Crossing the desert

“Crossing The Desert” Semis Market Perspective

November 2008

Bruce B. Huber Chairman of European Technology Investment Banking

E N G L I S HT E C H T O U R

Pptname 2 01/07/98

2

The Global Investment Bank Of Choice For Growth Companies

Cities in red indicate locations with TMT bankers, * Affiliates(1) Includes approximately 10% of retired employees still acting as consultants.

The largest independent institutional brokerage and investment banking firm

Highly respected growth equities research

Wall Street’s fastest growing equity underwriting platform

Global sector-focused banking approach, with top-ranked M&A and advisory

The leading sales and trading platform for NASDAQ, and highly ranked for growth stocks globally

Publicly-held (NYSE:JEF)

Over 2,300 employees in 28 offices worldwide(1)

Employee ownership: Over 50%(1)

“The Bulge Bracket of Mid-

Market”

Thomson Financial’s Buyout Magazine

2006 Middle Market

Bank of the YearSan Francisco

Los AngelesDallas

Houston

New Orleans

ChicagoNashville

Atlanta Richmond

Boston

StamfordNew York

Jersey City

WashingtonShort Hills

LondonParisZurich

Tokyo

Silicon Valley

Israel*

Waltham

Hong Kong*

Shanghai

New Delhi

FrankfurtCharlotte

Covington

Goldman Sachs - 2007

Pptname 3 01/07/98

3

Automotive8%

Communications(Wired / Wireless)

25%

ConsumerElectronics 18%

Data Processing(PC's / Peripherals)

37%

Industrial 11%

Military / Aerospace 1%

+7% growth

Semis Is Still A Massive Market

$178bn

$220bn

$238bn

$264bn$274bn

$285bn

2003 2004 2005 2006 2007 2008E

At ca. $285 billion for 2008, the semis industry continues to be a critical enabler of the IT economy

An installed base of some 3.3 billion mobile devices is more than the combined number of PC’s, credit cards, and vehicles world-wide!!!

Global Semis Revenues 2008 Segmentation by Application (% growth relative to 2007)

+4% growth

+16% growth

+3% growth

+1% growth

Pptname 4 01/07/98

4

However, Stresses Are Acute As The Industry Has Underperformed

Equity and credit market contractions impacting consumer spending suggest a pessimistic outlook

40

60

80

100

120

140

160

Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08

Philadelphia SOXX LTM Decline (54%)

NASDAQ LTM (65%)

5 Year Share Price Comparison

Pptname 5 01/07/98

5

Growth Is Definitely Going To Be Lower, And The ‘Bright Spots’ Are Expected To Be Different

Large, Mature Markets Generally Experience Lower Growth Rates

Semiconductor Segments Size Vs. Growth

2012

E M

arke

t Siz

e

2007 – 2012E CAGR

Semiconductor Device Category Size Vs. Growth

Industrial

Military / Aerospace

Communications (Wired / Wireless)

Data Processing (PC’s / Peripherals)

Automotive

Consumer Electronics

2012

E M

arke

t Siz

e

2007 – 2012E CAGR

$0

$20

$40

$60

$80

$100

$120

$140

0% 3% 6% 9% 12%

General Purpose

Non-Optical Sensor

Application-Specific

ASSP

ASIC

Opto

AnalogLogic

Discrete

Micro

$0

$50

$100

$150

$200

$250

0% 2% 4% 6% 8% 10% 12% 14% 16%

ASSP

ASIC

Pptname 6 01/07/98

6

Grim Realities Of The New Environment

With valuations at a 5-year low and global capital markets in turmoil, business models need to adjust to new economic and industrial realities

– Long term industry growth in mid-single digits (although selected pockets will outperform, some will shrink)

– Significant margin compression in most high volume markets, especially consumer

– Current valuation multiples approximately 50% of historical figures

Given the high semis end-market exposure to consumer spending, the current economic crisis will have a particularly severe impact over the next 12 – 24 months

The global IPO market is closed - and unlikely to open for the next 12-18 months (it will be extremely selective when it does open!)

