ANALOG ALCHEMY (Volume V, Issue 20)

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1 Tore E. Svanberg, Sr Research Analyst , Jeremy L. Kwan, Research Analyst , Reason for Report: Industry Overview Related Companies: ADI AMIS FCS ICST LLTC MCHP MXIM MCRL NSM OIIM ONNN 4.84 POWI SLAB SIPX 5.62 STM SMTC SUPX TXN Technology ANALOG ALCHEMY (Volume V, Issue 20) KEY POINTS: SELECT INDUSTRY DEVELOPMENTS: - Power Integrations Files Patent Infringement Suit against System General - O2Micro Awarded Patent for Battery Charger Applications - Fairchild Establishes Joint Technology Laboratory with Changhong SELECT PRODUCT ANNOUNCEMENTS: - Summit Micro's SMS46, SMS48 (supervisory controllers) - AuthenTec's AES2510 (swipe fingerprint sensor) - Analog Devices' AD7641, AD7760 (high-resolution, high-speed ADCs) - Silicon Labs' Aero EDGE Radio (Aero II-based GSM/GPRS/EDGE radio platform) 100,000 Piper Jaffray Analog Index (PJAI) Stock Price Performance PJAI INTC SOX : +4,889% : +2,302% : +270% January 2, 1990 = ,000 NASDAQ : +323% 1, Source: FactSet and Piper Jaffray. RISKS: Among the risks are those generic to the semiconductor industry, including a high degree of cyclicality, technology changes, pricing, inventory levels, and product cycles. Piper Jaffray & Co. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions.this report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found on pages 5-8 of this report or at the following site: Page 1 of 8

2 SELECT INDUSTRY DEVELOPMENTS Power Integrations Files Patent Infringement Suit against System General On June 28, Power Integrations announced that it had filed a patent infringement lawsuit against System General Corporation, a Taiwan-based developer and manufacturer of power integrated circuits (ICs). Reportedly, the suit, filed in the U.S. Federal District Court, alleges that certain ICs produced by System General infringe upon patents owned by Power Integrations. As a result, the company is seeking an injunction against System General's products, as well as unspecified damages. We believe this lawsuit demonstrates Power Integrations' intent to pro-actively defend its intellectual property and note that the company has had a successful history of defending its patents. For example, Power Integrations filed a patent infringement lawsuit against Motorola in July 1998, which was resolved in Power Integrations' favor including a $32.3 million award for damages. O2Micro Awarded Patent for Battery Charger Applications On July 7, O2Micro announced that it had been granted 32 claims under United States patent number 6,756,769 for its Enabling Circuit for Avoiding Negative Voltage Transients invention. Reportedly, this Enabling Circuit protects the battery charger IC from negative voltage transients while reducing overall system cost, component count and circuit board real estate. We believe this latest patent award highlights O2Micro's commitment to continuously develop proprietary, innovative technologies across a range of applications and product markets. Specifically, we believe that this patent award enhances O2Micro's positioning in the overall power management markets, and particularly in the battery charging IC arena. Fairchild Establishes Joint Technology Laboratory with Changhong On July 8, Fairchild Semiconductor announced the opening of a joint product development laboratory with Sichuang Changhong Electric Co., Ltd. (Changhong), a large consumer electronics manufacturer based in China. The establishment of this lab represents an extension of the relationship between the two companies over the past several years and will initially focus on incorporating Fairchild's green power technology into future Changhong products. Reportedly, a number of Fairchild's products have already been designed into a broad range of Changhong products, including color TVs, LCD TVs, plasma TVs, rear projection TVs, DVD players, set-top boxes, and air conditioning units. Fairchild components in these end products include its range of Green Mode power switches, advanced power MOSFETs, interface switches, diodes, logic devices, and rectifiers. We believe this joint technology lab underscores Fairchild's strategic sales and marketing focus in China, as well as its commitment to supporting its customers and energy-conservation green mode technology. SELECT PRODUCT ANNOUNCEMENTS SMS46, SMS48 (Summit Microelectronics) On June 21, Summit Microelectronics introduced its SMS46 and SMS48 four-channel supervisory controllers. Utilizing four independent nonvolatile DACs, the controllers can monitor voltages between 0.6V and 5.6V in 5mV increments and