million. The Company and its advisors expect a change in the life expectancy assumptions for fiscal 2007. A reasonable portion of the expected change has been considered in the determination of the pension obligation in fiscal 2006 as additional minimum liability.

The investment policies and strategies for the assets of the plans are determined by the respective plan’s trustees in consultation with independent investment consultants and the employer. The Company’s practice is to fund these plans in amounts at least sufficient to meet the minimum requirements of local laws and regulations. The trustees are aware that the nature of the liabilities of the plans will evolve as the age profile and life expectancy of the membership changes. These changing liability profiles lead to consultations about the appropriate balance of investment assets to be used by the plans (equity, debt, other), as well as timescales within which required adjustments should be implemented. The plan assets in the United Kingdom are held in pooled investment funds operated by Fidelity Investments. The plan assets in Germany are held by a separate legal entity. The plan assets do not include securities of the Company. There is an intermediate objective to increase the debt proportion of the assets to approximately 25% of assets by 2007 by investing new contributions in debt and by reducing equity investments.

The long-term expected rate of return is a weighted average of the returns expected for the underlying broad asset classes. The expected returns for each asset class take into account the market conditions on March 31, 2006 and past performance of the asset classes generally.

IXYS expects to make contributions to the plans of approximately $957,000 in the fiscal year ending March 31, 2007. This contribution is primarily contractual. The allocation of the assets of the plans at the measurement dates was approximately (in thousands):


	Year Ended March 31,

	2006		2005

	(In thousands)
Equity securities	$	17,796	$	14,348
Debt securities		3,169		3,053
Other		778		634

	$	21,743	$	18,035

IXYS expects to pay benefits in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter of approximately (in thousands):


	Benefit
	Payments

Year ended March 31, 2007	$	869
Year ended March 31, 2008		1,146
Year ended March 31, 2009		1,110
Year ended March 31, 2010		1,181
Year ended March 31, 2011		1,277
Five fiscal years ended March 31, 2016		8,311

Total benefit payments for the ten fiscal years ended March 31, 2016	$	13,894

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


11.	Income Taxes:

Income (loss) before income tax provision (benefit) consists of the following (in thousands):


	Year Ended March 31,

	2006			2005		2004

Domestic	$	(29,608	)	$	14,829	$	(10,810	)
International	$	16,591		$	10,952	$	4,737

	$	(13,017	)	$	25,781	$	(6,073	)

IXYS’s provision for (benefit from) income taxes consists of the following (in thousands):


		Year Ended March 31,

		2006			2005			2004

Current:
	Federal	$	2,995		$	(1,121	)	$	(1,653	)
	State	$	47		$	429		$	25
	Foreign	$	4,473		$	2,346		$	961

		$	7,515		$	1,654		$	(667	)
Deferred:
	Federal	$	(13,018	)	$	4,735		$	(1,740	)
	State	$	(1,168	)	$	(36	)	$	98
	Foreign	$	(240	)	$	3,186		$	668

		$	(14,426	)	$	7,885		$	(974	)

Total income tax provision (benefit)		$	(6,911	)	$	9,539		$	(1,641	)

The reconciliation of IXYS’s effective tax rate differs to the U.S. statutory federal income tax rate is as follows:


	Year Ended March 31,

	2006			2005			2004

Statutory federal income tax (benefit) rate		(35	)%		35	%		(35	)%
State taxes, net of federal tax benefit		(9	)		1			2
Foreign earnings taxed at different rates		5			(3	)		6
Swiss benefit		(6	)		—			—
ETI & Section 199 deduction		(2	)		—			—
Credits		(4	)		(3	)		—
Valuation allowance		(3	)		12			—
Permanent items		(8	)		—			—
Tax reserves		20			—			—
True up for prior periods		(10	)		—			—
Other		(1	)		(5	)		—

Effective tax (benefit) rate		(53	)%		37	%		(27	)%

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The significant components of net deferred income tax assets are as follows (in thousands):


		March 31,

		2006			2005

Deferred tax assets:
	Reserves	$	6,012		$	6,765
	Other liabilities and accruals		19,279			2,882

	Total short-term deferred tax assets		25,291			9,647
	Depreciable assets		506			391
	Net operating loss carryforward		24,390			50,621
	Credits carryforward		2,441			2,316
	Intangibles arising from acquisitions		(1,644	)		(1,869	)

	Net deferred tax asset	$	50,984		$	61,106
	Less: Valuation allowance		(9,383	)		(51,670	)

		$	41,601		$	9,436

IXYS accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit carryforwards. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. The Company’s management evaluates the recoverability of these net deferred tax assets in accordance with SFAS No. 109. As IXYS generates future taxable income or concludes that sufficient taxable income is reasonably assured based on profitable operations in the appropriate tax jurisdictions where these tax attributes may be applied, some portion or all of the valuation allowance will be reversed and a corresponding reduction in goodwill, non-current intangible assets or income tax expense will be reported in such period. The Company’s ability to utilize its deferred tax assets and the continuing need for a related valuation allowance are being monitored on an ongoing basis. During the fourth quarter, IXYS recorded certain tax adjustments on deferred tax assets relating to non-utilizable and expiring net operating losses and tax credits, valuation allowance, tax contingency reserves and other temporary items. The impacts of these adjustments are discussed further in this note. At March 31, 2006, IXYS assessed its ability to utilize net operating losses based on positive and negative evidence and correspondingly released valuation allowance for $13.4 million against net operating losses that the Company estimates to be utilizable.

At March 31, 2006, IXYS had federal net operating loss carryforwards of approximately $60.4 million, of which $48.9 million are subject to the limitations under section 382 of the US tax code resulting from change in ownership. IXYS had net operating loss carryforwards for foreign income tax purposes of approximately $3.2 million. These carryforwards will expire, if not utilized, from fiscal 2007 to 2024 for federal purposes. The Company’s U.S. federal research and development tax credit carryforwards for income tax purposes are approximately $1.4 million. If not utilized, the federal tax credit carryforwards will expire from fiscal 2007 to 2021. Approximately, $10.2 million of the federal net operating loss carryforwards represent the stock option deduction arising from activity under the Company’s stock option plan. The tax benefit for this deduction is recorded as an increase in additional paid in capital.

