Good day everyone and welcome to the fourth quarter and yearend 2008 financial results conference call for Power Integration. Today’s conference is being recorded. Now, at this time, it is my pleasure to turn the conference over to Mr. Joe Shiffler. Please go ahead, sir.

Thank you, and good afternoon. I am Joe Shiffler, Director of IR and Corporate Communications for Power Integrations. With me today are Balu Balakrishnan, President and CEO of Power Integrations, and Bill Roeschlein, our CFO. During today’s call we will make reference to financial measures that are not calculated according to Generally Accepted Accounting Principles. Please refer to today’s press release for an explanation of our reasons for using such non-GAAP measures as well as tables reconciling these measures to our GAAP results. Also our discussion today, including the Q&A session, will include forward-looking statements reflecting management’s current forecast of certain aspects of the Company’s future business. Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, anticipate, suggest, project, forecast, and similar expressions that look toward future events or performance. Forward-looking statements are based on current information that is, by its nature, dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and under the caption Item 1A, Risk Factors, in part 2 of our Form 10-Q filed on November 7, 2008. Lastly this conference call is the property of Power Integrations, and any recording or rebroadcast of this conference call is expressly prohibited without the consent of Power Integrations. With that, I will turn the call over to Balu.

Thank you, Joe, and good afternoon. Obviously the impact of economic downturn is on everyone’s minds. So, I will begin with an update on recent trends. As you may recall, we had already seen a significant slowdown in orders at the time of October conference call and projected that steeper fourth quarter revenue decline than many of our peers did at that time. That forecast proved accurate and revenues came in near the bit point of an original projection at $42.4 million, down 21% sequentially. With distributors and end customers reducing inventories, bookings declined at a faster rate than revenue. Compared to soft October bookings, orders dropped sharply in November before recovering slightly in December. In total, bookings for the quarter were down more than 50% from the third quarter. As a result, we enter January with a backlog nearly 50% lower than the prior quarter. January bookings increased from December marking the second straight month of improvement but remained below October level. Forecasting of the first quarter revenue is exceptionally difficult due to the combination of lower backlog, the Asian holidays and the general uncertainty of the economic climate. Our expectation at this point is that our first quarter revenues will be between $32 million and $36 million and sequential decline of 15% to 25%. We began the quarter with about 30% of our bookings needed to reach the midpoint of the range and including turns orders received thus far in the quarter; we have approximately 65% of the bookings we need to reach the midpoint. As we navigate this downturn, we are working to strike an appropriate balance between near-term profitability and longer term growth. Setting aside patent litigation cost, we have reduced our non-GAAP operating expense run rate by nearly $2 million per quarter since the second…

Thanks, Balu, and good afternoon. Before I run through the fourth quarter results, I will touch on a few items that affected the quarter and will impact our financial model going forward. First, as Balu mentioned, we are returning a considerable amount of cash to stockholders while reducing our share count and option overhang in the process. In the fourth quarter, we utilize $53 million to buyback 2.9 million shares of our stock or about 10% of total shares outstanding. We also paid a dividend of $2.05 per share on December 31st. For the full year, we bought back 4 million shares for $82 million. At December 31st, we had 27.5 million shares outstanding, down from 30.1 million at the end of 2007 with an average diluted share count for the fourth quarter with 29.8 million, down from 32.6 million for the third quarter. Expect our share count to fall further in the first quarter as the Q4 repurchases are fully reflected in the average and also reflecting continued buyback activity this quarter. At yearend, we had about $18 million remaining on our current repurchase authorization and we have used about 2/3 of that amount thus far in the first quarter. Second, we executed a voluntary tender offer in December through which we purchase 2.4 million out of the money employee stock option for $9 million in cash. All of the options were purchased at prices below their current actual value. We believe these options offered limited retention value at a high cost in terms of option expense on the income statement. As a result of the tender offer, the compensation expenses that would have been recognized over the remaining vesting period of the tendered option were accelerated into the fourth quarter resulting in noncash charges of $19.3 million on…

Thanks, Bill. Since there are some other calls starting shortly, I would to ask everyone to limit themselves to one question first time around so we can get to as many people as possible to the top of the hour. We will be happy to come back for a second round as time permits. Operator, would you please give the Q&A instructions?

(Operator instructions) Your first question comes from the line of Tore Svanberg - Thomas Wiesel Partners.

