Advanced Analogic 10-K 2009 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2009

Or

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

Commission file number: 000-51349

Advanced Analogic Technologies Incorporated

(Exact Name of Registrant As Specified in Its Charter)

Delaware	77-0462930
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3230 Scott Boulevard, Santa Clara, CA 95054 (408) 737-4600

(Address of Principal Executive Offices, Including Zip Code and Telephone Number)

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

Common Stock, $0.001 Par Value

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

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  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the close of business on June 30, 2009 was approximately $148,000,000. There were 42,968,378 shares of the Registrant’s common stock outstanding as of February 12, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the Registrant’s definitive proxy statement (the “2010 Proxy Statement”) for the 2010 Annual Meeting of Stockholders to be filed on or before April 30, 2010.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. When used in this Form 10-K, the words “anticipate,” “objective,” “may,” “might,” “should,” “could,” “can,” “intend,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “is designed to” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our expectations regarding our expenses, sales and operations;

• our anticipated cash needs and our estimates regarding our capital requirements and our need for additional financing;

• our ability to anticipate the future needs of our customers;

• our plans for future products and enhancements of existing products;

• our growth strategy elements;

• our increased headcount as we expand our operations;

• our intellectual property;

• our anticipated trends and challenges in the markets in which we operate; and

• our ability to attract customers.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risk and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. While we believe our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this Annual Report on Form 10-K, including those under the heading “Risk Factors.”

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Annual Report on Form 10-K. Other than as required by applicable laws, we are under no obligation to update any forward-looking statement, whether as result of new information, future events or otherwise.

This Annual Report on Form 10-K also contains statistical data that we obtained from industry publications and reports generated by Gartner, Inc. These industry publications and reports generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, we have not independently verified the data.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	75
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	77
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accounting Fees and Services	77
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	78
	Signatures	80

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PART I

ITEM 1. BUSINESS

Overview

We develop advanced semiconductor system solutions that play a key role in the continuing evolution of feature-rich, energy efficient electronic devices. We focus on addressing the application-specific power management needs of consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, Bluetooth headphones and accessories, digital TVs, set top boxes and displays.

We focus our design and marketing efforts on application-specific power management needs in rapidly-evolving devices. Through our Total Power Management approach, we offer a broad range of products that support multiple applications, features, and services across a diverse set of electronic devices. We target our design efforts on proprietary products, which at the time we introduce them offer characteristics that differentiate them from those offered by our competitors and which we believe are likely to generate high-volume demand from multiple customers. We also selectively license our devices, process, package, and application-related technologies.

Our growth strategy involves three elements, to maintain revenues in our existing markets and applications such as LED lighting in handheld devices, to penetrate new applications in existing markets such as battery charging in cell phones, and to selectively enter totally new markets such as high definition televisions.

Headquartered in Silicon Valley, we have development centers in Santa Clara, Shanghai, Hong Kong, Taiwan, and have Asia-based operations and logistics. We were incorporated in California in August 1997 and reincorporated in Delaware in April 2005. Our principal executive offices are located at 3230 Scott Boulevard, Santa Clara, California 95054, and our telephone number is (408) 737-4600. Our web site address is www.analogictech.com. Unless the context requires otherwise, references in this Form 10-K to “AnalogicTech,” “AATI,” “we,” “us” and “our” refer to Advanced Analogic Technologies Incorporated and its wholly-owned subsidiaries on a consolidated basis. AnalogicTech and the AnalogicTech logo are trademarks of Advanced Analogic Technologies Incorporated. This annual report on Form 10-K also includes other trademarks of Advanced Analogic Technologies Incorporated and trademarks of other persons.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other SEC filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.

Industry Background

Consumer Electronic Devices

The market for consumer electronic devices, such as wireless handsets, notebook and tablet computers, smartphones and mobile internet devices, digital cameras and personal media players, is large and growing rapidly as functionality increases and prices decrease. As an example, wireless handsets, can incorporate multiple applications such as digital cameras and movie capability, digital audio and video, polyphonic ring tones, text messaging, internet access, electronic gaming and decorative lighting, are among the most widely adopted electronic devices today.

New services for mobile consumer electronic devices, such as digital music downloads, video downloads, video messaging, video streaming, mobile TV, Global Positioning System-based personal navigation, and web-based gaming, are helping drive consumer demand for these devices worldwide. These new services are becoming more robust, affordable and accessible on wireless handsets, smartphones and other devices with connectivity to high-bandwidth, third- and fourth-generation wireless networks supporting high-speed packet

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formats HSDPA and HSUPA, broadband formats such as WiMax and digital video broadcast services such as DMB. Certain applications and features that facilitate use of these services, such as high-quality color displays and high-capacity memory for photos, music, video including TV content, games and other content, have already become broadly accepted and, we believe, expected by many consumers. In response to these market dynamics, manufacturers of mobile consumer electronic devices and service providers marketing these devices are incorporating an increasing number of applications, features and services.

As the number of applications, features and services available for consumer electronic devices increases, the number and variety of power loads, or individual subsystems requiring voltage regulation and power management, has also grown. All of these additional loads reduce battery life, the duration of which is an important element of consumer satisfaction, as they each draw power for operation. Additional power is consumed and battery operating time is reduced if components that supply and regulate power to all of these various power loads are inefficient. Therefore, high-performance power management semiconductors that extend battery operating time by improving power efficiency and/or improve system management functions have become key enablers of consumer electronic device functionality.

Power Management Semiconductors

Power management semiconductors deliver power and regulate voltage, controlling the flow of electrical energy among the various power loads and energy sources in a product or system. Power management semiconductors play a crucial role in system design because they are critical to battery life and impact the size, performance, and safety of a consumer electronic device. According to Gartner, Inc., revenue from power management integrated circuits totaled $8.5 billion in 2008 and is expected to grow to $9.5 billion in 2013. Longer term, we believe that demand for power management and voltage regulation in consumer electronic devices will continue to grow. Power management semiconductors remain an indispensable element of electronic devices, driven by the need for longer battery life and greater energy efficiency.

Total Power Management Approach

Our “Total Power Management” strategy is intended to provide our customers with products for most or all of their power management requirements for each consumer electronic device on which we focus. We believe our broad range of Power Management application-specific standard products and components derived from our general purpose analog integrated circuits offer a flexible solution to our customers’ power management requirements, saving space, reducing component count in the system and offering a single vendor solution for mobile consumer electronic devices. We believe that our PowerSOC solutions currently being sampled or in development integrate a wide variety of power management functions, offering improved efficiency, smaller size and real-time user control of their power consumption and power performance.

Our Total Power Management circuit portfolio supports functions including: voltage regulation and DC/DC conversion, over-voltage protected battery charging, fuel gauging, power saving SmartSwitch functions, interface and port protection, and display and lighting solutions including low-voltage and high-voltage LED backlighting, high-current LED camera flash, and active-matrix OLED displays. Recent efforts include circuitry for large screen LCD biasing including Vcom trimming and gamma correction. These functions may be offered as single function products, mixed in various combinations, or integrated monolithically into PowerSOCs using our proprietary ModularBCD process technology.

Technology

No single semiconductor fabrication process can support all complex system design needs. The result has been the creation of many different process technologies for designing and fabricating analog ICs.

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Unlike other semiconductor companies, AnalogicTech designers have three carefully crafted analog technologies from which to choose:

Analog CMOS	Cost effective high volume, low voltage applications
ModularBCD™*	Highly integrated multi-voltage and/or high-voltage solutions
TrenchDMOS*	High density, high-power designs

* Proprietary AnalogicTech technologies

Taking integration one step further, AnalogicTech develops area-efficient multi-chip packages to meet more complex power management needs in a smaller footprint.

This unique combination of technology provides higher efficiency, faster response time, lower power consumption, less resistance for lower heat generation, and denser designs with tighter integration in space-saving packages.

Unique to AnalogicTech is the concept of “Fabless without Foundries.” Instead of using standard fab process technologies, AnalogicTech has created its own optimized process technologies and installs them in older generation DRAM fabs, thus turning these fabs into highly effective manufacturing partners.

Products

AnalogicTech offers a broad range of analog and mixed-signal circuits that play a critical role in system design. Whether stand alone discrete or fully integrated PMU/PMIC system solutions, our solution expertise includes:

Display and Lighting	Power Half Bridges
Battery Chargers	Integrated Load Switches
Fuel Gauging	Voltage References
Current Limited Load Switches	Voltage Supervisors and Monitors
Switching Regulators	Power MOSFETs
Inductorless DC/DC Converters	USB OTG
Linear Regulators	PLL
A/D and D/A Converters	Op Amps and Comparators
Audio Class D and Audio Codec

These semiconductor solutions offer designers highly flexible power management options, lower component counts, less design complexity, and smaller board space requirements. AnalogicTech is a single source of power management solutions for mobile and line powered consumer electronics devices.

For our system solutions, we have recently announced our new AAT2400 family of LED driver systems solutions for LED backlit LCD televisions. Our solution represents one of the highest levels of system integration for LED backlit LCD televisions in the industry. The AAT2400 series solutions conserve system power and deliver a better end-user experience by providing precise brightness control to individual LED segments based on image content. The result is truer blacks and improved contrast for a significantly better, more natural viewing experience. The dynamic LED backlighting also makes it possible to meet the increasingly stringent energy consumption specifications for large panel TV’s such as the state of California is requiring.

Customers, Sales and Marketing

We work directly with system designers to create demand for our products by providing them with application-specific product information for their system design, engineering and procurement groups. Our FAEs actively engage these groups during their design processes to introduce them to our products and the target

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applications our products address. We endeavor to design products that will meet anticipated, increasingly complex and specific design requirements, but which will also support widespread demand for these products and future products derived from these products.

We sell directly to original equipment manufacturers, or OEMs, including Samsung Electronics Co., Ltd. and LG Electronics, Inc. We sell through distributors to original design manufacturers, or ODMs, to contract manufacturers, and to other system designers, including USI Corporation, Longcheer Holdings Ltd., Tianyu Communication Equipment Co., Ltd, Foxconn Electronics, Inc. and Gemtek Technology Co. Ltd. In some instances, we also sell directly to contract manufacturers such as Flextronics International Ltd. Reference design based sales like those associated with Broadcom chipsets for Apple, Dell and HP are sold through distribution to contract manufacturers and ODMs.

We sell our products through our direct sales and applications support organization to original equipment manufacturers, original design manufacturers and contract electronics manufacturers, as well as through arrangements with distributors that fulfill third-party orders for our products. Many of our current distributors also serve as sales representatives procuring orders for us to fill directly. We receive a substantial portion of our revenues from a small number of customers. Samsung was our largest direct customer in 2009 and represented 33%, 20% and 11% of our net revenue in 2009, 2008 and 2007, respectively. LG Electronics was our largest direct customer in 2008 and 2007 and represented 24%, 25% and 20% of our net revenue in 2009, 2008 and 2007, respectively. No single distributor accounted for more than 10% of our net revenue in 2009 or 2008. One distributor, ChiefTech Electronics Limited, accounted for 15% of our net revenue in 2007. End users of our products purchasing from us directly accounted for 74%, 67% and 54% of our net revenue in 2009, 2008 and 2007, respectively, while distributors, original design manufacturers and contract electronics manufacturers accounted for 26%, 33% and 46% of our net revenue in 2009, 2008 and 2007, respectively.

Our technical global sales and field applications force is organized in regional teams. We have added additional customer service personnel in regions where we ship directly to an OEM, particularly in South Korea. In addition to creating the initial demand for our products, each regional team is responsible for increasing demand from distributors, original design manufacturers, contract manufacturers and end users. We operate sales offices in: Seoul, South Korea; Taipei, Taiwan; Tokyo, Japan; Shanghai, China; Shenzhen, China; Hong Kong, China; Santa Clara, California; and London, England. Santa Clara is both our corporate and North American sales headquarters, Shanghai is our sales headquarters for China, and London is our sales headquarters for Europe, the Middle East and Africa. We use this network of offices and staff, with the support of distributors and representatives, to stay close to system designers and our other customers and remain current on the newest global technology developments through the sharing of customer visit reports.

Manufacturing and Operations

We use third-party foundries and assembly and test subcontractors to manufacture, assemble and test our products. To provide smaller products with higher integration and efficiency, we have implemented an outsourced fabrication model to manufacture our products at half-micron geometries and below. Specifically, we contract with specialty foundries that have former DRAM fabs employing advanced analog CMOS process technology and, under license, our patented ModularBCD technology. We capture the operational and financial benefits of the fabless model, including reduced manufacturing personnel, capital expenditures, fixed assets and fixed costs.

We use third-party contractors, primarily in Taiwan, to perform wafer probe. The probed wafers are then shipped to our back-end supplier’s assembly and test manufacturing locations in Taiwan, Shanghai, Chengdu or Malaysia. Back-end logistics and engineering support is performed through our operations team in Chupei, Taiwan. Finished goods inventory is stored and shipped world-wide from Hong Kong by a third-party service provider on our behalf. All scheduling is internally communicated globally via our virtual private network and web-based enterprise resource planning system.

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In addition to innovative manufacturing processes, we also work with our packaging contractors to develop innovative packaging solutions that make use of new assembly methods and new high performance packaging materials to improve area efficiency, optimize thermal and electrical performance, reduce package size and offer ease-of-use and cost efficiency. We use area-efficient and multi-chip packages to meet more complex power management needs in a smaller footprint.

A certain portion of our logistics, order entry, purchasing and billing functions is located in Macau, China. Global coordination for production and billing is orchestrated from and on behalf of our Macau office. Other operation locations include Chupei, Taiwan and Hong Kong. Within operations, some back-end engineering functions are located in Shanghai, China; some fab sustaining and quality functions are located in Seoul, Korea.

Research and Development

We utilize global design, test and product engineering resources in our product development. At present, our largest design team is located in our Santa Clara headquarters, in close proximity to product definition, product line marketing and central applications. We also have a large design team located in Shanghai, China. Our staff’s core competencies include high-frequency conversion, low-noise switching and operation, light-load efficiency, protection and fault detection, precision parameter matching, fast current limiting, robust battery charging and analog functionality with extremely low quiescent currents. We support our research and development efforts for new products and improvements to our existing products with our technology development group, which is focused on creating, developing, characterizing and releasing into production new wafer fabrication processes. We define and create processes, such as ModularBCD, that offer features, performance, devices, characteristics and capabilities not available through conventional foundry processes. We license these new processes to our suppliers’ foundries for limited use. We also install these processes according to available resources and market timing. Our technology group oversees any transfers of our processes into a new facility to ensure that the unit process steps are adapted properly to the new facility’s specific equipment set. Our technology group comprises expertise in device physics and characterization, device layout, process engineering and wafer fabrication. We also develop area-efficient single and multi-chip packages to meet more complex power management needs in a smaller footprint. Working with packaging partners, we develop new packages that optimize device performance, save space, and offer ease-of-use and low cost. As package size continues to shrink and system complexity increases, we will continue to review and develop where necessary new packaging solutions.

In 2009, 2008 and 2007, we spent $27.5 million, $30.6 million and $31.1 million, respectively, on research and development efforts. We anticipate that we will continue to invest significant amounts in research and development activities to develop new products and processes. As a result, we expect research and development expenses to increase in absolute dollars in future periods.

Intellectual Property

We rely on our patents, trade secret laws, contractual provisions, licenses, copyrights, trademarks and other proprietary rights to protect our intellectual property. We have more than 150 patents issued, allowed or pending in the United States or foreign countries. We cannot guarantee that our pending patent applications will be approved, that any issued patents will protect our intellectual property or will not be challenged by third parties, or that the patents of others will not have an adverse effect on our ability to do business. We focus our patent efforts in the United States, and, when justified by cost and strategic importance, we file corresponding foreign patent applications in such jurisdictions as Europe, South Korea, China, Taiwan and Japan. Our patent strategy is designed to provide a balance between the need for coverage in our strategic markets and the need to maintain costs at a reasonable level.

Unauthorized parties may attempt to copy aspects of our products or obtain and use information that we consider proprietary. Competitors may also recruit our employees who have access to our proprietary technologies. We cannot assure that the measures we have implemented to prevent misappropriation or infringement of our intellectual property will be successful.

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Employees

As of December 31, 2009, we had 279 employees located in the United States, China, Hong Kong, Europe, Japan, South Korea, Taiwan and Macau. We consider our employee relations to be good.

Officers

The following table sets forth certain information about our officers:

Name	Age	Position
Richard K. Williams	51	President, Chief Executive Officer, Chief Technical Officer and Director
Brian R. McDonald	53	Chief Financial Officer, Vice President of Worldwide Finance and Secretary
Dr. Jun-Wei Chen	59	Vice President of Technology
Kevin P. D’Angelo	50	Vice President of Advanced Products and Fellow
Allen K. Lam	46	Vice President of Worldwide Operations
Edward Lam	49	Vice President of Marketing and Engineering
David Schwartz	53	Vice President of Worldwide Sales

Richard K. Williams, one of our founders, has served as our President and Chief Executive Officer since April 2000 and also as our Chief Technical Officer and a director since September 1998. Prior to joining us as Vice President of Engineering and Product Strategy in 1998, Mr. Williams served at Siliconix incorporated for 18 years, most recently as Senior Director of Device Concept & Design. Mr. Williams holds more than 200 U.S. patents in device, process, package, circuit, system and application methods and apparatus, and has written over 100 published articles and invited papers. Mr. Williams is a member of the Institute of Electrical and Electronic Engineers. Mr. Williams received an M.S. in Electrical Engineering from Santa Clara University and a B.S., with honors, in Electrical Engineering (specializing in semiconductor device physics and fabrication) from the University of Illinois at Urbana-Champaign.

Brian R. McDonaldhas served as our Chief Financial Officer and Vice President of Worldwide Finance since June 2004 and as our Secretary since August 2004. Mr. McDonald is responsible for accounting, finance, compliance, information technology and human resource functions. Prior to joining us, Mr. McDonald held senior financial management positions at Monolithic Power Systems, Inc., Elantec Semiconductor, Inc., Mattson Technology, Inc., National Semiconductor Corporation, Read-Rite Corporation and Micro Linear Corporation. Mr. McDonald received a B.S. in Management from Santa Clara University.

Jun-Wei Chen has served as our Vice President of Technology since February 2005. Dr. Chen is responsible for device concept and design, process development and integration, CAE development and global Foundry Direct technical support. Prior to joining us, Dr. Chen held various positions including Vice President of Technology at SmartASIC Technology, Inc. from May 2004 to February 2005 and Chief Technology Officer at CLL Technology, Inc. from May 2000 to May 2004. Dr. Chen holds 20 U.S. patents and has written over 30 technical articles. He is also a member of the Institute for Electrical and Electronic Engineers. Dr. Chen received a Ph.D. and an M.S. in Electrical Engineering from Carnegie Mellon University and a B.S. in Electrical Engineering from National Taiwan University, Taipei.

Kevin P. D’Angelo, one of our founders, has served as our Vice President of Advanced Products and Fellow since February 2009. Prior to this, Mr. D’Angelo served as our Vice President of Engineering since January 2001. Mr. D’Angelo is responsible for IC design in the United States. Mr. D’Angelo previously served as our Senior Director from June 2000 to January 2001 and as our Senior Manager from January 1999 to June 2000. Mr. D’Angelo received the 2002 Marconi award for excellence in science and technology, and he holds eight U.S. patents. Mr. D’Angelo received a B.S. in Electrical Engineering from the University of California, San Diego.

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Allen K. Lam, one of our founders, has served as our Vice President of Worldwide Operations since May 2002. Mr. Lam is responsible for global manufacturing logistics and planning, purchasing, foundry management, packaging and test engineering, process quality and supporting ongoing quality and environmental initiatives. Mr. Lam previously served as our Director of Operations and Quality and Reliability Assurance from June 1999 to April 2002 and as our Manager of Quality and Reliability Assurance from November 1998 to May 1999. Mr. Lam is fluent in English, Mandarin and Cantonese and manages our operations in Taiwan, China, Macau and Hong Kong. Mr. Lam holds seven U.S. patents. Mr. Lam received a Higher Diploma in Applied Science from the Hong Kong Polytechnic University.