During fiscal 2006, the Company’s valuation allowance decreased by $42.3 million from $51.7 million as of March 31, 2005 to $9.4 million as on March 31, 2006. This was reflected as a reduction in goodwill of $14.0 million, in intangibles of $1.3 million and in income tax expense of $27.0 million. The change in

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

valuation allowance from fiscal 2005 to fiscal 2006 primarily relates to two factors. First, management assessed the release of valuation allowance placed on domestic net operating losses of $13.4 million to be appropriate due to profitable operations. Based on the Company’s income over eight of the last ten years, the Company believes that it can generate adequate taxable income over the next seven years to utilize its net operating losses available during the period. Second, management concluded that $24.4 million in deferred tax assets, consisting of non-utilizable net operating losses due to the limitations under section 382 of the US tax code resulting from change in ownership, should be written off and the corresponding valuation allowance released.

IXYS’s deferred tax assets have been increased by the tax benefits associated with litigation. These benefits, credited directly to income tax expense, amounted to $17.0 million. There was a corresponding increase to deferred tax asset in fiscal 2006. IXYS evaluates the need for tax contingency reserves at the end of each financial statement reporting period. During the current period, the Company adjusted its tax contingency reserves to $4.4 million related to various tax jurisdictions. IXYS is in the process of implementing tax planning strategies in the form of migrating foreign intellectual property rights to lower tax jurisdictions. This may cause future effective tax rate to fluctuate from year to year. IXYS’s Swiss subsidiary has a tax holiday which expires in 2010. The tax holiday reduced income tax expense by approximately $0.8 million in fiscal 2006 and $0.9 million in fiscal 2005.

IXYS has made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries because it is the Company’s intention to permanently reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, IXYS would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable. The deferred tax assets of $41.6 million primarily consist of current tax assets from timing differences between U.S. accounting guidelines and tax laws that more likely than not will be utilized within the next reporting periods, net operating losses carryforwards and tax credits carryforwards.

Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards and tax credit carryforwards may be impaired or limited in certain circumstances. Events that may restrict utilization of a company’s net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations and continuity of business requirements as defined in Internal Revenue Code Section 382 and similar state provisions. In the event IXYS has had a change of ownership, defined as a cumulative ownership change of more than 50% over a three-year period, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.


12.	Computation of Net (Loss) Income per Share:

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


		Year Ended March 31,

		2006			2005		2004

Basic:
	Weighted-average shares		33,636			33,093		32,434

	Net (loss) income	$	(6,106	)	$	16,242	$	(4,432	)

	Net (loss) income per share	$	(0.18	)	$	0.49	$	(0.14	)

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended March 31,

		2006			2005		2004

Diluted:
	Weighted-average shares		33,636			33,093		32,434
	Common equivalent shares from stock options and warrants		—			1,992		—

	Shares used in per share calculation		33,636			35,085		32,434

	Net (loss) income	$	(6,106	)	$	16,242	$	(4,432	)

	Net (loss) income per share	$	(0.18	)	$	0.46	$	(0.14	)

In fiscal 2006, there were outstanding options to purchase 2,179,943 shares at a weighted average exercise price of $11.34 that were not included in the computation of dilutive net income per share since the exercise prices of the options exceeded the market price of the common stock. These options could dilute earnings per share in future periods. In fiscal 2005 and fiscal 2004, there were outstanding options to purchase 619,000 and 5,310,564 shares at weighted average exercise prices of $19.38 and $6.29, respectively that were not included in the computation of net loss per share because their effect was anti-dilutive.


13.	Segment and Geographic Information:

IXYS has a single operating segment. Our operating segment is comprised of semiconductor products used primarily in power-related applications, including those in motor drives, consumer products and power conversion (among them, uninterruptible power supplies, switch mode power supplies and medical electronics), and in the telecommunications industry. While the Company has separate businesses with discrete financial information, the Company has a single operating decision maker and each of the businesses are highly integrated and have similar economic characteristics. IXYS’s sales by major geographic area (based on destination) were as follows (in thousands):


		Year Ended March 31,

		2006		2005		2004

North America
	United States	$	79,230	$	72,300	$	62,061
Europe and the Middle East
	Germany		29,258		28,821		24,631
	Italy		6,247		7,220		6,954
	United Kingdom		17,285		15,947		10,111
	Other		30,733		33,281		29,578
Asia Pacific
	Korea		30,735		49,990		14,513
	China		25,014		16,800		13,565
	Japan		7,338		6,711		4,782
	Other		13,033		13,479		9,642
Rest of the World			12,614		12,071		11,605

	Total	$	251,487	$	256,620	$	187,442

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the revenues for each of IXYS’s product groups for fiscal 2006, 2005 and 2004 (in thousands):


		Year Ended March 31,

		2006		2005		2004

Power semiconductors		$	191,105	$	195,148	$	139,312
Integrated circuits			41,493		40,759		33,058
Systems and RF power semiconductors			18,889		20,713		15,072

	Total	$	251,487	$	256,620	$	187,442

During the year ended March 31, 2006, there was no single customer providing more than 10% of IXYS’s net revenues. During the year ended March 31, 2005 the sales to one customer represented 11.5% of net revenues. There was no single customer providing more than 10% of IXYS’s net revenues for year ended March 31, 2004.

