POWER ELECTRONICS

Power Semiconductors and Power Supplies The Building Blocks of the Digital Power Revolution

Todd Cooper Vice President Power Electronics Analyst (501) 377-2503 tcooper@stephens.com

Holman Harvey Associate (501) 377-8232 hharvey@stephens.com

September 2000
2000 Stephens Inc. This report has been prepared solely for informative purposes and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. All expressions of opinion are subject to change without notice. The information is obtained from internal and external sources which we consider reliable but we have not independently verified such information and we do not guarantee that it is accurate or complete. We do not undertake to advise you to any change in figures or our views. We, our employees, and/or our officers and directors, may from time to time have a long or short position in the securities mentioned and may sell or buy such securities. Additional information available upon request. Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, (501) 374-4361, FAX (501) 377-8003, Member NYSE, NASD, SIPC

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TABLE OF CONTENTS EXECUTIVE SUMMARY AND INTRODUCTION ..........................................................................................6 Electric Power Revolution Drivers.....................................................................................................................7 The Digital Age is Very Energy-Intensive.........................................................................................................8 Reliable Power ...................................................................................................................................................9 Expensive Power ..............................................................................................................................................10 In This Industry Report ....................................................................................................................................10 POWER SEMICONDUCTORS FUNDAMENTALS ........................................................................................11 SEMICONDUCTOR BASICS............................................................................................................................12 Silicon (Si) - The Primary Material..................................................................................................................12 How Semiconductors Work .............................................................................................................................14 The Fabrication Process ...................................................................................................................................15 DIGITAL VS. ANALOG ....................................................................................................................................18 Broad Base of Demand ....................................................................................................................................18 Low Unit Volumes, Broad Product Portfolio...................................................................................................18 Long Product Life Cycles ................................................................................................................................19 Manufacturing Differences...............................................................................................................................19 Steady Pricing ..................................................................................................................................................19 POWER SEMICONDUCTOR INDUSTRY OVERVIEW ................................................................................20 History..............................................................................................................................................................20 Competitors ......................................................................................................................................................20 Overall Industry Growth ..................................................................................................................................21 A Cyclical Industry ..........................................................................................................................................22 Challenges Facing the Power Semiconductor Industry....................................................................................22 FORECASTS BY END-MARKET.....................................................................................................................24 Automotive.......................................................................................................................................................24 Computers and Peripherals...............................................................................................................................25 Communications...............................................................................................................................................26 Consumer Electronics ......................................................................................................................................27 Industrial...........................................................................................................................................................28 ANALYSIS BY PRODUCT CATEGORY.........................................................................................................30 Power Transistors.............................................................................................................................................30 Market Trends ..............................................................................................................................................33 Market Drivers .............................................................................................................................................34 Market Restraints .........................................................................................................................................34 Thyristors .........................................................................................................................................................35 Market Trends ..............................................................................................................................................35 Market Drivers .............................................................................................................................................36 Market Restraints .........................................................................................................................................37 Rectifiers ..........................................................................................................................................................37 Market Trends ..............................................................................................................................................38 Market Drivers .............................................................................................................................................39 Market Restraints .........................................................................................................................................40 Motion Control Power ICs ...............................................................................................................................40 Market Trends ..............................................................................................................................................42 Market Drivers .............................................................................................................................................42 Market Restraints .........................................................................................................................................43 Power Conversion/Management ICs................................................................................................................43 Market Trends ..............................................................................................................................................44 Market Drivers .............................................................................................................................................46 Market Restraints .........................................................................................................................................46 Smart Power ICs (Low Voltage) ......................................................................................................................46 Market Trends ..............................................................................................................................................48
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Market Drivers .............................................................................................................................................48 Market Restraints .........................................................................................................................................49 High-Voltage Smart Power ICs........................................................................................................................49 POWER SEMICONDUCTORS CONCLUSION..........................................................................................49 Power Semiconductors Company Profiles .......................................................................................................51 Advanced Power Technology, Inc. ..................................................................................................................53 Cree, Inc. ..........................................................................................................................................................57 International Rectifier Corp..............................................................................................................................61 Power Integrations Inc. ....................................................................................................................................65 Semtech Corp. ..................................................................................................................................................69 TelCom Semiconductor....................................................................................................................................73 POWER SUPPLY FUNDAMENTALS..............................................................................................................77 PRODUCT PROFILE .........................................................................................................................................78 Electricity Review ............................................................................................................................................79 Why Do We Need Power Supplies?.................................................................................................................79 Types of Power Architecture............................................................................................................................80 AC/DC POWER SUPPLIES ...............................................................................................................................82 Switching vs. Linear Power Suppliers .............................................................................................................84 Efficiency .....................................................................................................................................................85 Size ...............................................................................................................................................................85 EMI and RFI.................................................................................................................................................85 Custom, Standard and Modified Standard Products.........................................................................................86 Output Segmentation........................................................................................................................................86 DC/DC CONVERTERS......................................................................................................................................87 TELECOM POWER PLANTS ...........................................................................................................................89 POWER SUPPLY INDUSTRY OVERVIEW....................................................................................................90 Intense Industry Fragmentation........................................................................................................................91 Barriers to Entry ...............................................................................................................................................93 Foreign Competition ........................................................................................................................................93 Continued Industry Growth..............................................................................................................................94 Market Segments..............................................................................................................................................96 Growth Opportunities by Power Supply Category...........................................................................................97 Increased Outsourcing......................................................................................................................................98 Consolidating Industry .....................................................................................................................................99 Other Market Dynamics .................................................................................................................................101 POWER SUPPLY SECTION CONCLUSION.................................................................................................102 Power Supply Company Profiles.......................................................................................................................103 Artesyn Technologies Inc...............................................................................................................................105 C&D Technologies.........................................................................................................................................109 Power-One, Inc...............................................................................................................................................113 Vicor Corp......................................................................................................................................................117

CHARTS and TABLES Chart 1 Stephens Inc. Power Solutions Focus .......................................................................................................6 Chart 2 Digital Economy Electricity Consumption ...............................................................................................9 Chart 3 Electrical Conductivity of Selected Materials.........................................................................................13 Chart 4 Summary of the Process Employed to Produce Ultrapure Silicon..........................................................13 Chart 5 Silicon Molecular Structure ....................................................................................................................14 Chart 6 The Fabrication Process ..........................................................................................................................17 Chart 7 North American Power Semiconductor Market......................................................................................21 Table 1 North American Automotive Power Semiconductor Market .................................................................24
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Chart 8 Power Semiconductor Automotive Applications....................................................................................25 Table 2 North American Computer and Peripherals Power Semiconductor Market...........................................26 Table 3 North American Telecommunications Power Semiconductor Market ...................................................27 Table 4 North American Consumer Electronics Power Semiconductor Market .................................................28 Table 5 North American Industrial Power Semiconductor Market .....................................................................29 Chart 9 Power Semiconductor Market Segmentation..........................................................................................30 Chart 10 North American Power Semiconductor Market Percentage of Revenue by Product............................31 Chart 11 North American Power Transistor Market............................................................................................32 Table 6 North American Power Transistor Market ............................................................................................33 Chart 12 North American Thyristor Market ........................................................................................................35 Table 7 North American Thyristor Market..........................................................................................................36 Chart 13 North American Diode Market .............................................................................................................38 Table 8 North American Diode Market ...............................................................................................................39 Chart 14 North American Motion Control Power IC Market..............................................................................41 Table 9 Motion Control Power IC Market...........................................................................................................42 Chart 15 North American Power Conversion/Management IC Market...............................................................44 Table 10 North American Power Conversion/Management IC Market ..............................................................45 Chart 16 North American Smart Power IC Market .............................................................................................47 Table 11 North American Smart Power IC Market .............................................................................................48 Chart 17 Power Supply Devices ..........................................................................................................................78 Table 12 - AC Line Voltages Selected Countries................................................................................................80 Chart 18 Centralized Vs. Distributed Architecture..............................................................................................81 Chart 19 North American Consumption of Distributed Power Architecture......................................................82 Chart 20 Simple AC/DC Power Supply...............................................................................................................83 Table 13 Pricing Trends In AC/DC Power Suppliers..........................................................................................84 Table 14 Linear Vs. Switching Power Supplies ..................................................................................................84 Table 15 Output Segmentation ............................................................................................................................87 Table 16 DC/DC Converter Pricing Trends.........................................................................................................89 Table 17 Power Supply Industry..........................................................................................................................91 Table 18 Ten Largest North American Power Supply Companies* - 1999 Sales ...............................................92 Table 19 Largest Worldwide Power Supply Companies* - 1999 Sales ..............................................................92 Chart 21 Global Power Electronics Market .........................................................................................................94 Chart 22 Global Power Supplies Consumption ...................................................................................................95 Chart 23 Global Telecom Power Plant Consumption..........................................................................................96 Chart 24 North American Power Supplies Consumption by Market Segment....................................................97 Chart 25 North American Merchant Power Supplies Consumption....................................................................98 Chart 26 North American Power Supplies Consumption ....................................................................................99 Chart 27 Fragmented Merchant Power Supply Industry ...................................................................................100 Table 20 Recent Consolidation in The Power Electronics Industry ..................................................................101 Chart 28 North American Market Share Held by Top 10 Merchant Power Supply Manufacturers..................101 Appendix A Power Electronics Valuation Analysis..........................................................................................121 Appendix B Power SemiconductorS Comparative Analysis..........................................................................122 Appendix C Power Supply Manufacturers Comparative Analysis.................................................................123 Appendix D Glossary.........................................................................................................................................124 Appendix E North American Power Semiconductor Manufacturers.................................................................126 Appendix F North American Power Supply Manufacturers..............................................................................128