Edward Lam has served as our Vice President of Marketing and Engineering since July 2008. Mr. Lam is responsible for our global marketing and engineering operations. Prior to joining us, Mr. Lam served as the Senior Vice President of Product Lines at Exar Corporation from August 2007 until June 2008. Prior to this, Mr. Lam served as the Senior Vice President of Marketing and Business Development at Sipex Corporation from September 2005 until August 2007. Prior to this, from 1984 until September 2005, Mr. Lam held several management and engineering positions at National Semiconductor, most recently as Vice President of the company’s Analog Power Management Product Line. Mr. Lam received a B.S. in Engineering from San Francisco State University.

David Schwartz has served as our Vice President of Worldwide Sales since February 2009. Prior to joining AnalogicTech, Mr. Schwartz was the Vice President of Worldwide Sales and Marketing at Oxford Semiconductor from October 2006 until January 2009. Prior to this, Mr. Schwartz served as the Chief Operating Officer of Renesas Technology Americas from April 2003 until September 2006. Prior to this, Mr. Schwartz held several positions at Mitsubishi Electronics America for 12 years, including Vice President and General Manager of the company’s Sales and System-on-a-Chip Divisions. Mr. Schwartz earned a Masters of Business Administration at Farleigh Dickinson University and a B.S. in Electrical Engineering at the Pratt Institute.

ITEM 1A. RISK FACTORS

If we fail to forecast demand for our products accurately, we may incur product shortages, delays in product shipments or excess or insufficient product inventory.

We generally do not obtain firm, long-term purchase commitments from our customers. Because production lead times often exceed the amount of time required to fulfill orders, we often must build in advance of orders, relying on an imperfect demand forecast to project volumes and product mix. Our demand forecast accuracy can be adversely affected by a number of factors, including inaccurate forecasting by our customers, changes in market conditions, new part introductions by our competitors that lead to our loss of previous design wins, adverse changes in our product order mix and demand for our customers’ products or models. Even after an order is received, our customers may cancel these orders or request a decrease in production quantities. Any such cancellation or decrease subjects us to a number of risks, most notably that our projected sales will not materialize on schedule or at all, leading to unanticipated revenue shortfalls and excess or obsolete inventory which we may be unable to sell to other customers. Alternatively, if we are unable to project customer requirements accurately, we may not build enough products, which could lead to delays in product shipments and lost sales opportunities in the near term, as well as force our customers to identify alternative sources, which could affect our ongoing relationships with these customers. We have in the past had customers dramatically increase their requested production quantities with little or no advance notice and after they had submitted their original order. We have on occasion been unable to fulfill these revised orders within the time period requested. Either overestimating or underestimating demand would lead to excess, obsolete or insufficient inventory, which could harm our operating results, cash flow and financial condition, as well as our relationships with our customers.

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We receive a substantial portion of our revenues from a small number of OEM customers and distributors, and the loss of, or a significant reduction in, orders from those customers or our other largest customers would adversely affect our operations and financial condition.

We received an aggregate of approximately 90%, 84% and 81% of our net revenues from our ten largest customers for the years ended December 31, 2009, 2008 and 2007, respectively. Any action by one of our largest customers that affects our orders, product pricing or vendor status could significantly reduce our revenues and harm our financial results.

We receive a substantial portion of our revenues from a small number of customers. Samsung was our largest direct customer in 2009 and represented 33%, 20, and 11% of our net revenue in 2009, 2008 and 2007, respectively. Additionally, we sell to a number of contract manufacturers of Samsung. Total revenues to Samsung and its contract manufacturers represented 41%, 36% and 25% of our net revenue for 2009, 2008 and 2007, respectively. LG Electronics was our largest direct customer in 2008 and 2007 and represented 24%, 25% and 20% of our net revenue in 2009, 2008 and 2007, respectively. We anticipate that we will continue to be dependent on these customers for a significant portion of our revenue in the immediate future; however, we do not have long-term contractual purchase commitments from them, and we cannot assure you that they will continue to be our customers. Because our largest customers account for such a significant part of our business, the loss of, or a decline in sales to, any of our major customers would negatively impact our business.

Our operating results have fluctuated in the past and we expect our operating results to continue to fluctuate.

Our revenues are difficult to predict and have varied significantly in the past from period to period. We expect our revenues and expense levels to continue to vary in the future, making it difficult to predict our future operating results. In particular, we experience seasonality and variability in demand for our products as our customers manage their inventories. Our customers tend to increase inventory of our products in anticipation of the peak fourth quarter buying season for the mobile consumer electronic devices in which our products are used, which often leads to sequentially lower sales of our products in the first calendar quarter and, potentially, late in the fourth calendar quarter.

Additional factors that could cause our results to fluctuate include:

• the forecasting, scheduling, rescheduling or cancellation of orders by our customers, particularly in China and other emerging markets;

• costs associated with litigation, especially related to intellectual property;

• liquidity and cash flow of our distributors, suppliers and end-market customers;

• changes in manufacturing costs, including wafer, test and assembly costs, and manufacturing yields, product quality and reliability;

• the timing and availability of adequate manufacturing capacity from our manufacturing suppliers;

• our ability to successfully define, design and release new products in a timely manner that meet our customers’ needs;

• the timing, performance and pricing of new product introductions by us and by our competitors;

• general economic conditions in the countries where we operate or our products are used;

• changes in exchange rates, interest rates, tax rates and tax withholding;

• geopolitical stability, especially affecting China, Taiwan and Asia in general; and

• changes in domestic and international tax laws.

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Unfavorable changes in any of the above factors, most of which are beyond our control, could significantly harm our business and results of operations.

We may be required to record additional significant charges to earnings if our goodwill becomes impaired.

Under accounting principles generally accepted in the United States, we review our goodwill for impairment each year as of September 30^th and when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. We may be required to record a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

As of December 31, 2009, our investment portfolio included interest bearing auction rate securities (ARS) with a fair value of $2.4 million. Our ARS represent investments in debt obligations collateralized by Federal Family Education Program student loans. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The monthly auctions historically provided a liquid market for these securities. However, beginning in 2008, uncertainties in the credit markets have affected all of our holdings in ARS and auctions for our investments in these securities have failed to settle on their respective settlement dates. Auctions for our investments in these securities continued to fail through December 31, 2009.

If the current market conditions deteriorate further, the anticipated recovery in market values does not occur, or if we determine that we intend to sell the ARS, it is possible that we will be required to sell the ARS before a recovery of the auction process, or that we will not recover the entire amortized cost basis of the ARS, and we may be required to record impairment charges in future quarters which may negatively impact our results of operations.

We may be unsuccessful in developing and selling new products or in penetrating new markets.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our competitiveness and future success depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues and a loss of design wins to our competitors. For example, we introduced 77 new products in 2009, of which 33 products utilize our new ModularBCD process, however many of them have not yet been adopted by our customers. Our understanding is that our overall product acceptance rate is typical for the semiconductor analog sector due to ongoing competition, long design-in and qualification cycles, late introduction and/or product not meeting exact customer requirements. In some instances, our products were designed into a customer’s product or system but our customer’s product failed to gain market acceptance so no substantial business resulted. In other cases, we may introduce a product before the market is ready to accept or require the features offered in our product, in which revenue may result at a later and somewhat unpredictable date in the future.

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The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including:

• effective marketing, sales and service;

• timely and efficient completion of process design and device structure improvements and implementation of manufacturing, assembly and test processes; and

• the quality, performance and reliability of the product.

If we fail to introduce new products or penetrate new markets, our revenues will likely decrease over time and our financial condition could suffer.

We may not have the expertise we need to successfully define or develop products for new market opportunities, and we may lack the sales connections and applications expertise to secure orders for such products. Identifying and hiring such resources may be difficult and we may not be successful in identifying and hiring necessary personnel. Attempts to balance product development and sales efforts between new and existing applications may delay our entrance into new markets and make it more difficult to penetrate new customers and application opportunities in the future.

Due to defects and failures that may occur, our products may not meet specifications, which may cause customers to return or stop buying our products and may expose us to product liability claims.

Our customers generally establish demanding specifications for quality, performance and reliability that our products must meet. Integrated circuits as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require product replacement or recall. In addition, our customers may not use our products in a way that is consistent with our published specifications. If defects and failures occur in our products during the design phase or after, or our customers use our products in ways that are not consistent with their intended use, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, or product returns or discounts, any of which would harm our operating results. We cannot assure you that we will have sufficient resources, including any available insurance, to satisfy any asserted claims.

The nature of the design process requires us to incur expenses prior to earning revenues associated with those expenses, and we will have difficulty selling our products if system designers do not design our products into their electronic systems.

We devote significant time and resources to working with our customers’ system designers to understand their future needs and to provide products that we believe will meet those needs. If a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system because changing suppliers can involve significant cost, time, effort and risk for our customers.

We often incur significant expenditures in the development of a new product without any assurance that our customers’ system designers will select our product for use in their electronic systems. We often are required to anticipate which product designs will generate demand in advance of our customers expressly indicating a need for that particular design. In some cases, there is minimal or no demand for our products in our anticipated target applications. Even if our products are selected by our customers’ system designers, a substantial period of time will elapse before we generate revenues related to the significant expenses we have incurred. The reasons for this delay generally include the following elements of our product sales and development cycle timeline and related influences:

• our customers usually require a comprehensive technical evaluation of our products before they incorporate them into their electronic systems;

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• it can take up to 12 months from the time our products are selected to complete the design process;

• it can take an additional nine to 12 months or longer to complete commercial introduction of the electronic systems that use our products, if they are introduced at all;

• original equipment manufacturers typically limit the initial release of their electronic systems to evaluate performance and consumer demand; and

• the development and commercial introduction of products incorporating new technology are frequently delayed.

We estimate that the overall sales and development cycle timeline of an average product is approximately 16 months.

Additionally, even if system designers use our products in their electronic systems, we cannot assure you that these systems will be commercially successful. As a result, we are unable to accurately forecast the volume and timing of our orders and revenues associated with any new product introductions.

Any increase in the manufacturing cost of our products could reduce our gross margins and operating profit.

The semiconductor business exhibits ongoing competitive pricing pressure from customers and competitors. Accordingly, any increase in the cost of our products, whether by adverse purchase price variances or adverse manufacturing cost variances, will reduce our gross margins and operating profit. We do not have many long-term supply agreements with our manufacturing suppliers and, consequently, we may not be able to obtain price reductions or anticipate or prevent future price increases from our suppliers.

The average selling price of our products may decline, or a change in the mix of product orders may occur, either of which could reduce our gross margins.

During a power management product’s life, its selling price tends to decrease for a particular application. As a result, to maintain gross margins on our products, we must continue to identify new applications for our products, reduce manufacturing costs for our existing products and introduce new products. If we are unable to identify new, high gross margin applications for our existing products, reduce our production costs or sell new, high gross margin products, our gross margins will suffer. A sustained reduction in our gross margins could harm our future operating results, cash flow and financial condition, which could lead to a significant drop in the price of our common stock.

Because we receive a substantial portion of our revenues through distributors, their financial viability and ability to access the capital markets could impact our ability to continue to do business with them and could result in lower revenues, which could adversely affect our operating results and our customer relationships.

We obtain a portion of our revenues through sales to distributors located in Asia who act as our fulfillment representatives. Sales to distributors accounted for 24%, 31% and 42% of our revenues for the years ended December 31, 2009, 2008 and 2007, respectively. In the normal course of their operation as fulfillment representatives, these distributors typically perform functions such as order scheduling, shipment coordination, inventory stocking, payment and collections and, when applicable, currency exchange between purchasers of our products and these distributors. Our distributors’ compensation for these functions is reflected in the price of the products we sell to these distributors. Many of our current distributors also serve as our sales representatives procuring orders for us to fill directly. If these distributors are unable to pay us in a timely manner or if we anticipate that they will not pay us, we may elect to withhold future shipments, which could adversely affect our operating results. If one of our distributors experiences severe financial difficulties, becomes insolvent or declares bankruptcy, we could lose product inventory held by that distributor and we could be required to write off the value of any receivables owed to us by that distributor. We could also be required to record bad debt

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expense in excess of our reserves. We may not be successful in recognizing these indications or in finding replacement distributors in a timely manner, or at all, any of which could harm our operating results, cash flow and financial condition.

Our distributor arrangements often require us to accept product returns and to provide price protection and if we fail to properly estimate our product returns and price protection reserves, this may adversely impact our reported financial information.

A substantial portion of our sales are made through third-party distribution arrangements, which include stock rotation rights that generally permit the return of up to 5% of the previous three months’ purchases. We generally accept these returns quarterly. We record estimated returns for stock rotation at the time of shipment. Our arrangements with our distributors typically also include price protection provisions if we reduce our list prices. We record reserves for price protection at the time we decide to reduce our list prices. In the future, we could receive returns or claims that are in excess of our estimates and reserves, which could harm our operating results.

If our relationship with any of our distributors deteriorates or terminates, it could lead to a temporary or permanent loss of revenues until a replacement sales channel can be established to service the affected end-user customers, as well as inventory write-offs or accounts receivable write-offs. In addition, we also may be obligated to repurchase unsold products from a distributor if we decide to terminate our relationship with that distributor.

Our current backlog may not be indicative of future sales.

Due to the nature of our business, in which order lead times may vary, and the fact that customers are generally allowed to reschedule or cancel orders on short notice, we believe that our backlog is not necessarily a good indicator of our future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because our lead times for the manufacturing of our products generally take six to ten weeks, we often must build in advance of orders. This exposes us to certain risks, most notably the possibility that expected sales will not occur, which may lead to excess inventory, and we may not be able to sell this inventory to other customers. In addition, we supply LG Electronics, one of our largest customers, through its central hub and we do not record backlog with respect to the products we ship to the hub. Therefore, our backlog may not be a reliable indicator of future sales.

We face risks in connection with our internal control over financial reporting and any related remedial measures that we undertake to correct any material weaknesses in our internal control over financial reporting.

In accordance with Section 404 of the Sarbanes-Oxley Act, we are required to report annually on the effectiveness of our internal control over financial reporting as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. This report must include disclosure of any material weakness in our internal control over financial reporting. In preparation for issuing this management report, we document, evaluate, and test our internal control over financial reporting.

No material weakness will be considered remediated until our remedial efforts have operated for an appropriate period, have been tested, and management has concluded that they are operating effectively. We cannot be certain that any measures we take to remediate a material weakness will ensure that we implement and maintain adequate internal control over financial reporting and that we will successfully remediate the material weakness. In addition, we cannot assure you that we will not in the future identify further material weaknesses in our internal control over financial reporting that we have not discovered to date, which may impact the reliability of our financial reporting and financial statements.

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If consumer demand for mobile consumer electronic devices declines, our revenues will decrease.

Our products are used primarily in the mobile consumer electronic devices market. For the foreseeable future, we expect to see the significant majority of our revenues continue to come from this market, especially in wireless handsets. If consumer demand for these products declines and fewer mobile customer electronic devices are sold, our revenues will decrease significantly. For example, in the second half of 2008, we experienced a significant decrease in worldwide billings to our customers, suggesting that our customers were reacting to decreased consumer demand for their end products. In an adverse economic climate such as the current economic downturn, consumers are less likely to prioritize purchasing new mobile consumer electronic devices or upgrading existing devices. In addition, if we are unsuccessful in identifying alternative markets for our products in a timely manner, our operating results will suffer dramatically.

Substantially all of our manufacturing suppliers, customers and operations are located in Asia, which subjects us to additional risks, including regional economic influences, logistical complexity, political instability and natural disasters including earthquakes.

We conduct, and expect to continue to conduct, almost all of our business with companies that are located outside the United States. Based on ship-to locations, substantially all of our revenues for fiscal 2009, 2008 and 2007 came from customers in Asia, particularly South Korea, Taiwan, China and Japan. A vast majority of our contract manufacturing operations are located in South Korea, Taiwan, Malaysia and China. In addition, we have a design center in Shanghai, China. As a result of our international focus, we face several challenges, including:

• increased complexity and costs of managing international operations;

• longer and more difficult collection of receivables;

• political and economic instability;

• limited protection of our intellectual property;

• unanticipated changes in local regulations, including tax regulations;

• timing and availability of import and export licenses; and

• foreign currency exchange fluctuations relating to our international operating activities.

Our corporate headquarters in Santa Clara, California, our operations office in Chupei, Taiwan, and the production facilities of one of our wafer fabrication suppliers and several of our assembly and test suppliers in Hsinchu and across Taiwan are located near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and our business could be damaged in the event of a major earthquake or other natural disaster.

In addition to risks in our operations from natural disasters, our customers are also subject to these risks. Any disaster impacting our customers could result in loss of orders, delay of business and temporary regional economic recessions.

We are also more susceptible to the regional economic impact of health crises. Because we anticipate that we will continue to rely heavily on foreign companies or United States companies operating in Asia for our future growth, the above risks and issues that we do not currently anticipate could adversely affect our ability to conduct business and our results of operations.

We outsource our wafer fabrication, testing, packaging, warehousing and shipping operations to third parties, and rely on these parties to produce and deliver our products according to requested demands in specification, quantity, cost and time.

We rely on third parties for substantially all of our manufacturing operations, including wafer fabrication, wafer probe, wafer thinning, assembly, final test, warehousing and shipping. Furthermore, for certain packages,

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at times we rely on a single manufacturer. We depend on these parties to supply us with material of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality. Any problems with our manufacturing supply chain could adversely impact our ability to ship our products to our customers on time and in the quantity required, which in turn could cause an unanticipated decline in our sales and possibly damage our customer relationships. The current economic downturn could adversely affect the financial strength of our vendors and adversely impact their ability to manufacture product, resulting in a shortage or delay in product shipments to our customers.

Our products are manufactured at a limited number of locations. If we experience manufacturing problems at a particular location or with a particular supplier, we would be required to transfer manufacturing to a backup supplier. Converting or transferring manufacturing from a primary supplier to a backup fabrication facility could be expensive and could take as long as six to 12 months. During such a transition, we would be required to meet customer demand from our then-existing inventory, as well as any partially finished goods that can be modified to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand. As a result, we may not be able to meet customer needs during such a transition, which could delay shipments, cause a production delay or stoppage for our customers, result in a decline in our sales and damage our customer relationships. Should we be required to manufacture safety stock and finished goods to insure against any supply interruptions to our customers, there is no guarantee that our customers would necessarily purchase the extra material and excess inventory may result. There is no guarantee we would be able to sell that excess inventory to other customers and we may have to write-off this material as an expense adversely affecting our financial performance.

In addition, a significant portion of our sales are to customers that practice just-in-time order management from their suppliers, which gives us a very limited amount of time in which to process and complete these orders. As a result, delays in our production or shipping by the parties to whom we outsource these functions could reduce our sales, damage our customer relationships and damage our reputation in the marketplace, any of which could harm our business, results of operations and financial condition.

The loss of any of our key personnel could seriously harm our business, and our failure to attract or retain specialized technical and management talent could impair our ability to grow our business.

The loss of services of one or more of our key personnel could seriously harm our business. In particular, our ability to define and design new products, gain new customers and grow our business depends on the continued contributions of Richard K. Williams, our President, Chief Executive Officer and Chief Technical Officer, as well as our senior level sales, finance, operations, technology and engineering personnel. Our future growth will also depend significantly on our ability to recruit and retain qualified and talented managers and engineers, along with key manufacturing, quality, sales and marketing staff members. There remains intense competition for these individuals in our industry, especially those with power and analog semiconductor design and applications expertise. We cannot assure you we will be successful in finding, hiring and retaining these individuals. If we are unable to recruit and retain such talent, our product and technology development, manufacturing, marketing and sales efforts could be impaired.

In economic downturns where consumer demand for our customer’s products is reduced or delayed, we expect lower revenue and reduced profitability. In response to these downturns, we may implement certain cost reduction actions including spending controls, forced holidays and company shutdowns, employee layoffs, shortened work-weeks and involuntary salary reductions. It is uncertain what affect such measures may have on our ability to retain key talent and staff members, or our ability to rehire employees should business improve. For example, in 2008, we reduced our headcount and announced employee salary reductions. It is unclear what long term affect these actions may have on our ability to recruit and retain engineering, sales and managerial talent.

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Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our future effective tax rates could be adversely affected by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. Further, as a result of certain ongoing employment and capital investment commitments made by us, our income in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from tax. Our failure to meet such commitments could adversely impact our effective tax rate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

We compete against companies with substantially greater financial and other resources, and our market share or gross margins may be reduced if we are unable to respond to competitive challenges effectively.