IXYS’s foreign operations consist of those of its subsidiaries, IXYS GmbH and IXYS Berlin in Germany, IXYS CH in Switzerland and Westcode in the United Kingdom. At March 31, 2006, all recorded goodwill relates to acquired businesses based in the U.S. The following table summarizes the net revenues, net income (loss) and long-lived assets of IXYS’s domestic and foreign operations (in thousands):


		Year Ended March 31,

		2006			2005		2004

Net revenues:
	Foreign	$	98,939		$	99,442	$	86,533
	Domestic		152,548			157,178		100,909

		$	251,487		$	256,620	$	187,442

Net income (loss):
	Foreign	$	11,900		$	6,504	$	3,206
	Domestic		(18,006	)		9,738		(7,638	)

		$	(6,106	)	$	16,242	$	(4,432	)


			March 31,

			2006		2005

Property, plant and equipment, net:
	Germany		$	13,154	$	13,880
	Switzerland			885		1,207
	Domestic			21,993		8,668
	United Kingdom			4,017		4,059

		Total property plant and equipment	$	40,049	$	27,814

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Selected Quarterly Financial Data (unaudited)


	*Fiscal Year Ended March 31, 2006*


		Three Months Ended

		March 31,		December 31,			September 30,		June 30,
		2006		2005			2005		2005

		(In thousands, except per share amounts)
Net revenues		$	64,425	$	60,336		$	63,385	$	63,341
Gross profit			20,382		18,937			21,231		21,145
Operating income (loss)			14,246		(46,230	)		7,243		7,732
Net income (loss)		$	30,301	$	(47,090	)	$	5,544	$	5,139
Basic net income (loss) per share applicable to common stockholder		$	0.89	$	(1.40	)	$	0.17	$	0.15
Diluted net income (loss) per share applicable to common stockholder		$	0.85	$	(1.40	)	$	0.16	$	0.14
Weighted average shares used in per share calculation
	Basic		34,015		33,593			33,525		33,416
	Diluted		35,792		33,593			35,758		35,985


	*Fiscal Year Ended March 31, 2005*


		Three Months Ended

		March 31,		December 31,		September 30,		June 30,
		2005		2004		2004		2004

		(In thousands, except per share amounts)
Net revenues		$	69,023	$	66,258	$	61,385	$	59,954
Gross profit			23,169		20,055		19,511		17,175
Operating income			9,043		7,051		6,289		3,246
Net income		$	5,789	$	4,749	$	3,841	$	1,863
Basic net income per share applicable to common stockholder		$	0.17	$	0.14	$	0.12	$	0.06
Diluted net income per share applicable to common stockholders		$	0.16	$	0.14	$	0.11	$	0.05
Weighted average shares used in per share calculation
	Basic		33,034		33,076		33,007		32,952
	Diluted		35,297		35,012		34,484		35,049


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

Not applicable.


Item 9A.	*Controls and Procedures*

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act) as of March 31, 2006. This evaluation included various processes that were carried out in an effort to ensure that information required to be disclosed in our Securities and Exchange Commission, or SEC, reports is recorded, processed, summarized and reported within the time periods specified by the SEC. In this evaluation, the Chief Executive Officer and the Chief Financial Officer considered whether our disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. This evaluation also included consideration of certain aspects of our internal controls and procedures for the preparation of our financial statements. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2006, our disclosure controls and procedures were not effective. A material weakness in internal control over financial reporting that led to the conclusion is discussed below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2006. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework, which was issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that, as of March 31, 2006, our internal control over financial reporting was not effective.

In conducting its assessment, our management concluded that one material weakness existed as of March 31, 2006 as a result of the absence of a financial accounting professional with sufficient skills and experience to make estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America (“US GAAP”) during the closing process.

Our Audit Committee is aware of the material weakness.

Management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2006 has been audited by BDO Seidman, LLP (“BDO”), an independent registered public accounting firm, as stated in their report, which is included elsewhere herein.

Changes in Internal Control over Financial Reporting

We plan to remedy the material weakness at March 31, 2006 by engaging or employing an additional financial accounting professional with the requisite skills and experience to make estimates and judgments about non-routine transactions consistent with US GAAP during the closing process. We will seek to fill this role by fall 2006. In the interim, we intend to mitigate the material weakness by implementing internal controls for additional secondary reviews of key estimates and judgments relating to non-routine transactions.

In conducting its assessment of the effectiveness of our internal control over financial reporting as of March 31, 2005, our management concluded that five material weaknesses existed as of March 31, 2005:


	•	deficiencies in the number of accounting personnel trained in applying US GAAP and in reporting financial information in accordance with the requirements of the SEC;

	•	deficiencies in our control over costing and valuation of inventory;

	•	deficiencies in our control over the use of spreadsheets in our operations;

	•	deficiencies in the review of the consolidation process; and

	•	inadequate segregation of duties in the purchasing cycle.

To remediate the deficiencies in the number of accounting personnel, we filled a number of positions, some newly designated. We employed an accountant trained in US GAAP at our facilities in Europe. We hired a US GAAP and SEC reporting compliance manager and employed a consolidations manager at the corporate level. We appointed a corporate controller and employed a financial analyst. We trained our domestic and international accounting personnel in US GAAP and in SEC procedures. As a knowledge resource, we purchased access to a reference library commonly used for SEC and US GAAP pronouncements.

Although we added a number of accounting personnel, in light of the material weakness existing at March 31, 2006, the foregoing material weakness may be viewed as not yet fully remediated. In future filings, we will report only on the efforts to remediate the material weakness extant at March 31, 2006, as it is a subset of the issues resulting in the material weakness related to financial personnel identified at March 31, 2005.

Regarding the inventory material weakness, we addressed the yield calculation error in Lampertheim, Germany by changing the procedure to calculate yield, and we conducted a thorough review of the standard costs in Lampertheim, Germany to verify that proper United States accounting practices are followed. In addition, we hired an accountant based in our Fremont, California facility who provides additional resources for the preparation of inventory costing and valuation. We also engaged an operations specialist to remediate inventory issues at our Fremont facility. We enhanced and republished a financial policy regarding inventory valuation for all of our operating entities. We implemented new standard cost methodologies at a number of our facilities. After testing, we have concluded that the inventory material weakness has been remediated.

