PSi Technologies Holdings (PSIT)

In difficult market conditions, our high fixed costs adversely impact our financial results.

We are driven to reduce prices in response to competitive pressures and, at the same time, we are also faced with a decline in utilization rates in our plants due to decreases in demand for our power packages. Because our industry is characterized by high fixed costs, we are not always able to reduce our total costs in line with revenue declines. Reduced average selling prices for our power packages, will adversely affect our results of operations. Although we achieved a gross profit of $4.7 million in 2007, an increase of 26.5% as compared to gross profit of $3.7 million in 2006 resulting from changes in package mix, process improvements and cost reduction initiatives, and increase in sales volume in our Laguna facility, we cannot assure you that difficult market conditions will not affect the capacity utilization of our plants and consequently, our future gross profit margins. Further, increased competition in the power semiconductor sector may lead to further price erosion, lower revenue growth rates and lower gross profit margins in the future.

In difficult market conditions, our high fixed costs adversely impact our financial results.

We are driven to reduce prices in response to competitive pressures and, at the same time, we are also faced with a decline in utilization rates in our plants due to decreases in demand for our power packages. Because our industry is characterized by high fixed costs, we are not always able to reduce our total costs in line with revenue declines. Reduced average selling prices for our power packages, therefore, adversely affect our results of operations. We achieved a gross profit of $3.7 million in 2006, an improvement from a gross loss of $2.3 million in 2005 due to higher sales volume from our top five customers, favorable package mix, an increase in copper price that was passed on to our customers and a decrease in depreciation. We cannot assure you that difficult market conditions will not affect the capacity utilization of our plants and consequently, our future gross profit margins. Further, increased competition in the power semiconductor sector may lead to further price erosion, lower revenue growth rates and lower gross profit margins in the future.

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Table of Contents

In difficult market conditions, our high fixed costs adversely impact our financial results.

We are driven to reduce prices in response to competitive pressures and, at the same time, we are also faced with a decline in utilization rates in our plants due to decreases in demand for our power packages. Because our industry is characterized by high fixed costs, we are not always able to reduce our total costs in line with revenue declines. Reduced average selling prices for our power packages, therefore, adversely affect our results of operations. We achieved a gross profit of $4.1 million in 2006, an improvement from a gross loss of $1.7 million in 2005 due to higher sales volume from our top five customers, favorable package mix, an increase in copper price that was passed on to our customers and a decrease in depreciation. We cannot assure you that difficult market conditions will not affect the capacity utilization of our plants and consequently, our future gross profit margins. Further, increased competition in the power semiconductor sector may lead to further price erosion, lower revenue growth rates and lower gross profit margins in the future.

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