respond to over and under voltage conditions, based on independent user-programmable set points for each channel. In addition, Summit also offers the SMX3200 programming system, a complete development tool designed to accelerate product development and ensure device operability in the customer's end application. Available now in 16-lead SSOP packages, the SMS46 with 4Kb of user memory is priced at $2.25, and the SMS48 without user memory is priced at $1.63, both in 10 KU quantities. The SMX3200 design kit software is available now and via Summit's website. AES2510 (AuthenTec) On June 21, AuthenTec introduced the AES2510 swipe fingerprint sensor, its latest addition to the EntrePad family of slide sensors, for use as a graphical cursor navigation tool in cell phones in addition to providing authentication. Consuming less processing and battery power, the AES2510 provides multi-directional navigation, an advancement over other devices that provide only 4-way or 8-way navigation. Other features of the AES2510 include a master-mode SPI interface and navigation-packet timing, which eliminate the need for a companion-chip, lowering total system costs while significantly reducing intervention by the device's host processor for image capture and navigation. Using AuthenTec's TruePrint technology, the AES2510 can also provide security for physical devices, password replacement, and mobile commerce transactions. Sampling now, the AES2510 is priced at $6.00 per sensor in high volume Piper Jaffray & Co. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions.this report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found on pages 5-8 of this report or at the following site: Page 2 of 8

3 quantities. AD7641, AD7760 (Analog Devices) On June 29, Analog Devices introduced two new highly integrated high performance analog-to-digital converters (ADCs) targeting demanding applications in the instrumentation, industrial, medical, and communications markets. The latest member of Analog Devices' PulSAR family of successive approximation ADCs, the AD7641 is a fully differential ADC offering 18 bits of resolution and featuring low power dissipation of just 100mW at 2 mega samples per second (MSPS), with that figure decreasing at lower throughput levels for greater flexibility. Reportedly, the high sampling rate of the device enables it to replace several ADCs in multi-channel applications, while eliminating the need for a discrete low-noise programmable gain amplifier (PGA), thereby reducing component count and overall system cost. Other features include high accuracy, with typical nonlinearity of 2 LSB and a signal-to-noise ratio (SNR) of 93 db. Operating from a single 2.5V power supply, the AD7641 also integrates a conversion clock, reference buffer, error correction circuitry, as well as serial and parallel system interface ports. Packaged in a 48-lead LFCSP (lead frame chip scale package), pricing for the AD7641 is set at $32.95 each in 1 KU quantities. The device is currently sampling, with full production expected in October The AD7760 is the first device in a new family of 20-bit sigma delta converters and features high-speed operation at 2.5 MSPS while offering a signal-to-noise ratio of 100dB. The AD7760 also integrates a reference buffer, differential amplifier, an over-range flag, internal gain and offset registers, and a low-pass digital FIR filter to minimize peripheral component selection requirements. As a result, the AD7760 is optimized for wide input bandwidth applications requiring stringent SNR performance and fast time to market by providing high performance while minimizing front-end signal conditioning requirements. Packaged in a 64-lead TQFP (thin quad flat pack), pricing for the AD7760 is set at $34.95 each in 1 KU quantities. The device is currently sampling, with full production expected in February We believe these two new highly integrated, high performance data converters offer tangible evidence of Analog Devices' technological and market leadership in the high performance data converter market. Aero EDGE Radio (Silicon Labs) On July 6, Silicon Labs introduced the Aero EDGE Radio, a turnkey reference design that reportedly enables an entire quad-band GSM/GPRS/EDGE radio to be developed at 50 percent less board space and with 60 percent fewer components than alternative solutions. The Aero EDGE Radio is based on Silicon Labs' Aero II single-chip GSM/GPRS transceiver (Si4210), which integrates RF and IF voltage-controlled oscillators (VCOs), VCO tuning components and loop filters, as well as a digitally-controlled crystal oscillator (DCXO) that allows