In respect of our material weakness in our control over the use of spreadsheets, our information technology steering committee determined that a financial reporting tool was required. We acquired the financial reporting tool and engaged consultants to implement the tool. We expect to implement the tool for periods after March 31, 2006. We instituted a policy for the development, implementation, use and review of spreadsheets at all of our divisions and trained our personnel on the policy. We identified our critical spreadsheets and classified them regarding their use and complexity. We implemented secondary review of all critical spreadsheets. After testing, we have concluded that the material weakness has been remediated.

In remediation of the material weakness in our consolidation process, we appointed a corporate controller and employed a new financial analyst, a consolidations manager and a compliance manager for SEC reporting and GAAP accounting. We reviewed the design of our consolidation process controls for adequacy and implemented appropriate procedures for review and documentation of review. We trained our accounting personnel in the consolidation process, including the transfer of financial data from the divisions to the corporate accounting group. After testing, we have concluded that the material weakness has been remediated.

We addressed our material weakness in segregation of duties in our purchasing cycle through the redistribution of duties among existing accounting personnel and the assignment of some duties to non-accounting personnel. We redesigned the controls to reflect the redistribution of duties and the involvement of non-accounting personnel. After testing, we have concluded that the material weakness has been remediated.

Our Audit Committee continues to review whether an internal audit function needs to be established. The Audit Committee is considering the outsourcing of the internal audit function, as well as the use of our personnel to undertake the work.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our procedures or our internal controls will prevent or detect all error and all fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

To the Board of Directors and Stockholders of IXYS Corporation:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that IXYS Corporation (the “Company”) did not maintain effective internal control over financial reporting as of March 31, 2006, because of the effect of a material weakness identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment.

The Company has an absence of a financial accounting professional with sufficient skills and experience to make estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America during the closing process.

The aforementioned material weakness resulted in adjustments to the Company’s fiscal year 2006 annual financial statements. Further, this material weakness could result in material misstatements to the Company’s annual or interim financial statements that would not be prevented or detected. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2006 financial statements, and this report does not affect our report dated June 15, 2006 on those consolidated financial statements.

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of March 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by COSO. Also in our opinion, because of the effects of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of March 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of IXYS Corporation as of March 31, 2006 and March 31, 2005, and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for the years then ended, and our report dated June 15, 2006 expressed an unqualified opinion thereon.

We do not express an opinion or any other form of assurance on management’s statements regarding corrective actions taken by the Company after March 31, 2006.


BDO Seidman, LLP

San Francisco, California

June 15, 2006


	Item 9B.	*Other Information*

On January 27, 2006, the Board of Directors awarded S. Joon Lee, a director, $5,000 in recognition for his additional work on behalf of the Company in his capacity as a director of the Company.

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

Identification of Directors

Reference is made to the information regarding directors appearing under the heading “Proposal 1 — Election of Directors” in our Proxy Statement for the stockholders meeting following the fiscal year ended March 31, 2006 (the “2006 Proxy Statement”), which information is hereby incorporated by reference.

Identification of Executive Officers

Reference is made to the information regarding executive officers appearing under the heading “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K, which information is hereby incorporated by reference.

Identification of Audit Committee and Financial Expert

Reference is made to the information regarding Audit Committee members appearing under the heading “Proposal 1 — Election of Directors — Audit Committee” in our 2006 Proxy Statement, which information is hereby incorporated by reference.

Material Changes to Procedures for Recommending Directors

Reference is made to the information regarding directors appearing under the heading “Proposal 1 — Election of Directors” in our 2006 Proxy Statement, which information is hereby incorporated by reference.

Compliance with Section 16(a) of the Exchange Act

Reference is made to the information appearing under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2006 Proxy Statement, which information is hereby incorporated by reference.

Code of Ethics

Reference is made to the information appearing under the heading “Proposal 1 — Election of Directors — Code of Ethics” in our 2006 Proxy Statement, which information is hereby incorporated by reference.


Item 11.	*Executive Compensation*

Reference is made to the information appearing under the heading “Executive Compensation” in our 2006 Proxy Statement, which information is hereby incorporated by reference.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Reference is made to information appearing in our 2006 Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” which information is hereby incorporated by reference.


Item 13.	*Certain Relationships and Related Transactions*

Reference is made to information appearing in our 2006 Proxy Statement under the heading “Certain Transactions,” which information is hereby incorporated by reference.


Item 14.	*Principal Accounting Fees and Services*

Reference is made to the information appearing under the heading “Proposal 2 — Ratification of Selection of Independent Auditors — Fees Billed by the Independent Auditors” and “Proposal 2 — Ratification of Selection of Independent Auditors — Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors” in our 2006 Proxy Statement, which information is hereby incorporated by reference.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) The following documents are filed as part of this report:


	(1) Financial Statements


	Report of Independent Registered Public Accounting Firm

	Report of Independent Registered Public Accounting Firm

	Consolidated Balance Sheets as of March 31, 2006 and 2005

	Consolidated Statement of Operations for the years ended March 31, 2006, 2005 and 2004

	Consolidated Statement of Comprehensive Income (Loss) for the years ended March 31, 2006, 2005 and 2004

	Consolidated Statement of Stockholders’ Equity for the years ended March 31, 2006, 2005 and 2004

	Consolidated Statements of Cash Flows for the years ended March 31, 2006, 2005 and 2004

	Notes to Consolidated Financial Statements


	(2) Financial statements schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

	(3) Exhibits.