The analog, mixed-signal, or analog with digital, and power management semiconductor industry in which we operate is highly competitive and dynamic, and we expect it to remain so. Our ability to compete effectively depends on defining, designing and regularly introducing new products that meet or anticipate the power management needs of our customers’ next-generation products and applications. We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other resources with which to pursue marketing, technology development, product design, manufacturing, quality, sales and distribution of their products.

We consider our primary competitors to be Maxim Integrated Products, Inc., Linear Technology Corporation, Intersil Corporation, Texas Instruments Incorporated, Semtech Corporation and National Semiconductor Corporation. We expect continued competition from existing competitors as well as from new entrants into the power management semiconductor market. Our ability to compete depends on a number of factors, including:

• our success in identifying new and emerging markets, applications and technologies, and developing power management solutions for these markets;

• our products’ performance and cost effectiveness relative to that of our competitors’ products;

• our ability to deliver products in large volume on a timely basis at a competitive price;

• our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;

• our ability to recruit application engineers and designers; and

• our ability to protect our intellectual property.

We cannot assure you that our products will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by our existing competitors or new companies entering this market.

Intellectual property litigation could result in significant costs, reduce sales of our products and cause our operating results to suffer.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We have in

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the past received, and expect that in the future we may receive, communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following:

• stop selling products or using technology that contain the allegedly infringing intellectual property;

• incur significant legal expenses;

• pay damages to the party claiming infringement;

• redesign those products that contain the allegedly infringing intellectual property; and

• attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

We initiated a lawsuit against Linear Technology Corporation in February 2006 for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. In a related case, the International Trade Commission has initiated an investigation and subsequent enforcement action against AATI at the request of Linear Technology.

Uncertainty over the outcome of our litigation with Linear Technology may cause our customers or potential customers to elect not to include our products that are the subject of this litigation into the design of their systems. Once a customer’s system designer initially chooses a competitor’s product for a particular electronic system, it becomes significantly more difficult for us to sell our products for use in that electronic system, because changing suppliers can involve significant cost, time, effort and risk for our customers. As a result, our litigation with Linear Technology or any similar future litigation may result in significantly increased expenses on a quarterly basis. If we are unsuccessful in any such litigation, our business and our ability to compete in foreign markets could be harmed, and we could be enjoined from selling the accused products, either directly or indirectly, which could have a material adverse impact on our revenues, financial condition, results of operations and cash flows. See Item 3 –Legal Proceedings.

Our failure to protect our intellectual property rights adequately could impair our ability to compete effectively or to defend ourselves from litigation, which could harm our business, financial condition and results of operations.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements to protect our proprietary technologies and know-how. While we have more than 150 patents issued, allowed or pending in the United States or foreign countries, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents could be challenged or circumvented by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is generally not as comprehensive as our United States patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. Many United States-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products.

Monitoring unauthorized use of our intellectual property is difficult and costly. It is possible that unauthorized use of our intellectual property may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could harm our business, results of operations and financial condition. We may in the future

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need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.

Any acquisitions we make could disrupt our business, result in integration difficulties or fail to realize anticipated benefits, which could adversely affect our financial condition and operating results.

We may choose to acquire companies, technologies, assets and personnel that are complementary to our business, including for the purpose of expanding our new product design capacity, introducing new design, market or application skills or enhancing and expanding our existing product lines. In October 2006, we acquired Analog Power Semiconductor Corporation and related assets and personnel, primarily located in Shanghai, China. In June 2008, we acquired Elite Micro Devices, located in Shanghai, China. Acquisitions involve numerous risks, including the following:

• difficulties in integrating the operations, systems, technologies, products and personnel of the acquired companies;

• diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;

• difficulties in entering markets in which we may have no or limited direct prior experience and where competitors may have stronger market positions;

• the potential loss of key employees, customers, distributors, suppliers and other business partners of the companies we acquire following and continuing after announcement of acquisition plans;

• improving and expanding our management information systems to accommodate expanded operations;

• insufficient revenue to offset increased expenses associated with acquisitions; and

• addressing unforeseen liabilities of acquired businesses.

Acquisitions may also cause us to:

• issue capital stock that would dilute our current stockholders’ percentage ownership;

• use a substantial portion of our cash resources or incur debt;

• assume liabilities;

• record goodwill or incur amortization expenses related to certain intangible assets; and

• incur large and immediate write-offs and other related expenses.

Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, and our failure to realize these benefits could adversely affect our business. In addition, we may not be successful in identifying future acquisition opportunities or in consummating any acquisitions that we may pursue on favorable terms, if at all. Any transactions that we complete may impair stockholder value or otherwise adversely affect our business and the market price of our stock. Failure to manage and successfully integrate acquisitions could materially harm our financial condition and operating results.

Our operating results, financial condition and cash flows may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry.

The semiconductor industry has historically exhibited cyclical behavior which at various times has included significant downturns in customer demand. These conditions have caused significant variations in product orders

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and production capacity utilization, as well as price erosion. Because a significant portion of our expenses is fixed in the near term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses rapidly enough to offset any unanticipated shortfall in revenues. If this situation were to occur, it could adversely affect our operating results, cash flow and financial condition.

Additionally, general worldwide economic conditions have recently experienced a downturn due to slower economic activity, concerns about inflation and deflation, fears of recession, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the wired and wireless communications markets, recent international conflicts and terrorist and military activity and the impact of natural disasters and public health emergencies. Our operations and performance depend significantly on worldwide economic conditions and their impact on consumer spending, which has recently deteriorated significantly in many countries and regions, including the United States and Asia, and may remain depressed for the foreseeable future. For example, some of the factors that could influence consumer spending include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. In addition, these conditions make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause United States and foreign businesses to slow spending on our products and services, which would delay and lengthen sales cycles. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the economy or markets in which we operate do not continue at their present levels, our business, financial condition and results of operations will likely be materially and adversely affected.

We could be adversely affected by violations of the United States’ Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The United States’ Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. There can be no assurance that our internal controls and procedures always will protect us from reckless or criminal acts committed by our employees or agents. If we are found to be liable for FCPA violations, we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Our headquarters is located in a leased facility in Santa Clara, California. This facility, consisting of approximately 42,174 square feet of office space, accommodates our principal engineering, technology, administrative and finance activities. We lease 19,036 square feet of office space in Shanghai, China to accommodate our secondary engineering activities. We lease offices in Hong Kong, China, Chupei, Taiwan and Macau, China to accommodate our operations, planning, logistics and package engineering activities. We lease sales offices in London, England; Taipei, Taiwan; Tokyo, Japan; Seoul, South Korea; Shanghai and Shenzhen, China.

We do not own any real property. We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available for lease to meet future needs.

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ITEM 3. LEGAL PROCEEDINGS

In May 2003, we received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of our charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, we received a letter from Linear Technology alleging that certain of our switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, we contacted Linear Technology to convey our good faith belief that we do not infringe the patents in question. Subsequently, we became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt our business relationships and sales by suggesting to our customers that our products infringe the same United States patents mentioned in its two letters to us. As a result, in February 2006, we initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of our products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in our lawsuit with Linear Technology. A Final Determination was issued September 24, 2007 which was followed by separate appeals for the charge pump and switching regulator products. The last of these appeals, including the parties’ respective requests for rehearing, ended in August of this year. The overall result of these processes clears the path for importation of our charge pump products. A limited exclusion order was also issued preventing us from importing certain of our switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent our customers from importing downstream products (i.e., products that incorporate AATI switching regulators) into the United States. To date, our sales of the excluded products in the United States have been minimal.

On October 1, 2008, the USITC instigated a formal enforcement proceeding at the request of Linear Technology. In that enforcement proceeding, Linear alleges that we imported certain switching regulator products in violation of the limited exclusion order originally issued on September 24, 2007. The list of products alleged to be in violation was modified by mutual agreement between the parties and a trial for the remaining products was completed on January 13, 2010. An initial determination is expected from the USITC in March of 2010 and a final determination is expected in July of 2010. Both parties are expected to appeal any unfavorable portions of the final determination. As a result, we expect to incur significant legal expenses that will be expensed when incurred.

In March 2009, we initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging patent infringement of certain of its products. This case, filed in the United States District Court for the Northern District of California, is currently stayed pending a reexamination of the patent that we believe has been infringed. We do not believe that this lawsuit will have a material impact on our business or financial condition.

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

None.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTER, AND ISSUER PURCHASES OF EQUITY SECURITIES

The information required by this item regarding equity compensation plans is set forth under the caption “Equity Compensation Plan Information” in our 2010 Proxy Statement and is incorporated herein by reference. For additional information on our stock incentive plans and activity, see Note 5—Stock-Based Compensation to our consolidated financial statements included in Item 8 of this Report.

Market Price of Our Common Stock

Our common stock began trading on the Nasdaq Global Market on August 4, 2005 under the symbol “AATI.” The following table sets forth on a per share basis the high and low intra-day sales prices for our common stock as reported by the Nasdaq Global Market for the periods indicated:

	High		Low
Year Ended December 31, 2009
First Quarter	$	4.18	$	2.49
Second Quarter	$	5.26	$	3.53
Third Quarter	$	5.59	$	3.91
Fourth Quarter	$	3.98	$	2.98
Year Ended December 31, 2008
First Quarter	$	11.36	$	5.39
Second Quarter	$	7.96	$	3.95
Third Quarter	$	5.18	$	3.94
Fourth Quarter	$	4.60	$	1.83

As of February 12, 2010, there were approximately 83 record holders of our common stock.

Issuer Purchases of Equity Securities

We repurchase shares of our common stock under our stock repurchase program announced on October 29, 2008. Under the stock repurchase program, we were authorized to use up to $30 million to repurchase our outstanding common stock. We may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depends upon market conditions and other factors, in accordance with SEC requirements.

During 2009, we entered into agreements pursuant to SEC Rule 10b5-1 pursuant to which we authorized a third-party broker to purchase shares on our behalf during our normal blackout periods in accordance with predetermined trading instructions. In addition, we may repurchase shares of our common stock under the guidelines of SEC Rule 10b-18.

During the fourth quarter of 2009, we repurchased shares of our common stock as follows:

	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plan or programs
	(In thousands, except per share amounts)
11/1/2009-11/30/2009	29.2	$	3.00	29.2	$	21,350.7

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Stock Performance Graph

The graph below shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Index and the Philadelphia Semiconductor Index over the period from August 8, 2005, the first day of trading for our common stock, until December 31, 2009. The graph assumes $100 invested at the indicated starting date in our common stock and in each of the market indices, with the reinvestment of all dividends. Prices and stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.

Comparison of Cumulative Total Return

From August 8, 2005 to December 31, 2009

Dividend Policy

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be, subject to applicable law, at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data for the years ended December 31, 2009, 2008, 2007, 2006 and 2005. You should read the following table in conjunction with the consolidated financial statements and related notes contained elsewhere in this report on Form 10-K. Operating results for any year are not necessarily indicative of results to be expected for any future periods.

	Years Ended December 31,
(in thousands, except per share amounts)	2009			2008			2007			2006			2005
Consolidated Statements of Operations Data
NET REVENUES	$	86,512		$	90,339		$	109,610		$	81,161		$	68,298
Cost of revenues (including stock-based compensation of $309, $428, $317, $274 and $112 in 2009, 2008, 2007, 2006 and 2005, respectively)		44,686			46,805			50,969			34,562			26,964
GROSS PROFIT		41,826			43,534			58,641			46,599			41,334
OPERATING EXPENSES:
Research and development (including stock-based compensation of $3,163, $3,533, $2,878, $2,459 and $784 in 2009, 2008, 2007, 2006 and 2005, respectively)		27,468			30,579			31,103			23,828			19,479
Sales, general and administrative (including stock-based compensation of $3,456, $3,860, $4,145, $3,558 and $1,493 in 2009, 2008, 2007, 2006 and 2005, respectively)		24,132			25,446			26,057			22,358			17,624
Patent litigation		3,045			1,751			3,793			8,536			27
Total operating expenses		54,645			57,776			60,953			54,722			37,130
INCOME (LOSS) FROM OPERATIONS		(12,819	)		(14,242	)		(2,312	)		(8,123	)		4,204
INTEREST AND OTHER INCOME:
Interest and investment income		902			3,124			5,599			5,823			2,058
Other income (expense), net		13			(449	)		(529	)		(72	)		(121	)
Total interest and other income, net		915			2,675			5,070			5,751			1,937
INCOME (LOSS) BEFORE INCOME TAXES		(11,904	)		(11,567	)		2,758			(2,372	)		6,141
PROVISION FOR (BENEFIT FROM) INCOME TAXES		769			8,507			1,272			(196	)		4,056
NET INCOME (LOSS)	$	(12,673	)	$	(20,074	)	$	1,486		$	(2,176	)	$	2,085
NET INCOME (LOSS) PER SHARE:
Basic	$	(0.29	)	$	(0.44	)	$	0.03		$	(0.05	)	$	0.10
Diluted	$	(0.29	)	$	(0.44	)	$	0.03		$	(0.05	)	$	0.05
WEIGHTED AVERAGE SHARES USED IN NET INCOME (LOSS) PER SHARE CALCULATION:
Basic		42,973			45,535			44,728			43,477			21,025
Diluted		42,973			45,535			47,007			43,477			40,147

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	December 31,
(in thousands)	2009		2008		2007		2006		2005
Consolidated Balance Sheet Data
Cash and cash equivalents	$	36,120	$	52,094	$	53,779	$	58,121	$	124,377
Working capital		112,423		118,840		127,768		115,914		135,973
Total assets		147,144		153,255		176,612		161,252		151,323
Total stockholders’ equity		132,050		141,234		157,398		145,991		140,402

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of uncertainties, risks and assumptions associated with these statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report on Form 10-K, particularly under the heading “Risk Factors.”

Overview

We are a supplier of power management semiconductors for consumer, communications and computing electronic devices such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, Bluetooth headphones and accessories, digital TVs, set top boxes and displays.

Through our Total Power Management approach, we offer a broad range of products that support multiple applications, features, and services across a diverse set of electronic devices. We target our design efforts on proprietary products, which at the time we introduce them offer characteristics that differentiate them from those offered by our competitors and which we believe are likely to generate high-volume demand from multiple customers.

We currently offer a portfolio of over 700 power management products comprising Power Management application-specific standard products, or ASSPs, and selected general-purpose analog integrated circuits, or ICs, in single-chip, multi-chip and chip-scale packages. We sell directly to original equipment manufacturers, or OEMs, including LG Electronics, Inc., Samsung Electronics Co., Ltd. and Sony Ericsson Mobile Communications AB. We sell through distributors and original design manufacturers, or ODMs, and to other system designers, including USI Corporation, Longcheer Holdings Ltd., Tianyu Communication Equipment Co., Ltd, Foxconn Electronics Inc. and Gemtek Technology Co. Ltd.

We were incorporated in 1997 and commenced operations in 1998. From 1998 to 2000, we were primarily involved in developing our technology, recruiting personnel and raising capital. Since 2001, we have focused on delivering products for what we believe to be large and high-growth market opportunities. However, we operate in the semiconductor industry, which is cyclical and has experienced significant fluctuations, and our revenues are impacted by these broad industry trends. We operate as a fabless semiconductor company, working with third parties to manufacture and assemble our integrated circuits, or ICs, rather than manufacturing them ourselves. This business model has enabled us to reduce our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths. We believe this model also reduces the impact on our business of seasonality, cyclicality and fluctuations in demand.

We currently derive a significant portion of our revenues from sales of our Charge Pump product family, which is primarily used for driving white LED backlighting of small color displays in portable applications. We are currently diversifying our business and R&D efforts into new applications within our existing markets. Our growth strategy involves three elements, to maintain revenues in our existing markets and applications, to

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penetrate new applications in existing markets such as battery charging in cell phones, and to selectively enter totally new markets such as high definition televisions. We also believe energy conservation and “green” products will become increasingly important growth opportunities for power management semiconductors in the future.

Our patented ModularBCD wafer fabrication process technology expands our capability to develop high performance power solutions addressing these new markets and applications with products including higher-voltage and higher-current DC-DC switching voltage regulators, over-voltage protected lithium-ion battery chargers and multi-voltage power system-on-a-chip or PowerSOC solutions. Since the introduction of our ModularBCD technology in 2006, the revenue derived from sales of ModularBCD technology based products has increased and now represents 26% of overall 2009 revenues. We believe that our revenue and market diversification may occur gradually and over time, requiring several years to fully realize.

In addition to our patented process technologies, we continue to aggressively pursue inventing and patenting new innovations in circuit design and design methodologies such as novel switching regulators and battery chargers, in package design to expand our system integration capability, and in power system architecture to improve overall performance, power efficiency, heat dissipation and reliability in the applications we serve. As of the end of 2009, we had over 110 United States patents either issued or pending.

Critical Accounting Policies and Estimates

Our 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 United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, inventory valuation, stock-based compensation, income taxes and goodwill. We base our estimates on historical experience and on various other 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 apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions which may adversely affect our results of operations and/or our financial position. We discuss the development and selection of the critical accounting estimates with the audit committee of our board of directors on a quarterly basis, and the audit committee has reviewed our disclosure relating to them in this annual report on Form 10-K.

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

Revenue Recognition

In accordance with generally accepted accounting principles, we recognize revenues once all of the following four basic revenue recognition criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Criteria (1) and (2) are met upon receipt of purchase orders or signing of contracts and upon transfer of title which generally occurs at the time of shipment. Determination of criteria (3) and (4) is based on management’s judgment regarding the determinability of the fees charged for products delivered and the collectibility of those fees. If changes in conditions cause management to determine these criteria are not met for certain future transactions, revenues recognized for any reporting period could decline.

A large portion of our sales is made through distribution arrangements with third parties. These arrangements include stock rotation rights that generally permit the return of up to 5% of the previous three months’ purchases. We generally accept these returns quarterly. We record estimated returns at the time of

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shipment. Our normal payment term with our distributors is 30 days from the invoice date. Certain of our distributor arrangements include the possibility of sales price rebates on specified products. At the time of shipment we recognize revenue, estimate the total sales price rebate and reserve for those pricing rebates. We also deferred revenue related to three of our distributors for which we are unable to reasonably estimate returns and recognize revenues from these distributors upon their subsequent resale to their customers.

We make estimates of potential future returns and sales allowances related to current period product revenue. We analyze historical return rates and changes in customer demand when evaluating the adequacy of returns and sales allowances. Although we believe we have a reasonable basis for our estimates, such estimates may differ from actual returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable.

Inventory Valuation

We value our inventory at the lower of the actual cost of our inventory or its current estimated market value. We write down inventory for obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Because of the cyclicality of the market in which we operate, inventory levels, obsolescence of technology and product life cycles, we generally write down finished goods inventory for product that is over 12 months old. Additionally, we generally write down inventory in excess of nine months’ forecasted product demand to its net realizable value, which we determined to be appropriate given our historical experience and industry practice. Before the fourth quarter of 2007, we wrote down to net realizable value inventory in excess of six months’ forecasted product demand. This change resulted in approximately $0.2 million favorable impact on our gross profit for 2007. Actual demand and market conditions may be lower than those that we project and this difference could have a material adverse effect on our gross margins should inventory write-downs beyond those initially recorded become necessary. Alternatively, should actual demand and market conditions be more favorable than those we estimated at the time of such a write-down, our gross margins could be favorably impacted in future periods.

Stock-Based Compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The grant date fair value of our stock options was calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of highly subjective assumptions which determine the fair value of stock options, including the price volatility of the underlying stock and the stock option’s expected term. For purposes of estimating volatility, we use a combination of the historical and market-based implied volatility of our stock price and an industry peer group. The estimated expected term of our stock options represents the weighted-average period that the stock options are expected to remain outstanding. We derive the expected term assumption based on the weighted average vesting period of our stock options combined with the average post-vesting holding period of an industry peer group. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of our stock options. The dividend yield is based on our history and expectation of dividend payouts. We have never declared or paid any cash dividends on common stock, and we do not anticipate paying cash dividends in the foreseeable future.

If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from amounts recorded in the current period. Further, to the extent that we revise our estimated forfeiture rate in the future, our stock-based compensation expense could be materially impacted in the quarter of revision, as well as in the following quarters.

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See Note 5—Stock Based Compensation to the consolidated financial statements for additional information.

Accounting for Income Taxes

In accordance with generally accepted accounting principles, we determine our deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of our assets and liabilities using tax rates in effect for the year in which we expect the differences to affect taxable income. The tax consequences of most events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in our financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset or liability.