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EXECUTIVE SUMMARY AND INTRODUCTION We believe that, over the next decade, one of the most robust investment sectors in the economy will be the electric power industry. But we dont advise that you run out and invest in your local power company. The electric utilities will have their role, but we suggest you focus on those companies that provide the power for the dot-coms. Were talking about companies that make products like power semiconductors and superconductors, batteries and flywheels, ac/dc power supplies and dc/dc bricks. These are the products that provide the ultra-clean, ultra-reliable electricity consumed in the digital economy. We think well-run companies that manufacture and sell these products successfully will offer the astute investor the potential for exceptional returns, not unlike those that have been experienced in the communications revolution. In 1997 Stephens Inc. made the power electronics industry a focus of its equity research (see Chart 1). We define power electronics as the application of electronic devices and associated components to control, convert and condition electric power. In other words, we have been following power supply manufacturers and semiconductor manufacturers that focus on power management applications. Recently, Stephens Inc. placed even more emphasis on the power solutions area by having analyst Steve Sanders and his team moved to cover a sector that we are calling Emerging Power Technologies. The Emerging Power Technology sector includes information management technologies, distributed generation, power procurement, infrastructure enhancements and system integration. We at Stephens Inc. are committed to helping our clients benefit from the exceptional investment opportunities that we believe will materialize over the next few years in the electrical power industry. Chart 1 Stephens Inc. Power Solutions Focus
Power Solutions
Power Quality and Reliability Distributed Generation

Electric utilities are not providing the type of power that the digital economy requires

Our power electronics research focuses exclusively on power semiconductors and power supplies

Power Supplies

Power Electronics
Power Semiconductors

Emerging Power Technology

Information Management Technologies Systems Integrators Infrastructure Enhancement

Source: Stephens Inc.

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Stephens Inc. Power Solutions Research Group Power Electronics Todd Cooper, Analyst tcooper@stephens.com (501) 377-2503 Holman Harvey, Associate hharvey@stephens.com (501) 377-8232 Emerging Power Technology Stephen Sanders, Analyst ssanders@stephens.com (501) 377-2065 Joe Chumbler, CFA, Associate jchumbler@stephens.com (501) 377-3760 Michael Peng Zhang, Associate

We believe that the experience weve gained over the last three years following the power electronics industry gives Stephens Inc. a unique perspective on this space. We are not semiconductor analysts who have strayed into the power semiconductor space, nor are we contract manufacturing analysts who have recently discovered power supplies. We have come to the job focused on power and the unique industry dynamics that it entails. There is no single strategy a company can follow to become successful in this industry. However, there are trends and market dynamics that should not be ignored by companies and investors alike. By thoroughly understanding the market and its participants, we plan to identify those companies that are best positioned to prosper in the power electronics marketplace. Electric Power Revolution Drivers Due to the laws of physics, energy underpins any economy. In other words, you cannot get something for nothing. The Internet has not changed the laws of physics. Even cyberspace has an energy cost. Energy will continue to underpin our economy in the 21st century, just as it did in the 20th. The last century belonged to oil; this one belongs to electricity. The transformation is already evident. Our economy today spends four times as much purchasing electricity as oil. The beginning of the last century saw an explosion of economic activity in the creation of the automobile. One consequence of the rise of the automobile was the creation of an enormous and complex oil-related industrial infrastructure to fuel the engines in all kinds of vehicles. The creation of the automobile and the infrastructure needed to support it are analogous to whats taking place in todays digital age. The engine of the digital age is the microprocessor. Its fuel is electricity. The proliferation of microprocessors and computers and the seemingly unending appetite for communications bandwidth is increasing the demand for reliable electricity. It takes a lot of clean, reliable electricity to process and move bits of information around. The sheer amount of electricity demanded by the information economy is, in itself, a primary driver behind the changes occurring in the electric power industry. But far more important than the steep increase in the demand for electricity is the type of electricity the information economy
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The engine of the digital age is the microprocessor; the fuel is electricity

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requiresultra-clean, stable, and totally reliable. This type of electricity cannot be delivered by the same old technologies on the same old power grid. A new type of infrastructure is developing to support the digital economy. We will examine both drivers, the increase in demand and the reliability issue, in more detail. The Digital Age Is Very Energy-Intensive The expansion of the digital economy is creating two kinds of electrical problems. The most straightforward is that it drives up the absolute demand for electricity. It takes about a pound of coal to create, package, store and move two megabytes of data. When you include the portion of the infrastructure that supports Web-enabled devices, such as the Palm Pilot PDA, each device uses as much electricity as a refrigerator. Your typical PC and its peripherals require about 1,000 watts of power, which for the average home PC equates to about 1,000 kilowatt hours (kWh) of electricity a year. The last non-extrapolated study that was conducted to ascertain exactly how much electricity was being consumed by computers was done in 1995. Lawrence Berkeley Labs reported that approximately 50 billion kWh in 1993 were consumed in the commercial sector by PCs, computers and directly related equipment such as monitors and printers. Since then:
It is estimated that the Internet consumes 8% of the countrys electricity

The number of PCs and related equipment in offices has increased exponentially. The number of PCs in homes and schools has also increased dramatically. The Internet has rapidly made its way onto the scene, with all its back-office Web and telecommunications hardware. An entirely new class of businesses has been createdthe dot-coms. The usage level for all computing and IT equipment is up globally.

It is now estimated that 8% of the nations electric supply, or 290 billion kWh, is absorbed by the hardware of the Internet. When you consider a broader scope of all computers and related equipment, U.S. electricity consumption by the digital economy reaches 13%. There is simply no denying it, computers, and more recently, the Internet, are driving up the demand for more electricity.

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Chart 2 Digital Economy Electricity Consumption

14% 12% 10% 8% 6% 4% 2% 0% 1978 1982 1986 All computers 1990 Internet only 1994 1998

Source: Information Technology Industry Council; Greening Earth Society

Reliable Power Our U.S. trillion dollar electric utility grid is a remarkable engineering achievement. It delivers electricity that is up and clean, or event free, 99.9% of the time. Said another way, the 99.9% reliability figure equates to about eight hours of outage a year for a typical residential consumer. Until the digital revolution, the grid has handled the three previous electricity-demanding waves of technology well. First came electric lights, then electric motors and finally air conditioning. For each of these technologies 99.9% reliability was, and is, acceptable. Eight hours worth of power outages over the course of a year is an inconvenience for you and me, but a financial nightmare for businesses in the digital economy. A few industries have always required electricity that was more reliable than what comes off the grid. Hospitals, airports, military bases and phone companies have always deployed generators and banks of batteries to provide standby power. In the new digital economy, add to the list of companies already requiring extremely reliable power the Amazons and AOLs of the world. And as digital semiconductors (i.e., microprocessors and memory chips) and the Internet penetrate deeper and deeper into our society, even old economy companies are requiring more reliable power. Next will be our homes. The number of commercial and residential devices and users that rely on digital semiconductors and the Internet is growing exponentially. For these applications, demand reliability only starts at 99.9999% (six nines). At six nines the length of power outage is equivalent to only 30 seconds a year. At seven nines, its only out for a few seconds, but thats still long enough to crash a network. Only at the ninth and tenth nines is the power reliable enough for the digital semiconductors that are at the heart of the digital economy. The problem is that its hard to imagine the traditional electric utility grid ever providing electricity that is much more reliable than 99.9%. The grid is simply
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Several industries have always required highly reliable power

The traditional electric grid is too exposed to catastrophic events to provide highly reliable power

too exposed to catastrophic events (i.e., bad weather, animals shorting out transformers, and car - utility pole interactions). Its far too impractical and expensive to rebuild the grid to support the digital economy. To do that requires an array of systems and components that will reside on the customers side of the electric meter. These systems and components include capacitors and inductors to fix problems of milliseconds in duration; batteries, flywheels, and super-conducting coils to fix outages ranging from seconds to a few minutes; and generators and turbines to supply power for hours or days. The switch that links these systems together seamlessly is the power semiconductor. Expensive Power Building reliability into the power grid is expensive, but how much will people pay? What does it cost AOL if it is off-line for an hour? With some of the larger communications companies billing customers in total at a rate of over $4 million per minute, what will they pay to stay up and running? The questions are rhetorical ones. The answer is: a lot. Electricity at the wholesale level is relatively cheap, approximately 2 per kWh (kilowatt hour). The electric utility grid, with its 99.9% reliability, delivers electricity to you at roughly 8 to 10 per kWh. The cost goes up exponentially as you add nines. The cost of six nines reliability is approximately $1,000 per kWh, and customers that need this level happily pay it. We estimate that the cost of providing ten nines reliability is over $100,000 per kWh.

