The net revenues for the quarter were $42.4 million, a decrease of 19% from $52.7 million in the fourth quarter 2007, and down 21% compared with $53.8 million in the prior quarter. Under generally accepted accounting principles (GAAP), fourth-quarter gross margin was 44.7%, including impacts of about five percentage points from stock-based compensation expenses and about two percentage points from an increase in the company’s inventory reserves. The company reported a GAAP net loss for the quarter of $20.7 million, or $0.72 per share, compared with net income of $6.6 million or $0.20 per diluted share in the year-ago quarter.

The company’s fourth-quarter results include non-cash stock-based compensation expenses of $22.9 million, including $19.3 million in accelerated expenses arising from the repurchase of employee stock options via a tender offer completed in December 2008. Options to purchase 2.4 million shares of the company’s common stock were repurchased by the company for $9.0 million. The accelerated expenses would otherwise have been recognized over the remaining vesting periods of the tendered options. Also included in the company’s results was a non-cash charge of $2.0 million reflecting the impairment of certain intangible assets.

Along with its GAAP results, the company offered certain non-GAAP measures that exclude the above-mentioned stock-based compensation expenses and asset-impairment charge, as well as the related tax effects. Fourth-quarter non-GAAP gross margin was 49.9%, including the above-mentioned impact of about two percentage points from an increase in the company’s inventory reserves. The non-GAAP net income was $4.6 million, or $0.15 per diluted share, compared with $12.4 million or $0.38 per share in the fourth quarter of 2007.

The company ended the quarter with $174 million in cash, cash equivalents and short-term investments, down $51 million from the prior quarter and $30 million from the end of the prior year due primarily to share repurchases. The company repurchased 2.9 million shares during the quarter and 4 million shares during the year for $53 million and $82 million, respectively. The company had 27.5 million shares outstanding as of December 31, 2008, compared with 30.1 million at the end of 2007. As of December 31, 2008, the company had about $18 million remaining in the $50 million stock-repurchase program announced in October 2008.

The global economic downturn has had a significant impact on demand in the power supply market, and business conditions remain challenging and unpredictable, said Balu Balakrishnan, president and chief executive officer of Power Integrations. In response, we are taking steps designed to achieve continued profitability and cash-flow generation, including a number of expense-reduction measures implemented over the past several months.”

Notwithstanding the difficult economic climate, we believe we are well positioned to succeed competitively in the power supply market in 2009, added Balakrishnan. We introduced a number of innovative new products in 2008, making us even more competitive in our core low-power market while also expanding our addressable market to include high-power AC-DC power supplies.”

Meanwhile, as policymakers and consumers seek cost-effective ways to reduce carbon emissions, we believe our EcoSmart(r) technology is the right technology at the right time, Balakrishnan noted. We estimate that EcoSmart technology saved about five billion kilowatt-hours of standby power in 2008, averting millions of tons of CO2 emissions and saving consumers and businesses around the world up to half a billion dollars on their energy bills.

2008 Full-Year Results:

The non-GAAP net income was $36.8 million or $1.16 per diluted share, compared with $40.8 million or $1.31 per diluted share in 2007. The non-GAAP results for 2007 exclude stock-based compensation expenses, an in-process research and development charge recognized in conjunction with the acquisition of Potentia Semiconductor in December 2007, and the related tax effects.

First-Quarter Outlook:

The company anticipates its revenues for the first quarter 2009 to be down 15 to 25% compared to the fourth quarter. The GAAP gross margin is anticipated to be between 49% and 51%, including an impact of 50 basis points from the stock-based compensation. The first-quarter operating expenses are anticipated to be between $18 million and $19 million, including about $2 million of stock-based compensation expenses and patent-litigation expenses between $1.0 million and $1.5 million.