In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion of the deferred tax assets will not be realized. Our ability to realize our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of our deferred tax assets:

• Future reversals of existing taxable temporary differences;

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback years; and

• Tax-planning strategies.

We conclude that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling three years of actual results as our primary measure of cumulative losses in recent years. As of December 31, 2009 and 2008, we concluded that a full valuation allowance against our United States deferred tax assets was required. The deferred tax asset valuation allowance was $10.1 million and $9.1 million as of December 31, 2009 and 2008, respectively.

Changes in the valuation allowance, when recorded, are included in our consolidated statements of operations as a provision for (benefit from) income taxes. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

During May 2005, we implemented an international structure. We transitioned a certain portion of our logistics, order entry, purchasing and billing functions to our office in Macau, which is in closer geographic proximity to our suppliers and customers. Our corporate headquarters remains in the United States. In connection with this transition, we have implemented cost-sharing and license arrangements with our wholly-owned British Virgin Islands subsidiary, with which our wholly-owned Macau subsidiary has implemented a similar licensing arrangement to develop and license intellectual property. Pursuant to these arrangements, our British Virgin Islands and Macau subsidiaries have the non-exclusive rights to manufacture, market and distribute our products in certain geographic markets. Furthermore, our Macau subsidiary is authorized to contract with third parties for the manufacture, test and assembly of our products. As a result of these changes, we expect the percentage of our consolidated pre-tax income represented by our foreign operations to continue to increase and exceed the domestic percentage.

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We recognize the tax benefit from uncertain tax positions on the income tax return based on a two-step process. The first step is to determine if it is more likely than not that a tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The second step is to estimate and measure the tax benefit to be recognized in the financial statements based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The estimates used in the accounting for income tax expense involve significant judgment by management. Tax positions that fail to qualify for initial recognition are recognized in the first subsequent interim period that they meet the more likely than not standard or when they are resolved through negotiation or litigation with factual interpretation, judgment and certainty. Tax laws and regulations themselves are complex and are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court filings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially to reverse previously recorded tax liabilities.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization. We evaluate goodwill for impairment, at a minimum, on an annual basis as of September 30th and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.

The carrying value of our goodwill was $16.1 million as of December 31, 2009 and 2008. The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based in-part on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. In addition, the other assumptions made by us may change in future periods as they are based on overall market conditions and/or comparable company data. A change in the assumptions used to determine if goodwill is impaired may result in a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

The goodwill impairment testing is a two-step process and is performed at the reporting unit level. Because we have one reporting unit, we assess goodwill for impairment at the entity level. The first step (“Step 1”) is performed by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of: (1) the Transaction Approach, (2) the Income Approach, and (3) the Market Approach. Using the Transaction Approach, we estimate the fair value of the reporting unit by adding to our market capitalization a control premium. The estimated control premium is based on observable transactions involving control premiums paid in recent acquisitions of comparable companies. Using the Income Approach, we use the long-term financial outlook of our operations and make certain assumptions, including a discount rate and a long-term growth rate, to determine the fair value of the reporting unit based on future cash flows that we expect to generate. Under the Market Approach, we identify comparable companies’ data and make certain assumptions including revenue multiples, to determine the fair value based on how the market values comparable companies. We place the highest weighting on the fair value derived by the Transaction Approach, as we consider quoted prices in active markets as the best evidence of fair value. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step (“Step 2”) is performed to measure the amount of impairment loss, if any. Step 2 is performed by calculating the implied fair value of goodwill and comparing the implied fair value to the carrying amount of goodwill. If the implied fair value of goodwill is lower than its carrying amount, an impairment loss is recognized equal to the difference.

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We performed our annual goodwill impairment analysis as of September 30, 2009. As part of Step 1, we performed a sensitivity analysis by preparing our Income Approach using a range of discount rates and long-term growth rates. We analyzed the results of the Income Approach and noted that changing the significant assumptions used would not have changed our Step 1 conclusion in that the fair value of the reporting unit exceeded the carrying amount in all cases. Under the Market Approach, we performed a sensitivity analysis using a range of revenue multiples, from which we selected an amount from the lower end of the range. Had we used a less conservative revenue multiple in our Market Approach, a higher fair value would have resulted. As such, a change in the Market Approach assumptions would not have changed management’s Step 1 conclusion. For the Transaction Approach, we used a control premium from the low end of the range of recent control premiums identified. As such, if we had used a higher control premium, a higher fair value would have resulted and would not have changed management’s Step 1 conclusion. As a result of our annual goodwill impairment analysis performed as of September 30, 2009, we determined that goodwill was not impaired.

Results of Operations

The following table sets forth our historical operating results, as a percentage of net revenue for the periods indicated:

	Year Ended December 31,
	2009		2008		2007
NET REVENUES	100.0	%	100.0	%	100.0	%
Cost of revenues	51.7		51.8		46.5
GROSS PROFIT	48.3		48.2		53.5
OPERATING EXPENSES:
Research and development	31.8		33.8		28.4
Sales, general and administrative	27.9		28.2		23.8
Patent litigation	3.5		1.9		3.5
Total operating expenses	63.2		63.9		55.6
LOSS FROM OPERATIONS	(14.9	)	(15.7	)	(2.1	)
INTEREST AND OTHER INCOME:
Interest and investment income	1.1		3.5		5.1
Other income (expense), net	0.0		(0.5	)	(0.5	)
Total interest and other income, net	1.1		3.0		4.6
INCOME (LOSS) BEFORE INCOME TAXES	(13.8	)	(12.8	)	2.5
PROVISION FOR INCOME TAXES	0.9		9.4		1.2
NET INCOME (LOSS)	(14.7	)%	(22.2	)%	1.4	%

Comparison of the Years Ended December 31, 2009, 2008 and 2007

Revenues

The following table illustrates our net revenues by our principal product families:

	Year Ended December 31,
	2009				2008				2007
	Amount		Percent of Revenues		Amount		Percent of Revenues		Amount		Percent of Revenues
	(dollar amounts in thousands)
Display and Lighting Solutions	$	56,874	66	%	$	54,190	60	%	$	63,811	58	%
Voltage Regulation and DC/DC Conversion		12,720	15			16,862	19			20,929	19
Interface and Power Management		12,147	14			16,516	18			22,387	21
Battery Management		4,771	5			2,771	3			2,483	2
Total	$	86,512	100	%	$	90,339	100	%	$	109,610	100	%

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Our revenues consist of sales of our power management semiconductor products, net of sales discounts, sales returns and distributor stock rotation allowances and incentives. All of our sales are denominated in U.S. dollars.

Our net revenue for 2009 decreased $3.8 million or 4 percent compared to 2008 due to lower demand for our Voltage Regulation and DC/DC Conversion and Interface and Power Management products, partially offset by higher sales of our Display and Lighting and Battery Management products. Total unit shipments in 2009 increased by 8 percent compared to 2008, while average selling prices decreased by 11 percent.

Geographically, our sales in Taiwan decreased by $5.8 million in 2009 compared to 2008 due to lower demand from two customers and our termination of one distributor during 2009. These decreases were partially offset by a $3.1 million increase in sales in China in 2009 compared to 2008 due to higher demand.

Our net revenues for 2008 as compared to 2007 decreased $19.3 million, or 18 percent. The decrease was attributable to lower net revenues from sales of all of our product lines except for Battery Management which increased 12% year-over-year. Total unit shipments in 2008 decreased by 17 percent compared to 2007, while average selling prices remained relatively unchanged.

Geographically, sales in China and Taiwan decreased in 2008 compared to 2007 due to lower shipments to our major distributors as a result of lower demand and a reduction in channel inventory. Sales in Korea increased slightly in 2008 compared to 2007 due to higher sales to two major customers.

Gross Profit

Gross profit is the difference between net revenues and cost of revenues, and gross margin represents gross profit as a percentage of net revenues. Cost of revenues, also known as cost of goods sold, consists primarily of cost of processed silicon wafers, costs associated with assembly, test and shipping of our production ICs, cost of personnel associated with manufacturing support and quality assurance and occupancy costs associated with our manufacturing support activities. Our support, quality and sustaining expenses related to manufacturing are included in our cost of revenues.

	Year Ended December 31,						Increase (Decrease)
	2009			2008
	(dollar amounts in thousands)
Net revenues	$	86,512		$	90,339		$	(3,827	)	(4	)%
Cost of revenues		44,686			46,805			(2,119	)	(5	)%
Gross profit	$	41,826		$	43,534		$	(1,708	)	(4	)%
Gross margin percentage		48.3	%		48.2	%		0.1	%

Our gross margin percentage was relatively unchanged during 2009 compared to 2008. During 2009, decreases in excess and obsolete inventory charges and intangible asset amortization were offset by unfavorable product mix and lower average selling prices.

During 2009, our gross inventory write-down was approximately $3.6 million, partially offset by the sale of $2.4 million of previously written down inventory.

	Year Ended December 31,						Increase (Decrease)
	2008			2007
	(dollar amounts in thousands)
Net revenues	$	90,339		$	109,610		$	(19,271	)	(18	)%
Cost of revenues		46,805			50,969			(4,164	)	(8	)%
Gross profit	$	43,534		$	58,641		$	(15,107	)	(26	)%
Gross margin percentage		48.2	%		53.5	%		(5.3	)%

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Our gross margin percentage was 48.2 percent in 2008, compared to 53.5 percent in 2007, representing a decrease of 5.3 percent. This decrease was primarily due to higher excess and obsolete inventory charges resulting from lower demand for our products which caused an approximate 3 percent decrease in gross margin in 2008 and an unfavorable change in product mix in 2008 which caused an approximate 2 percent decrease in gross margin. This unfavorable change was due to us selling more lower-margin products in 2008.

During 2008, our gross inventory write-down was approximately $4.3 million, offset by the sale of $1.7 million of previously written down inventory.

Research and Development

Research and development expenses consist primarily of employee and contractor compensation, bonuses paid to employees for development of patentable designs under our patent award program and other performance bonuses, expenses for new product development and testing, expenses for process development, occupancy costs of research and development personnel, depreciation on research and development related equipment, and prototype costs for new products not yet released to production. We include expenses associated with new package development, engineering wafer lots and new test program developments in research and development expenses. We also include expenses associated with new product concept and definition and the preparation and filing of patents and other intellectual property in research and development expenses. We anticipate that we will continue to invest significant amounts in research and development activities to pursue and develop new products, processes, devices, packages and intellectual property.

	Year Ended December 31,						Increase (Decrease)
	2009			2008
	(dollar amounts in thousands)
Research and development	$	27,468		$	30,579		$	(3,111	)	(10.2	)%
% of net revenues		31.8	%		33.8	%		(2.0	)%

Research and development expenses for fiscal 2009 decreased as compared to 2008 primarily due to a $1.7 million decrease in payroll and payroll related expenses, a $0.7 million decrease in facilities, IT and operation support expenses, a $0.4 million decrease in stock-based compensation expense and a $0.3 million decrease due to the one-time write-off of in-process research and development costs recorded in 2008 related to our acquisition of Elite Micro Devices. The decrease in payroll and payroll related expenses in 2009 compared to 2008 resulted from lower headcount due to our December 2008 reduction in workforce and other cost reduction measures.

	Year Ended December 31,						Increase (Decrease)
	2008			2007
	(dollar amounts in thousands)
Research and development	$	30,579		$	31,103		$	(524	)	(1.7	)%
% of net revenues		33.8	%		28.4	%		5.4	%

Research and development expenses for fiscal 2008 decreased as compared to 2007 primarily due to a $1.2 million decrease in non-recurring engineering and other engineering-related expenses, partially offset by a $0.3 million increase due to the write-off of in-process research and development costs due to our acquisition of Elite Micro Devices during 2008 and $0.3 million of restructuring expenses.

Sales, General and Administrative

Sales expenses consist primarily of employee and contractor compensation, sales performance and other bonuses, occupancy costs of sales personnel, sales commissions to independent sales representatives and promotional and marketing expenses. We include field application engineering support of sales activities in sales expense. General and administrative expenses consist primarily of employee and contractor compensation,

33

bonuses, occupancy costs of general and administrative personnel, insurance and fees paid for professional services. Costs associated with audit and taxation, corporate governance and compliance, financial reporting and litigation matters are also general and administrative expenses.

	Year Ended December 31,						Increase (Decrease)
	2009			2008
	(dollar amounts in thousands)
Sales, general and administrative	$	24,132		$	25,446		$	(1,314	)	(5.2	)%
% of net revenues		27.9	%		28.2	%		(0.3	)%

Sales, general and administrative expenses for 2009 decreased as compared to 2008 primarily due to a $0.8 million decrease in audit and tax related expenses, a $0.4 million decrease in stock-based compensation expense, a $0.3 million decrease in travel expenses and a $0.2 million decrease in facility-related and equipment repair and maintenance expenses. These decreases were partially offset by a $0.5 million increase in legal and consulting expenses.

	Year Ended December 31,						Increase (Decrease)
	2008			2007
	(dollar amounts in thousands)
Sales, general and administrative	$	25,446		$	26,057		$	(611	)	(2.3	)%
% of net revenues		28.2	%		23.8	%		4.4	%

Sales, general and administrative expenses for 2008 decreased as compared to 2007 primarily due to a $1.2 million decrease in payroll, bonus, stock-based compensation expenses and employee benefit related expenses. This decrease was partially offset by a $0.3 million increase in office supplies expense and a $0.2 million increase in restructuring expenses.

Patent Litigation

	Year Ended December 31,						Increase (Decrease)
	2009			2008
	(dollar amounts in thousands)
Patent litigation	$	3,045		$	1,751		$	1,294		73.9	%
% of net revenues		3.5	%		1.9	%		1.6	%

Patent litigation expenses for 2009 increased as compared to 2008 due to a higher level of activity in our patent infringement cases. We believe that we will continue to incur significant litigation expenses in future years.

For a description of our litigation, please see Item 3—Legal Proceedings in Part I of this report for further details.

	Year Ended December 31,						Increase (Decrease)
	2008			2007
	(dollar amounts in thousands)
Patent litigation	$	1,751		$	3,793		$	(2,042	)	(53.8	)%
% of net revenues		1.9	%		3.5	%		(1.6	)%

Patent litigation expenses for 2008 decreased as compared to 2007 due to a lower level of activity related to the Linear Technology Corporation patent infringement case.

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Interest and Other Income, Net

Interest and investment income was $0.9 million, $3.1 million and $5.6 million for 2009, 2008 and 2007, respectively. Interest and investment income decreased in 2009 compared to 2008 due to lower average interest rates. Interest and investment income decreased in 2008 compared to 2007 due to lower average interest rates.

Other income (expense), net was insignificant in 2009. Other income (expense), net in 2008 was $(0.4) million, consisting primarily of a $0.5 million other-than-temporary impairment loss related to our long-term investment in a privately-held company that was accounted for using the cost method. Other income (expense), net in 2007 was approximately $(0.5) million, primarily consisting of a $0.3 million write-off of cumulative translation adjustment loss as a result of the liquidation of our Sweden branch office during the first quarter of 2007 and a $0.2 million other-than-temporary impairment loss related to our long-term investment in a privately-held company.

Provision For Income Taxes

Our income tax provision was $0.8 million, $8.5 million, and $1.3 million for fiscal 2009, 2008 and 2007, respectively. Our tax provision for 2008 was substantially higher compared to 2007 and 2009 primarily due to the recording of a valuation allowance against our U.S. net deferred tax assets of $9.1 million offset by a decrease to the Company’s consolidated pre-tax income and the related tax effects in various jurisdictions.

Recently Issued Accounting Pronouncements

In June 2009, we adopted the new FASB authoritative guidance for determining fair value when the volume or level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. This new guidance provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. Our adoption of this new guidance did not have a material impact on our consolidated financial statements.

In June 2009, we adopted the new FASB authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the prior other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt securities in the financial statements. Our adoption of this new guidance did not have a material impact on our consolidated financial statements.

In June 2009, we adopted the new FASB authoritative guidance for interim disclosures about the fair value of financial instruments. This new guidance requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Our adoption of this new guidance did not impact our consolidated results of operations or financial position.

In June 2009, we adopted the new FASB authoritative guidance for subsequent events. This new guidance is intended to establish general standards for the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This new guidance became effective for interim or annual financial periods ending after June 15, 2009. Our adoption of this new guidance did not impact our consolidated results of operations or financial position.

In June 2009, the FASB issued theFASB Accounting Standards Codification(the “Codification”), the authoritative guidance for accounting principles generally accepted in the United States (“GAAP”). The Codification is now the single official source of authoritative GAAP (other than guidance issued by the SEC),

35

superseding existing FASB, American Institute of Certified Public Accountants, and related literature. The Codification does not change GAAP. We adopted the Codification during the quarter ended September 30, 2009. Our adoption of the Codification did not have any substantive impact on our consolidated financial statements or related footnotes.

In December 2009, the FASB issued Accounting Standards Update 2009-17,Consolidations (Accounting Standards Codification Topic 810)—Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”). ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective for fiscal years beginning after November 15, 2009. Early application is not permitted. We do not expect ASU 2009-17 to have a material effect on our consolidated results of operations or our financial position upon adoption.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06,Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which amends FASB Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures (“ASC 820”) to require various additional disclosures regarding fair value measurements and also clarify certain existing disclosure requirements. Under ASU 2010-06, we will be required to: (1) disclose separately the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy, (2) disclose activity in Level 3 fair value measurements including transfers into and out of Level 3 and the reasons for such transfers, and (3) present separately in its reconciliation of recurring Level 3 measurements information about purchases, sales, issuances and settlements on a gross basis. ASU 2010-06 does not change any accounting requirements, but is expected to have a significant effect on the disclosures of entities that measure assets and liabilities at fair value. The amendments prescribed by ASU 2010-06 will be effective for our fiscal quarter ending March 31, 2010, except for the requirements described in item (3) above, which will be effective for our fiscal year beginning January 1, 2011. We currently do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

Liquidity and Capital Resources

	Year Ended December 31,
	2009			2008			2007
	(in thousands)
Net cash (used in) provided by operating activities	$	(2,956	)	$	3,465		$	8,574
Net cash used in investing activities		(9,715	)		(1,446	)		(14,322	)
Net cash (used in) provided by financing activities		(3,329	)		(3,627	)		1,494
Effect of exchange rate changes on cash and cash equivalents		26			(77	)		(88	)
Net decrease in cash and cash equivalents	$	(15,974	)	$	(1,685	)	$	(4,342	)

Net Cash (Used in) Provided by Operating Activities

Cash used in operating activities in 2009 of $3.0 million was primarily attributable to the net loss of $12.7 million, adjusted for non-cash items included in net loss which included $6.9 million of stock-based compensation expense and $2.0 million of depreciation and intangible asset amortization. Cash used in operating

36

activities also included a $2.7 million cash outflow due to the increase in accounts receivable. The increase in accounts receivable in 2009 compared to 2008 was due to higher sales during the fourth quarter of 2009 compared to the fourth quarter of 2008. These cash outflows were partially offset by a $1.8 million decrease in inventories and a $1.6 million increase in accounts payable. The decrease in inventory balance was due to our management’s efforts to reduce inventory levels. The increase in accounts payable was due to higher production activity in the fourth quarter of 2009 compared to the fourth quarter of 2008.

Our positive cash flows from operating activities in 2008 of $3.5 million were attributable to a $7.8 million decrease in accounts receivable due to a decrease in sales and the timing of shipments, a $7.2 million decrease in deferred tax assets primarily due to an increase in our valuation allowance, a $3.2 million decrease in inventory due to lower inventory purchases and increased inventory reserves as a result of a lower sales forecast, and a $1.0 million increase in income tax payable. These cash inflows were partially offset by net loss of $20.1 million, adjusted for non-cash items including $7.8 million of stock-based compensation expense, $3.0 million of depreciation and amortization, a $0.8 million intangible asset impairment charge and a $0.5 million impairment loss on an investment in a privately-held company. Cash outflows also included a $4.6 million decrease in accrued expenses and other long-term liabilities primarily due to a decrease in payroll, bonus and employee benefit related expenses and a $3.3 million decrease in accounts payable due to lower inventory purchases as a result of lower sales.

Net Cash Used in Investing Activities

Net cash used in our investing activities was $9.7 million in 2009, primarily consisting of a net cash outflow of $8.6 million to purchase short-term investments and $1.0 million of property and equipment purchases.

