Power Integrations 8K Reports Record Revenues | POWI 2 Aug 11

Exhibit 99.1

Power Integrations Reports Record Revenues

Quarterly sales topped $80 million for the first time

Company generated $35 million of cash flow from operations

SAN JOSE, Calif.--(BUSINESS WIRE)--August 2, 2011--Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended June 30, 2011. Net revenues for the second quarter were $80.2 million, up four percent from the prior quarter and up slightly compared with the second quarter of 2010. Net income was $10.6 million or $0.35 per diluted share, compared with $0.33 per diluted share in the prior quarter and $0.53 per diluted share in the second quarter of 2010. Gross margin for the second quarter was 46.9 percent; operating margin was 16.4 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of the fair-value write-up of acquired inventory and acquisition-related intangible assets, and the tax effects of these items. Non-GAAP net income for the quarter was $13.1 million or $0.43 per diluted share, compared with $0.40 per diluted share in the prior quarter and $0.60 per diluted share in the second quarter of 2010. Non-GAAP gross margin for the second quarter was 47.5 percent; non-GAAP operating margin was 19.8 percent.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We surpassed $80 million in quarterly sales for the first time in our history, thanks in part to strong growth in LED lighting applications and the continued ramp of our new high-power products. We reduced inventories by nearly 15 percent during the quarter and generated $35 million of cash flow from operations.”

Balakrishnan continued: “We have also achieved significant cost reductions to help offset rising input costs — particularly higher wafer costs due to the decline of the dollar versus the Japanese yen, as well as higher commodity prices — which have impacted our profitability in recent quarters. We expect our gross margin to increase meaningfully in the fourth quarter as lower-cost inventory begins to flow through our results.”

Balakrishnan concluded: “While design activity remains healthy and our growth initiatives are on track, we have not yet seen evidence of a typical seasonal upturn in demand. Meanwhile, several of our largest end customers in the mobile-phone market have recently announced lower-than-expected sales. Based on these factors, we expect our third-quarter revenues to be between $74 million and $80 million. However, we are well positioned to respond to increased demand should it materialize.”

Additional Highlights

Inventories at quarter-end were $54.1 million, a decrease of $8.9 million during the quarter.
Power Integrations repurchased approximately 120,000 shares of its common stock during the second quarter for a total of $4.4 million. The company had $45.6 million remaining on its current repurchase authorization at quarter-end.
The company paid a quarterly dividend of $0.05 per share on June 30, 2011. The next dividend of $0.05 per share will be paid on September 30, 2011 to stockholders of record as of August 31.
Power Integrations received 14 U.S. patents and 42 foreign patents during the quarter, and had a total of 424 U.S. patents and 267 foreign patents as of June 30, 2011.

Financial Outlook for Third Quarter of 2011

The company issued the following forecast for the third quarter of 2011:

Revenues are expected to be between $74 million and $80 million;
Gross margins are expected to be flat to slightly lower compared with the second quarter;
Operating expenses:
- GAAP: $25.2 million, plus or minus $0.5 million;
- Non-GAAP: $22.5 million, plus or minus $0.5 million (excluding approximately $2.6 million of stock-based compensation expenses and less than $0.1 million of amortization expense related to acquisition-related intangible assets).

Conference Call Today at 1:30 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:30 p.m. Pacific time. Members of the investment community can join the call by dialing 1-877-303-9795 from within the United States or 1-631-291-4581 from outside the U.S. The call will be available via a live and archived webcast on the investor section of the company's website, http://investors.powerint.com.

About Power Integrations

Power Integrations is the leading supplier of high-voltage integrated circuits used in energy-efficient power conversion. The company's innovative technology enables compact, energy-efficient power supplies in a wide range of electronic products, in AC-DC, DC-DC and LED lighting applications. Since its introduction in 1998, Power Integrations' EcoSmart™ energy-efficiency technology has saved an estimated $4.9 billion of standby energy waste and prevented millions of tons of CO₂ emissions. The company's Green Room web site provides a wealth of information about "energy vampires" and the issue of standby energy waste, along with a comprehensive guide to energy-efficiency standards around the world. Reflecting the environmental benefits of EcoSmart technology, Power Integrations’ stock is included in The Cleantech Index^® and the NASDAQ^® Clean Edge^® Green Energy Index. For more information, please visit www.powerint.com.