Exhibit			Title

	3	.1	Amended and Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State for the State of Delaware on March 23, 2001 (filed on June 28, 2001 as Exhibit 3.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	3	.2	Amended and Restated Bylaws of the Registrant (filed on November 14, 2002 as Exhibit 3.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.1*	Second Amended Executive Employment Agreement, dated as of February 1, 2004, by and between IXYS Corporation (“IXYS”) and Nathan Zommer (filed on June 14, 2004 as Exhibit 10.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.2	Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March 28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics Co. (filed on June 29, 1998 as Exhibit 10.3 to Amendment No. 1 the Registration Statement on Form S-4 of Paradigm Technology, Inc. (No. 333-57003) and incorporated herein by reference).
	10	.3	Loan Agreement dated June 2, 2005 by and between IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.4	Collateral Agreement dated July 14, 2005 by and among IXYS Corporation, IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).


Exhibit			Title

	10	.5*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Nathan Zommer (filed on June 28, 2001 as Exhibit 10.7 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.6*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Arnold Agbayani (filed on June 28, 2001 as Exhibit 10.8 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.7*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Samuel Kory (filed on June 28, 2001 as Exhibit 10.10 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.8*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Kevin McDonough (filed on June 28, 2001 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.9*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Peter Ingram (filed on June 28, 2001 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.10*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and Donald L. Feucht (filed on June 28, 2001 as Exhibit 10.13 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.11*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and S. Joon Lee (filed on June 28, 2001 as Exhibit 10.14 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.12*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Kenneth D. Wong (filed on February 11, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.13*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Uzi Sasson (filed on February 11, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.14*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Kent P. Loose (filed on February 11, 2005 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.15*	The Paradigm 1994 Stock Option Plan, as amended (filed on February 16, 1999 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.16*	The IXYS 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.17*	The IXYS 1999 Employee Stock Purchase Plan (filed on July 8, 1999 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.18*	The IXYS 1999 Non-Employee Directors’ Equity Incentive Plan (filed on July 8, 1999 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.19*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.20*	Form of Restricted Stock Unit Award Agreement for the 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.21*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.22*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).


Exhibit			Title

	10	.23*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan with net exercise provision.
	10	.24*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan for non-employee directors.
	10	.25*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan with net exercise provision.
	10	.26*	Form of Stock Award Agreement (filed on February 14, 2006 as Exhibit 10.5 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.27*	Recourse Promissory Note issued to IXYS by Samuel J. Kory, effective as of August 30, 2002 and executed in April 2002 (filed on August 14, 2002 as Exhibit 10.29 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.28*	Stock Pledge Agreement by Samuel J. Kory in favor of IXYS, effective as of August 30, 2001 and executed in April 2002 (filed on August 14, 2002 as Exhibit 10.30 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.29*	Description of elements of compensation of Nathan Zommer and Uzi Sasson.
	10	.30*	Summary of outside director compensation.
	21	.1	List of Subsidiaries.
	23	.1	Consent of BDO Seidman, LLP.
	23	.2	Consent of PricewaterhouseCoopers LLP.
	24	.1	Power of Attorney (included on the signature page)
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Commission.
	31	.2	Certification of Chief Financial Officer pursuant to the Rule 13a-14(a) of the Securities and Exchange Commission.
	32	.1	Certification required by Rule 13a-14(b) of the Securities and Exchange Commission and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


*	Management contract or compensation plan or arrangement.

(b) Exhibits. See Item 15(a)(3) above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	IXYS CORPORATION


	By:	/s/ Nathan Zommer



	Nathan Zommer
	Chairman of the Board, President and
	Chief Executive Officer
	(Principal Executive Officer)

Dated: June 21, 2006

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Nathan Zommer and Uzi Sasson, and each or any one of them, his true and lawful attorney-in -fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in -fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in -fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ Nathan Zommer Nathan Zommer	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	June 21, 2006

/s/ Uzi Sasson Uzi Sasson	Vice President of Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	June 21, 2006

/s/ Donald L. Feucht Donald L. Feucht	Director	June 21, 2006

/s/ Samuel Kory Samuel Kory	Director	June 21, 2006

/s/ S. Joon Lee S. Joon Lee	Director	June 21, 2006

/s/ David L. Millstein David L. Millstein	Director	June 21, 2006

/s/ Kenneth D. Wong Kenneth D. Wong	Director	June 21, 2006

Exhibit Index


Exhibit			Title

	3	.1	Amended and Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State for the State of Delaware on March 23, 2001 (filed on June 28, 2001 as Exhibit 3.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	3	.2	Amended and Restated Bylaws of the Registrant (filed on November 14, 2002 as Exhibit 3.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.1*	Second Amended Executive Employment Agreement, dated as of February 1, 2004, by and between IXYS Corporation (“IXYS”) and Nathan Zommer (filed on June 14, 2004 as Exhibit 10.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.2	Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March 28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics Co. (filed on June 29, 1998 as Exhibit 10.3 to Amendment No. 1 the Registration Statement on Form S-4 of Paradigm Technology, Inc. (No. 333-57003) and incorporated herein by reference).

	10	.3	Loan Agreement dated June 2, 2005 by and between IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.4	Collateral Agreement dated July 14, 2005 by and among IXYS Corporation, IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.5*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Nathan Zommer (filed on June 28, 2001 as Exhibit 10.7 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.6*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Arnold Agbayani (filed on June 28, 2001 as Exhibit 10.8 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.7*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Samuel Kory (filed on June 28, 2001 as Exhibit 10.10 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.8*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Kevin McDonough (filed on June 28, 2001 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.9*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Peter Ingram (filed on June 28, 2001 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.10*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and Donald L. Feucht (filed on June 28, 2001 as Exhibit 10.13 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.11*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and S. Joon Lee (filed on June 28, 2001 as Exhibit 10.14 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.12*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Kenneth D. Wong (filed on February 11, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.13*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Uzi Sasson (filed on February 11, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.14*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Kent P. Loose (filed on February 11, 2005 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.15*	The Paradigm 1994 Stock Option Plan, as amended (filed on February 16, 1999 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).


Exhibit			Title

	10	.16*	The IXYS 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).