We predict that, very soon, the aggregate profits of companies that provide reliable power will exceed the aggregate profits of the nations electric utilities

According to the Gilder Groups inaugural Power Report, the total market for electricity that is more reliable than 99.9% is approximately 20% of the total electricity market. As digital semiconductors and the Internet penetrate deeper and deeper into the economy, demand for reliable power will continue to grow as a percent of the total electricity market. We predict that, at some point in the not too distant future, the aggregate profits of the companies providing reliable power will exceed the aggregate profits of those companies/utilities providing 99.9% reliable electricity. And thats precisely why we think that, over the next decade, one of the most robust investment sectors in the economy will be the electric power industry. In This Industry Report This industry report is divided into two sections. First, we address the power semiconductor industry. Well explore the various types of power semiconductors, the market dynamics and growth rates, and the players. Second, we address the power supply industry. Here too well explore the different types of power supplies, the market dynamics and growth rates, and the players. After years of evolutionary technological change, a few manufacturers of power semiconductors and power supplies are making the revolutionary technological changes necessary to take advantage of the vast market that is craving affordable reliable electricity. At Stephens Inc., we want our clients to be prepared to profit from the electric power revolution that is underway. This industry report has been written for that purpose.

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POWER SEMICONDUCTORS FUNDAMENTALS The fundamental building block of power electronic devices is the power semiconductor. Power semiconductors are essential components of most electronic devices and systems. A power semiconductor performs one or more of the following functions:
The first power semiconductors were invented over 50 years ago

Conditions electric current and voltage Protects electric circuits from power surges Amplifies and switches electric signals Regulates voltage levels in circuits

The first semiconductor was a power semiconductor. Originally, semiconductors meant power. For the past 25 years, the computer revolution has been driven by the increasing functionality and the decreasing cost of semiconductors that provide the brains within electronic systems. The semiconductor business has now come full circle. Power, which was the original semiconductor technology, is once again critically important to the perpetuation of the worlds electronic revolution. Todays power semiconductors perform many diverse functions. However, at the heart of most power semiconductors is the simple switch. There are a variety of silicon switch architectures with acronyms like MOSFETs (metal oxide semiconductor field effect transistor), IGBTs (insulated gate bi-polar transistor), SCRs (silicon controlled rectifiers), FREDs (fast recovery epitaxial diodes), and GTOs (gate turn-off thyristors). These silicon switches are used to perform a number of different functions. For example, silicon switches clean up power by switching it very quickly and efficiently, mediating between electricity coming off a primary power source (i.e., the electric utility grid) and electricity that is temporarily stored in capacitors and inductors alongside the chip itself. The switches are also used in the rectification process (turning alternating current (ac) into direct current (dc) by chopping up an ac sine wave into small segments that can then be reconfigured into a dc sine wave). A third application for advanced high frequency switches is to generate plasma and lasers. Plasma and lasers are produced by switching the polarity of a magnetic field at an extremely high speed. This in turn excites atoms that can then be manipulated to produce the desired laser or plasma process. Todays power semiconductors can handle an exceptionally large amount of power. Several companies already manufacture semiconductors that are capable of handling 5,000+ volts and 3,000 amps. By comparison, it takes only 100 amps to power an electric car going 65 mph. We estimate that approximately 12% of the worlds electricity is switched by power semiconductors. Virtually no solid state devices are found on the electric utility grid, and few are found in appliances and equipment below the sophistication level of a personal computer. This is in the process of changing. Approximately 50% of the electricity consumed worldwide is used to run motors. An example of one of these motors is a refrigerator compressor. To keep the refrigerator cold, the compressor is typically either 100% on or 100% off. Running a motor in this fashion is very inefficient and comparable to driving your car with the accelerator either all the way down or all the way up. The

The silicon switch is at the heart of most power semiconductors

Inefficient motors waste approximately $72 billion of electricity a year

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result of all of these inefficient motors is that approximately $72 billion of electricity is wasted every year.
Power semiconductors are poised to change the electric economy

We believe that the power semiconductor has come of age. These devices interface with the various technologies required to deliver reliable power, and they are capable of dramatically reducing the worlds energy consumption. The power semiconductor is indeed poised to change forever the $500 billion-a-year kilowatt-hour economy. The Power Semiconductor section of this Industry Report is divided into four segments. First, we take a very elementary look at semiconductor fundamentals. We address how power semiconductors work, how they are made and what they are made of. We have included this section to hopefully take some of the mystique out of semiconductors. Second, we focus on the analog segment of the semiconductor market as opposed to the digital semiconductor market. Power semiconductors are a subset of analog or linear semiconductors. Third, we zero in on the power semiconductor market, providing growth rates and market trends for the overall North American power semiconductor industry as well as seven individual product categories. We conclude by providing the investment highlights of each of the power semiconductor companies that we currently cover.

SEMICONDUCTOR BASICS Silicon (Si) - The Primary Material

Silicon is the most commonly used semiconductor material

In the strict scientific sense, semiconductors are a class of materials whose electrical properties lie between conductors (such as copper and aluminum) and insulators (such as rubber and glass). In common usage, however, the term semiconductor is used to refer to electronic devices made from a semiconductor material. Silicon is by far the most widely used semiconductor material. More recently, several other compound semiconductor materials are being used in niche power semiconductor applications. These materials include gallium arsenide, indium phosphide, silicon germanium and silicon carbide. However, silicon continues to dominate the present commercial market. Although a number of elements and compound elements possess semiconducting properties, silicon is an ideal material for commercial semiconductors for several reasons. First, its electrical conductivity properties are excellent. Chart 3 illustrates the relative electrical conductivity of select materials.

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Chart 3 Electrical Conductivity of Selected Materials

106
Semiconductor conductivity lies somewhere between that of conductors and that of insulators

Copper Iron Mercury

Electrical Conductivity

10-2 10-6 10-10 10-14

Gallium Arsenide Quartz Porcelain Mica Paraffin

10-18
Source: Georgia Institute of Technology

Diamond

A second reason for using silicon is that it is inexpensive and easily obtained from melting sand. Although silicon is the second most abundant element in the earths crust and a component in numerous compounds, it never occurs in its pure state. Single-crystal silicon used in device production is a man-made material. The process of producing device-quality silicon first involves separating it from compounds and then purifying the separated material. Chart 4 illustrates this process.

Chart 4 Summary of the Process Employed to Produce Ultrapure Silicon

Very Impure Silicon Ultrapure Polycrystalline Si

Silica

SiCi4 (Liquid)

Ultrapure SiCi4

Reduced in Presence of Carbon

Chlorinated

Distilled, etc.

Reduced in Hydrogen Atmosphere

Source: Semiconductor Device Fundamentals, 1996

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Insulators
13

Semiconductors

102

Germanium Selenium Silicon Boron

Metals

1010

The third reason for the commercial use of silicon in semiconductors is the exceptional purity of the processed material. Modern semiconductors are some of the purest solid materials in existence. In silicon, for example, the unintentional content of dopant atoms (impurities) is typically less than one atom per 109 silicon atoms. To better understand this extraordinary level of purity, imagine a forest of maple trees planted from coast to coast, border to border, at 50-foot centers across the United States (including Alaska and Hawaii). An impurity level of one part per 109 would correspond to finding about 25 crabapple trees in the maple tree forest covering the entire United States! How Semiconductors Work
Electrons and holes carry the electrical charge within semiconductors

The basic function of a power semiconductor is to impede, induce, or regulate the flow of electricity through the semiconductor material. Carriers are the entities that transport an electrical charge from place to place inside a conductive material. In metallic wires, electrons act as the carrier. Electrons are also involved in carrying the charge within semiconductors. However, a second equally important type of carrier existsthe hole. Pure silicon has 1023 atoms per cubic centimeter. Each atom has four electrons that bond with its four nearest neighbors. In nature, the crystalline molecular structure of silicon is obviously three-dimensional. As a visual aid, a twodimensional silicon lattice is shown in Chart 5.