Note Regarding Use of Non-GAAP Financial Measures

In addition to the company's consolidated financial statements, which are presented according to GAAP, the company provides certain non-GAAP financial information that excludes stock-based compensation expenses recorded under Accounting Standard Codification 718-10, certain acquisition-related expenses such as the amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, and the tax effects of these items. The company uses these non-GAAP measures in its own financial and operational decision-making processes and, with respect to one measure, in setting performance targets for employee-compensation purposes. Further, the company believes that these non-GAAP measures offer an important analytical tool to help investors understand the company’s core operating results and trends, and to facilitate comparability with the operating results of other companies that provide similar non-GAAP measures. These non-GAAP measures have certain limitations as analytical tools and are not meant to be considered in isolation or as a substitute for GAAP financial information. For example, stock-based compensation is an important component of the company’s compensation mix, and will continue to result in significant expenses in the company’s GAAP results for the foreseeable future, but is not reflected in the non-GAAP measures. Also, other companies, including companies in Power Integrations’ industry, may calculate non-GAAP financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company’s projected third-quarter 2011 financial performance and its expectation that its gross margin will improve substantially in the fourth quarter are forward-looking statements reflecting management's current forecast. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt changes. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions that may impact the level of demand for the company’s products; potential changes and shifts in customer demand away from end products that utilize the company's integrated circuits to end products that do not incorporate the company's products; the company's ability to maintain and establish strategic relationships; the effects of competition; the risks inherent in the development and delivery of complex technologies; the outcome and cost of patent litigation; the company's ability to attract, retain and motivate qualified personnel; the emergence of new markets for the company's products and services; the company's ability to compete in those markets based on timeliness, cost and market demand; unforeseen costs and expenses; unfavorable fluctuations in component costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen; and the challenges inherent in integrating acquired businesses. In addition, new product introductions and design wins are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the marketplace, including product development delays and defects and market acceptance of the new products. These and other risk factors are more fully explained under the caption “Risk Factors” in the company's most recent Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on May 5, 2011. The company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by the rules and regulations of the SEC.

Power Integrations, EcoSmart, and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc. All other trademarks are property of their respective owners.

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)


	Three Months Ended									Six Months Ended
	June 30, 2011			March 31, 2011			June 30, 2010			June 30, 2011			June 30, 2010
NET REVENUES	$	80,184		$	76,762		$	79,858		$	156,946		$	151,365

COST OF REVENUES		42,558			40,339			38,369			82,897			73,954

GROSS PROFIT		37,626			36,423			41,489			74,049			77,411

OPERATING EXPENSES:
Research and development		10,195			10,023			8,674			20,218			16,785
Sales and marketing		8,104			8,248			7,527			16,352			14,447
General and administrative		6,141			6,475			6,465			12,616			12,478
Total operating expenses		24,440			24,746			22,666			49,186			43,710

INCOME FROM OPERATIONS		13,186			11,677			18,823			24,863			33,701

OTHER INCOME, net		461			442			471			903			965

INCOME BEFORE PROVISION FOR INCOME TAXES		13,647			12,119			19,294			25,766			34,666

PROVISION FOR INCOME TAXES		3,048			2,265			3,707			5,313			6,765

NET INCOME	$	10,599		$	9,854		$	15,587		$	20,453		$	27,901

EARNINGS PER SHARE:
Basic	$	0.37		$	0.34		$	0.56		$	0.71		$	1.01
Diluted	$	0.35		$	0.33		$	0.53		$	0.68		$	0.95

SHARES USED IN PER-SHARE CALCULATION:
Basic		28,938			28,628			27,844			28,784			27,658
Diluted		30,346			30,187			29,535			30,271			29,460


SUPPLEMENTAL INFORMATION:

Stock-based compensation expenses included in:
Cost of revenues	$	216		$	239		$	173		$	455		$	330
Research and development		980			811			929			1,791			1,656
Sales and marketing		543			667			639			1,210			1,049
General and administrative		705			787			775			1,492			1,508
Total stock-based compensation expense	$	2,444		$	2,504		$	2,516		$	4,948		$	4,543

Cost of revenues includes:
Amortization of write-up of acquired inventory	$	148		$	62		$	-		$	210		$	-
Amortization of acquisition-related intangible assets	$	85		$	85		$	41		$	170		$	82

Operating expenses include:
Amortization of acquisition-related intangible assets	$	28		$	28		$	-		$	56		$	-
Patent-litigation expenses	$	1,210		$	1,257		$	1,516		$	2,467		$	2,603