	10	.17*	The IXYS 1999 Employee Stock Purchase Plan (filed on July 8, 1999 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.18*	The IXYS 1999 Non-Employee Directors’ Equity Incentive Plan (filed on July 8, 1999 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).

	10	.19*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.20*	Form of Restricted Stock Unit Award Agreement for the 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).

	10	.21*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.22*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.23*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan with net exercise provision.

	10	.24*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan for non-employee directors.

	10	.25*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan with net exercise provision.

	10	.26*	Form of Stock Award Agreement (filed on February 14, 2006 as Exhibit 10.5 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.27*	Recourse Promissory Note issued to IXYS by Samuel J. Kory, effective as of August 30, 2002 and executed in April 2002 (filed on August 14, 2002 as Exhibit 10.29 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.28*	Stock Pledge Agreement by Samuel J. Kory in favor of IXYS, effective as of August 30, 2001 and executed in April 2002 (filed on August 14, 2002 as Exhibit 10.30 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).

	10	.29*	Description of elements of compensation of Nathan Zommer and Uzi Sasson.

	10	.30*	Summary of outside director compensation.

	21	.1	List of Subsidiaries.

	23	.1	Consent of BDO Seidman, LLP.

	23	.2	Consent of PricewaterhouseCoopers LLP.

	24	.1	Power of Attorney (included on the signature page)
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Commission.

	31	.2	Certification of Chief Financial Officer pursuant to the Rule 13a-14(a) of the Securities and Exchange Commission.

	32	.1	Certification required by Rule 13a-14(b) of the Securities and Exchange Commission and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


*	Management contract or compensation plan or arrangement.

Exhibit 10.23

Ixys Corporation
1999 Equity Incentive Plan

Stock Option Agreement

(Incentive and Nonstatutory Stock Options)

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement, IXYS Corporation (the “Company”) has granted you an option under its 1999 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1. Vesting. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service and that your vesting may be accelerated as provided in the Plan.

2. Number of Shares and Exercise Price. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.

3. Method of Payment. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:

(i) In the Company’s sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

(ii) In the Company’s sole discretion at the time your option is exercised, by cancellation of a number of the shares of Common Stock to be issued upon the exercise, where such cancelled number equals the largest number of whole shares that has a Fair Market Value that does not exceed the aggregate exercise price. With respect to any remaining balance of the aggregate exercise price, you may either pay by cash or through a broker assisted exercise pursuant to Section 3(i). The shares of Common Stock used to pay the exercise price of this option under this “net exercise” provision will be considered to have resulted from the

exercise of this option, and accordingly, this option will not again be exercisable with respect to such shares, as well as any shares actually delivered to you.

(iii) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company’s reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

4. Whole Shares. You may exercise your option only for whole shares of Common Stock that have vested.

5. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

6. Term. You may not exercise your option before the commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following:

(i) three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in Section 5, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;

(ii) twelve (12) months after the termination of your Continuous Service due to your Disability;

(iii) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;

(iv) the Expiration Date indicated in your Grant Notice; or

(v) the day before the tenth (10th) anniversary of the Date of Grant.

If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or your permanent and total disability, as defined in Section 22(e) of the Code. (The definition of disability in Section 22(e) of the Code is different from the definition of the Disability under the Plan). The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.

7. Exercise.

(i) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.

(ii) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.

8. Transferability. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

9. Option not a Service Contract. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

10. Withholding Obligations.

(i) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and

any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.

(ii) Either upon your request and subject to approval by the Company, in its sole discretion, or at the request of the Company, in its sole discretion, and, in either case, in compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

(iii) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.

11. Notices. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

12. Governing Plan Document. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.

Ixys Corporation
1999 Equity Incentive Plan
Stock Option Grant Notice

IXYS Corporation (the “Company”), pursuant to its 1999 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.


Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date: ¹


Type of Grant:	¨ Incentive Stock Option ²	¨ Nonstatutory Stock Option

Exercise Schedule :	Same as Vesting Schedule,

Vesting Schedule :	.

Payment:	By one or a combination of the following items (described in Section 3 of the Stock Option Agreement):

	¨ By cash or check;
	¨ At the discretion of the Company, pursuant to a Regulation T Program if the Shares are publicly traded;
	¨ At the discretion of the Company, through a “net exercise”;
	¨ At the discretion of the Company, by delivery of already-owned shares if the Shares are publicly traded.

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:


Other Agreements:


Ixys Corporation		Optionholder:

By:

	Signature	Signature

Title:		Date:


Date:

Attachments : Stock Option Agreement, 1999 Equity Incentive Plan and Notice of Exercise


¹		Subject to earlier termination as provided in Section 6 of the Option Agreement.

²		If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.

Exhibit 10.24

Ixys Corporation
1999 Equity Incentive Plan

Stock Option Agreement

(Nonstatutory Stock Options)

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement, Ixys Corporation (the “Company”) has granted you an option under its 1999 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1. Vesting.

(a) General . Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service and that your vesting may be accelerated as provided in the Plan and in Section 1(b) below.

(b) Vesting Acceleration .

(i) Change in Control — Asset Sale, Merger, Consolidation or Reverse Mergers. In the event of (1) a sale of substantially all of the assets of the Company, (2) a merger or consolidation in which the Company is not the surviving corporation or (3) a reverse merger in which the Company is the surviving corporation but the share of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then, to the extent your Continuous Service has not terminated, the vesting of your option and the time during which your option may be exercised shall be accelerated in full, and your option shall terminate if not exercised at or prior to such event.

(ii) Change in Control — Securities Acquisition. In the event of an acquisition by any person, entity or group within the meaning of Section 13(d) or 14 (d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or an Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then, to the extent your Continuous Service has not terminated, the vesting of your option and the time during which your option may be exercised shall be accelerated in full.