Capital Preservation is Paramount!

Pptname 7 01/07/98

7

10%8%

6%

7%

6% 11%

33% 30% 28%

48%37% 36%

57%62%

66%

45%

57%

53%

2003 2004 2005 2006 2007 2008 YTD

Private Sale Public Sale Divestiture

With the IPO Market Closed, M&A Is The Only Path To Liquidity

6 Deals

5 Deals

4 Deals

5 Deals

5 Deals

5 Deals

20 Deals

20 Deals19 Deals 36 Deals

28 Deals

17 Deals

34 Deals

40 Deals

45 Deals

34 Deals

43 Deals

25 Deals

2003 2004 2005 2006 2007 2008 YTD

Private Sale Public Sale Divestiture

Semiconductor M&A - # Deals (2003 – present)

No surprise, M&A deal volumes are falling

While the data may not be stark, we are seeing a trend toward greater buyer focus on public (vs. private) targets

Semiconductor M&A – Seller Distribution (2003 – present)

Pptname 8 01/07/98

8

The M&A ‘Overhang’ - Today’s Public Market Is Cheaper Than Most VC-Backed Privates

($800m)

($700m)

($600m)

($500m)

($400m)

($300m)

($200m)

($100m)

$0m

$100m

$200m

$300m

Qim

onda

Mic

rona

s

Trid

ent

Act

ions

Sem

i

Vim

icro

Zora

n

SiRF

ME

MS

IC

ISS

Lead

is

Ikan

os

Rack

able

Sys

tem

s

Ada

ptec

Aut

henT

ec

Silic

on M

otio

n

Tund

ra

Net

list

Exa

r

AAT

Dia

log

Calif

orni

a

Hifn Ar

c

Inte

llon

Wol

fson

Mel

lano

x

Om

nivi

sion

SMA

RT

Silic

on Im

age

Xyra

tex

Imag

inat

ion

CSR

Cirr

us L

ogic

Emco

re

Global Semis Vendors With Enterprise Values <$250m

The Challenge With VC-Backed M&A Is That Public M&A Consolidation Must Get Done First

Pptname 9 01/07/98

9

Even The Largest Caps Have Severely Reduced ‘Currency’

% 52 WeekHigh

70%

58%

55%

53%

Equity MarketCap ($m)

65,179

90,908

25,077

9,051

Net Cash(Debt)

11,058

10,152

2,710

2,288

2008E P/E

17.5x

12.9x

11.4x

10.6x

Enterprise Value($m)

54,121

80,756

22,367

6,764

2008E EV/Sales

4.9x

2.0x

1.7x

1.4x

26% 2,166 (3,799) NM5,965 1.0x

25% 2,375 (593) NM2,969 0.5x

Intel

Qualcomm

Texas Instruments

Broadcom

AMD

Infineon

12.8xMedian 1.7x

ForwardP/E’s 1 Year Ago

20.6x

22.4x

17.9x

NM

NM

NM

20.0x

% Decrease

60% 5,121 (678) 13.4x5,799 4.9xLinear Tech 19.3x

53% 7,118 490 12.4x6,628 0.7xST Micro 22.6x

(15%)

(42%)

(36%)

NA

NA

NA

(36%)

(31%)

(45%)

66% 5,192 774 12.8x4,418 2.3xXilinx 19.3x (39%)

Share ratings for the largest semi groups are being “hammered” by the markets

Median forward P/E’s are down 36% year-over-year

Comparable data as of 30th October 2008

Pptname 10 01/07/98

10

Microwave Device

There Has Been ‘Shuffling’ Of The Roster Of Active Semis Acquirers

Before …

Now …

TeleCIS (WiMAX)

Firethorn

SoftMax

Open Interface

Tec Toy

Xiam

Ronda Group

Octalica

Global Locate

Sunext Design

AMD (Digital TV)