Chart 5 Silicon Molecular Structure

Lines represent a shared electron.

Circles represent the core of the silicon atom.

Source: Georgia Institute of Technology

The electron bond between silicon atoms is easily manipulated

The above model represents a silicon structure at rest or in equilibrium. Each atom has four electrons attached to its four closest neighboring atoms which in turn have four electrons attached to their four closest neighboring atoms. However, the electron bond between silicon atoms is relatively weak and easily manipulated. When the silicon-silicon bond is broken and the associated electron is free to wander about the lattice, the released electron is a carrier. In addition to releasing an electron, the breaking of a silicon-silicon bond creates a missing

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bond or hole. The hole is positively charged and, thus, attracts negatively charged electrons. By creating an environment within the semiconductor material in which electrons are released and holes are created, one can manipulate the flow of electrical current through the material. The manipulation of carrier numbers is done by doping. In semiconductor terminology, doping is the addition of controlled amounts of specific impure atoms with the express purpose of increasing either the electron or the hole concentration. The addition of dopants in controlled amounts to semiconductor material occurs routinely in the fabrication of almost all semiconductor devices. For example, when an atom of phosphorus is substituted for an atom of silicon in the lattice, four of the electrons from the phosphorus atom fit snugly into the bonding structure. But phosphorus has five electrons, so the fifth electron is readily freed to wander about the lattice and, thus, becomes a carrier. The above is a vastly oversimplified description of how electronic charges are transported and controlled within a semiconductor. However, we believe that a basic understanding of how semiconductors work helps to take some of the mystique out of these devices. Next, we will briefly look at how semiconductors are manufactured. The Fabrication Process While a chip may possess as many as 25 layers of complicated circuit patterns and/or protective materials, the following narrative describes the steps involved in fabricating a simple power semiconductor, a pn junction diode. Chart 6 graphically summarizes the major processing steps.
The fabrication process starts with a silicon wafer that is typically six to eight inches in diameter

Doping is done to increase the concentration of electrons or holes

The basic component in the manufacture of power semiconductor devices is a thin, circular crystalline silicon wafer, typically six to eight inches in diameter. First, a thermal oxide is grown that prevents carriers within the silicon from diffusing to other parts of the device. The oxidation process (1) is accomplished by reacting silicon with either oxygen gas or water vapor at high temperatures. The next step is the lithography process (2), which is performed to open diffusion holes in the oxidation layer. Lithography basically involves removing a portion of the oxidation layer and exposing the silicon, thus, focusing the carrier action to the portion of the device where the silicon is exposed. Following the lithography process is the introduction of a doping material (phosphorus) (3) to the surface regions not protected by the oxidation layer. The doped region further accentuates the carrier action in the doped area of the device. The final step (4) involves connecting the device to the outside world by adding a metal contact. A thin metal film is placed (sputtered) over the entire surface of the wafer. A second lithography process (5) is then performed to remove the excess metal. The chip making process is complete when the finished wafer is cut into individual devices, or dies. A die bonder then takes each good die and encapsulates it in a plastic or metal package. The package is then moved to a wire bonder. To create the electrical connection necessary for the device to function, very fine gold or aluminum wire is bonded between the die and corresponding leads on the package.

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The wafer is cleaned throughout the manufacturing process. To ensure that microscopic particles dont contaminate the wafers undergoing fabrication, semiconductors are manufactured in clean roomssmall windowless spaces fitted with superfine air filters. Human presence is minimized in the clean room where production workers wear a bunny suit that covers their entire body.

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Chart 6 The Fabrication Process

Step

Process
Start

Visualization

Silicon

(1)

Oxidation

SiO 2 Silicon SiO 2

SiO 2 (2) Lithography #1 Silicon

SiO 2

Phosphorus

SiO 2 (3) Phosphorus Diffusion Silicon

SiO 2

SiO 2 n
+

SiO 2 Silicon

Al (4) Metalization SiO 2 n

+

SiO 2

Silicon

SiO 2 (5) Lithography #2 n

+

SiO 2

Silicon

Source: Semiconductor Device Fundamentals, 1996

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DIGITAL VS. ANALOG

Power semiconductors are typically considered to be analog semiconductors

Semiconductors are typically classified into two major categories: digital and analog (also know as linear). Digital semiconductors process information in binary numbers, the basic substructure of computer language. Therefore, digital semiconductors are normally associated with computer applications. There are three different types of digital semiconductors: 1) microprocessors, which are used for control and computing tasks; 2) memory chips, used to store programming instructions and data; and 3) logic chips, which are employed to manage the interchange and manipulation of digital signals within a system. Analog semiconductors process signals from real world phenomenon such as light, heat, and pressure. The vast majority of power semiconductor devices are analog devices. Therefore, our report will focus more on this type. The analog semiconductor sector shares many growth drivers with the broader semiconductor market. However, the analog market has some distinct characteristics that we believe make the sector a particularly attractive investment opportunity: steady growth, broad-based demand, barriers to entry, long product life cycles, low capital intensity, steady pricing, and high profitability. Broad Base of Demand Analog chips are found in all electronic equipment. Even a PC, the ultimate example of digital technology, requires analog chips to power the various components of the PC, to generate sound, graphics, and video, and to move information back and forth among the microprocessor, memory, hard disk, display, and printer. In addition to computer applications, analog semiconductors are prevalent in consumer electronics, telecommunications equipment, and industrial and automotive applications. Digital semiconductors are much more dependent on the computer industry. While we expect the PC sector to grow nicely through the end of the decade, driving substantial chip growth, the nonanalog semiconductor segments are heavily exposed to any potential PC downturn. The analog segment is far more diversified. Low Unit Volumes, Broad Product Portfolio Most analog standard products are sold in relatively small volumes. This is because analog semiconductors have many different critical specifications, and any particular application is likely to require its own combination of those specifications. For example, one application may require a higher speed while another requires better consistency of performance over a range of temperatures. It is usually impossible to design an analog chip that will optimize all of the parameters simultaneously. Therefore, the manufacturer must design different semiconductors for each application. Most semiconductor companies offer a wide range of these products. The differences within some product families may be minimal, but they are important to the designers that use them in their products.

Analog semiconductors are especially prevalent in consumer electronics and telecommunications equipment

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Long Product Life Cycles

Replacing an existing analog part is often an expensive proposition for an OEM

Analog chips are commonly sold in reasonable volumes for eight to ten years. This pattern is very different from almost any type of digital chip. A microprocessor that sells in volume for more than a year or two is a rarity. Again, the wide range of critical performance parameters is the key reason for analog product longevity. Once an analog chip has been designed for an electronic product and it performs as desired, the end-product designer is strongly disinclined to replace it. With typical analog chip volumes being comparatively smaller and it being difficult to enter existing markets, analog companies are generally better off designing new parts of their own rather than trying to imitate a competitors product. Most analog companies make a point of citing the percentage of their business that comes from proprietary parts. Manufacturing Differences Analog chip manufacturing is relatively inexpensive in an industry known for its capital intensity. Most analog semiconductors do not require leading-edge manufacturing equipment. As a result, analog companies typically spend 10% 15% of sales on capital expenditures, about 8 - 10 percentage points lower than the semiconductor industry as a whole. Analog and digital chip manufacturing are driven by different parameters. The digital world requires high integration, small feature sizes and high volumes. The analog markets requires low integration, larger feature sizes and low volumes of many different parts. Because analog parts are more reliable with larger feature sizes, small feature size can actually be a disadvantage for analog semiconductors. Additionally, an analog plant does not have the luxury of locking down on a single manufacturing process and then running it in high volumes. The wide range of analog parts typically requires multiple manufacturing processes. Steady Pricing Given the above factors, it is not difficult to understand why pricing tends to be relatively stable in the analog sector. Fragmented industry: The analog market is highly fragmented, with no one company dominating the market. Little competition for specific parts: Analog companies spend their R&D efforts on new products, not on imitating competitors products. Incumbent has the advantage: Analog companies would rather move on to their next design than spend time qualifying a new analog part for an existing product. Little capacity utilization pressure: The low capital intensity of the analog business keeps fixed costs relatively low. Consequently, analog companies are far less tempted to cut prices during periods of weaker demand simply to keep capacity utilization high up.