REVENUE MIX BY PRODUCT FAMILY
TOPSwitch		24	%		23	%		25	%		24	%		25	%
TinySwitch		31	%		35	%		39	%		33	%		39	%
LinkSwitch		43	%		40	%		35	%		41	%		35	%
Other		2	%		2	%		1	%		2	%		1	%

REVENUE MIX BY END MARKET
Communications		28	%		32	%		28	%		30	%		30	%
Computer		13	%		11	%		12	%		12	%		12	%
Consumer		36	%		37	%		40	%		36	%		38	%
Industrial		23	%		20	%		20	%		22	%		20	%

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)

		Three Months Ended									Six Months Ended
		June 30, 2011			March 31, 2011			June 30, 2010			June 30, 2011			June 30, 2010
RECONCILIATION OF GROSS PROFIT
GAAP gross profit		$	37,626		$	36,423		$	41,489		$	74,049		$	77,411
	GAAP gross profit margin		46.9	%		47.4	%		52.0	%		47.2	%		51.1	%

Stock-based compensation included in cost of revenues			216			239			173			455			330
Amortization of write-up of acquired inventory			148			62			-			210			-
Amortization of acquisition-related intangible assets			85			85			41			170			82

Non-GAAP gross profit		$	38,075		$	36,809		$	41,703		$	74,884		$	77,823
	Non-GAAP gross profit margin		47.5	%		48.0	%		52.2	%		47.7	%		51.4	%


RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses		$	24,440		$	24,746		$	22,666		$	49,186		$	43,710

Less:Stock-based compensation expense included in operating expenses
	Research and development		980			811			929			1,791			1,656
	Sales and marketing		543			667			639			1,210			1,049
	General and administrative		705			787			775			1,492			1,508
	Total		2,228			2,265			2,343			4,493			4,213

	Amortization of acquisition-related intangible assets		28			28			-			56			-

Non-GAAP operating expenses		$	22,184		$	22,453		$	20,323		$	44,637		$	39,497


RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations		$	13,186		$	11,677		$	18,823		$	24,863		$	33,701
	GAAP operating margin		16.4	%		15.2	%		23.6	%		15.8	%		22.3	%

Less:Total stock-based compensation			2,444			2,504			2,516			4,948			4,543
	Amortization of write-up of acquired inventory		148			62			-			210			-
	Amortization of acquisition-related intangible assets		113			113			41			226			82

Non-GAAP income from operations		$	15,891		$	14,356		$	21,380		$	30,247		$	38,326
	Non-GAAP operating margin		19.8	%		18.7	%		26.8	%		19.3	%		25.3	%


RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes		$	3,048		$	2,265		$	3,707		$	5,313		$	6,765
	GAAP effective tax rate		22.3	%		18.7	%		19.2	%		20.6	%		19.5	%

Tax effect of items excluded from non-GAAP results			(225	)		(404	)		(356	)		(629	)		(362	)

Non-GAAP provision for income taxes		$	3,273		$	2,669		$	4,063		$	5,942		$	7,127
	Non-GAAP effective tax rate		20.0	%		18.0	%		18.6	%		19.1	%		18.1	%


RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income		$	10,599		$	9,854		$	15,587		$	20,453		$	27,901

Adjustments to GAAP net income
	Stock-based compensation		2,444			2,504			2,516			4,948			4,543
	Amortization of write-up of acquired inventory		148			62			-			210			-
	Amortization of acquisition-related intangible assets		113			113			41			226			82
	Tax effect of items excluded from non-GAAP results		(225	)		(404	)		(356	)		(629	)		(362	)

Non-GAAP net income		$	13,079		$	12,129		$	17,788		$	25,208		$	32,164

Average shares outstanding for calculation of non-GAAP income per share (diluted)			30,346			30,187			29,535			30,271			29,460

Non-GAAP income per share (diluted)		$	0.43		$	0.40		$	0.60		$	0.83		$	1.09

GAAP income per share (diluted)		$	0.35		$	0.33		$	0.53		$	0.68		$	0.95

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)


	June 30, 2011		March 31, 2011		December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	170,494	$	137,694	$	155,667
Short-term investments		33,091		32,070		27,355
Accounts receivable		8,070		13,314		5,713
Inventories		54,069		63,004		62,077
Deferred tax assets		1,437		1,434		1,435
Prepaid expenses and other current assets		9,572		8,217		9,263
Total current assets		276,733		255,733		261,510