the use of a standard 26 MHz crystal to provide the reference clock. In addition, the Aero EDGE Radio can be used in conjunction with components sourced from multiple vendors to offer customers greater flexibility in procurement, and it features a software-programmable universal baseband interface to support a wide range of GSM/GPRS baseband processors. The Aero EDGE Radio is currently sampling, and the development kit is available for $950 and includes a baseboard controller, evaluation board, daughter card, documentation, and software. The Aero II transceiver is currently available and is priced at $4.94 in 10 KU quantities. We believe this latest addition to the Aero lineup underscores Silicon Labs' integration and price-performance leadership in the GSM wireless handset transceiver market, as well as its focus on reducing time-to-market and design complexity for its customers. Piper Jaffray & Co. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions.this report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found on pages 5-8 of this report or at the following site: Page 3 of 8

4 Exhibit 1: Analog Semiconductor Companies Comparable Valuation Table 7/12/04 Mkt Cap EV Price/Earnings EV/Sales Price Last Quarter D 52-wk Company Ticker Rating Price (MM) (MM) Book Q/Q Gwth. GM High Large Cap Analog Devices ADI MP $41.97 $16,580 $14, x 18.9x 4.7x 4.0x 4.6x 12% 59.2% -20% Linear Technology LLTC MP $35.97 $11,565 $9, x 27.4x 10.6x 8.7x 6.3x 12% 77.2% -20% Maxim MXIM OP $47.34 $16,767 $15, x 23.3x 9.3x 7.4x 8.2x 9% 69.8% -16% STMicroelectronics STM UP $20.71 $19,440 $19, x 16.8x 2.2x 1.9x 2.5x -4% 35.4% -25% Texas Instruments TXN NR $22.16 $39,525 $36, x 15.9x 2.8x 2.4x 3.3x 6% 45.0% -35% AVERAGE 27.2x 20.5x 5.9x 4.9x 5.0x 7% 57.3% -23% Mid Cap AMIS Holdings, Inc. AMIS MP $15.56 $1,343 $1, x 16.2x 2.8x 2.4x 6.2x 2% 45.8% -29% Fairchild Semiconductor FCS MP $13.35 $1,675 $1, x 8.0x 1.2x 1.0x 1.4x 8% 26.2% -53% Integrated Circuit Systems ICST OP $23.50 $1,697 $1, x 18.7x 5.2x 4.6x 5.4x -3% 60.5% -36% Intersil ISIL OP $17.53 $2,466 $1, x 16.5x 2.5x 2.1x 2.1x 1% 57.0% -42% Micrel MCRL OP $9.80 $933 $ x 16.2x 2.8x 2.3x 3.3x 5% 45.3% -49% Microchip MCHP OP $26.66 $5,723 $5, x 20.3x 6.1x 5.0x 4.3x 8% 55.5% -27% National Semiconductor NSM OP $18.74 $7,301 $6, x 13.8x 2.9x 2.5x 3.9x 11% 54.4% -23% ON Semiconductor ONNN NR $3.48 $799 $1, x 6.1x 1.3x 1.1x NM 11% 31.1% -62% Semtech SMTC NR $20.62 $1,629 $1, x 18.1x 5.9x 4.8x 3.9x 9% 59.6% -25% Silicon Labs SLAB MP $41.15 $2,275 $2, x 22.6x 4.1x 3.5x 7.2x 4% 54.4% -31% AVERAGE 20.5x 15.7x 3.5x 2.9x 4.2x 6% 49.0% -38% Small Cap Microsemi MSCC NR $12.56 $790 $ x 24.6x 3.0x 2.5x 4.5x 5% 36.1% -27% O2Micro OIIM OP $13.72 $557 $ x 20.8x 4.3x 3.5x 3.5x -12% 57.7% -47% Pericom Semiconductor PSEM NR $9.64 $252 $110 NM NM 1.4x NA 1.4x 10% 33.6% -36% Power Integrations POWI OP $22.38 $733 $ x 21.5x 4.1x 3.3x 3.9x 6% 48.9% -48% Sipex SIPX NR $4.45 $126 $126 NM 55.6x 1.7x 1.3x 0.9x 13% 29.6% -60% Supertex SUPX NR $14.95 $196 $ x 33.2x 2.1x 1.8x 2.0x 6% 40.8% -34% Xicor XICO OP $13.76 $495 $ x 39.2x 8.4x 6.6x 9.7x 6% 57.2% -14% AVERAGE 44.9x 32.5x 3.6x 3.2x 3.7x 5% 43.4% -38% Ratings Key: OP = Outperform, MP = Market Perform, UP = Underperform, NR = Not Rated. Source: ILX, company reports, First Call, IBES, and Piper Jaffray estimates. About ANALOG ALCHEMY : The purpose of this report is to monitor and update the investment and corporate communities on developments in the analog industry over the preceding fortnight. Close attention will also be paid to the performance of the Piper Jaffray Analog Index (PJAI) during this period. The PJAI is a market cap weighted index, beginning at 100 on January 2, 1990, comprising the following analog semiconductor companies: Analog Devices, Linear Technology, Maxim, Micrel, Semtech Corporation, and Texas Instruments. The "science" of alchemy goes back to the medieval ages when ancient researchers sought to transform more abundantly available metals like iron into gold. Clearly, while the original alchemists were not successful in their endeavor, the theory and concept of alchemy has certainly been a source of human intrigue for the past several centuries. The title of this report, ANALOG ALCHEMY, stands testament to the many successes that semiconductor analog/mixed-signal companies have been able to achieve as a result of the modern day alchemist the analog design engineer. Today, leading analog companies can boast amongst the best operating models in the semiconductor industry. They typically self-finance their own growth and are also known as "money machines" for the amount of cash that they generate from operations. Al.che.my A medieval chemical philosophy having as its asserted aims the transmutation of base metals into gold, the discovery of panacea, the preparation of the elixir of longevity. (Source: The American Heritage Dictionary.) Piper Jaffray & Co. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions.this report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found on pages 5-8 of this report or at the following site: Page 4 of 8