Net cash used in our investing activities was $1.4 million in 2008, primarily consisting of $2.4 million used to purchase property and equipment and $0.6 million used for our June 2008 acquisition of Elite Micro Devices. These cash outflows were partially offset by a $2.0 million collection of a note receivable.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities in 2009 was $3.3 million, primarily consisting of $3.4 million spent on common stock repurchases, partially offset by $0.1 million of net proceeds from exercises of common stock options.

Net cash used in our financing activities in 2008 was $3.6 million, primarily consisting of $5.3 million spent on common stock repurchases, partially offset by $1.3 million of net proceeds from exercises of common stock options.

Liquidity

Our cash, cash equivalents and short-term investments balance was $102.0 million as of December 31, 2009. Based on our current business plan and revenue prospects, we believe our existing cash, cash equivalents and short-term investments balances will be sufficient to meet our anticipated cash needs, including working capital needs, planned capital expenditures and our discretionary share repurchase activity, for at least the next 12 months. Our liquidity is not impacted by our $2.4 million investments in ARS which were not liquid as of December 31, 2009. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk for more information regarding our ARS.

Our long-term future capital requirements will depend on many factors, including our level of revenues, the timing and extent of spending to support our product development efforts, the expansion of sales and marketing activities, the timing of our introductions of new products, the costs to ensure access to adequate manufacturing capacity, our level of acquisition activity or other strategic transactions, the continuing market acceptance of our

37

products and the amount and intensity of our litigation activity. We could be required, or could elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at all.

Off Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.

Contractual Obligations

The following table describes our principal contractual cash obligations as of December 31, 2009:

	Total		2010		2011		2012		2013		2014		2015 and beyond
	(in thousands)
Operating leases	$	7,569	$	2,281	$	1,564	$	1,555	$	941	$	540	$	688
Purchase commitments(1)		6,108		6,108		—		—		—		—		—
Total contractual obligations	$	13,677	$	8,389	$	1,564	$	1,555	$	941	$	540	$	688

⁽¹⁾ Purchase commitments consist primarily of our commitment to purchase wafers and assembly services.

In January 2007, we entered into a sublease for our current principal executive offices, effective from September 2007 through March 2016, occupying 42,174 square feet in Santa Clara, California. This facility accommodates our principal engineering, technology, administrative and finance activities.

In September 2007, we entered into an office lease in Shanghai, China to accommodate our design team and sales personnel. The lease is effective from October 2007 through December 2010.

In November 2009, we renewed our Hong Kong office lease to accommodate our development team. The lease is effective from November 2009 through October 2012.

The table above excludes $4.4 million of liabilities associated with uncertain tax positions, as we are unable to reasonably estimate the ultimate amount or timing of settlement.

Common Stock Repurchases

On October 29, 2008, our board of directors authorized a program to repurchase shares of our outstanding common stock. Under the stock repurchase program, we are authorized to use up to $30 million to repurchase our outstanding common stock. We may repurchase shares in the open market or through privately negotiated transactions. During 2009, we repurchased 1.1 million shares of our common stock for a total cost of $3.4 million. During 2008, we repurchased a total of 2.1 million shares of our common stock for a total cost of $5.3 million.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our investment portfolio consists mainly of cash equivalents and short-term investments that are classified as available-for-sale securities. These investments are subject to market risk, primarily interest rate and credit

38

risk. Our investments are managed by outside professional managers within investment guidelines set by us. Such guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting the investments to high quality debt instruments with relatively short-term maturities.

The following table, which excludes cash, is a summary of cash equivalents, short-term and long-term investments classified as available-for-sale securities as of December 31, 2009:

	December 31, 2009
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Estimated Fair Value
	(in thousands)
Money market funds	$	15,964	$	—	$	—		$	15,964
Municipal bonds		65,129		13		(23	)		65,119
U.S. government agency bonds		11,999		12		—			12,011
Auction rate securities		1,950		—		(125	)		1,825
Total	$	95,042	$	25	$	(148	)	$	94,919
Amounts included in:
Cash equivalents	$	27,213	$	—	$	(2	)	$	27,211
Short-term investments		65,879		25		(21	)		65,883
Other assets		1,950		—		(125	)		1,825
Total	$	95,042	$	25	$	(148	)	$	94,919

Most of our available-for-sale investments were in fixed rate, interest-earning instruments, which carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to rising interest rates. However, in a declining interest rate environment such as the one we are currently experiencing, as short term investments mature, reinvestment occurs at less favorable market rates.

As of December 31, 2009, our investment portfolio also included $2.4 million of interest bearing auction rate securities (“ARS”), of which $0.6 million was classified as trading securities and was excluded from the above table. Also excluded from the above table were ARS exchange rights (“ARS Put Option”) that provide us with the right, but not the obligation, to sell one of our ARS to UBS for par value during the period of June 30, 2010 to July 2, 2012. The ARS Put Option represents a financial instrument that is accounted for at fair value ($0.6 million as of December 31, 2009). As the Company expects to exercise the ARS Put Option on June 30, 2010, this financial instrument and the related ARS were classified as current assets as of December 31, 2009.

Due to the ARS market being inactive, we estimated the fair value of the ARS as of December 31, 2009 and 2008 using a discounted cash flow model. The inputs used in valuing the ARS reflect our own assumptions about the assumptions market participants would use in pricing the ARS, including assumptions about risk, developed based on the best information available in the circumstances. The following average assumptions were used to determine fair value of the ARS:

	December 31, 2009	December 31, 2008
Expected time to liquidity	2 to 4 years	2 to 4 years
Expected annual rate of return	1.1% to 1.7%	1.1% to 1.9%
Discount rate	4.9% to 19.3%	6.1% to 14.3%

We also determine the fair value of the ARS Put Option using a discounted cash flow model. To determine the fair value of the ARS Put Option, the total cash flows expected to result from exercising the ARS Put Option are discounted based on our estimates of the likelihood of default by UBS and the expected time remaining until exercise. We plan to exercise the ARS Put Option on June 30, 2010. In determining the fair value of the ARS Put Option, we used an expected term of six months and a 1.2% discount rate.

39

The following table presents the estimated change in the value of our investment portfolio, if interest rates were to change by the amounts indicated (in thousands):

	100 Basis Point Rate Increase			200 Basis Point Rate Increase			100 Basis Point Rate Decrease		200 Basis Point Rate Decrease
Total impact on our investment portfolio	$	(232	)	$	(472	)	$	115	$	116

We do not use derivative financial instruments in our investment portfolio.

Foreign Currency Exchange Risk

Our sales outside the United States are transacted in U.S. dollars. Accordingly, our sales are not generally impacted by foreign currency rate changes. With exception to our operations in Hong Kong and Macau, the primary functional currency of our offshore operations was the local currency, primarily the New Taiwan Dollar and the Chinese Yuan. To date, fluctuations in foreign currency exchange rates have not had a material impact on our results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm	41
Consolidated Balance Sheets	42
Consolidated Statements of Operations	43
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)	44
Consolidated Statements of Cash Flows	46
Notes to Consolidated Financial Statements	47

40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Advanced Analogic Technologies Incorporated

Santa Clara, California

We have audited the accompanying consolidated balance sheets of Advanced Analogic Technologies, Incorporated and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2009. 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. An audit also includes 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2010, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

February 19, 2010

41

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31, 2009			December 31, 2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	36,120		$	52,094
Short-term investments		65,883			57,443
Total cash, cash equivalents and short-term investments		102,003			109,537
Accounts receivable, net of allowances		9,348			6,654
Inventories		7,234			9,016
Prepaid expenses and other current assets		4,291			2,100
Total current assets		122,876			127,307
PROPERTY AND EQUIPMENT—NET		4,607			5,050
OTHER ASSETS		3,110			4,060
DEFERRED INCOME TAXES		318			327
INTANGIBLES—NET		117			395
GOODWILL		16,116			16,116
TOTAL ASSETS	$	147,144		$	153,255
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	6,614		$	4,601
Accrued liabilities		3,726			3,698
Income tax payable		114			127
Current portion of capital lease obligations		—			41
Total current liabilities		10,454			8,467
Long-term income tax payable		4,365			3,326
Other long term liabilities		275			228
Total liabilities		15,094			12,021
COMMITMENTS AND CONTINGENCIES (NOTES 7 and 12)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value—100,000,000 shares authorized; 46,127,931 shares issued and 42,934,490 shares outstanding in 2009; 45,926,052 shares issued and 43,851,263 shares outstanding in 2008		46			46
Treasury stock, at cost; 3,193,441 and 2,074,789 shares as of December 31, 2009 and December 31, 2008, respectively		(8,649	)		(5,262	)
Additional paid-in capital		182,457			175,425
Accumulated other comprehensive loss		(212	)		(56	)
Accumulated deficit		(41,592	)		(28,919	)
Total stockholders’ equity		132,050			141,234
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	147,144		$	153,255

See accompanying notes to consolidated financial statements.

42

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amount)

		Year Ended December 31,
		2009			2008			2007
NET REVENUES		$	86,512		$	90,339		$	109,610
Cost of revenues			44,686			46,805			50,969
GROSS PROFIT			41,826			43,534			58,641
OPERATING EXPENSES:
Research and development			27,468			30,579			31,103
Sales, general and administrative			24,132			25,446			26,057
Patent litigation			3,045			1,751			3,793
Total operating expenses			54,645			57,776			60,953
LOSS FROM OPERATIONS			(12,819	)		(14,242	)		(2,312	)
INTEREST AND OTHER INCOME:
Interest and investment income			902			3,124			5,599
Other income (expense), net			13			(449	)		(529	)
Total interest and other income, net			915			2,675			5,070
INCOME (LOSS) BEFORE INCOME TAXES			(11,904	)		(11,567	)		2,758
PROVISION FOR INCOME TAXES			769			8,507			1,272
NET INCOME (LOSS)		$	(12,673	)	$	(20,074	)	$	1,486
NET INCOME (LOSS) PER SHARE:
Basic		$	(0.29	)	$	(0.44	)	$	0.03
Diluted		$	(0.29	)	$	(0.44	)	$	0.03
WEIGHTED AVERAGE SHARES USED IN NET INCOME (LOSS) PER SHARE CALCULATION:	��
Basic			42,973			45,535			44,728
Diluted			42,973			45,535			47,007

See accompanying notes to consolidated financial statements.

43

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Common Stock			Treasury Stock					Additional Paid-in Capital			Deferred Stock-based Compen- sation			Accumulated Other Compre- hensive loss			Accumulated Deficit			Total
	Shares	Amount		Shares		Amount
BALANCE—December 31, 2006	44,065	$	44	—		$	—		$	160,236		$	(2,935	)	$	(480	)	$	(10,874	)	$	145,991
Cumulative effect of adoption of FASB Accounting Standards Codification (“ASC”) 740 (FIN 48)																			543			543
BALANCE—January 1, 2007	44,065		44	—			—			160,236			(2,935	)		(480	)		(10,331	)		146,534
Net income																			1,486			1,486
Foreign currency translation adjustments																272						272
Net unrealized gain on available-for-sale investments, net of taxes																100						100
Comprehensive income																						1,858
Tax benefit from equity transactions										6												6
Exercise of common stock options	1,291		1							1,624												1,625
Stock-based compensation expense to employees										5,082												5,082
Vesting of restricted common stock										23												23
Reversal of deferred stock-based compensation due to employee terminations										(210	)		210									—
Amortization of deferred stock-based compensation													1,667									1,667
Stock-based compensation to non-employees										603												603
BALANCE—December 31, 2007	45,356	$	45	—		$	—		$	167,364		$	(1,058	)	$	(108	)	$	(8,845	)	$	157,398
Net loss																			(20,074	)		(20,074	)
Foreign currency translation adjustments																78						78
Net unrealized loss on available-for-sale investments, net of taxes																(26	)					(26	)
Comprehensive loss																						(20,022	)
Exercise of common stock options	570		1							1,282												1,283
Tax benefit from stock option exercises										9												9
Stock-based compensation expense to employees										6,774												6,774
Vesting of restricted common stock										12												12
Reversal of deferred stock-based compensation due to employee terminations										(27	)		27									—
Amortization of deferred stock-based compensation													1,031									1,031
Stock-based compensation to non-employees										11												11
Common stock repurchases				(2,075	)		(5,262	)		—												(5,262	)
BALANCE—December 31, 2008	45,926	$	46	(2,075	)	$	(5,262	)	$	175,425		$	—		$	(56	)	$	(28,919	)	$	141,234

See accompanying notes to consolidated financial statements.

44

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)—(Continued)

(in thousands)

	Common Stock			Treasury Stock					Additional Paid-in Capital		Deferred Stock-based Compen- sation		Accumulated Other Compre- hensive loss			Accumulated Deficit			Total
	Shares	Amount		Shares		Amount
Net loss																	(12,673	)		(12,673	)
Foreign currency translation adjustments														52						52
Net unrealized loss on available-for-sale investments, net of taxes														(208	)					(208	)
Comprehensive loss																				(12,829	)
Exercise of common stock options	202									99										99
Stock-based compensation expense to employees										6,933										6,933
Common stock repurchases				(1,119	)		(3,387	)		—										(3,387	)
BALANCE—December 31, 2009	46,128	$	46	(3,194	)	$	(8,649	)	$	182,457	$	—	$	(212	)	$	(41,592	)	$	132,050

See accompanying notes to consolidated financial statements.

45

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(12,673	)	$	(20,074	)	$	1,486
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		2,002			3,004			2,721
Stock-based compensation		6,928			7,821			7,340
Intangible asset impairment charge		—			755			—
Net unrealized (gain) loss on fair value securities		(65	)		68			—
Cumulative effect of adoption of ASC 740 (FIN 48)		—			—			543
Loss on liquidation of a foreign branch office		—			—			266
Impairment loss on an investment in a privately-held company		—			508			200
Provision for doubtful accounts		34			5			(6	)
Tax benefit from stock option exercises		—			9			6
Excess tax benefit from employee equity incentive plans		—			(504	)		(6	)
(Gain)/Loss on disposal of property and equipment		88			(6	)		9
In-process research and development		—			255			—
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(2,728	)		7,769			(3,385	)
Inventories		1,786			3,193			(3,724	)
Prepaid expenses and other current assets		(990	)		207			(13	)
Other assets		(30	)		87			(95	)
Deferred income taxes		(55	)		7,181			(706	)
Accounts payable		1,648			(3,252	)		948
Accrued expenses and other long-term liabilities		73			(4,554	)		1,782
Income taxes payable		1,026			993			1,208
Net cash (used in) provided by operating activities		(2,956	)		3,465			8,574
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(983	)		(2,351	)		(3,269	)
Proceeds from sales of property and equipment		—			14			—
Purchases of short-term investments		(87,507	)		(66,850	)		(90,231	)
Collection of (investment in) short-term notes receivable (Note 2)		—			2,000			(2,000	)
Purchases of long-term investments (Note 2)		(175	)		(250	)		(76	)
Sale of long-term investment		50			—			—
Purchase of technology license		—			(200	)		—
Proceeds from sales and maturities of short-term investments		78,900			66,838			79,479
Restricted cash escrow funds received		—			—			700
Acquisitions, net of cash acquired		—			(647	)		1,075
Net cash used in investing activities		(9,715	)		(1,446	)		(14,322	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		99			1,283			1,625
Excess tax benefit from employee equity incentive plans		—			504			6
Common stock repurchases		(3,387	)		(5,262	)		—
Principal payments on capital lease obligations		(41	)		(152	)		(137	)
Net cash (used in) provided by financing activities		(3,329	)		(3,627	)		1,494
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		26			(77	)		(88	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(15,974	)		(1,685	)		(4,342	)
CASH AND CASH EQUIVALENTS—Beginning of period		52,094			53,779			58,121
CASH AND CASH EQUIVALENTS—End of period	$	36,120		$	52,094		$	53,779
NONCASH INVESTING AND FINANCING ACTIVITIES:
Vesting of restricted common stock	$	—		$	12		$	23
Increases (decreases) in accounts payable and accrued liabilities related to property and equipment purchases	$	353		$	(234	)	$	136
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	1		$	13		$	26
Cash paid for income taxes	$	159		$	311		$	233

See accompanying notes to consolidated financial statements.

46

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2009, 2008 and 2007

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization—Advanced Analogic Technologies Incorporated and its wholly-owned subsidiaries (the “Company”) was incorporated on August 21, 1997 (inception) in California, reincorporated on April 11, 2005 in Delaware. The Company focuses on addressing the application-specific power management needs of consumer, communications and computing electronic devices, such as wireless handsets, notebook and tablet computers, smartphones, camera phones, digital cameras, personal media players, Bluetooth headphones and accessories, digital TVs, set top boxes and displays. The Company focuses its design and marketing efforts on the application-specific power management needs of consumer communications and computing applications in these rapidly-evolving devices. Through the Company’s “Total Power Management” approach, the Company offers a broad range of products that support multiple applications, features and services across a diverse set of consumer electronic devices. The Company sells its products through its direct sales and applications support organization to original equipment manufacturers, original design manufacturers and contract electronics manufacturers primarily located in Asia, as well as through arrangements with distributors that fulfill third-party orders for our products. The Company is headquartered in Santa Clara, California, has development centers in Santa Clara, Shanghai, Hong Kong and Taiwan, and has Asia-based operations and logistics.

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets, and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of net revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk—Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investments and receivables. As specified in the Company’s investment policy, the Company invests only in high-quality credit instruments with original or remaining maturities of one year or less and limits the amount invested with any one issuer. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. The Company’s top three customers accounted for a total of 78 percent and 68 percent of net accounts receivable at December 31, 2009 and December 31, 2008, respectively.

Cash Equivalents, Short-Term Investments and Long-Term Investments—The Company accounts for its investment portfolio at fair value. In determining fair value, the Company uses a fair value hierarchy established by GAAP. Cash equivalents are highly liquid investments purchased with original or remaining maturities of 90 days or less at the time of purchase. Investments with original or remaining maturities of over 90 days at the time of purchase are generally classified as short-term investments and consist primarily of high grade debt securities. Available-for-sale investments are carried at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a separate component of stockholders’ equity. As of December 31, 2009, the Company had two available-for-sale investments in auction-rate securities (“ARS”) that were classified within other long-term assets on the Company’s consolidated balance sheet.

As of December 31, 2009 and 2008, the Company had one investment that was accounted for as trading security. Trading securities are carried at fair value with unrealized gains and losses recognized in earnings. The investment accounted for as trading security, which the Company plans to sell in the near term, is an investment in auction-rate securities (“ARS”) and was classified within prepaid and other current assets on the Company’s

47

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

consolidated balance sheet as of December 31, 2009. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in “interest and investment income” in the consolidated statements of operations. On November 12, 2008, the Company entered into an agreement that provides the Company with the right, but not the obligation, to sell one of its ARS to UBS AG (“UBS”) for par value during the period of June 30, 2010 to July 2, 2012. The ARS Put Option will provide the Company with the opportunity to recover the estimated unrealized loss on one of its ARS investments. The Company recorded the fair value of the ARS Put Option upon receipt and included it in prepaid and other current assets on its December 31, 2009 consolidated balance sheet. The Company elected fair value accounting for the ARS Put Option. Unrealized gains and losses related to the ARS Put Option are recognized in earnings. See Note 2—Investments for additional details regarding the Company’s investments.

Inventory—Inventory is stated at the lower of the actual cost (first-in, first-out method) of the inventory or its current market value. Inventory consists of work in process (principally processed wafers and products at third party assembly and test subcontractors) and finished goods. The Company generally writes down finished goods inventory that is over 12 months old, due to the cyclicality of the market in which the Company operates, inventory levels, obsolescence of technology and product life cycles. Starting from the fourth quarter of 2007, the Company writes down inventory in excess of nine months forecasted product demand to its net realizable value. Previously, the Company generally wrote down to net realizable value inventory in excess of six months forecasted product demand. This change resulted in approximately $0.2 million favorable impact on the Company’s gross profit for 2007. During 2009, 2008 and 2007, the Company recorded inventory write-downs of $3.6 million, $4.3 million and $4.2 million, respectively, due to excess and obsolete inventory.

Property and Equipment—Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over estimated useful lives for office and test equipment of three to five years, computers and software of two to three years, and leasehold improvements over the shorter of the lease term or the estimated useful life of the improvement. Depreciation and amortization expense was $1.7 million, $1.8 million and $1.6 million for years 2009, 2008 and 2007, respectively.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization. The Company evaluates goodwill for impairment, at a minimum, on an annual basis as of September 30th and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.