INVESTMENTS		30,043		36,815		31,760
PROPERTY AND EQUIPMENT, net		85,449		84,586		84,470
INTANGIBLE ASSETS, net		9,309		9,552		9,795
GOODWILL		14,826		14,826		14,826
DEFERRED TAX ASSETS		12,593		13,022		13,421
OTHER ASSETS		25,355		22,439		17,288
Total assets	$	454,308	$	436,973	$	433,070

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	14,173	$	13,932	$	20,291
Accrued payroll and related expenses		6,246		5,455		7,395
Income taxes payable		354		-		-
Deferred income on sales to distributors		11,199		10,951		12,221
Other accrued liabilities		2,367		2,918		9,548
Total current liabilities		34,339		33,256		49,455

LONG-TERM LIABILITIES
Income taxes payable		32,040		30,676		29,580

Total liabilities		66,379		63,932		79,035

STOCKHOLDERS' EQUITY:
Common stock		29		29		28
Additional paid-in capital		191,549		185,834		175,295
Accumulated translation adjustment		158		135		85
Retained earnings		196,193		187,043		178,627
Total stockholders' equity		387,929		373,041		354,035
Total liabilities stockholders' equity	$	454,308	$	436,973	$	433,070

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three Months Ended									Six Months Ended
	June 30, 2011			March 31, 2011			June 30, 2010			June 30, 2011			June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,599		$	9,854		$	15,587			20,453			27,901
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		3,790			3,682			3,029			7,472			5,800
Amortization of intangible assets		243			243			172			486			334
Gain on sale of property and equipment		(41	)		-			(362	)		(41	)		(349	)
Stock-based compensation expense		2,444			2,504			2,516			4,948			4,543
Amortization of premium on held-to-maturity investments		420			439			508			859			858
Deferred income taxes		427			399			(788	)		826			710
Increase (decrease) in accounts receivable and other allowances		15			22			(18	)		37			(18	)
Excess tax benefit from stock options exercised		(299	)		(398	)		285			(697	)		(891	)
Tax benefit associated with employee stock plans		755			783			115			1,538			2,040
Change in operating assets and liabilities:
Accounts receivable		5,230			(7,622	)		9,322			(2,392	)		3,492
Inventories		8,879			(964	)		(4,275	)		7,915			(9,460	)
Prepaid expenses and other assets		1,613			1,435			4,234			3,048			3,562
Accounts payable		(1,352	)		(2,908	)		(1,842	)		(4,260	)		4,453
Taxes payable and other accrued liabilities		1,993			(525	)		3,596			1,468			3,006
Deferred income on sales to distributors		248			(1,269	)		3,008			(1,021	)		5,885
Net cash provided by operating activities		34,964			5,675			35,087			40,639			51,866

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(5,271	)		(7,248	)		(10,153	)		(12,519	)		(13,513	)
Proceeds from sale of property and equipment		2,249			-			1,415			2,249			1,415
Other assets		(808	)		-			-			(808	)		-
Acquisition		(13	)		(6,901	)		-			(6,914	)		-
Increase in financing lease receivables		(2,179	)		(5,642	)		-			(7,821	)		-
Collections of financing lease receivables		103			102			-			205			-
Notes to third parties		(3,000	)		-			(3,000	)		(3,000	)		(4,750	)
Purchases of held-to-maturity investments		-			(11,508	)		-			(11,508	)		(27,224	)
Proceeds from held-to-maturity investments		5,330			1,300			15,300			6,630			18,150
Net cash provided by (used in) investing activities		(3,589	)		(29,897	)		3,562			(33,486	)		(25,922	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock		6,958			7,288			5,428			14,246			15,463
Repurchase of common stock		(4,384	)		-			(7,922	)		(4,384	)		(13,960	)
Retirement of performance shares for income tax withholding		-			-			-			-			(769	)
Payments of dividends to stockholders		(1,448	)		(1,437	)		(1,390	)		(2,885	)		(2,768	)
Excess tax benefit from stock options exercised		299			398			(285	)		697			891
Net cash provided by (used in) financing activities		1,425			6,249			(4,169	)		7,674			(1,143	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		32,800			(17,973	)		34,480			14,827			24,801

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		137,694			155,667			125,295			155,667			134,974

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	170,494		$	137,694		$	159,775		$	170,494		$	159,775

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Unpaid property and equipment, net	$	3,510		$	1,917		$	(1,207	)	$	3,510		$	1,711

CONTACT:
Power Integrations, Inc.
Joe Shiffler, 408-414-8528
jshiffler@powerint.com

Power Integrations (POWI) 8-KPower Integrations Reports Record Revenues