5 Important Research Disclosures Distribution of Ratings/IB Services Firmwide and by Sector Piper Jaffray Analog/Mixed Signal Semiconductors & Consumer ICs Sector IB Serv./Past 12 Mos. IB Serv./Past 12 Mos. Rating Count Percent Count Percent Rating Count Percent Count Percent BUY [OP] HOLD [MP] SELL [UP] BUY [OP] HOLD [MP] SELL [UP] Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during the past three years. Distribution of Ratings/IB Services Firmwide and by Sector shows the number of companies in each rating category from which Piper Jaffray received compensation for investment banking services within the past 12 months. Legend: I: Initiation of Coverage D: Discontinuation of Coverage SB: Strong Buy (effective 01/12/04, Equity Research eliminated the SB rating) OP: Outperform (prior to 12/12/01, OP stocks were rated "Buy") MP: Market Perform (prior to 12/12/01, MP stocks were rated "Neutral") UP: Underperform (prior to 12/12/01, UP stocks were rated "Sell") NA: Not Available UR: Under Review SUS: Suspended Rating Page 5 of 8

6 Important Research Disclosures Analyst Certification Tore E. Svanberg, Sr Research Analyst The views expressed in this report, including the Key Points and Risk sections in particular, accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Research Disclosures Piper Jaffray was making a market in the securities of Analog Devices, Inc. at the time this research report was published. Piper Jaffray will buy and sell Analog Devices, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of AMIS Holdings, Inc. at the time this research report was published. Piper Jaffray will buy and sell AMIS Holdings, Inc. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from AMIS Holdings, Inc. within the past 12 months. Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the securities of AMIS Holdings, Inc. or the securities of an affiliate. Piper Jaffray was making a market in the securities of Fairchild Semiconductor International, Inc. at the time this research report was published. Piper Jaffray will buy and sell Fairchild Semiconductor International, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of Integrated Circuit Systems, Inc. at the time this research report was published. Piper Jaffray will buy and sell Integrated Circuit Systems, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of Intersil Corporation at the time this research report was published. Piper Jaffray will buy and sell Intersil Corporation securities on a principal basis. Piper Jaffray expects to receive or intends to seek compensation from Intersil Corporation in the next 3 months. Piper Jaffray has received compensation for investment banking services from Intersil Corporation within the past 12 months. Piper Jaffray was making a market in the securities of Linear Technology Corporation at the time this research report was published. Piper Jaffray will buy and sell Linear Technology Corporation securities on a principal basis. Piper Jaffray was making a market in the securities of Microchip Technology, Incorporated at the time this research report was published. Piper Jaffray will buy and sell Microchip Technology, Incorporated securities on a principal basis. Piper Jaffray was making a market in the securities of Maxim Integrated Products, Inc. at the time this research report was published. Piper Jaffray will buy and sell Maxim Integrated Products, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of Micrel, Incorporated at the time this research report was published. Piper Jaffray will buy and sell Micrel, Incorporated securities on a principal basis. Piper Jaffray has received compensation for non-investment banking securities-related services from Micrel, Incorporated within the past 12 months. Piper Jaffray was making a market in the securities of National Semiconductor Corporation at the time this research report was published. Piper Jaffray will buy and sell National Semiconductor Corporation securities on a principal basis. Piper Jaffray was making a market in the securities of O2Micro International Limited at the time this research report was published. Piper Jaffray will buy and sell O2Micro