The carrying value of our goodwill may not be recoverable due to factors indicating a decrease in the value of the Company, such as a decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry. Estimates of future cash flows are based in-part on an updated long-term financial outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates. For example, a significant decline in our stock price and/or market capitalization may result in goodwill impairment. In addition, the other assumptions made by us may change in future periods as they are based on overall market conditions and/or comparable company data. A change in the assumptions used to determine if goodwill is impaired may result in a charge to earnings in our financial statements during a period in which an impairment of our goodwill is determined to exist, which may negatively impact our results of operations.

The goodwill impairment testing is a two-step process and is performed at the reporting unit level. Because the Company has one reporting unit, it assesses goodwill for impairment at the entity level. The first step (“Step 1”) is performed by comparing the reporting unit’s carrying amount, including goodwill, to the fair value

48

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

of the reporting unit. The fair value of the reporting unit is estimated using a combination of: (1) the Transaction Approach, (2) the Income Approach, and (3) the Market Approach. Using the Transaction Approach, the Company estimates the fair value of the reporting unit by adding to its market capitalization a control premium. The estimated control premium is based on observable transactions involving control premiums paid in recent acquisitions of comparable companies. Using the Income Approach, the Company uses the long-term financial outlook of its operations and makes certain assumptions, including a discount rate and a long-term growth rate, to determine the fair value of the reporting unit based on future cash flows that it expects to generate. Under the Market Approach, the Company identifies comparable companies’ data and makes certain assumptions including revenue multiples, to determine the fair value based on how the market values comparable companies. The Company places the highest weighting on the fair value derived by the Transaction Approach, as it considers quoted prices in active markets as the best evidence of fair value. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step (“Step 2”) is performed to measure the amount of impairment loss, if any. Step 2 is performed by calculating the implied fair value of goodwill and comparing the implied fair value to the carrying amount of goodwill. If the implied fair value of goodwill is lower than its carrying amount, an impairment loss is recognized equal to the difference.

The Company performed its annual goodwill impairment analysis as of September 30, 2009 and determined that goodwill was not impaired.

The following table shows the changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008, (in thousands):

Balance at December 31, 2007(1)	$	15,717
Increase due to Elite acquisition(2)		399
Balance at December 31, 2008		16,116
Goodwill increase/(decrease)		—
Balance at December 31, 2009	$	16,116

⁽¹⁾ – December 31, 2007 balance represents goodwill recorded in connection with the Company’s acquisition of Analog Power Semiconductor Corporation in October 2006.

⁽²⁾ – In June 2008, the Company acquired Elite Micro Devices, Inc. (“Elite”), a privately held, Shanghai, China-based audio company for approximately $1.0 million in cash. The Company recorded non-tax deductible goodwill of $0.4 million associated with this acquisition that was accounted for as a business combination under generally accepted accounting principles. The Company also wrote off $0.3 million of in-process research and development and did not record any intangible assets as a result of the Elite acquisition.

Long-Lived Assets (Excluding Goodwill)—The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the asset’s carrying value. If the sum is less, the Company recognizes an impairment loss based on the excess of the carrying amount of the asset over its respective fair value. The fair value is estimated using discounted cash flows, appraisals, or other methods. The fair value of the asset then becomes the asset’s new carrying value, which the Company depreciates over the remaining estimated useful life of the asset.

As of December 31, 2008, the Company determined that its intangible assets were impaired due to a decrease in forecasted revenues associated with its acquired intangible assets. The Company estimated the fair

49

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

value of these assets using a discounted cash flow model and determined the carrying amount of these acquired intangible assets exceeded their fair value by $0.8 million. Accordingly, the Company recorded a $0.8 million impairment charge during the quarter ended December 31, 2008. The impairment charge was recognized in the consolidated statements of operations for the year ended December 31, 2008 as a $0.6 million increase to cost of revenues and a $0.2 million increase to sales, general, and administrative expense. During the years ended December 31, 2009 and 2007, the Company determined that no impairment indicators existed.

The following table summarizes the Company’s intangible assets as of December 31, 2009 and December 31, 2008, respectively:

	Intangible Assets, Gross				Accumulated Amortization(1)						Intangible Assets, Net
	December 31, 2009		December 31, 2008		December 31, 2009			December 31, 2008			December 31, 2009		December 31, 2008
	(in thousands)
Core technology	$	2,900	$	2,900	$	(2,900	)	$	(2,724	)	$	—	$	176
Customer relationships		580		580		(580	)		(544	)		—		36
Technology license		200		200		(83	)		(17	)		117		183
Total	$	3,680	$	3,680	$	(3,563	)	$	(3,285	)	$	117	$	395

⁽¹⁾ Accumulated amortization includes a $0.8 million intangible asset impairment charge recorded during the year ended December 31, 2008. See above for further details.

The Company amortizes intangible assets on a straight-line basis over their estimated useful lives. Amortization expense of intangible assets was $0.3 million, $1.2 million and $1.2 million for the years ended December 31, 2009, 2008 and 2007, respectively. Future amortization for these intangible assets is expected to be $0.1 million in 2010 and less than $0.1 million in 2011.

Revenue Recognition—In accordance with GAAP, we recognize revenues once all of the following four basic revenue recognition criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Criteria (1) and (2) are met upon receipt of purchase orders or signing of contracts and upon transfer of title which generally occurs at the time of shipment. Determination of criteria (3) and (4) is based on management’s judgment regarding the determinability of the fees charged for products delivered and the collectibility of those fees. If changes in conditions cause management to determine these criteria are not met for certain future transactions, revenues recognized for any reporting period could decline.

A large portion of the Company’s sales is made through distribution arrangements with third parties. These arrangements include stock rotation rights that generally permit the return of up to 5% of the previous three months’ net purchases. The Company generally accepts these returns quarterly. The Company records estimated returns at the time of shipment. The Company’s normal payment terms with its distributors are 30 days from invoice date. Certain of the Company’s distributor arrangements include the possibility of sales price rebates on specified products. At the time of shipment, the Company recognizes revenue, estimates the total sales price rebate and reserves for those pricing rebates. The Company has also deferred revenue of $0.1 million and $0.1 million as of December 31, 2009 and 2008, respectively, related to three of its distributors for which the Company is unable to reasonably estimate returns, and recognizes revenues from these distributors upon their subsequent resale to their customers.

The Company makes estimates of potential future returns and sales allowances related to current period product revenue. The Company analyzes historical return rates and changes in customer demand when evaluating

50

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

the adequacy of returns and sales allowances. Although the Company believes it has a reasonable basis for its estimates, such estimates may differ from actual returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable.

Bad Debt Allowances—The Company records accounts receivable at the invoiced amount. The Company monitors the collectibility of accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, the Company assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is made. In addition, the Company reserves a percentage of its accounts receivable to various customers that are significantly aged based on its historical collection experience. The Company did not write-off any accounts receivable in 2009 and 2008. The Company wrote-off less than $0.1 million of accounts receivable in 2007.

Warranty Costs—The Company provides a 12-month warranty against defects in materials and workmanship and will either repair the goods, provide replacement products at no charge to the customer or refund amounts to the customer for defective products. The Company records estimated warranty costs, based on historical experience over the preceding 12 months by product, at the time it recognizes product revenues. A summary of the Company’s warranty liability, which is included in accrued liabilities on its consolidated balance sheet, is as follows:

	Year ended December 31,
	2009			2008			2007
	(in thousands)
Balance, at beginning of period	$	81		$	101		$	204
Accruals for sales in the period		202			123			218
Costs incurred		(178	)		(143	)		(321	)
Balance, at end of period	$	105		$	81		$	101

Restructuring Costs—During the year ended December 31, 2008, a restructuring plan was approved for the purpose of reducing future operating expenses by eliminating approximately 12 percent of the Company’s global workforce. In addition to the reduction in force, the Company closed its offices in Stockholm, Sweden and Paris, France. The Company recorded a restructuring charge of $0.5 million during the year ended December 31, 2008 which consisted of $0.5 million of severance costs related to the reduction in force and less than $0.1 million for office closure and related costs. As of December 31, 2009 and 2008, the Company’s restructuring liability was $0 and $0.3 million, respectively.

Advertising Costs—Advertising costs such as trade shows, promotions, public relations, and publications are expensed as incurred and are included in sales, general and administrative expenses. Advertising costs were $0.6 million, $0.7 million and $0.8 million for 2009, 2008 and 2007, respectively.

Research and Development—Research and development costs are expensed as incurred and included in operating expenses.

Income Taxes—In accordance with GAAP, the Company determines its deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of its assets and liabilities using tax rates in effect for the year in which it expects the differences to affect taxable income. The tax consequences of most events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and

51

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

measurement of assets, liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in the financial statements. Because the Company assumes that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the consolidated balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset or liability.

In preparing the Company’s consolidated financial statements, the Company assesses the likelihood that its deferred tax assets will be realized from future taxable income. The Company establishes a valuation allowance if it determines that it is more likely than not that some portion of the deferred tax assets will not be realized. The Company’s ability to realize its deferred tax assets depends on its ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of its deferred tax assets:

• Future reversals of existing taxable temporary differences;

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback years; and

• Tax-planning strategies.

The Company concludes that a valuation allowance is required when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. The Company utilizes a rolling three years of actual results as its primary measure of its cumulative losses in recent years. As of December 31, 2009 and 2008, the Company concluded that a full valuation allowance against its United States deferred tax assets was required. See Note 6—Income Taxes.

The Company estimates the provision for income taxes based on income before income taxes for each tax jurisdiction in which the Company has established operations. The Company does not provide incremental U.S. income taxes on un-remitted foreign earnings taxed at rates less than the U.S. tax rates as such earnings are considered permanently invested.

The Company recognizes the tax benefit from uncertain tax positions on the income tax return based on a two-step process. The first step is to determine if it is more likely than not that a tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The second step is to estimate and measure the tax benefit to be recognized in the financial statements based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Stock-Based Compensation—Stock-based compensation expense is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The grant date fair value of the Company’s stock options is calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of highly subjective assumptions which determine the fair value of stock options, including the price volatility of the underlying stock and the stock option’s expected term. For purposes of estimating volatility, the Company uses a combination of the historical and market-based implied volatility of its stock price and an industry peer group. The estimated expected term of the Company’s stock options represents the weighted-average

52

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

period that the stock options are expected to remain outstanding. The Company derives the expected term assumption based on the weighted average vesting period of its stock options combined with the average post-vesting holding period of an industry peer group. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the Company’s stock options. The dividend yield is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on common stock, and does not anticipate paying cash dividends in the foreseeable future.

Stock-based compensation expense for the years ended December 31, 2008 and 2007 included expense related to options granted prior to April 4, 2005 (the date of the Company’s initial filing of a registration statement for its eventual initial public offering). These options granted prior to April 4, 2005 were valued using the intrinsic value method and as of December 31, 2008, the Company had fully amortized the deferred stock based compensation related to these options. For further information regarding the Company’s valuation of share-based payment awards and stock-based compensation expense, see Note 5—Stock-based compensation.

Foreign Currency—The functional currencies of the Company’s foreign subsidiaries are their local currency, with the exception of the Company’s Macau, Cayman and Hong Kong entities, which are U.S. dollars. Accordingly, gains and losses from translation of the financial statements of foreign subsidiaries with a local functional currency are reported as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains (losses) were $(0.1) million, $0.1 million and $(0.3) million for 2009, 2008 and 2007, respectively. Foreign currency transaction losses in 2007 included a write-off of $0.3 million cumulative translation adjustment loss as a result of the liquidation of the Company’s Sweden branch office in the first quarter of 2007.

Comprehensive Income (Loss)—The Company reports, by major components and as a single total, the change in its stockholders’ equity during the period from non-owner sources. The unrealized gains and losses on available-for-sale investments and foreign currency translation adjustments are comprehensive income items applicable to the Company. Statements of comprehensive income (loss) have been included within the consolidated statements of stockholders’ equity.

Net Income (Loss) Per Share—The Company calculates net income (loss) per share by dividing net loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to repurchase. To determine diluted net income (loss) per common share, the effect of potentially dilutive securities, which consist of common stock options, warrants and common stock subject to repurchase, is calculated under the treasury stock method. The effect of potentially dilutive securities is excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive. A reconciliation of shares used in the calculation of basic and diluted net income (loss) per share is as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
Weighted average common shares outstanding	42,973	45,553		44,795
Weighted average shares subject to repurchase	—	(18	)	(67	)
Shares used to calculate basic net income (loss) per share	42,973	45,535		44,728
Effect of dilutive securities:
Common and preferred stock warrants	—	—		8
Common stock options	—	—		2,204
Weighted average shares subject to repurchase	—	—		67
Dilutive potential common stock	—	—		2,279
Weighted average common shares outstanding, assuming dilution	42,973	45,535		47,007

53

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

Outstanding stock options of approximately 8.3 million, 8.1 million and 2.9 million shares were excluded from the computation of dilutive potential common stock for the years ended December 31, 2009, 2008 and 2007 respectively, as they are considered anti-dilutive.

Subsequent Events—The Company evaluated subsequent events through the date its financial statements were available for issuance. The Company determined that the financial statements were available for issuance on February 19, 2010, the date that the Company completed its review of the consolidated financial statements for the year ended December 31, 2009.

Recently Issued Accounting Standards—In June 2009, the Company adopted the new FASB authoritative guidance for determining fair value when the volume or level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. This new guidance provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. The Company’s adoption of this new guidance did not have a material impact on its consolidated financial statements.

In June 2009, the Company adopted the new FASB authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the prior other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt securities in the financial statements. The Company’s adoption of this new guidance did not have a material impact on its consolidated financial statements.

In June 2009, the Company adopted the new FASB authoritative guidance for interim disclosures about the fair value of financial instruments. This new guidance requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The Company’s adoption of this new guidance did not impact its consolidated results of operations or financial position.

In June 2009, the Company adopted the new FASB authoritative guidance for subsequent events. This new guidance is intended to establish general standards for the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This new guidance became effective for interim or annual financial periods ending after June 15, 2009. The Company’s adoption of this new guidance did not impact its consolidated results of operations or financial position.

In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”), the authoritative guidance for GAAP. The Codification is now the single official source of authoritative GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, and related literature. The Codification does not change GAAP. The Company adopted the Codification during the quarter ended September 30, 2009. The adoption of the Codification did not have any substantive impact on the Company’s consolidated financial statements or related footnotes.

In December 2009, the FASB issued Accounting Standards Update 2009-17,Consolidations (Accounting Standards Codification Topic 810)—Improvements to Financial Reporting by Enterprises Involved with VariableInterest Entities (“ASU 2009-17”). ASU 2009-17 changes how a reporting entity determines when an entity that

54

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective for fiscal years beginning after November 15, 2009. Early application is not permitted. The Company does not expect ASU 2009-17 to have a material effect on its consolidated results of operations or its financial position upon adoption.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06,Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which amends FASB Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures (“ASC 820”) to require various additional disclosures regarding fair value measurements and also clarify certain existing disclosure requirements. Under ASU 2010-06, the Company will be required to: (1) disclose separately the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy, (2) disclose activity in Level 3 fair value measurements including transfers into and out of Level 3 and the reasons for such transfers, and (3) present separately in its reconciliation of recurring Level 3 measurements information about purchases, sales, issuances and settlements on a gross basis. ASU 2010-06 does not change any accounting requirements, but is expected to have a significant effect on the disclosures of entities that measure assets and liabilities at fair value. The amendments prescribed by ASU 2010-06 will be effective for the Company’s fiscal quarter ending March 31, 2010, except for the requirements described in item (3) above, which will be effective for the Company’s fiscal year beginning January 1, 2011. The Company currently does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

2. INVESTMENTS

The following tables, which exclude cash, are a summary of cash equivalents, short-term and long-term investments classified as available-for-sale securities as of December 31, 2009 and 2008:

	December 31, 2009
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Estimated Fair Value
	(in thousands)
Money market funds	$	15,964	$	—	$	—		$	15,964
Municipal bonds		65,129		13		(23	)		65,119
U.S. government agency bonds		11,999		12		—			12,011
Auction rate securities		1,950		—		(125	)		1,825
Total	$	95,042	$	25	$	(148	)	$	94,919
Amounts included in:
Cash equivalents	$	27,213	$	—	$	(2	)	$	27,211
Short-term investments		65,879		25		(21	)		65,883
Other assets		1,950		—		(125	)		1,825
Total	$	95,042	$	25	$	(148	)	$	94,919

55

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

	December 31, 2008
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Estimated Fair Value
	(in thousands)
Money market funds	$	36,489	$	—	$	—		$	36,489
Municipal bonds		26,598		72		(2	)		26,668
U.S. government agency bonds		23,091		188		—			23,279
Corporate debt securities		5,492		24		—			5,516
U.S. Treasury Bills		2,996		4		—			3,000
Auction rate securities		2,000		—		(167	)		1,833
Total	$	96,666	$	288	$	(169	)	$	96,785
Amounts included in:
Cash equivalents	$	37,509	$	—	$	—		$	37,509
Short-term investments		57,157		288		(2	)		57,443
Other assets		2,000		—		(167	)		1,833
Total	$	96,666	$	288	$	(169	)	$	96,785

The maturities of the Company’s cash equivalents, short-term and long-term investments classified as available-for-sale are as follows:

	December 31, 2009		December 31, 2008
	(in thousands)
Due in one year or less	$	93,094	$	90,833
Due after one year through five years		—		4,119
Due after 10 years		1,825		1,833
Total	$	94,919	$	96,785

Fair value measurements

The Company’s financial assets are measured at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under generally accepted accounting principles, based on the observability of the inputs used in the valuation techniques, the Company is required to provide information according to a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Directly or indirectly observable market based inputs used in models or other valuation methodologies.

Level 3: Unobservable inputs that are not corroborated by market data. The inputs require significant management judgment or estimation.

56

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

The following tables, which exclude cash, present the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2009 and 2008:

					Fair Value Measurements as of December 31, 2009 Using:
	Carrying Amount		Total fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Available-for-sale securities:
Money market funds	$	15,964	$	15,964	$	15,964	$	—	$	—
Municipal bonds		65,119		65,119		—		65,119		—
U.S. government agency bonds		12,011		12,011		—		12,011		—
Auction rate securities		1,825		1,825		—		—		1,825
Total Available-for-sale securities	$	94,919	$	94,919	$	15,964	$	77,130	$	1,825
Other investments:
Auction rate securities classified as trading securities	$	593	$	593	$	—	$	—	$	593
ARS put option		604		604		—		—		604
Total Other investments	$	1,197	$	1,197	$	—	$	—	$	1,197
Amounts included in:
Cash and cash equivalents	$	27,211
Short-term investments		65,883
Prepaid expenses and other current assets		1,197
Other assets		1,825
Total	$	96,116

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

					Fair Value Measurements as of December 31, 2008 Using:
	Carrying Amount		Total fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Available-for-sale securities:
Money market funds	$	36,489	$	36,489	$	36,489	$	—	$	—
Municipal bonds		26,668		26,668		26,668		—		—
U.S. government agency bonds		23,279		23,279		23,279		—		—
Corporate Debt Securities		5,516		5,516		—		5,516		—
U.S. Treasury bills		3,000		3,000		3,000		—		—
Auction rate securities		1,833		1,833		—		—		1,833
Total Available-for-sale securities	$	96,785	$	96,785	$	89,436	$	5,516	$	1,833
Other investments:
Auction rate securities classified as trading securities	$	720	$	720	$	—	$	—	$	720
ARS put option		412		412		—		—		412
Total Other investments	$	1,132	$	1,132	$	—	$	—	$	1,132
Amounts included in:
Cash and cash equivalents		37,509
Short-term investments		57,443
Other assets		2,965
Total	$	97,917

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

The following tables provide a reconciliation of the beginning and ending balances for the assets as of December 31, 2009 and 2008 that were measured at fair value using unobservable inputs (Level 3):

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Auction Rate Securities			ARS Put Option
Beginning balances as of December 31, 2008	$	2,553		$	412
Unrealized gains included in accumulated other comprehensive loss		42			—
Unrealized gains (losses) recognized in earnings		(127	)		192
Purchases, sales, issuances and settlements, net		(50	)		—
Change in fair value		—			—
Ending balances as of December 31, 2009	$	2,418		$	604
The amount of total unrealized gains for the period included in accumulated other comprehensive loss attributable to assets still held at the reporting date	$	42		$	—
The amount of total unrealized gains (losses) for the period recognized in earnings attributable to assets still held at the reporting date	$	(127	)	$	192

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Auction Rate Securities			ARS Put Option
Beginning balances as of January 1, 2008	$	—		$	—
Transfers in and/or out of Level 3		3,200			—
Unrealized losses included in accumulated other comprehensive loss		(167	)		—
Unrealized losses recognized in earnings		(480	)		—
Purchases, sales, issuances and settlements, net		—			412
Ending balances as of December 31, 2008	$	2,553		$	412
The amount of total unrealized losses for the period included in accumulated other comprehensive loss attributable assets still held at the reporting date	$	(167	)	$	—
The amount of total unrealized losses for the period recognized in earnings attributable to assets still held at the reporting date	$	(480	)	$	—

59

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

Level 3 Financial Assets

Auction-rate securities

The Company’s investment portfolio included interest bearing ARS with a fair value of $2.4 million and $2.6 million as of December 31, 2009 and 2008, respectively. The Company’s ARS are interest-bearing investments in debt obligations collateralized by Federal Family Education Program student loans. At the time of acquisition, these ARS were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The monthly auctions historically provided a liquid market for these securities. However, due to uncertainties in the credit markets, auctions for the Company’s ARS have failed to settle on their respective settlement dates since 2008. Further, the secondary market for ARS is inactive and there have been few issuer repurchases. The Company does not currently consider these investments to be liquid and will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process.