Analog manufacturing is about flexibility, not about leading-edge technology

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Low-cost impact on final systems: The average selling price for an analog integrated circuit is only around $2.00. Consequently, the cost of the analog content of the final product is low compared with many other components. OEMs can generally save themselves more money by concentrating their negotiating skills on non-analog areas.

POWER SEMICONDUCTOR INDUSTRY OVERVIEW Power semiconductor devices are a subsection of the overall analog semiconductor market. The power semiconductor industry is composed of manufacturers producing power discrete devices and/or power integrated circuit (IC) devices. The definitions of these two product groups are as follows: Power discrete: A semiconductor device that performs only one function and can control at least one watt of power at one amp of current. Power IC: A single semiconductor device that performs multiple functions and controls and delivers a total of at least one watt of power.

These two general groups can be further broken down into product categories. Later in this report we will look at the projected growth rates and analyze the key market trends impacting each of the individual product categories. We will begin, however, by focusing on the industry as a whole. History The power semiconductor industry has grown at an accelerating rate since its inception in the 1950s. The first power semiconductor devices were simple diodes and thyristors. During the 1950s and 1960s, research teams at major electronics companies like Motorola and Bell Laboratories, now part of Lucent, developed additional power discrete products as they investigated different applications for the new semiconductor devices. By the end of the 1960s, discrete power semiconductors were commonplace in consumer electronics and lighting applications. The first ICs appeared in the late 1960s as engineers began to integrate bipolar power transistors and small signal devices onto a single chip. Advances in IC design continued throughout the 1970s. In the early 1980s, IGBTs and MOSFETs were developed for higher power applications. Today, firms continue to experiment with new design and fabrication techniques to increase the powerhandling capabilities of power semiconductors and to raise the level of integration possible in power ICs. Competitors
There are approximately 80 companies that manufacture power semiconductors

The first power semiconductors were simple diodes

Appendix A shows the major power semiconductor manufacturers serving the North American market. Approximately 80 companies are active in the domestic market. Because the power semiconductor industry is relatively mature, the number of competitors is expected to remain stable. However, market share does shift frequently as companies extend their product lines into high-growth segments.

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Overall Industry Growth The overall North American power semiconductor market is expected to grow at a CAGR of 9.4% through 2006. As reflected in Chart 7, the North American market in 1996 was $3.35 billion and is expected to grow to $7.97 billion in 2006. Units are forecasted to increase at a slightly slower rate, from 7.81 billion units in 1996 to 16.08 billion units in 2006.

Chart 7 North American Power Semiconductor Market

Revenues (Billions) $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 2000E 2001E 2002E 2003E 2004E 2005E 2006E 1996 1997 1998 1999 Units (Billions) 18 16 14 12 10 8 6 4 2 0

Source: Frost & Sullivan

According to Frost and Sullivan, the devices that are expected to experience the highest growth are discrete insulated gate bipolar transistors (IGBTs), discrete metal-oxide semiconductor field effect transistors (MOSFETs), smart power ICs and power conversion/management ICs. The growth for these and other power semiconductor devices will be driven by several events, including:
Strong end-market growth is expected to drive the growth of power semiconductors

The introduction of new electronic products and the increase in the electronic content of existing products, devices and systems. Strong demand for voice and data communication products. Strong demand for portable computing devices. Strong demand for digital consumer electronic devices. Stability in the prices of power discrete devices and the likely increase in the prices of power ICs. Steady increase in the electronic content of automobiles.

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A Cyclical Industry The power semiconductor market, like the overall semiconductor market, is cyclical in nature. The basic cycle is as follows: 1) Suppliers add capacity to meet demand 2) Product lead times shorten 3) Customers begin to place fewer new orders 4) Customers reduce inventories 5) Suppliers cut prices to move products 6) Distributor orders increase 7) Suppliers ship from inventory 8) Inventory runs out lead times increase 9) Customers experience shortages 10) Prices firm panic-buying ensues
The overall semiconductor market picked up significantly in 1999 and should remain above the historical growth rate through 2001

The overall U.S. semiconductor industry has undergone phenomenal growth during the 1990s and, according to the Semiconductor Industry Association (SIA), has added more value to the U.S. economy than any other manufacturing industry. However, the cyclical nature of the industry and the short-term effects those cycles have are impacting long-term growth. Worldwide semiconductor sales increased 18.9% in 1999, according to the SIA, versus a decrease in sales of approximately 8.4% in 1998. Semiconductor sales in 1999 compare favorably to the historical average of around 17%. Total semiconductor sales are expected to increase almost 30% in 2000, 25% in 2001, 14% in 2002, and around 12% in 2003. In the past month, many semiconductor company stocks have taken a hit due to concerns that the semiconductor industry has hit its high and other companyspecific reasons. We disagree. We think that there is ample room for growth in both the overall semiconductor industry and, more specifically, the analog and power semiconductor markets. According to the Semiconductor Industry Association, analog sales are expected to grow almost 35% in 2000, faster than the overall semiconductor market. Starting in 2001, analog sales should grow at a comparable rate to that of the rest of the industry. We believe that now is an excellent time for investors to build positions in anticipation of strong results in through 2001 and beyond. Challenges Facing the Power Semiconductor Industry Anticipating changing demand patterns - The power semiconductor end-user markets are growing at different rates. This variation forces companies to anticipate market variations and respond accordingly to optimize the use of their productive resources. A power semiconductor companys failure to meet demand as it varies will inevitably lead to an erosion in revenues and profitability. Markets are easily cannibalized - The continued development of better technology represents the greatest threat to individual products. Specifically, within the discrete market, the IGBTs and MOSFETs are restraining the bipolar transistor markets growth in applications such as power supplies and motor drives. The result has effectively redirected the bipolar transistor into smaller consumer electronics niches.

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Establishing a competitive pricing strategy - In both power discrete markets and IC markets, end-users are always looking for the best price. Customer interviews indicate a very low loyalty level. During the semiconductor industry downturn from 1996 to 1998, manufacturers were forced to vary prices, sometimes by up to 25%. In 1999, the demand picture was much stronger, and the near-term pricing outlook is pretty stable. However, OEMs are continually looking for cheaper prices, and suppliers must have strong pricing strategies across their entire product classes. Customers are demanding more functionality from power ICs - Power IC customers are demanding that the power devices they purchase integrate as much functionality as possible in the smallest package. The need for highly functional, highly integrated power circuits is driven by the continued shrinking size and increasing sophistication of end-user products such as laptop computers, cellular phones, and automotive applications. Capacity shortages - Because of the cyclical nature of the industry, during periods of high demand, the industry is prone to experience manufacturing capacity shortages. This last occurred in 1995, when lead times grew from five weeks to longer than twelve weeks. It has happened again in 1999 and should continue through 2002 in the power semiconductor market. We do not see significant capacity expansion coming on line until 2001. Price declines in mature discrete power semiconductors - Mature discrete power semiconductor companies are plagued by factors such as low growth, little product differentiation, and severe competition. As a result, pricing is the primary competitive factor. Companies that produce these products have to concentrate on reducing costs, sometimes at the expense of developing new technologies or products. Demand for analog engineers - For the last twenty years, the majority of engineering students and college engineering curriculums have gravitated towards the high-tech digital fields. Consequently, a severe shortage of quality analog engineers has developed within the industry. A power semiconductor manufacturers most valued resource is its engineers.

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FORECASTS BY END-MARKET Automotive The automotive industry is one of the fastest growing market segments for power semiconductors. Revenues from the North American automotive industry totaled $1.1 billion in 1999. This figure is expected to grow to approximately $2.0 billion in 2006, representing a CAGR of 9.2%. Table 1 North American Automotive Power Semiconductor Market Revenue Revenue Growth Rate ($ Million) (%) 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E $818.2 888.6 956.0 1,052.0 1,163.5 1,292.3 1,409.7 1,531.4 1,652.5 1,807.2 1,952.6 NA 8.6 7.6 10.0 10.6 11.1 9.1 8.6 7.9 9.4 8.1

Power semiconductor sales to the automotive market are projected to have a CAGR of 9.2% through 2006

Compound Annual Growth Rate (1999A-2006E): 9.2%

Source: Frost & Sullivan

Driving the growth is the simple fact that more and more power semiconductor devices are being integrated into automotive electrical systems. Additional trends in this segment include 1) the use of higher battery voltages to optimize the efficiency of the electrical system, 2) the demand for device loads driven with both ac and dc voltages, and 3) the desire to individually match voltages with loads to optimize efficiency and performance. Power semiconductors will be used in body electronics (power windows, doors, mirrors, etc.), power train systems, electronic steering systems, and motor drives for electric vehicles.
Power transistors should benefit the most from the growth of the automotive industry

Power transistors stand to benefit the most from the automotive industry growth. We see strong growth coming in 2004 to 2006 as electric vehicles, which use IGBTs and MOSFETs, become increasingly attractive. Problems that have been associated with electric vehicles include low maximum speed, limited driving range, and lengthy charging downtime. However, the industry is making steady progress at solving these problems.