Balu, could you talk a little bit about your notebook adaptor business? I know that is a new business opportunity for you and it is probably quite a small percentage of revenue but as we walk throughout 2009, can you just talk about how you expect that business to run?

Yes. We have several designs ongoing right now. They are all, I would say tier-two type of design and we are optimistic that we will get some revenue in the second half of 2009.

And Joe, can I do a quick follow up?

Yes, go ahead.

With the test being outsourced more, what type of saving could that potentially gives you on a quarterly basis or has that saving already occurred?

We factored in the savings into the guidance that we gave on the call already.

Your next question comes from the line of Ross Seymore - Deutsche Bank Securities.

Could you clarify a bit on the ‘churns required’ commentary you gave and then how much you need as of today, I guess?

Yes, Ross. This is Joe. The churns requirement for full quarter is just under 70% and the other comment we gave was that it includes the churns that we have gotten already were up to 65% booked to the midpoint of the guidance.

Your next question comes from the line of Steven Smigie - Raymond James.

So, I was hoping you guys could talk a little bit about how you think Chinese New Year has impacted orders here? How much shutdowns there may have affected standard ordering patterns and what you think maybe will start to happen next week and the following weeks as we get pass that?

Well, the Chinese New Year was the last week of January and as we normally expect, there was very little in terms of bookings from Asia and of course, this week, we are out of the Chinese New Year and we have seen the bookings pick up. So, we have passed that.

Okay because my understanding was there were a lot of shutdowns that were still going to be in place this week and it is really next week that you can see probably the full force of orders coming back.

Well, there are only a couple of days this week but if I look at those today, we think it will come back to the type of bookings we had before the Chinese New Year.

Your next question comes from the line of Vernon Essi - Needham & Company, LLC. Vernon Essi - Needham & Company, LLC: Just a question on the balance sheet, I do not know if you clarified this at all, Bill but there is a new item there on note receivable. Could you discuss that?

Sure. That is the re-class from long term to short term of VMD or X-FAB note receivable which has been on our balance sheet now for a couple of years.

Your next question comes from the line of Auguste Richard - Piper Jaffray.

Just to get a better handle on the gross margins over the next couple of quarters, it looks like they will come down about 300 basis points this quarter and then a couple of hundred more next. Could you just talk again about the yen increased pricing pressure and other effects under absorption and the magnitude of each in those two quarters?

Sure. The yen, as most of you know, a 10 yen change has approximately one point impact, 100 basis impact on the gross margin and as far as the production levels going down, we estimated that that is going to be two points but it take some time to move through the inventory and so you will see a little bit of it this quarter and you will see the full impact next quarter because of the flows through the inventory.

Got it and the under absorption..? Oh, I am sorry, you have that and then just little quickly, litigation expenses, is that going to be something that is going to be flat going forward or is there going to be, how should we think about those expenses?

Well, that is the hardest one for us to estimate. The best we can come up is approximately $6 million for the year and we have said that $1 million to $1.5 million in the first quarter and that is going to fluctuate quite a bit from quarter to quarter.

Your next question comes from the line of Sumit Dhanda - Merrill Lynch.

Balu or Bill, a quick clarification as it relates to the relative impact of the lower production versus the stronger yen. On the yen front, is the full impact of the 89 yen to a dollar reflected by Q2 given the lag between the strengthening of the yen versus the impact on your actual cost line? Is it fair to assume that the bulk of the impact in Q2 is production related versus the stronger yen?

Well the bulk of the yen should be fully reflected by June to be sure but that would imply that there could be some spillover into Q3 because as we are now paying 89 yen here in December, it will probably take six months to have sell-through on that. So, I would see it being a Q2 or Q3 issue.

And as the impact, the two point decline in Q2, how does it breakout between lower production and stronger yen?

It is more the yen is probably 1.5 and 0.5 production. We are seeing the impact of lower production levels sooner and we are going to see the impact of the yen so bookings, we have already seen that impact on production but booked much a lot of it.

Your next question comes from the line of Christopher Longiaru - Sidoti & Company, LLC. Christopher Longiaru - Sidoti & Company, LLC: My question is about, just talking about scaling back the in-house test and the reduction of headcount. Has that started yet or has that been done or is that something you are planning to do and what is the impact of that?

It has been done and so we expect that it is going to be reflected in the current quarter, the severance related to that and we take that into our guidance that we gave you for the next couple of quarters. Christopher Longiaru - Sidoti & Company, LLC: Okay and then only, I think, can you give the share count for the next quarter, if you could?