During the quarter-ended December 31, 2008, the Company made an election to transfer one of its ARS (with a face value of $1.2 million) from available-for-sale to trading securities. As a result of the reclassification, the $0.5 million of unrealized loss was recognized in earnings within interest and other expense on the consolidated statement of operations for the year ended December 31, 2008. The election was made upon the Company entering into a settlement agreement with UBS (“the Agreement”). Under the Agreement, the Company was granted ARS exchange rights (“ARS Put Option”) that provide the Company with the right, but not the obligation, to sell this ARS to UBS for par value during the period of June 30, 2010 to July 2, 2012. The Company expects to exercise the ARS Put Option on June 30, 2010 and expects that the resulting sale of this ARS to UBS will be completed during the quarter ending September 30, 2010. As such, as of December 31, 2009, the ARS Put Option and the related ARS are classified within prepaid and other current assets on the consolidated balance sheet. The Company’s other ARS are classified within other long-term assets on the consolidated balance sheet because the Company estimates that it will take longer than one year for a successful auction or issuer repurchase to occur.

Due to the ARS market being inactive, the Company estimated the fair value of the ARS as of December 31, 2009 and 2008 using a discounted cash flow model. The following average assumptions were used to determine fair value of the ARS:

	December 31, 2009	December 31, 2008
Expected time to liquidity	2 to 4 years	2 to 4 years
Expected annual rate of return	1.1% to 1.7%	1.1% to 1.9%
Discount rate	4.9% to 19.3%	6.1% to 14.3%

ARS Put Option

The Company’s investment portfolio included an ARS Put Option that is accounted for at fair value. On November 12, 2008, the date on which the Company entered into the Agreement, the Company elected to measure the ARS Put Option at fair value. By electing to measure the ARS Put Option at fair value, subsequent changes in the fair value of the ARS Put Option will be offset with changes in the fair value of the related ARS in the Company’s consolidated statements of operations.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

The Company determines the fair value of the ARS Put Option using a discounted cash flow model. To determine the fair value of the ARS Put Option, the total cash flows expected to result from exercising the ARS Put Option are discounted based on the Company’s estimates of the likelihood of default by UBS and the expected time remaining until exercise. The Company plans to exercise the ARS Put Option on June 30, 2010. In determining the fair value of the ARS Put Option, the Company used an expected term of six months and a 1.2% discount rate.

Investment in a privately-held company

The Company’s investment portfolio included an investment in a privately-held company which develops analog memory products. The investment consists of preferred stock and represents less than a 20% ownership interest. The investment previously included interest-bearing bridge loans which were converted to additional shares of preferred stock during the three months ended March 31, 2009. The Company accounts for this investment using the cost method. The investment in a privately-held company is included in other long-term assets on the consolidated balance sheets.

To determine if impairment exists, the Company monitors the privately-held company’s revenue and earnings trends, relative to pre-defined milestones and overall business prospects; their general market conditions in the industry or geographic area, including adverse regulatory or economic changes; factors related to their ability to remain in business, such as their liquidity and the rate at which they are using cash; and their receipt of additional funding. The Company reviews this investment for impairment indicators on a quarterly basis.

During the fourth quarter of 2007, the Company identified certain events or changes in circumstances that had a significant adverse effect on the fair value of this investment and determined the impairment of this investment was other than temporary. As a result, the Company recorded a $200,000 impairment loss on this investment. During the fourth quarter of 2008, the Company identified impairment indicators that resulted in an additional $508,000 other-than-temporary impairment loss being recorded during the fourth quarter of 2008. The impairment losses were included in interest and other expense on the consolidated statements of operations for the years ended December 31, 2008 and 2007. The Company evaluated its investment in a privately-held company for impairment on a quarterly basis during the year ended December 31, 2009. As a result of its impairment analyses, the Company did not record impairment charges during the year ended December 31, 2009.

Promissory note

In December 2007, the Company invested in a short-term promissory note from one of its vendors. The face value of this note was $2 million with zero stated interest rate. However, the Company received a total service discount of approximately $50,000 from this vendor in lieu of cash interest payments. The Company recorded interest income and service cost over the note term of six months to reflect the service discount received. The Company received the $2 million payment during the quarter ended September 30, 2008.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS

	December 31,
	2009			2008
	(in thousands)
Inventories
Work in process	$	3,209		$	5,034
Finished goods		4,025			3,982
Total inventories	$	7,234		$	9,016
Property and equipment, net
Computers and software	$	5,458		$	5,426
Office and test equipment		7,439			6,513
Leasehold improvements		1,441			1,448
		14,338			13,387
Accumulated depreciation and amortization		(9,731	)		(8,337	)
Total property and equipment, net	$	4,607		$	5,050
Accrued liabilities
Accrued payroll and benefits	$	1,645		$	1,269
Deferred revenue		110			97
Accrued legal and accounting services		458			746
Warranty reserve		105			81
Restructuring reserve		—			280
Accrued payables and other		1,408			1,225
Total accrued liabilities	$	3,726		$	3,698

4. STOCKHOLDERS’ EQUITY

Common Stock Repurchases—On October 29, 2008, the Company’s board of directors authorized a program to repurchase shares of the Company’s outstanding common stock. Under the stock repurchase program, the Company was authorized to use up to $30 million to repurchase its outstanding common stock. The Company may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend upon market conditions and other factors, in accordance with Securities and Exchange Commission requirements.

For the year ended December 31, 2009, the Company repurchased 1.1 million shares of its common stock for a total cost of $3.4 million. During 2008, the Company repurchased a total of 2.1 million shares of its common stock for a total cost of $5.3 million. Shares repurchased are accounted for as treasury stock and the total cost of shares repurchased is recorded as a reduction to stockholders’ equity.

Warrants—During the year ended December 31, 2003, in connection with the issuance of a convertible promissory note, the Company issued warrants to purchase 41,953 shares of Series E preferred stock at $2.40 per share. These shares of Series E preferred stock were converted to 41,953 shares of common stock warrants at the time of the Company’s initial public offering. The warrants expired on February 21, 2007.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

During the year ended December 31, 2003, the Company issued to consultants warrants to purchase 25,500 shares of common stock at $0.46 per share. The fair value of the warrants was $7,000 based on the Black-Scholes pricing model using the following weighted average assumptions: contractual life of five years, risk-free interest rate of 2.91%, volatility of 70% and no dividends during the contractual term. The warrants expired on May 8, 2008.

5. STOCK-BASED COMPENSATION

Stock Option Plans—The Company’s board of directors and stockholders approved the Company’s 2005 Equity Incentive Plan (the “2005 Plan”) in May 2005. The 2005 Plan replaced the Company’s 1998 Stock Plan (the “1998 Plan”) and became effective upon the completion of the Company’s initial public offering in August 2005. The 2005 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to its employees and its parent and subsidiary corporations’ employees, and for the grant of Nonstatutory stock options, restricted stock, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. Options generally vest over four years and expire in 10 years. As of December 31, 2009, 2.2 million shares were available for future grant under the 2005 Plan.

As of December 31, 2009, there were 9.5 million stock options outstanding, of which 1.5 million options were granted under the 1998 Plan. As a result of the approval of the 2005 Plan, no further grants can be made under the 1998 Plan and any 1998 Plan options that are forfeited or canceled are returned to the pool of shares available for future grant under the 2005 Plan. Upon exercise, the Company issues new shares of common stock.

A summary of stock option activity for the year ended December 31, 2009 and information regarding stock options outstanding, exercisable, and vested or expected to vest is as follows:

Options	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
	(in thousands, except years and per share data)
Outstanding at January 1, 2009	8,649		$	5.04
Granted	1,868		$	3.84
Exercised	(202	)	$	0.49
Forfeited or expired	(859	)	$	5.37
Outstanding at December 31, 2009	9,456		$	4.87	7.30	$	7,294
Vested or expected to vest at December 31, 2009	8,878		$	4.91	7.21	$	7,003
Exercisable at December 31, 2009	4,775		$	5.42	6.03	$	4,897

The aggregate intrinsic value represents the difference between the Company’s closing stock price on December 31, 2009 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

Stock option valuation and stock-based compensation expense—The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of an award. The Company used the following weighted average assumptions to calculate the fair values of options granted during the years presented:

	Year Ended December 31,
	2009		2008		2007
Volatility	58	%	50	%	51	%
Expected option term (in years)	3.90		4.02		4.28
Risk free interest rate	1.66	%	2.37	%	4.45	%
Expected annual dividend yield	0	%	0	%	0	%

The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations “or “expirations” and represents only the unvested portion of the surrendered option. The Company re-evaluates forfeiture rates annually and adjusts the rates as necessary.

On January 17, 2007, the Company accepted for exchange from eligible employees (excluding directors and Section 16 officers), options to purchase an aggregate of approximately 1.3 million shares of the Company’s common stock, pursuant to a stock option exchange program (the “2007 Exchange Offer”) under Section 16 of the Securities Exchange Act of 1934, giving them the right to tender outstanding stock options that were granted between August 4, 2005 and September 1, 2006. The eligible options were cancelled as of January 17, 2007. The Company granted new options to purchase an equal number of shares of its common stock with an exercise price at fair market value of $5.80 per share in exchange for the options cancelled in connection with the offer. These new options vest at the rate of 25 percent after one year starting on January 17, 2007 and 6.25 percent every three months thereafter. The Company calculated incremental compensation costs of $1.5 million related to the 2007 Exchange Offer, which together with the unamortized costs related to the cancelled options, will be amortized over the vesting period of the new options.

On October 9, 2008, the Company accepted for exchange from eligible employees (excluding directors, consultants and all executives) options to purchase an aggregate of 1.8 million shares of the Company’s common stock, pursuant to a stock option exchange program (the “2008 Exchange Offer”), giving them the right to tender outstanding stock options that were granted between February 1, 2007 and July 1, 2008. The eligible options were cancelled as of October 9, 2008. The Company granted new options to purchase an equal number of shares of its common stock with an exercise price equal to the fair market value of the Company’s common stock on October 9, 2008, which was $3.08 per share, in exchange for the options cancelled in connection with the offer. These new options vest over four years at a rate of 25 percent after one year, starting on October 9, 2008, and 6.25 percent every three months thereafter. The Company calculated $1.5 million of incremental compensation cost related to the 2008 Exchange Offer. The incremental compensation cost combined with the unamortized cost related to the cancelled options will be amortized over the four year vesting period of the new options.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

The following table summarizes stock-based compensation expense included in the Company’s consolidated statements of operations:

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
Statement of operations classifications
Cost of revenues	$	309	$	428	$	317
Research and development		3,163		3,533		2,878
Sales, general and administrative		3,456		3,860		4,145
Total stock-based compensation expense	$	6,928	$	7,821	$	7,340

The related tax effect for stock-based compensation expense was approximately zero for 2009 and 2008, as the Company has a full valuation allowance against its US deferred tax assets for 2009 and 2008. The related tax effect for stock-based compensation expense was approximately $1.6 million for 2007. The related tax effect was determined using the applicable tax rates in jurisdictions to which this expense relates.

The weighted average grant date fair value of options granted during the years 2009, 2008 and 2007 as determined using the Black Scholes pricing model was $1.72, $2.83 and $8.20, respectively.

The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) during 2009, 2008 and 2007 was $0.6 million, $2.3 million and $9.2 million, respectively. The total fair value of options vested during 2009, 2008 and 2007 was $6.7 million, $5.5 million and $4.5 million, respectively.

As of December 31, 2009, there was $10.7 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Deferred Stock Compensation—The Company accounted for its stock-based awards granted to employees prior to April 4, 2005 (the date of the Company’s initial filing of a registration statement for its eventual initial public offering) using the intrinsic value method. For these options, the Company recorded deferred stock-based compensation equal to the intrinsic value, which represented the difference between the exercise price and deemed fair value of the Company’s common stock on the date of grant. The compensation was amortized to expense over the vesting period of the options, generally four years, using the straight-line method and was fully amortized as of December 31, 2008. Amortization of such deferred stock-based compensation, net of forfeitures, was zero, $1.0 million and $1.7 million 2009, 2008 and 2007, respectively.

The Company recorded stock-based compensation expense of approximately $549,000 in 2007 due to acceleration of certain unvested portions of the stock options granted to one of its former employees, as compensation for providing consulting services under a transition agreement.

During 2008 and 2007, the Company issued nonstatutory stock options to non-employees. These options were issued for services provided by the non-employees and were immediately vested at the grant date. Accordingly, in 2008 and 2007, the Company recorded $11,000 and $42,000, respectively, of expense associated with stock options granted to non-employees.

65

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

6. INCOME TAXES

The components of the provision for income taxes are as follows:

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
Current:
Federal	$	406	$	1,263	$	1,094
State		20		43		(26	)
Foreign		335		331		717
Total current tax		761		1,637		1,785
Deferred:
Federal		—		4,560		(81	)
State		—		2,305		(395	)
Foreign		8		5		(37	)
Total deferred		8		6,870		(513	)
Provision for income taxes	$	769	$	8,507	$	1,272

The foreign and domestic components of income (loss) before income taxes are as follows:

	Year Ended December 31,
	2009			2008			2007
	(in thousands)
United States	$	(11,080	)	$	(3,117	)	$	(2,271	)
Foreign		(824	)		(8,450	)		5,029
Income (loss) before income taxes	$	(11,904	)	$	(11,567	)	$	2,758

The Company had no cumulative foreign earnings as of December 31, 2009. Any foreign earnings generated would be considered to be permanently reinvested in the Company’s foreign operations. If any earnings were remitted to the U.S., they would be subject to domestic and/or foreign taxes.

The effective tax rate differs from the applicable U.S. statutory federal income tax rate for the years ended December 31 as follows:

	Year Ended December 31,
	2009		2008		2007
U.S. statutory federal tax rate	(34.0	)%	(34.0	)%	34.0	%
State taxes, net of federal benefit	(1.6	)	(1.6	)	(15.1	)
Foreign income at higher (lower) rates	27.7		35.2		4.0
Research and development credits	(3.3	)	(11.5	)	(26.0	)
Deferred stock-based compensation	11.0		8.9		44.2
Change in Valuation Allowance	6.1		78.3		—
Other	0.6		(1.7	)	5.0
Effective tax rate	6.5	%	73.6	%	46.1	%

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

The components of deferred income taxes are as follows:

	December 31,
	2009			2008
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	409		$	317
Research and business tax credits		5,233			5,268
Stock-based compensation		3,812			2,740
Accruals and reserves not currently deductible		814			1,005
Other		150			79
		10,418			9,409
Valuation allowance		(10,109	)		(9,082	)
Total	$	309		$	327

The Company assesses whether valuation allowances should be established against its deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.

As of December 31, 2009 and 2008, the Company’s operating results reflected a cumulative three-year loss. In assessing the realizability of its US deferred tax assets, the Company’s cumulative three-year loss is considered significant negative evidence which is objective and verifiable. Additional negative evidence included the uncertainty regarding the magnitude and length of the current economic recession and the highly competitive nature of the business. Positive evidence considered by the Company in its assessment included lengthy operating loss carryforward periods, a lack of unused expired operating loss carryforwards, and estimates of future taxable income.

As of December 31, 2009, after considering both the positive and negative evidence, the Company cannot conclude that it is more likely than not that its US deferred tax assets will be realized. Therefore, the Company will continue to report a full valuation allowance against its US deferred tax assets with any corresponding change to the valuation allowance to the provision for income taxes.

As of December 31, 2009, the Company had net operating loss carry forwards for federal and state income tax purposes of approximately $18.0 million and $6.2 million, respectively. The federal and California loss carryforwards expire on various dates both beginning in 2010 through 2030. At December 31, 2009, the Company also had a net operating loss carryforward for Hong Kong income tax purposes of approximately $1.4 million, which currently has no expiration date. The Company’s available research and business tax credit carry forwards for federal and state income tax purposes are approximately $5.1 million and $5.6 million, respectively. The federal research credits expire on various dates beginning in 2018. California research tax credits can be carried forward indefinitely.

As of December 31, 2009, the Company had not recorded the full cumulative tax benefit related to tax deductions in excess of previously expensed stock-based compensation because of unutilized net operating losses and tax credits. If such tax benefits related to tax deductions in excess of previously expensed stock-based compensation were recognized, approximately $2.8 million would be recorded as an addition to paid-in-capital.

The Company recognizes the tax benefit from uncertain tax positions on the income tax return based on a two-step process. The first step is to determine if it is more likely than not that a tax position will be sustained on

67

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

examination by the taxing authorities, based on the technical merits of the position. The second step is to estimate and measure the tax benefit to be recognized in the financial statements based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the year ended December 31, 2009, 2008 and 2007 is as follows:

	December 31,
	2009			2008		2007
	(in thousands)
Beginning balance	$	6,720		$	5,049	$	2,408
Gross increases in tax position in current year		3,610			1,259		1,646
Gross increases in tax position for prior years		1,717			412		1,031
Settlements/closure of audits		(379	)		—		(36	)
Ending Balance	$	11,668		$	6,720	$	5,049

As of December 31, 2009, 2008 and 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate, was $11.1 million, $6.1 million and $4.7 million, respectively.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in its provision for income taxes. During the years ended December 31, 2009, 2008 and 2007 the Company recognized approximately $0.1 million, $0.1 million and $0.1 million, respectively, for interest and penalties, net of taxes. As of December 31, 2009, 2008 and 2007, total accrued interest and penalties for unrecognized tax benefits were approximately $0.3 million, $0.3 million and $0.2 million, respectively.

The Company is subject to taxation in the United States and various foreign jurisdictions. With the exception of California, the Company’s tax years for 1997 through 2009 are subject to examination by the US tax authorities. In August 2007, the Company closed an audit with the state of California for all tax years from inception through 2004, but the State left open the option to review the Company’s research and development tax credits in the future. The Company is no longer subject to foreign examinations by tax authorities for years before 2004.

The Company is currently under examination by the Internal Revenue Service (“IRS”) for tax years 2005 to 2007. In May 2009, we received an IRS examination report showing proposed changes to our income tax for the years 2005 and 2006 related to certain transfer pricing practices. The Company believes that the proposed adjustments are not supported by the facts and are inconsistent with applicable tax laws and existing Treasury regulations. The Company filed a timely protest in June 2009 and is awaiting discussions with the IRS Appeals Division. No payments, if any, will be made related to the disputed proposed adjustments until the issues are resolved with either the IRS Appeals Division or the tax court.

The Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of these examinations. Although the timing of the resolution and/or closure on audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, the Company is unable to estimate the range of possible adjustments to the balance of gross unrecognized tax benefits.

68

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

7. COMMITMENTS

Capital Lease Obligations—As of December 31, 2009 and 2008, the costs of software and equipment under the capital leases included in property and equipment were approximately $0.4 million. The software and equipment acquired under capital leases were fully amortized as of December 31, 2009.