(iii) Change in Control — Change in Incumbent Board. In the event that the individual who, as of the date of the adoption of this Plan, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least fifty percent (50%) of the Board, then, to the extent your Continuous Service has not terminated, the vesting of your option and the time during which your option may be exercised shall be accelerated in full. If the election, or nomination for election, by the Company’s stockholders of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board.

4. Whole Shares. You may exercise your option only for whole shares of Common Stock that have vested.

(ii) twelve (12) months after the termination of your Continuous Service due to your Disability;

(iii) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;

(iv) the Expiration Date indicated in your Grant Notice; or

(v) the day before the tenth (10th) anniversary of the Date of Grant.

7. Exercise.

which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.

10. Withholding Obligations.

(i) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.

(iii) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to

exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.

Ixys Corporation
1999 Equity Incentive Plan
Stock Option Grant Notice

Ixys Corporation (the “Company”), pursuant to its 1999 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.


Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date: ¹


Type of Grant:		Nonstatutory Stock Option

Exercise Schedule :		Same as Vesting Schedule,

Vesting Schedule :		.
		In addition, the Option is subject to vesting acceleration as provided in Section 1(b) of the Stock Option Agreement.

Payment:		By one or a combination of the following items (described in Section 3 of the Stock Option Agreement):

		¨ By cash or check;
		¨ At the discretion of the Company, pursuant to a Regulation T Program if the Shares are publicly traded;
		¨ At the discretion of the Company, through a “net exercise”;
		¨ At the discretion of the Company, by delivery of already-owned shares if the Shares are publicly traded.


Other Agreements:


Ixys Corporation		Optionholder:

By:

	Signature	Signature

Title:		Date:


Date:

Attachments : Stock Option Agreement, 1999 Equity Incentive Plan and Notice of Exercise


¹		Subject to earlier termination as provided in Section 6 of the Option Agreement.

Exhibit 10.25

Ixys Corporation
1999 Non-Employee Directors’ Equity Incentive Plan

Stock Option Agreement
(Nonstatutory Stock Options)

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement, Ixys Corporation (the “Company”) has granted you an option under its 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

exercise of this option, and accordingly, this option will not again be exercisable with respect to such shares, as well as any shares actually delivered to you.

4. Whole Shares. You may exercise your option only for whole shares of Common Stock that have vested.

(ii) twelve (12) months after the termination of your Continuous Service due to your Disability;

(iii) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;

(iv) the Expiration Date indicated in your Grant Notice; or

(v) the day before the tenth (10th) anniversary of the Date of Grant.

7. Exercise.

10. Withholding Obligations.

be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

Ixys Corporation
1999 Non-Employee Directors’ Equity Incentive Plan
Stock Option Grant Notice

Ixys Corporation (the “Company”), pursuant to its 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.


Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date: ¹


Type of Grant:		¨ Nonstatutory Stock Option

Exercise Schedule :		Same as Vesting Schedule,

Vesting Schedule :

Payment:		By one or a combination of the following items (described in the Stock Option Agreement):

		¨ By cash or check;
		¨ At the discretion of the Company, pursuant to a Regulation T Program if the Shares are publicly traded;
		¨ At the discretion of the Company, through a “net exercise” as described in Section 3 of the Option Agreement;
		¨ At the discretion of the Company, by delivery of already-owned shares if the Shares are publicly traded.


Other Agreements:


Ixys Corporation		Optionholder:

By:

	Signature	Signature

Title:		Date:


Date:

Attachments : Stock Option Agreement, 1999 Non-Employee Directors’ Equity Incentive Plan and Notice of Exercise


¹		Subject to earlier termination as provided in Section 6 of the Option Agreement.

Exhibit 10.29

DESCRIPTION OF ELEMENTS OF COMPENSATION OF
NATHAN ZOMMER AND UZI SASSON

During the fiscal year ended March 31, 2006 (“fiscal 2006”), Dr. Nathan Zommer, the Chief Executive Officer of IXYS Corporation (the “Company”), was paid salary at the annual rate of $480,000, consistent with the minimum salary payable under the provisions of his employment agreement.

On November 23, 2004, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved a cash bonus for Dr. Zommer of $700,000, payable in increments of $100,000 per fiscal quarter, commencing with the fiscal quarter ending December 31, 2004. A condition to the Company’s obligation to pay any increment was that Dr. Zommer continued to be the Chief Executive Officer on the last day of the corresponding fiscal quarter.

On November 23, 2004, the Committee approved an annual salary of $260,000 and a target cash bonus of $130,000 per fiscal year for Uzi Sasson, the Vice President of Finance and Chief Financial Officer of the Company. This annual salary and target cash bonus were effective during fiscal 2006.

On June 2, 2005, the Committee set potential bonus levels and objectives to use in determining the amount of the cash bonus payable to Dr. Zommer in respect of the fiscal 2006. The Committee also established weights for the objectives, to indicate their relative importance. In doing so, the Committee considered the advice of an independent compensation consultant.

In setting the bonus levels, objectives and weights, the Committee approved the following language:

“The bonus levels and objectives, along with the weights accorded the objectives, represent guidelines for the Committee to use in evaluating the bonus to be paid to the Chief Executive Officer and for the Chief Executive Officer to use in understanding the goals of the Compensation Committee for his performance. As guidelines, the bonus levels, objectives and weights are not determinative in and of themselves of the amount of the bonus. The amount of the bonus will be determined by the Committee in light of its evaluation of the Chief Executive Officer’s performance in total and not based on the mechanical application of any formula. The Committee may decide to award additional amounts for performance in excess of an objective or award lesser amounts for partial performance of an objective. The Committee may also consider factors not set forth below in ultimately determining the amount of the bonus. Thus, the amount of the bonus to be paid is in the discretion of the Committee, to be determined after completion of the fiscal year.”