The share count should be about 28 million shares… Christopher Longiaru - Sidoti & Company, LLC: Diluted basis.

On a diluted basis. When everything is said and done, the average is, it should average down to about 27 for the year though.

(Operator's instruction) You have a follow up question from the line of Ross Seymore - Deutsche Bank Securities.

Have you seen any changes in the pricing environment outside of the mix implications you talked about in your kind of spot ASP in the quarter?

Yes, we are definitely seeing a pricing pressure because of the slowdown and we were expecting that and we are reacting to that as we speak.

And you did not really mention the ASPs as part of the gross margin pressure, is that something that could be incremental to that or is that already included in your guidance?

Well the ASP reduction in Q4 was primarily due to the mix change because of the cell phones that were unexpectedly stronger relative to other market. But going forward, there will be impact due to pricing pressure but historically, we have been able to offset that by cost reductions. So we are doing cost reductions. So, the guidance we gave you is a combination of all of those things as the cost reduction that we would last to some of the impact of the pricing pressure, the lower production and yen exchange rate.

One quick follow up. That cell phone business doing stronger than you expected, what caused that?

Well, two of our large OEMs did better than we thought. One of them was ramping up. We knew that they were ramping up but they ramped up to much higher levels that we expected. We are not quite sure whether that is going to be a run rate issue or it is just a one quarter benefit. The other OEM also did better than we expected. They actually grew slightly from Q3.

You have a follow up question from the line of Tore Svanberg - Thomas Wiesel Partners.

Yes, Balu, just a follow up on the joint rating scale for the top handset manufacturers that was announced, has that already started to have an impact on your design activity?

It is definitely impacting our design activity. It obviously has had an impact on revenue. We have at least two of our largest, actually, two of our largest OEMs in cell phone asking for the five stars back on their new design.

Okay then lastly on the new PLC product, I think you mentioned revenues in 2010 but could start to see already some revenues here in 2009, second half maybe?

We may get very slight revenue in the fourth quarter maybe but really it will not be material.

You have a follow up question from the line of Auguste Richard - Piper Jaffray.

Again in looking at past Chinese New Year, do you have any sense as to whether production rate will start up? Have you gotten any indications from your customers?

I do not think we have much of a visibility. What we do see is that a pick up of the bookings since the beginning of this year. It is still on a strong, January was not as strong as October but as you can remember, we lost almost one full week in January to the Asian holiday. So it is hard to do the comparison. So, February will really tell us whether the pick up has, if it is real essentially and as I said, we only have couple of days in February and if they have come back to levels of booking that we saw in January but that is only two or three days. That is very hard to tell whether that is the trend.

Okay and if you have a full January, would that be similar to October?

Bookings had continued for that off week with similar rate to previous weeks that probably would have been in the ball park of October.

You have a follow up question from the line of Sumit Dhanda - Merrill Lynch.

Balu, just a clarification on what you said about backlog entering the quarter and where you are in terms of how much you have booked versus the midpoint of guidance, so you enter 30% booked within a month or so or five weeks, 65% booked. If you sustain this trajectory, does this imply that you are really ahead of plan or am I misinterpreting what you are saying here?

Well, we have to remember that bookings in January almost entirely within the quarter. The bookings in February will be partly in the quarter and partly in the next quarter. So, we are taking all of those into account when we gave you the guidance of $32 million to $36 million. Of course there is a lot of uncertainty. We just do not know how February and March will turn out. Can it be better than that? Yes. Can it be worse than that? Yes. This is the best guidance we have given all the data we have.

Okay and then any update on incremental share recapture at Samsung or had that reached the status quo at this point?

That is a good question. We think that our customer will supply its chargers to Samsung. That is larger share than they were anticipating in the fourth quarter. We do not know whether that is a permanent share gain or it is just that that quarter, they were able to get more share and we will know better by the end of this quarter but that will continue and I would say that to best we can estimate at this time, the share is in the 30% to 40%. If Q4 is the actual run rate, it will be in the 30% to 40%.

And that does conclude our question-and-answer session. This time, I would like to turn conference back over to you Mr. Shiffler for any additional or closing remarks.

Okay, thank you. That concludes the call. There will be a webcast replay of the call available on the Investor Info section of our website which is Investors.PowerInt.com. Thanks for listening and good afternoon.

That does conclude today's conference. Thank you for your participation. You may disconnect at this time.