Power Integrations Announces Third-Quarter Financial Results

Net Revenues Grew 8 Percent Year-over-Year to a Record
$53.8 Million; GAAP Gross Margin Expanded to 54.2 Percent

Company's Board Initiates Quarterly Dividend, Authorizes
Additional $50 Million for Share Repurchases
SAN JOSE, Calif., Oct. 23, 2008 (GLOBE NEWSWIRE) -- Power Integrations
(Nasdaq:POWI), the leader in high-voltage integrated circuits for
energy-efficient power conversion, today announced financial results for the
quarter ended September 30, 2008. The company's net revenues for the quarter
were $53.8 million, up 8 percent compared with $49.8 million in the third
quarter of 2007, and up slightly compared with $53.6 million in the second
quarter of 2008.

Third-quarter gross margin under generally accepted accounting principles (GAAP)
was 54.2 percent, compared with 53.0 percent in the third quarter of 2007 and
53.7 percent in the second quarter of 2008. GAAP net income was $7.6 million, or
$0.23 per diluted share, compared with $6.8 million or $0.22 per diluted share
in the year-ago quarter, and flat compared with the second quarter of 2008.

On a non-GAAP basis, third-quarter gross margin was 54.9 percent, compared with
53.7 percent in the third quarter of 2007 and 54.6 percent in the second quarter
of 2008. Non-GAAP net income was $11.0 million, or $0.34 per diluted share,
compared with non-GAAP net income of $10.1 million or $0.32 per share in the
year-ago quarter and $10.7 million or $0.33 per share in the second quarter of
2008. Non-GAAP financial measures exclude stock-based compensation expenses and
the related tax effects.

Cash flow from operations totaled $6.6 million for the quarter. The company
ended the quarter with $225.3 million in cash and investments, a decrease of
$12.2 million during the quarter. The company repurchased 788,400 shares during
the quarter for a total of $20.2 million. Including purchases made through
October 22, the company has repurchased a total of 1.9 million shares for
approximately $45 million since initiating a $50 million repurchase program in
February 2008.

"The slowdown that began for us in May persisted through the third quarter, and
the seasonal ramp that we typically expect did not materialize," said Balu
Balakrishnan, president and CEO of Power Integrations. "Consequently, revenues
grew only slightly on a sequential basis in the third quarter. Orders have
slowed further in October, and as a result we expect a significant decline in
revenues in the fourth quarter.

"In the face of a very challenging macro environment, we're staying focused on
the factors that we can affect - winning designs, developing new products,
controlling costs and expenses, and prudently deploying our cash," continued
Balakrishnan. "Design activity has continued unabated, and we had a record
quarter in terms of design wins. Tightening energy-efficiency specifications and
rising labor costs are working in our favor, and we continue to invest in
emerging opportunities such as high-power products and LED lighting.

"Meanwhile, our gross margin expanded in the third quarter, and we reduced
operating expenses significantly compared to the second quarter," added
Balakrishnan. "We've also put our strong balance sheet to work with a
substantial share repurchase and the initiation of a quarterly dividend."

Revenue mix by end market for the third quarter was 31 percent consumer, 26
percent communications, 21 percent computer, 15 percent industrial and 7 percent
other. By product family, revenue mix was 44 percent TinySwitch(r), 26 percent
TOPSwitch(r), 28 percent LinkSwitch(r) and 2 percent DPA-Switch(r).

Additional Highlights

* The company's board of directors has authorized the use of
an additional $50 million for share repurchases. The company's
board has also declared a quarterly dividend of 2.5 cents per
share, with the first quarterly dividend payable on December 31,
2008 to shareholders of record as of November 28.

* In September, the U.S. District Court for the District of
Delaware ruled that all four patents asserted by Power
Integrations in its 2004 patent-infringement lawsuit against
Fairchild Semiconductor are enforceable. Delaware juries had
earlier found the four patents to be valid and willfully
infringed, and Power Integrations has been awarded approximately
$34 million in damages. The company has requested an injunction
against the infringing parts, as well as enhanced damages based
on the jury's finding of willful infringement.

* Power Integrations received 8 U.S. patents during the third
quarter. The company had a total of 235 U.S. patents and 103
foreign patents as of September 30, 2008.
Fourth-Quarter Outlook

The company expects its revenues for the fourth quarter of 2008 to be down 15 to
25 percent compared to the third quarter. GAAP gross margin is expected to be
between 53 percent and 54 percent, including an impact of approximately one
percentage point from stock-based compensation. Fourth-quarter GAAP operating
expenses are expected to be approximately flat compared to the third quarter,
and are expected to include approximately $3.5 million of stock-based
compensation expenses and $1 million of expenses related to patent litigation.