Operating Lease Obligations—The Company leases its primary facility and other offices, under operating leases which expire at various dates through 2016. Rental expense related to the Company’s operating leases totaled $1.8 million, $2.0 million and $1.9 million for 2009, 2008 and 2007, respectively.

As of December 31, 2009, future minimum lease payments under all noncancelable leases are as follows:

	Operating Leases
	(in thousands)
2010	$	2,281
2011		1,564
2012		1,555
2013		941
2014		540
2015 and beyond		688
Total minimum lease payments	$	7,569

In January 2007, the Company entered into a sublease for its principal executive offices from September 2007 through March 2016, occupying 42,174 square feet in Santa Clara, California. This facility accommodates the Company’s principal engineering, technology, administrative and finance activities.

In September 2007, the Company entered into an office lease in Shanghai, China to accommodate its design team and sales personnel. The lease is effective from October 2007 through December 2010.

In November 2009, the Company renewed its Hong Kong office lease to accommodate its development team. The lease is effective from November 2009 through October 2012.

8. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) tax-deferred savings plan (“401(k) Plan”) for all employees who meet certain eligibility requirements. Participants may make pre-tax contributions to the 401(k) Plan, up to a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. Beginning in October 2007, the Company matches employee contributions annually at 100% of the first 3% of employee contributions and 50% of the second 2% of employee contributions. All matching contributions vest 25% annually over four years. Contributions made by the Company were $0.4 million, $0.5 million and $0.3 million for 2009, 2008 and 2007, respectively.

69

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

9. MAJOR CUSTOMERS

The following table summarizes net revenue and accounts receivable for customers that accounted for 10% or more of net accounts receivable or net revenues:

	Accounts Receivable				Net Revenues
	December 31,				Year Ended December 31,
Customer	2009		2008		2009		2008		2007
A	42	%	30	%	33	%	20	%	11	%
B	29		30		24		25		20
C	*		*		*		10		*
D	*		*		*		10		*

* - Amount represents less than 10%.

10. SEGMENT INFORMATION

The Company operates in one reportable segment: the design, development, marketing and sale of power management semiconductor products and solutions for the communications, computing and consumer portable and personal electronics marketplace. The Company’s chief operating decision maker is its chief executive officer. The following is a summary of net revenues by geographic region based on the location to which the product is shipped:

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
South Korea	$	57,854	$	56,670	$	55,951
China		17,100		14,047		31,714
Taiwan		8,219		13,981		16,442
United States		1,140		1,514		2,712
Europe		1,358		2,155		2,351
Japan		841		1,972		440
Total	$	86,512	$	90,339	$	109,610

The following is a summary of long-lived assets by geographic region:

	December 31,
Country	2009		2008(1)
	(in thousands)
United States	$	3,727	$	2,850
China		924		1,191
Taiwan		799		933
Japan		134		230
South Korea		52		39
Hong Kong		168		145
Macau		81		105
Europe		7		10
Total	$	5,892	$	5,503

⁽¹⁾ To conform to the current year presentation, the disclosure of long-lived assets for the year-ended December 31, 2008 has been revised to exclude goodwill and intangible assets. The amounts as previously reported were as follows: China—$17,460 and United States—$3,103.

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ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

11. VALUATION AND QUALIFYING ACCOUNTS

The Company had the following activity in its valuation allowances (in thousands):

	Bad Debt			Distributor Stock Rotation			Distributor Price Protection
Balance—January 1, 2007	$	6		$	195		$	1,443
Charged to costs and expenses		—			1,916			7,049
Deductions		(6	)		(1,850	)		(6,398	)
Balance—December 31, 2007		—			261			2,094
Charged to costs and expenses		5			1,063			6,801
Deductions		—			(1,211	)		(7,666	)
Balance—December 31, 2008		5			113			1,229
Charged to costs and expenses		34			797			4,960
Deductions		—			(778	)		(4,994	)
Balance—December 31, 2009	$	39			132			1,195

12. LITIGATION

In May 2003, the Company received a letter from Linear Technology Corporation (“Linear Technology”) alleging that certain of its charge pump products infringed United States Patent No. 6,411,531 (‘531 Patent) owned by Linear Technology. In August 2004, the Company received a letter from Linear Technology alleging that certain of its switching regulator products infringed United States Patent Nos. 5,481,178, 6,304,066 and 6,580,258 (‘258 Patent). In response to these letters, the Company contacted Linear Technology to convey its good faith belief that it does not infringe the patents in question. Subsequently, the Company became aware of a marketing campaign conducted by Linear Technology in which it sought to disrupt the Company’s business relationships and sales by suggesting to the Company’s customers that its products infringe the same United States patents mentioned in its two letters to the Company. As a result, in February 2006, the Company initiated a lawsuit against Linear Technology for unfair business practices, interference with existing and prospective customers and trade libel, as well as a declaration of patent invalidity and non-infringement. This case is currently stayed pending the outcome of the United States International Trade Commission (“USITC”) action described in the following paragraphs.

In March 2006, the USITC responded to a complaint filed by Linear Technology by initiating an investigation under Section 337 of the Tariff Act to determine if certain of the Company’s products infringe certain patents owned by Linear Technology. The accused products include charge pumps and switching regulators and are similar to the products involved in the Company’s lawsuit with Linear Technology. A Final Determination was issued September 24, 2007 which was followed by separate appeals for the charge pump and switching regulator products. The last of these appeals, including the parties’ respective requests for rehearing, ended in August of this year. The overall result of these processes clears the path for importation of the Company’s charge pump products. A limited exclusion order was also issued preventing the Company from importing certain of its switching regulator designs and the scope of this order was expanded by the appeals process. This exclusion order does not, however, prevent the Company’s customers from importing downstream products (i.e., products that incorporate AATI switching regulators) into the United States. To date, the Company’s sales of the excluded products in the United States have been minimal.

71

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

On October 1, 2008, the USITC instigated a formal enforcement proceeding at the request of Linear Technology. In that enforcement proceeding, Linear alleges that the Company imported certain switching regulator products in violation of the limited exclusion order originally issued on September 24, 2007. The list of products alleged to be in violation was modified by mutual agreement between the parties and a trial for the remaining products was completed on January 13, 2010. An initial determination is expected from the USITC in March of 2010 and a final determination is expected in July of 2010. Both parties are expected to appeal any unfavorable portions of the final determination. As a result, the Company expects to incur significant legal expenses that will be expensed when incurred.

In March 2009, the Company initiated a lawsuit against a small, privately held semiconductor manufacturing company alleging patent infringement of certain of its products. This case, filed in the United States District Court for the Northern District of California, is currently stayed pending a reexamination of the patent that the Company believes has been infringed. The Company does not believe that this lawsuit will have a material impact on its business or financial condition.

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

	Three Months Ended
(in thousands, except per share data)	Mar. 31, 2009			Jun. 30, 2009			Sept. 30, 2009			Dec. 31, 2009
Net revenues	$	16,549		$	22,978		$	26,140		$	20,845
Cost of revenues*		9,118			11,882			12,763			10,923
Gross profit		7,431			11,096			13,377			9,922
Operating expenses:
Research and development*		6,583			6,808			6,938			7,149
Sales, general and administrative*		5,429			6,281			6,337			6,085
Patent litigation		301			385			1,013			1,346
Total operating expenses		12,313			13,474			14,278			14,580
Loss from operations		(4,882	)		(2,378	)		(901	)		(4,658	)
Interest and other income:
Interest and investment income		371			245			177			109
Other income (expense), net		(18	)		70			(36	)		(3	)
Total interest and other income, net		353			315			141			106
Loss before income taxes		(4,529	)		(2,063	)		(760	)		(4,552	)
Provision for (benefit from) income taxes		679			426			256			(592	)
Net loss	$	(5,208	)	$	(2,489	)	$	(1,016	)	$	(3,960	)
Basic net loss per common share	$	(0.12	)	$	(0.06	)	$	(0.02	)	$	(0.09	)
Diluted net loss per common share	$	(0.12	)	$	(0.06	)	$	(0.02	)	$	(0.09	)
Shares used in basic net loss per common share		43,052			42,938			42,956			42,947
Shares used in diluted net loss per common share		43,052			42,938			42,956			42,947
*  Pre-tax stock-based compensation included in:
Cost of revenues	$	63		$	84		$	79		$	83
Research and development		700			733			767			963
Sales, general and administrative		812			829			873			942

72

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2009, 2008 and 2007

	Three Months Ended
(in thousands, except per share data)	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008
Net revenues	$	25,101		$	21,173		$	25,436		$	18,629
Cost of revenues*		11,385			11,157			12,716			11,547
Gross profit		13,716			10,016			12,720			7,082
Operating expenses:
Research and development*		7,913			7,809			7,506			7,351
Sales, general and administrative*		6,877			6,189			6,191			6,189
Patent litigation		262			482			243			764
Total operating expenses		15,052			14,480			13,940			14,304
Loss from operations		(1,336	)		(4,464	)		(1,220	)		(7,222	)
Interest and other income:
Interest and investment income		1,129			749			700			546
Other income (expense), net		15			17			23			(504	)
Total interest and other income, net		1,144			766			723			42
Loss before income taxes		(192	)		(3,698	)		(497	)		(7,180	)
Provision for (benefit from) income taxes		(63	)		148			207			8,215
Net loss	$	(129	)	$	(3,846	)	$	(704	)	$	(15,395	)
Basic net loss per common share	$	0.00		$	(0.08	)	$	(0.02	)	$	(0.34	)
Diluted net loss per common share	$	0.00		$	(0.08	)	$	(0.02	)	$	(0.34	)
Shares used in basic net loss per common share		45,491			45,687			45,781			45,183
Shares used in diluted net loss per common share		45,491			45,687			45,781			45,183
* Pre-tax stock-based compensation included in:
Cost of revenues	$	93		$	103		$	113		$	119
Research and development		1,044			792			930			767
Sales, general and administrative		1,292			1,022			743			803

73

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2009, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) 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.

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A deficiency indesign exists when (a) a control necessary to meet the control objective is missing or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency inoperation exists when a properly designed control does not operate as designed, or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment

74

included the evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2009. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors. Our independent registered public accounting firm, which audited the consolidated financial statements included in this annual report on Form 10-K, has issued an attestation report, included elsewhere herein, which expresses an opinion on the effectiveness of our internal control over financial reporting.

(c) Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred in the fourth quarter of the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(d) Remedial Efforts to Address the Material Weakness

As previously reported in our quarterly report on Form 10-Q for the quarter ended September 30, 2009, during the three months ended September 30, 2009, we identified errors in the recording of our stock-based compensation expense and restated our consolidated financial statements for fiscal years 2008, 2007 and 2006. The errors were identified after our third-party software provider notified its clients, including us, that it made a change to how its software program calculates stock-based compensation expense. In connection with the restatement, our Chief Executive Officer and Chief Financial Officer determined that there was a material weakness in our internal control over financial reporting relating to the design of the controls over the calculation of stock-based compensation expense related to the application of the forfeiture rate.

During the three months ended September 30, 2009, the Company initiated remediation measures to address the material weakness over the calculation of stock-based compensation expense related to the application of the forfeiture rate which included adding a control procedure to test the calculation of the third-party stock-based compensation system reports on a quarterly basis and upon our upgrades to new versions of the software. As of December 31, 2009, we determined that the new control procedure was operating effectively for a sufficient period of time and strengthened our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

75

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Advanced Analogic Technologies Incorporated

Santa Clara, California

We have audited the internal control over financial reporting of Advanced Analogic Technologies, Incorporated and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, 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 by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. 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 generally accepted accounting principles, 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated February 19, 2010 expressed an unqualified opinion on those financial statements.

/S/ DELOITTE & TOUCHE LLP

San Jose, California

February 19, 2010

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers

The information required by this item with respect to our executive officers is set forth under the caption “Executive Officers” in Item 1 of this Report and is incorporated herein by reference.

Directors

The information required by this item with respect to our board of directors and committees thereof is set forth in our 2010 Proxy Statement under the caption “Election of Directors” and is incorporated herein by reference.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this item with respect to Section 16(a) beneficial ownership reporting compliance is set forth in our 2010 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

Code of Business Conduct and Ethics

The information required by this item with respect to our Code of Business Conduct and Ethics is set forth in our 2010 Proxy Statement under the caption “Code of Business Conduct and Ethics” and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is set forth under the caption “Executive Compensation and Other Matters” in our 2010 Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item with respect to equity compensation plans is set forth under the caption “Equity Compensation Plan Information” in our 2010 Proxy Statement and with respect to security ownership of certain beneficial owners, directors and executive officers is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2010 Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is set forth under the captions “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships, Related Party Transactions and Director Independence” in our 2010 Proxy Statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is set forth under the caption “Principal Accounting Fees and Services” in our 2010 Proxy Statement and is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Documents filed as part of this report

(1) Financial Statements

The following financial statements and related report are included in Item 8 of this Report:

• Report of Independent Registered Public Accounting Firm

• Consolidated Balance Sheets

• Consolidated Statements of Operations

• Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)

• Consolidated Statements of Cash Flows

• Notes to Consolidated Financial Statements

(2) Schedules

See Note 11 to Consolidated Financial Statements included in Item 8 of this Report.

(3) Exhibits

The exhibits listed on the accompanying index to exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference into, this Report.

(b) Exhibits

Exhibit Number	Description
*3.1	Amended and Restated Certificate of Incorporation of the Registrant
**3.2	Amended and Restated Bylaws of the Registrant
#4.1	Form of the Registrant’s Common Stock Certificate
#10.1	Form of Director and Executive Officer Indemnification Agreement
#10.2	1998 Stock Plan and forms of agreement thereunder
#10.3	2005 Equity Incentive Plan and form of agreement thereunder
#10.4	2005 Employee Stock Purchase Plan and form of agreement thereunder
#10.5	Employment Offer Letter between the Registrant and Richard K. Williams dated September 24, 1998
#10.6	Employment Offer Letter between the Registrant and Brian R. McDonald dated June 21, 2004
#10.7	Office Lease between the Registrant and Wolfe Road Investments No. 3, a partnership, dated August 4, 2004
#10.8	Amended and Restated Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated July 15, 2005
#10.9†	Joint Development Agreement between the Registrant and GEM Services, Inc. dated June 1, 1999
#10.10	Form of Warrant to Purchase Shares of Series E Preferred Stock
#10.11	Form of Warrant to Purchase Shares of Common Stock

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Exhibit Number	Description
#10.12†	Wafer Foundry Agreement, as amended, between the Registrant and HYNIX Semiconductor America dated June 4, 2002
#10.12.1	Amendment dated effective May 1, 2005 to Wafer Foundry Agreement between the Registrant and HYNIX Semiconductor America dated June 4, 2002
#10.13	Amended and Restated Investors’ Rights Agreement dated October 27, 2003
#10.13.1	Amendment to Amended and Restated Investors’ Rights Agreement dated as of May 18, 2005
#10.14	Amended and Restated Voting Agreement dated October 27, 2003
#10.15	Form of Change of Control Agreement (Chief Executive Officer and Chief Financial Officer)
#10.16	Form of Change of Control Agreement (Vice Presidents)
##10.17	Sublease between Sandisk Corp. and Advanced Analogic Tech. Inc.
###10.18	Settlement Agreement and Release by and between Parviz Ghaffaripour and Advanced Analogic Technologies, Inc., dated July 30, 2008
21.1	Subsidiaries of the Registrant
23.1	Consent of Deloitte & Touche LLP, independent registered public accounting firm
24.1	Power of Attorney (see signature page)
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
***32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Incorporated by reference to the same number exhibit filed with the Registrant’s Registration Statement on Form S-1 (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

* Incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-1 Registration Statement (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

** Incorporated by reference to Exhibit 3.4 of the Registrant’s Form S-1 Registration Statement (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

## Incorporated by reference to Exhibit 10.17 of the Registrant’s Current Report on Form 8-K filed on June 25, 2007.

### Incorporated by reference to Exhibit 10.18 of the Registrant’s Current Report on Form 8-K filed on August 1, 2008.

*** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

† Confidential treatment has been granted for portions of this exhibit.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, Advanced Analogic Technologies Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Santa Clara, California on the 19^th day of February, 2010.

ADVANCED ANALOGIC TECHNOLOGIES INCORPORATED
By:	/S/    BRIAN R. MCDONALD
	Brian R. McDonald Chief Financial Officer, Vice President of Worldwide Finance and Secretary

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard K. Williams and Brian R. McDonald, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming that each of said attorneys-in-fact or their substitute or substitutes may 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 Advanced Analogic Technologies Incorporated and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    RICHARD K. WILLIAMS	President, Chief Executive Officer, Chief Technical Officer and Director (Principal Executive Officer)	February 19, 2010
Richard K. Williams
/S/    BRIAN R. MCDONALD	Chief Financial Officer, Vice President of Worldwide Finance and Secretary (Principal Financial Officer)	February 19, 2010
Brian R. McDonald
/S/    ASHOK CHANDRAN	Vice President and Chief Accounting Officer (Principal Accounting Officer)	February 19, 2010
Ashok Chandran
/S/    SAMUEL J. ANDERSON	Director	February 19, 2010
Samuel J. Anderson
/S/    JAFF LIN	Director	February 19, 2010
Jaff Lin
/S/    THOMAS P. REDFERN	Director	February 19, 2010
Thomas P. Redfern
/S/    CHANDRAMOHAN SUBRAMANIAM	Director	February 19, 2010
Chandramohan Subramaniam
/S/    THOMAS WEATHERFORD	Director	February 19, 2010
Thomas Weatherford

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EXHIBIT INDEX

Exhibit Number	Description
*3.1	Amended and Restated Certificate of Incorporation of the Registrant
**3.2	Amended and Restated Bylaws of the Registrant
#4.1	Form of the Registrant’s Common Stock Certificate
#10.1	Form of Director and Executive Officer Indemnification Agreement
#10.2	1998 Stock Plan and forms of agreement thereunder
#10.3	2005 Equity Incentive Plan and form of agreement thereunder
#10.4	2005 Employee Stock Purchase Plan and form of agreement thereunder
#10.5	Employment Offer Letter between the Registrant and Richard K. Williams dated September 24, 1998
#10.6	Employment Offer Letter between the Registrant and Brian R. McDonald dated June 21, 2004
#10.7	Office Lease between the Registrant and Wolfe Road Investments No. 3, a partnership, dated August 4, 2004
#10.8	Amended and Restated Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated July 15, 2005
#10.9†	Joint Development Agreement between the Registrant and GEM Services, Inc. dated June 1, 1999
#10.10	Form of Warrant to Purchase Shares of Series E Preferred Stock
#10.11	Form of Warrant to Purchase Shares of Common Stock
#10.12†	Wafer Foundry Agreement, as amended, between the Registrant and HYNIX Semiconductor America dated June 4, 2002
#10.12.1	Amendment dated effective May 1, 2005 to Wafer Foundry Agreement between the Registrant and HYNIX Semiconductor America dated June 4, 2002
#10.13	Amended and Restated Investors’ Rights Agreement dated October 27, 2003
#10.13.1	Amendment to Amended and Restated Investors’ Rights Agreement dated as of May 18, 2005
#10.14	Amended and Restated Voting Agreement dated October 27, 2003
#10.15	Form of Change of Control Agreement (Chief Executive Officer and Chief Financial Officer)
#10.16	Form of Change of Control Agreement (Vice Presidents)
##10.17	Sublease between Sandisk Corp. and Advanced Analogic Tech. Inc.
###10.18	Settlement Agreement and Release by and between Parviz Ghaffaripour and Advanced Analogic Technologies, Inc., dated July 30, 2008
21.1	Subsidiaries of the Registrant
23.1	Consent of Deloitte & Touche LLP, independent registered public accounting firm
24.1	Power of Attorney (see signature page)
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Exhibit Number	Description
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
***32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Incorporated by reference to the same number exhibit filed with the Registrant’s Registration Statement on Form S-1 (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

* Incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-1 Registration Statement (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

** Incorporated by reference to Exhibit 3.4 of the Registrant’s Form S-1 Registration Statement (Registration No. 333-123798), declared effective by the Securities and Exchange Commission on August 3, 2005.

## Incorporated by reference to Exhibit 10.17 of the Registrant’s Current Report on Form 8-K filed on June 25, 2007.

### Incorporated by reference to Exhibit 10.18 of the Registrant’s Current Report on Form 8-K filed on August 1, 2008.

*** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

† Confidential treatment has been granted for portions of this exhibit.

82