The Committee set three different potential levels for Dr. Zommer’s fiscal 2006 cash bonus as follows:

Acceptable performance: $250,000

Target bonus: $300,000

Performance above expectations: $400,000

The objectives are described below:

1. A quantitative target for net revenues for fiscal 2006;

2. A quantitative target for gross margin for fiscal 2006; and

3. Overall performance during fiscal 2006, including an evaluation of infrastructure development, the business plan and the integration of acquisitions.

The amounts of the cash bonuses of Dr. Zommer and Mr. Sasson for fiscal 2006 have yet to be determined.

On May 12, 2006, Committee set potential bonus levels to use in determining the amount of the cash bonuses payable to Dr. Zommer and Mr. Sasson in respect of the fiscal year ending March 31, 2007 (“fiscal 2007”).

In setting the bonus levels, the Committee also approved the following language:

“The bonus levels represent guidelines for the Committee to use in evaluating the bonus to be paid. The amount of any bonus will be determined by the Committee in light of its evaluation of performance in total and not based upon the mechanistic application of any formula. The Committee may decide to award a bonus above or below any bonus level, depending upon its evaluation. Thus, the amount of the bonus to be paid is in the discretion of the Committee, to be determined after the completion of the fiscal year.”

The Committee set three different potential levels for Dr. Zommer’s fiscal 2007 cash bonus as follows:

Acceptable performance: $300,000

Target bonus: $400,000

Performance above expectations: $500,000

The Committee set three different potential levels for Mr. Sasson’s fiscal 2007 cash bonus as follows:

Acceptable performance: $150,000

Target bonus: $175,000

Performance above expectations: $200,000

On May 12, 2006, the Committee also determined that the annual salaries during fiscal 2007, effective as of April 1, 2006, would be $510,000 for Dr. Zommer and $300,000 for Mr. Sasson.

Exhibit 10.30

SUMMARY OF OUTSIDE DIRECTOR COMPENSATION

As of June 15, 2006, Directors of IXYS Corporation that are not employees, commonly referred to as outside directors, received cash compensation on the following basis:


Annual Retainer for each Director	$	20,000

Additional Annual Retainer for the Chairman of the

Audit Committee	$	7,500

Compensation Committee	$	4,000

Nominating Committee	$	4,000

Director’s Fee for each Board of Directors meeting	$	1,000

Director’s Fee for each Committee meeting	$	600

At the September 2005 annual meeting of stockholders, retainer amounts were authorized at 75% of the normal amount for one year only, because of a shift forward in time for the annual meeting of stockholders from November to August or September. The shift was initiated in calendar 2005.

Exhibit 21.1

SUBSIDIARIES


		Jurisdiction Of
Name		Organization
Clare Canada, Ltd.		Canada
Clare Capital, Inc.		Delaware
Clare Components, Inc.		Delaware
Clare Electronics, Inc.		Delaware
Clare France S.A.R.L.		France
Clare, Inc.		Massachusetts
Clare Instruments, Inc.		Delaware
Clare Micronix Integrated Systems, Inc.		California
Clare N.V.		Belgium
Clare Services, Inc.		Delaware
Clare Systems, Inc.		Delaware
Clare Technologies, Inc.		Delaware
Clare Technologies (Taiwan), Inc.		Taiwan
C.P. Clare Electronics GmbH		Germany
C.P. Clare Foreign Sales Corporation		Delaware
C.P. Clare International N.V.		Netherlands
C.P. Clare Mexicana S.A. de C.V.		Mexico
Directed Energy, Inc.		Colorado
IXYS Berlin GmbH		Germany
IXYS Caymans L.P.		Cayman Islands B.W.I.
IXYS CH GmbH		Switzerland
IXYS Holdings Ltd.		United Kingdom
IXYS Korea Ltd.		South Korea
IXYS Semiconductor, B.V.		Netherlands
IXYS Semiconductor GmbH		Germany
IXYS UK Ltd.		United Kingdom
IXYS Unterstuetzungseinrichtung GmbH		Germany
IXYS USA, Inc.		Delaware
Microwave Technology, Inc.		California
Westcode Industries Ltd.		United Kingdom
Westcode Semiconductors, Inc.		California
Westcode Semiconductors, Ltd.		United Kingdom

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

IXYS Corporation
3540 Bassett Street
Santa Clara, CA 95054

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Numbers 333-109857, 333-92204, 333-96081, 333-66289, and 333-4412) of IXYS Corporation of our reports dated June 15, 2006, relating to the consolidated financial statements, and the effectiveness of IXYS Corporation’s internal control over financial reporting, which appear in this Form 10-K.

BDO Seidman, LLP
San Francisco, CA

June 20, 2006

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-96081, No. 333-92204, No. 333-66289,No. 333-4412 and No. 333-109857) of IXYS Corporation of our report dated May 18, 2004 relating to the consolidated financial statements of IXYS Corporation for the year ended March 31, 2004, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
San Jose, California
June 20, 2006

Exhibit 31.1

CERTIFICATION

I, Nathan Zommer, certify that:

1. I have reviewed this annual report on Form 10-K of IXYS Corporation;

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 21, 2006



	/s/ Nathan Zommer
	Nathan Zommer, Chairman of the Board,
	President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Uzi Sasson, certify that:

1. I have reviewed this annual report on Form 10-K of IXYS Corporation;

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

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 21, 2006



	/s/ Uzi Sasson
	Uzi Sasson, Vice President of Finance
	and Chief Financial Officer

Exhibit 32.1

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Nathan Zommer, Chairman of the Board, President and Chief Executive Officer of IXYS Corporation (the “Company”), and Uzi Sasson, Vice President of Finance and Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Annual Report on Form 10-K for the period ended March 31, 2006, to which this Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, as amended; and

2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof , the undersigned have set their hands hereto as of the 21st day of June, 2006.


/s/ Nathan Zommer		/s/ Uzi Sasson

Nathan Zommer		Uzi Sasson
Chairman of the Board, President		Vice President of Finance and Chief
and Chief Executive Officer		Financial Officer

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of IXYS Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.