Conference Call at 1:30 pm Pacific Time

Power Integrations management will hold a conference call today at 1:30 pm PDT.
Members of the investment community can access the call by dialing 877-741-4241
from within the U.S., or 719-325-4766 from outside the U.S. A telephonic replay
will be available for 48 hours following the conclusion of the call by dialing
888-203-1112 (U.S.) or 719-457-0820 (non-U.S.) The replay access code is
3001343. The call will also 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, Inc. is the leading supplier of high-voltage analog
integrated circuits used in power conversion. The company's breakthrough
integrated-circuit technology enables compact, energy-efficient power supplies
in a wide range of electronic products, in AC-DC, DC-DC and LED lighting
applications. The company's EcoSmart(r) energy-efficiency technology, which
dramatically reduces energy waste, has saved consumers and businesses around the
world more than an estimated $3 billion on their electricity bills since its
introduction in 1998. Reflecting the environmental benefits of EcoSmart
technology, the company's stock is included in clean-tech stock indices
sponsored by Nasdaq (Nasdaq:CELS) and the American Stock Exchange (AMEX:CTIUS).
For more information, visit the company's website at 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 expenses (and the related tax effects thereof)
recorded under SFAS 123R, "Share-based Payment," which requires the recognition
of expenses relating to share-based payments such as stock options. 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 company's historical results and 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 other
companies in Power Integrations' industry, may calculate non-GAAP financial
measures differently than the company, limiting their usefulness as a
comparative measure.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company's projected
fourth-quarter financial performance 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
management's forward-looking statements. These risks and uncertainties include,
but are not limited to: decreases in customer demand as a result of the current
credit and economic crisis; changes and shifts in customer demand away from
products that utilize the company's integrated circuits to products that do not
incorporate the company's products; the company's ability to maintain and
establish strategic relationships; the effects of competition; customer reaction
to the effects of design wins may not be as the company expects; 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; and fluctuations in currency exchange
rates. 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 annual report on Form 10-K, filed with the Securities and
Exchange Commission on March 10, 2008, and in the company's most recent
quarterly report on Form 10-Q, filed on August 8, 2008. 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.

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

Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2008 2008 2007 2008 2007
-------- -------- -------- --------- ---------
NET REVENUES $ 53,816 $ 53,635 $ 49,806 $ 159,291 $ 138,363

COST OF REVENUES 24,659 24,829 23,409 73,206 62,897
-------- -------- -------- --------- ---------

GROSS PROFIT 29,157 28,806 26,397 86,085 75,466
-------- -------- -------- --------- ---------

OPERATING EXPENSES:
Research and
development 7,022 7,979 6,664 22,753 18,474
Sales and
marketing 7,058 7,852 6,976 22,329 19,488
General and
administrative 6,418 5,950 6,475 18,056 18,403
-------- -------- -------- --------- ---------
Total operating
expenses 20,498 21,781 20,115 63,138 56,365
-------- -------- -------- --------- ---------

INCOME FROM
OPERATIONS 8,659 7,025 6,282 22,947 19,101

OTHER INCOME, net 1,600 2,265 1,917 5,877 5,946

INCOME BEFORE
PROVISION FOR
INCOME TAXES 10,259 9,290 8,199 28,824 25,047

PROVISION FOR
INCOME TAXES 2,622 1,679 1,446 6,367 5,011
-------- -------- -------- --------- ---------

NET INCOME $ 7,637 $ 7,611 $ 6,753 $ 22,457 $ 20,036
======== ======== ======== ========= =========

EARNINGS PER SHARE
Basic $ 0.25 $ 0.25 $ 0.23 $ 0.74 $ 0.70
======== ======== ======== ========= =========
Diluted $ 0.23 $ 0.23 $ 0.22 $ 0.69 $ 0.65
======== ======== ======== ========= =========

SHARES USED IN PER-
SHARE CALCULATION:
Basic 30,791 30,529 28,789 30,515 28,708
Diluted 32,582 32,762 31,342 32,548 30,987

SUPPLEMENTAL
INFORMATION:

Stock-based
compensation
expenses included
in:
Cost of revenues $ 385 $ 467 $ 326 $ 1,277 $ 938
Research and
development 1,396 1,146 1,088 4,021 2,649
Sales and
marketing 1,243 1,305 1,452 3,886 3,317
General and
administrative 1,023 989 1,041 2,895 2,542
-------- -------- -------- --------- ---------
Total stock-
based
compensation
expense $ 4,048 $ 3,907 $ 3,907 $ 12,079 $ 9,446
======== ======== ======== ========= =========

Operating expenses
include the
following:
Patent-
litigation
expenses $ 735 $ 633 $ 574 $ 2,403 $ 1,683
======== ======== ======== ========= =========

REVENUE MIX BY
PRODUCT FAMILY
TOPSwitch 26% 26% 26% 25% 29%
TinySwitch 44% 45% 51% 45% 54%
LinkSwitch 28% 27% 21% 28% 15%
DPA-Switch 2% 2% 2% 2% 2%

REVENUE MIX BY END
MARKET
Communications 26% 26% 26% 27% 27%
Computer 21% 23% 23% 21% 21%
Consumer 31% 30% 29% 31% 30%
Industrial 15% 15% 15% 15% 15%
Other 7% 6% 7% 6% 7%
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)