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Chart 8 Power Semiconductor Automotive Applications

Climate Control Multiplex Wiring Active Suspension Power Windows Electric Power Steering Voltage Regulator Ignition Control Cruise Control Electric Vehicle Air Bags

The automotive applications segment is one of the fastest growing segments within the power semiconductor industry

Dashboard Keyless Entry Power Seats Traction Control Headlamp Control Power Door Locks Windshield Wipers Power Antenna Anti-Lock Braking High Intensity Lighting Transmission Control

Electronic Fuel Injection

Source: International Rectifier Corporation

Computers and Peripherals The North American computer and peripherals industry consumed $649.1 million in power semiconductors in 1999. This amount is forecast to increase to just over $1.1 billion in 2006, representing a CAGR of 7.9% (see Table 2). The growth in this market will be driven by strong demand for portable devices and digital consumer electronic devices. According to eTForecasts, overall PC revenue will increase from approximately $226 billion in 1999 to $356.9 billion in 2005. Although the growth rate should decline in the U.S. and Western Europe, the rest of the world has less product penetration, and thus ample room for strong growth remains.

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Table 2 North American Computer and Peripherals Power Semiconductor Market Revenue Growth Rate (%)
NA 9.5 (0.2) 11.4 12.9 12.2 9.9 8.4 5.3 4.4 2.9

Year
1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Revenue ($ Million)
$533.1 583.8 582.7 649.1 732.6 821.9 903.6 979.3 1,031.0 1,076.8 1,107.8

Compound Annual Growth Rate (1999A-2006E): 7.9%

Source: Frost & Sullivan

Communications In 1999, the North American communications industry bought $912.0 million of power semiconductors. This market is forecasted to grow at a 14.6% CAGR to $2,359.0 million in 2006 (see Table 3). The primary driver of market growth in this segment should be consumption of power discretes such as MOSFETs and diodes in the wireless telecommunications markets, which include portable personal communications devices. MOSFETs should experience some of the strongest growth due to extraordinary demand for Internet-related enabling equipment (network hubs, routers, switching equipment).

The growth of the Internet is fueling the demand for power semiconductors in the communications industry

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Table 3 North American Telecommunications Power Semiconductor Market Revenue ($ Million) $590.2 694.0 757.9 912.0 1,120.4 1,362.6 1,626.5 1,840.3 2,033.8 2,198.7 2,359.0 Revenue Growth Rate (%) NA 17.6 9.2 20.3 22.9 21.6 19.4 13.2 10.5 8.1 7.3

Year 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Compound Annual Growth Rate (1999A-2006E): 14.6%

Source: Frost & Sullivan

Consumer Electronics
Sales of digital cameras, game stations, and DVDs are driving the growth in the consumer electronics industry

Revenues from the consumer electronics industry were $733.8 million in 1999. The segment is forecasted to grow at a CAGR of 6.6% through 2006 (see Table 4) to approximately $1,147.6 million in 2006. The year 1999 was a good one for the consumer electronics market, driven by increasing demand for digital cameras and game stations. Other areas of strength included DVDs and digital/audio video devices.

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Table 4 North American Consumer Electronics Power Semiconductor Market Revenue ($ Million) $637.1 679.3 678.0 733.8 804.4 881.4 951.8 1,012.2 1,066.3 1,106.9 1,147.6 Revenue Growth Rate (%) NA 6.6 (.2) 8.2 9.6 9.6 8.0 6.4 5.3 3.8 3.7

Year 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Compound Annual Growth Rate (1999A-2006E): 6.6%

Source: Frost & Sullivan

Industrial The industrial market segment is a catch-all segment that includes applications like power supplies, batteries, welding, induction heating, medical equipment and motor drives. This market has historically been a large consumer of power discretes and is increasingly moving toward total solutions packages offered by power integrated circuits (ICs). In 1999, the industrial end-user market consumed $895.0 million in power semiconductors, a figure that is expected to grow to $1.4 billion in 2006. This represents a CAGR of 6.6%. In the next several years, we believe that the industrial segment growth will remain steady due to increasing demand from the Asian markets during their recovery. However, from 2003 to 2006, the growth rate could slow due to the saturation of the power supply market and weakening domestic demand for overall power semiconductors.

Power supplies are included in the catch-all industrial market segment

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Table 5 North American Industrial Power Semiconductor Market Revenue ($ Million) $774.6 826.2 834.1 895.0 967.2 1,049.0 1,132.6 1,209.3 1,278.2 1,340.3 1,402.7 Revenue Growth Rate (%) NA 6.7 1.0 7.3 8.1 8.5 8.0 6.8 5.7 4.9 4.7

Year 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Compound Annual Growth Rate (1999A-2006E): 6.6%

Source: Frost & Sullivan

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ANALYSIS BY PRODUCT CATEGORY There are a number of ways to segment the power semiconductor market. Chart 9 illustrates how we have chosen to segment the market for the purpose of this report.

Chart 9 Power Semiconductor Market Segmentation

Power Discrete Devices Power Integrated Circuits (IC)

Power semiconductors are broken into two main segments, discretes and integrated circuits

Power Transistors

Rectifiers

Thyristors

Motion Control Power ICs

Metal-Oxide Field Effect Transistors MOSFETs

Rectifer Diode

Silicon Controlled Rectifiers SCRs

Power Management ICs

Bipolar Transistors

Schottky Rectifier

Triacs

Smart Power ICs

Insulated Gate Bipolar Transistors IGBTs

Gate Turn-Off Thyristors GTOs

Thyristor/Diode Module

Source: Stephens Inc.

Below is an analysis by product category. The product categories were originally identified by Frost & Sullivan in a report entitled North American Power Semiconductor Markets - July 2000. We have included Frost & Sullivans definitions and anticipated growth rates. Additionally, we provide a discussion of the market trends, drivers and restraints that are impacting the various product categories. The following chart depicts the 1999 total power semiconductor market broken down by product category. Total power semiconductor revenue for 1999 was approximately $4.2 billion.

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Chart 10 North American Power Semiconductor Market Percentage of Revenue by Product 1999 Estimates

Total - $4.2 billion

Transistors 32%

Integrated Circuits 51% Rectifiers 12% Thyristors 5%

Source: Frost & Sullivan

Power Transistors Power transistors are used as switches in power electronic circuits. Transistors typically have very fast switching times, which give them an advantage in medium power range applications of less than 2 kV.
Power transistors act as switches in medium power range applications

The power transistor market is basically comprised of three product subcategories that address different voltage segments of the market yet overlap on the fringes: IGBTs, MOSFETs, and bipolar transistors. Together, these three product sub-categories accounted for approximately $1.4 billion in revenues in 1999, or approximately 32% of the total North American power semiconductor market. Power transistor revenues are expected to grow at a CAGR of 7.5% to approximately $2.2 billion in 2006.

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Chart 11 North American Power Transistor Market

Revenues (M illions) $2,500.0 Units (M illions) 7,000 6,000 $2,000.0 5,000 $1,500.0 4,000 3,000 2,000 $500.0 1,000

$1,000.0

2000E

2001E

2002E

2003E

2004E

2005E

Source: Frost & Sullivan

The wireless market has contributed to the strong growth in the transistor market

The main drivers in the growth of the power transistor market for the coming years should be the strong growth in the mobile/wireless industry, the continued increase of electrical content in automobiles, and the growing need for mobile Internet connectivity which is fueling the growth for portable computing devices. The wireless market has been a strong growth driver for transistors, especially MOSFETs, the past few years. Frost & Sullivan predicts an accelerating growth rate in this market with a 2000 2002 CAGR approaching 25%. On the automotive side, transistor growth should be driven by applications such as power windows, doors, mirrors, seats and sunroofs. Power train systems also use transistors for ignition and fuel injection systems. Approximately 45 companies participate in the power transistor market in North America. There are basically three types of competitors: conglomerates, large multinational semiconductor companies and smaller manufacturers that focus more on niche markets. Examples of the conglomerate players include Hitachi Semiconductor, ABB Semiconductor, Phillips Semiconductors, Infineon, Fuji, Toshiba, Mitsubishi and ST Microelectronics. In the second tier are the smaller publicly traded companies like International Rectifier, ON Semiconductor, Intersil, Fairchild and Advanced Power Technology. Niche companies include, Dynex Power, EUPEC Inc., Powerex, Westcode, SPCO, PEMA and Sanrex Corp.