T.S.I. Microelectronics

SEMICOA

Electro Module

Atmel (Wafer Fab)

Vitesse (Storage)

Mobilygen

NuCORE

ADI (Cellular Handset)

K-Will Corporation

SiliconStor

Tarari

Infineon (Hard Drive)

TI (DSL Cust Premises)

LSI (Mobility Products)

Primarion

Vesuvius

Flarion Technologies

elata Limited

Berkana Wireless

Qualphone

nPhase

RFMD (Bluetooth)

Zeevo

Siliquent Technologies

Athena Semiconductors

Sandburst Corporation

LVL7 Systems

QLogic (HD/Tape Drive)

UTStarcom (Design)

Avago (Printer Semi)

Intel (Comm & Apps)

Chelsio

StoreAge

Metta Technology

Agere Systems

Pollex Mobile

Airoha

Adv. Power Tech

PowerDsine

http://upload.wikimedia.org/wikipedia/de/c/c7/LSI_Logo_2007.svg

http://www.marvell.com/

http://www.marvell.com/

http://upload.wikimedia.org/wikipedia/de/c/c7/LSI_Logo_2007.svg

Pptname 11 01/07/98

11

The Traditional Venture Model Of High Capital Commitment To SOC Companies Is Broken

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2002 2003 2004 2005 2006 2007 2008YTD0%

2%

4%

6%

8%

10%

12%

14%

16%

Global VC Funding % of Global VC Funding into Semis

VC Investments in Semiconductor Companies

Today Analog, MEMS and RF companies require less capital and are more compelling for VCs

Low cost engineering in Asia is of critical importance

Company Location

$281m

CumulativeFunding

$220m

$200m

$197m

$136m

$136m

Alien Tech

Cortina / Imenstar

Icera / Sirific

Peregrine

Solarflare

Ubicom

Major VC’s

Advanced Equities, RHO Ventures, New Enterprise

El Dorado, Morgenthaler, Jafco

Benchmark, Amadeus, Atlas, 3i, Accel

Apax, Wasserstein, Morgenthaler, Roser

Oak, Foundation, Anthem, Accel, Amadeus

Mayfield, JatoTech, Investcorp, August

Top VC-Funded Business (>$100m To-Date)

Pptname 12 01/07/98

12

Challenging Exits (2007 Best Exits (2007

‘Best’ And ‘Challenging’ Exits Tell The Story Of Capital Efficiency

The US-based, VC-backed semiconductor company model is severely challenged

Fewer early stage investments expected, with focus on later stage opportunities, often where recap has occurred

$150$28MIPSChipIdea

$110$16NXP B.V.GloNav

$278$126ApplePA Semi

Best Exits (2007 – 2008YTD)

FCI

Global Locate

Centrality

Company

$13

$62

$48

Funding

$108Silicon Motion

$146Broadcom

$283SiRF

ExitBuyer

$150$28MIPSChipIdea

$110$16NXP B.V.GloNav

$278$126ApplePA Semi

FCI

Global Locate

Centrality

$13

$62

$48

Funding

$108Silicon Motion

$146Broadcom

$283SiRF

ExitBuyerLocationAnnounceDate

Aug 07

Dec 07

May 08

Apr 07

Jun 07

Jun 07 $50$120Infineon

$8$119Intel

$41$109Adaptec

~$25$110IDT

Challenging Exits (2007 – 2008YTD)

Company

$34

$38

Funding

$5Arc

$7Entropic

ExitBuyer

$50$120Infineon

$8$119Intel

$41$109Adaptec

~$25$110IDT

$34

$38

Funding

$5Arc

$7Entropic

ExitBuyerLocationAnnounceDate

Aug 08

Aug 08

Oct 08

Apr 07

Apr 08

Apr 08

NetEffect

Aristos

Silicon Optix

Teja

Vativ

Primarion

Pptname 13 01/07/98

13

• 10Gb Ethernet Penetration• “Virtualization”• Data / Telcom market growth• 40Gb deployments