Three Months Ended Nine Months Ended
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2008 2008 2007 2008 2007
-------- -------- -------- --------- ---------
RECONCILIATION OF
GROSS PROFIT
MARGIN
GAAP gross
profit $ 29,157 $ 28,806 $ 26,397 $ 86,085 $ 75,466
GAAP gross
profit margin 54.2% 53.7% 53.0% 54.0% 54.5%

Stock-based
compensation
expense
included in
cost of
revenues 385 467 326 1,277 938
-------- -------- -------- --------- ---------

Non-GAAP gross
profit
excluding stock-
based compensa-
tion 29,542 29,273 26,723 87,362 76,404
-------- -------- -------- --------- ---------
Non-GAAP gross
profit margin 54.9% 54.6% 53.7% 54.8% 55.2%

RECONCILIATION OF
OPERATING MARGIN
GAAP income from
operations $ 8,659 $ 7,025 $ 6,282 $ 22,947 $ 19,101
GAAP operating
margin 16.1% 13.1% 12.6% 14.4% 13.8%

Stock-based
compensation
expense included
in cost of
revenues and
operating
expenses:

Cost of
revenues 385 467 326 1,277 938
Research and
development 1,396 1,146 1,088 4,021 2,649
Sales and
marketing 1,243 1,305 1,452 3,886 3,317
General and
administrative 1,023 989 1,041 2,895 2,542
-------- -------- -------- --------- ---------
Total 4,048 3,907 3,907 12,079 9,446
-------- -------- -------- --------- ---------

Non-GAAP income
from operations
excluding stock-
based
compensation 12,707 10,932 10,189 35,026 28,547
-------- -------- -------- --------- ---------
Non-GAAP
operating
margin 23.6% 20.4% 20.5% 22.0% 20.6%

RECONCILIATION OF
NET INCOME PER
SHARE (DILUTED)
GAAP net income $ 7,637 $ 7,611 $ 6,753 $ 22,457 $ 20,036

Adjustments to
GAAP net income
Total stock-
based compen-
sation 4,048 3,907 3,907 12,079 9,446
Difference be-
tween GAAP
and non-GAAP
provision for
income taxes (727) (829) (512) (2,308) (1,042)

Non-GAAP net
income $ 10,958 $ 10,689 $ 10,148 $ 32,228 $ 28,440
-------- -------- -------- --------- ---------

Average shares
outstanding for
calculation of
non-GAAP income
per share
(diluted) 32,582 32,762 31,342 32,548 30,987
-------- -------- -------- --------- ---------
Non-GAAP income
per share
excluding stock-
based compensa-
tion (diluted) $ 0.34 $ 0.33 $ 0.32 $ 0.99 $ 0.92
======== ======== ======== ========= =========

Note on use of non-GAAP financial measures:

Effective January 1, 2006, Power Integrations adopted SFAS 123R,
which requires the company to recognize compensation expenses
relating to stock-based payments. In addition to the company's
consolidated financial statements, which are prepared according to
GAAP, the company provides certain non-GAAP financial information
that excludes expenses recognized under SFAS 123R, and the related
tax effects. 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 company's historical
results and 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.
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

September 30, December 31,
2008 2007
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 218,301 $ 118,353
Restricted cash 250 1,300
Short-term investments 6,992 85,821
Accounts receivable 16,974 14,221
Inventories 26,427 19,696
Deferred tax assets 1,367 1,259
Prepaid expenses and other current
assets 8,427 2,957
--------- ---------
Total current assets 278,738 243,607
--------- ---------

NOTE RECEIVABLE 10,000 10,000
PROPERTY AND EQUIPMENT, net 57,419 56,740
INTANGIBLE ASSETS, NET 5,958 6,731
GOODWILL 1,824 1,824
DEFERRED TAX ASSETS 14,660 15,544
OTHER ASSETS 180 653
--------- ---------
Total assets $ 368,779 $ 335,099
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,538 $ 10,792
Accrued payroll and related expenses 5,646 9,212
Income taxes payable 294 852
Deferred income on sales to
distributors 7,068 5,226
Accrued professional & other fees 1,787 1,844
Other accrued liabilities 368 641
--------- ---------
Total current liabilities 29,701 28,567
--------- ---------

LONG-TERM LIABILITIES
Income taxes payable 19,101 16,893
Deferred income taxes 149 149
--------- ---------

Total liabilities 48,951 45,609
--------- ---------

STOCKHOLDERS' EQUITY:
Common stock 30 30
Additional paid-in capital 184,237 176,282
Cumulative translation adjustment 11 85
Retained earnings 135,550 113,093
--------- ---------
Total stockholders' equity 319,828 289,490
--------- ---------
Total liabilities
stockholders' equity $ 368,779 $ 335,099
========= =========
-0-
CONTACT: Power Integrations, Inc.
Joe Shiffler
(408) 414-8528
jshiffler@powerint.com