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$0.0

1996

1997

1998

1999

32

Market Trends Table 6 shows the percent of revenues by product type of the North American transistor market.

Table 6 North American Power Transistor Market (Percent of Revenues by Product Type) MOSFET (%) 56.2 56.6 56.5 57.6 58.6 59.9 61.1 61.7 61.9 62.3 62.8 Bipolar (%) 33.4 33.0 32.6 31.7 30.9 29.9 28.8 28.1 27.6 26.7 25.6 IGBT (%) 10.4 10.3 10.9 10.7 10.5 10.3 10.1 10.2 10.5 11.0 11.6

Year 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E
Source: Frost & Sullivan

MOSFETs and IGBTs are expected to take market share from the traditional bipolar transistors

MOSFETs are the largest product category in the power transistor market

The MOSFET market represents the largest product segment within the total power transistor market. In 1999, MOSFET revenues were $780 million, or approximately 57.6% of North American transistor revenues. MOSFET sales are expected to be strong due to strong demand from the communications and automotive markets. Additionally, MOSFETS continue to gain market share by replacing bipolar transistors in low to medium power applications. The second largest market is the more mature bipolar transistor market, which has thus far faced heavy competition from the newer IGBTs and MOSFETs. However, in 1999, bipolar transistors revenue increased to $430 million because of competitive pricing relative to MOSFETS and IGBTs. We expect that there will still be market demand for the bipolar transistors in low to medium frequency applications but expect the bipolar transistors to lose market share going forward. The newest product category, the IGBT, has enjoyed rapid growth in the last few years. In 1999, IGBT sales equaled $145 million, and Frost & Sullivan expect this figure to grow to approximately $260 million by 2006. The continued growth is attributable to an increasing price/performance ratio that should allow for further penetration into high-power applications. In 1999, the average selling price for power transistors was approximately $0.40 per unit, down from $0.48 in 1996. The decline was in response to excess manufacturing capacity in all three transistor product types. However, the price decline in 1999 was much less than that of the two previous years due to the strong demand for transistors during the year. We expect prices to remain stable for the next two to three years due to robust market demand and tightening

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capacity, but then decline again as manufacturing capacity outpaces demand from 2003 through 2006. Market Drivers
As transistor technology continues to improve, new markets will become available

The primary market driver for the power transistor market continues to be the growth of its end-markets. As mentioned above, there are three main markets that should drive growth for the next five to seven years: mobile/wireless communications, automotive, and the need for mobile Internet connectivity, which in turn drives the growth of portable computing devices. Other markets include the power supply industry, which is expected to grow in the low doubledigit range, and the motor drives industry, which should have continued steady growth. The development of faster switching technology should facilitate the entry of power transistors into the industrial segment. Specific markets within this segment that will be ripe for transistors include the welding and induction heating markets. These markets have traditionally belonged to thyristors. The highfrequency transistors will prove useful in industrial applications such as gas tungsten arc welding (GTAW), plasma and laser generation, and ultrasonic welding, which use power transistors in their power management systems. Market Restraints One of the primary restraints to power transistor growth is capacity constraint. The strong demand in the past year has resulted in most manufacturers operating at nearly 100% capacity, which has created supply shortages in the short term. Manufacturers that we have polled anticipate supply shortages in the near term of around 5%, primarily in high-growth applications such as cellular handsets, portable computing applications, and automobiles.

Internal competition between product categories represents the greatest market restraint for power transistors

Another primary restraint to growth is internal market competition among product types. IGBTs and MOSFETs compete against each other in the power supplies and portable electronics markets. MOSFETs are further encroaching on bipolar transistor markets in automotive and consumer electronics applications. As a result, the new MOSFET and IGBT products should significantly outpace the growth of the older bipolar transistors. Pricing is another factor that could affect revenues and profit margins going forward. Pricing is a factor due to intense competition among vendors within the transistor market. Over forty companies compete in this market. Those companies that manufacture low power transistors targeting high volume applications are especially sensitive to price. This would include most of the larger manufacturers like International Rectifier, ST Micro Electronics, Texas Instruments, Fairchild and ABB. Because of their pricing sensitivity, these companies are also more susceptible to the whims of the semiconductor cycle. During 1999, the semiconductor cycle was strong, and consequently, pricing was relatively firm. Companies that focus on higher power niche applications, like Advanced Power Technologies, Silicon Power and Dynex Power, typically fare better than the commodity manufacturers during cyclical downturns.

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Thyristors The thyristor is a three-terminal semiconductor device composed of four layers of silicon. Thyristors are used as switches in electronic circuits where control of the switch turn-on is required. Thyristors are capable of large currents and large blocking voltages and, as such, are typically used in very high power applications.
Thyristors act as switches in very high power applications

The four primary thyristor product segments are silicon controlled rectifiers (SCRs), triacs, gate turn-off thyristors (GTOs), and thyristor/diode modules. Together, these four product sub-categories accounted for $222.3 million in revenues in 1999. The market is expected to grow a modest 3.3% per year to $279.6 million by 2006.

Chart 12 North American Thyristor Market

Revenues (M illions) $300.0 $250.0 700 $200.0 $150.0 400 $100.0 $50.0 100 $0.0 0 300 200 600 500 Units (M illions) 900 800

Thyristors are not expected to grow as fast as the overall power semiconductor market

2000E

2001E

2002E

2003E

2004E

2005E

Source: Frost & Sullivan

The North American thyristor market comprises three types of manufacturers. The first is large conglomerate companies such as ABB Semiconductor, Hitachi, and Infineon. The second type of manufacturer is the smaller publicly traded companies like International Rectifier, ON Semiconductor, Microsemi and Powerex. The third type of manufacturer is the specialists in niche applications like EUPEC Inc. and Solid State Devices. Market Trends Table 7 shows the percent of revenues by product type of the North American thyristor market.

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1997

1998

1999

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Table 7 North American Thyristor Market (Percent of Revenues by Product Type) Silicon Controlled Rectifier (%) 43.2 43.0 42.9 43.0 43.1 43.2 43.2 43.1 42.7 42.3 42.0 Gate Turn-Off Thyristor (%) 9.2 8.6 8.0 7.1 6.2 5.4 4.8 4.3 4.1 3.9 3.8 Thyristor/ Diode Module (%) 26.7 27.4 28.2 29.0 29.8 30.4 31.0 31.5 32.2 32.9 33.4

Year

Triac (%) 20.9 20.9 20.9 20.9 21.0 21.0 21.0 21.1 21.0 20.9 20.9

1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Source: Frost & Sullivan

As illustrated in Table 7, the SCR market is the largest product segment within the power thyristor market. The GTO market should come under the most pressure because of the growth in the thyristor/diode modules in the industrial market, where increased functional integration and transient voltage spike suppression are key.
The pricing decline in thyristors is expected to ease in the coming year

When the thyristor market was at its peak in 1995, the average selling price was roughly $0.45 per unit. By 1999, the average selling price had dropped to $0.35 per unit. In the short term, prices are forecasted to decrease to $0.32 per unit by 2002. The expected decline is due to the decrease in sales of the higher-priced GTO thyristors. After 2002, prices are expected to remain stable or inch up slightly through 2006. Market Drivers High-power applications continue to drive demand for thyristors, despite the encroachment made by other semiconductors such as MOSFETs and IGBTs. Thyristors remain the best choice for high-power applications, especially in the range of 2.5KV to 6.5KV. Thyristors are well suited for very high-power applications because of their low conduction losses and high-voltage-blocking capabilities. In the medium- to high-power range, transistors are better suited due to low switching losses and high switching speeds, despite their high conductive losses. A second market driver for thyristors is the strong growth in the consumer electronics market. Strength in the U.S. economy is fueling demand for products such as ovens, washers, dryers, coffeepots, and other white goods, for which thyristors are ideally suited. One trend within this market is the move towards increased portability. This trend should support the growth of the thyristor module market versus discrete thyristors.