Enterprise / Datacenter

• Power Management• Comms Analog• Signal Conditioning ICs

High Performance Analog

• Accelerometers & Gyroscopes• Biometric Touch Sensors• MEMS resonators / oscillators

MEMS / Sensors

Semi Innovation Is Not Yet Over

• Power Management• RF Infrastructure• WiMax• 3.5 – 4G

Wireless Mobile

• Home Connectivity• High Speed Video Transfers• Personal Area Networking

Consumer Connectivity

GR

OW

TH D

RIV

ERS

GR

OW

TH D

RIV

ERS

GR

OW

TH D

RIV

ERS

GR

OW

TH D

RIV

ERS

GR

OW

TH D

RIV

ERS

Pptname 14 01/07/98

14

Looking Ahead… Keys To Success

Capital conservation is paramount– Cost of capital is going up, not down– Private company M&A is reduced until public buyer currency recovers– The IPO “window” closed for near/medium term

A lean cost base may mean shifting more development to Asia or India– Buyers are concerned about headcount in high cost geographies

Raise money when you can - not necessarily when you need it!

Stay “connected” to the market – it can change quickly– Relationships with “best buyers”– Get to know good bankers!

Europe needs a new generation of public middle market companies – Jefferies will certainly be ready to support those IPOs!

Pptname 15 01/07/98

15

Selected M&A Transactions

Selected IPO/Equity Transactions

May 2008

Financial Advisor to the Seller

has been acquired by

£27,740,000

May 2008



£27,740,000

May 2008

Financial Advisor to the SellerUndisclosed


May 2008

Financial Advisor to the SellerUndisclosed


January 2008

Financial Advisor to the Seller$76,000,000


January 2008


has been acquired by has acquired

Financial Advisor to the Buyer

$147,000,000

August 2007

has acquired

Financial Advisor to the Buyer

$147,000,000

August 2007 May 2007



May 2007



April 2007



April 2007



December 2006



December 2006



July 2006



July 2006



$30,000,000

February 2006


The Broadband Business Unit Of


$30,000,000

February 2006


The Broadband Business Unit Of

has been acquired by has been acquired by


January 2006



January 2006

Financial Advisor to the SellerConfidential

October 2005


Financial Advisor to the SellerConfidential

October 2005

has been acquired by has been acquired by

Financial Advisor to Seller$48,000,000

July 2005

The Software Business Of


Financial Advisor to Seller$48,000,000

July 2005

The Software Business Of



May 2005The SPG Test And

Measurement Division Of



May 2005The SPG Test And

Measurement Division Of



$123,000,000

September 2004



$123,000,000

September 2004

Pending

Initial Public OfferingCo-Manager

$500,000,000

Pending


$500,000,000

$

Private Investment in Public Equity

February 2008

$100,000,000

Lead Placement AgentPrivate Investment in Public Equity

February 2008

$100,000,000

Lead Placement Agent

December 2007


$60,000,000

December 2007


$60,000,000

December 2007

$51,750,000


December 2007

$51,750,000


September, 2007

$30,000,000

1,600,000 Share Bought Block DealSole Manager

September, 2007

$30,000,000

1,600,000 Share Bought Block DealSole Manager

Senior Secured Credit FacilitySole Placement Agent

$35,000,000

August 2007

Senior Secured Credit FacilitySole Placement Agent

$35,000,000

August 2007 March 2007

$105,656,250

Follow-on Offering Co-Manager

March 2007

$105,656,250

Follow-on Offering Co-Manager

Bruce HuberChairman European Technology

Tel: +44 20 7029 8020email: [email protected]

Andres Pieczanski Managing Director Tel: +44 20 7029 8038

email: [email protected]

David Creamer Head of Global Semiconductor

Investment Banking Tel: +1 650 576 4280

email: [email protected]

mailto:[email protected]



Documents

Crossing the desert