International Limited securities on a principal basis. Piper Jaffray was making a market in the securities of ON Semiconductor Corporation at the time this research report was published. Piper Jaffray will buy and sell ON Semiconductor Corporation securities on a principal basis. Piper Jaffray was making a market in the securities of Power Integrations, Inc. at the time this research report was published. Piper Jaffray will buy and sell Power Integrations, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of Silicon Laboratories, Inc. at the time this research report was published. Piper Jaffray will buy and sell Silicon Laboratories, Inc. securities on a principal basis. Piper Jaffray was making a market in the securities of STMicroelectronics, N.V. at the time this research report was published. Piper Jaffray will buy and sell STMicroelectronics, N.V. securities on a principal basis. Piper Jaffray was making a market in the securities of Texas Instruments Incorporated at the time this research report was published. Piper Jaffray will buy and sell Texas Instruments Incorporated securities on a principal basis. Piper Jaffray was making a market in the securities of Xicor, Inc. at the time this research report was published. Piper Jaffray will buy and sell Xicor, Inc. securities on a principal basis. Piper Jaffray has received compensation for investment banking services from Xicor, Inc. within the past 12 months. Piper Jaffray was making a market in the securities of Motorola, Inc. at the time this research report was published. Piper Jaffray will buy and sell Motorola, Inc. securities on a principal basis. Piper Jaffray research analysts receive compensation that is based, in part, on the firm's overall revenues, which include investment banking revenues. Piper Jaffray research analysts who follow this Company report to the Head of Investment Research who, in turn, reports directly to the Chief Executive Officer of Piper Jaffray. Rating Definitions Investment Opinion: Investment opinions are based on each stock's return potential relative to broader market indices*, not on an absolute return. Outperform (OP): Expected to outperform the relevant broader market index over the next 12 months. Market Perform (MP): Expected to perform in line with the relevant broader market index over the next 12 months. Page 6 of 8

7 Underperform (UP): Expected to underperform the relevant broader market index over the next 12 months. * Russell 2000 and S&P 500 Volatility Rating: Our focus on growth companies implies that the stocks we recommend are typically more volatile than the overall stock market. We are not recommending the "suitability" of a particular stock for an individual investor. Rather, it identifies the volatility of a particular stock. Low: The stock price has moved up or down by more than 10% in a month in fewer than 8 of the past 24 months. Medium: The stock price has moved up or down by more than 20% in a month in fewer than 8 of the past 24 months. High: The stock price has moved up or down by more than 20% in a month in at least 8 of the past 24 months. All IPO stocks automatically get this volatility rating for the first 12 months of trading. Page 7 of 8

8 Disclaimers This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. It is not a representation by us or an offer or the solicitation of an offer to sell or buy any security. Further, a security described in this release may not be eligible for solicitation in the states in which the client resides. Officers or employees of affiliates of Piper Jaffray & Co., or members of their families, may have a beneficial interest in the Company's securities and may purchase or sell such positions in the open market or otherwise. Notice to customers in the United Kingdom: Circulation of this report in the United Kingdom is restricted to investment professionals and high net worth individuals falling within Articles 19 and 49 of the Financial Services and Markets Act (Financial Promotion) Order 2001 as amended. No one else in the United Kingdom should read, rely on or act upon the information in the report. The investments and services to which the report relates will not be made available to others in the United Kingdom. Securities products and services offered through Piper Jaffray & Co., member SIPC and NYSE, Inc., a subsidiary of Piper Jaffray Companies. Additional information is available upon request. No part of this report may be reproduced, copied, redistributed or posted without the prior consent of Piper Jaffray & Co. Copyright 2004 Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, Minnesota Page 8 of 8