Thyristors are still very well-suited for high-power applications

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New thyristor variations are being designed that are getting a lot of attention from end-users. These products include the MOS-controlled thyristor (MCT), the fast turn-off thyristor (FTO) and the MOS turn-off thyristor (MTO). All three devices are very high-power devices aimed at traditional GTO and high power IGBT applications. These new devices possess improved performance characteristics and will be cheaper to manufacture in the near future.
Thyristors will be extremely difficult to replace

Another factor in favoring thyristors versus MOSFETs and IGBTs is the thyristors large installed base and the expense associated with replacing them. In order to replace the thyristors, companies must reconfigure their parent system, which involves changing software and training service personnel. Market Restraints While the maturity of thyristor design has ensured its long-term use, end-users have cited a number of design-inherent problems associated with thermal cycling and switching losses. Even the new thyristor variations such as the MCT and MTO do not eliminate such design-inherent difficulties for end-users. Once again, the IGBT can potentially capture a part of this market as a thyristor substitute because of its lower switching loss and improved thermal cycling characteristics. Because of these design strengths, IGBTs are expected to continue to make strong in-roads into markets traditionally dominated by thyristors. However, in the short term, the new thyristors should maintain the products overall market share. Price competition has been a constant in the price-sensitive thyristor market. With the move to increased contract manufacturing by OEMs, the problem will only be exacerbated. This move entails most U.S. OEMs looking for overseas manufacturing, especially in the low-cost areas of South America and Asia. This trend is especially evident in consumer electronics, the second largest market for thyristors. Rectifiers Rectifiers are the largest segment in the diode family. The diode is the simplest electronic switch. It is uncontrollable in that the on and off conditions are determined by voltages and currents in the circuit. Current easily flows in one direction while it is blocked in the other.

Rectifier diodes and Schottky diodes are the two main types of rectifiers

The two primary types of rectifiers are rectifier diodes and Schottky diodes. Together, these two product sub-categories accounted for $491.6 million in revenues in 1999. The market is expected to grow at 5.8% per year to $731.0 million by 2006 (see Chart 13).

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Chart 13 North American Diode Market

Revenues (M illions) $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 2000E 2001E 2002E 2003E 2004E 2005E 2006E 1996 1997 1998 1999 50 0 200 150 100 Units (M illions) 300 250

Source: Frost & Sullivan

The three main players in the rectifier market are General Semiconductor, Microsemi, and ON Semiconductor

Approximately 40 companies participate in the North American diode market. Again, there are three types of manufacturers: large conglomerates, smaller publicly held companies, and specialist niche manufacturers. The firms with significant market share are those that are large and have broad product lines. For these companies, diodes are typically complementary products to other products like MOSFETs and IGBTs. The top three players in the rectifier market are General Semiconductor, Microsemi Corp., and ON Semiconductor. Market Trends Table 8 depicts the percent of revenues by product type of the North American diode market.

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Table 8 North American Diode Market (Percent of Revenues by Product Type) Rectifier Diodes (%) 73.8 73.3 72.9 72.0 71.0 69.9 68.8 67.8 66.8 65.8 65.0 Schottky Diodes (%) 26.2 26.7 27.1 28.0 29.0 30.1 31.2 32.2 33.2 34.2 35.0

Year 1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E
Source: Frost & Sullivan

During 1999, the main end-use groups for rectifiers were industrial (32.3%), automotive (19.6%), communications (17.3%), and consumer electronics (14.6%). End-users are demanding faster recovery functionality and physically smaller diodes. Faster recovery functionality means greater energy efficiency and the ability to handle higher frequencies like those demanded by the new Pentium chips. Additionally, as portable electronics like cellular phones get smaller and smaller, device size must decrease.
Due to demand from high-growth markets such as communications, Schottky diodes should increase their market share

As is shown in the above table, Schottky rectifiers are estimated to grow from approximately 28% of total rectifier revenue in 1999 to around 35% by 2006. This is due to the use of Schottky rectifiers in fast-growth markets like automotive, communications, and portable electronic devices. The growth for the Schottky diodes is expected to be the greatest in 2000 2002, and then slow from 2003 through 2006. The slowing growth from 2003 2006 is due to an expected slowdown in the communications market and the maturation of digital electronic and portable computing devices. From 1996 to 1999, rectifier average selling price declined from $0.103 to $0.089, primarily due to excess capacity across all product segments. The current pricing has affected margins to the extent that any further decline in pricing would have serious repercussions on margins. From 2000 through 2006, Frost & Sullivan expects ASPs to increase slightly due to the growth of higherpriced Schottky diodes and ultra-fast diodes. Market Drivers IGBTs require fast recovery diodes in order to function properly. The high rates of growth of IGBTs should fuel the complementary growth of the diodes markets. The fact that IGBTs continue to gain market share from traditional thyristors should also help fuel rectifier growth.

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Growth in rectifiers is tied to the growth in the general electronics market. In the electronics market, a new product with increasing capabilities seems to replace an older model, almost on a daily basis. Because rectifiers are the solid-state device found in almost every power circuit, demand should continue to increase for rectifiers. Market Restraints
Like other commodity products, pricing is a primary issue in purchasing decisions

As with most standardized and mature products, price competition in the rectifier market is severe. The average selling price of this product is $0.089 per unit, with very slim margins. While this pricing environment may lead to increased unit sales, it does not necessarily translate into increased revenue and profitability. End-user industries such as the automotive and telecommunications industries are demanding the usability of integrated circuits and power modules at the expense of the discretes market. This trend is affecting all the discrete devices but is particularly impacting the relatively simple diodes market. However, the extremely price-sensitive markets should continue to prefer the cheaper rectifiers. Motion Control Power ICs

Motion control ICs are expected to grow 10% per year through 2006

Motion control power ICs are monolithic analog devices (integrated circuits built into a single chip) used to control or power the movement of electromechanical products such as small motors, printer heads, scanners, and hard disk drives. The devices usually operate in the five-volt to twenty-four-volt dc motor range. In 1999, motion control power ICs accounted for about $355.0 million of overall power semiconductor sales. By 2006, the North American motion control power IC market is forecasted to be $689.7 million. From 1999 through 2006, the CAGR for this market is expected to be 10% (see Chart 14).

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Chart 14 North American Motion Control Power IC Market

Revenues (M illions) $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 2000E 2001E 2002E 2003E 2004E 2005E 2006E 1996 1997 1998 1999 50 0 200 150 100 Units (M illions) 300 250

Source: Frost & Sullivan

The North American motion control power IC market is highly competitive with approximately 40 companies jockeying for position. There are, however, four main companies that dominate the market: National Semiconductor, ON Semiconductor, ST Microelectronics, and Toshiba Semiconductor. In sum, these four control approximately 45% of the market.

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Market Trends Table 9 shows a forecast of the percent of revenues by end-user category.

Table 9 Motion Control Power IC Market (Percent of Revenues by End-User Industry)

Automotive (%) Computers & Peripherals (%) Consumer Electronics (%) Communications (%) Industrial Machinery (%)

Year

The automotive and communications markets are expected to gain market share from the computer and peripherals in the motion control IC market

1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

27.0 26.9 27.9 28.0 28.2 28.2 28.4 28.4 28.8 29.6 30.4

31.0 31.0 29.8 29.8 29.8 29.8 29.5 29.3 28.7 27.6 26.6

15.0 15.0 14.7 14.7 14.7 14.7 14.6 14.4 14.2 13.9 13.4

5.0 5.1 5.3 5.6 5.9 6.2 6.6 7.0 7.3 7.4 7.5

22.0 22.0 22.2 21.9 21.4 21.1 20.9 20.9 21.1 21.5 22.1

Source: Frost & Sullivan

The market share for the motion control power ICs by industry is expected to remain relatively stable over the next several years. The automotive industry should gain market share going forward due to the increasing electrical content in automobiles. The communications sector is also expected to drive the motion control power IC market, primarily from demand for mobile communications. Other trends in this market include the continual reduction in package size, circuits with improved heat dissipation, and the integration of multiple drivers and protective circuitry. For example, the integration of sensors with motion control power ICs is a mature technological trend. The advantage of this technological innovation is that it conserves board space and development costs.
Prices in the motion control IC market should continue to increase going forward

After relative price stability in 1997 and 1998, motion control IC prices increased to $2.65 per unit in 1999 due to strong demand. We expect further price increases through 2002 as more functionality is added to the IC. We are looking for total price appreciation of around 9% from 1999 through 2006. Market Drivers Advances in IC fabrication techniques are leading to higher and higher levels of integrated functionality in motion control ICs. Additionally, integrated circuits offer greater reliability than discrete or electromechanical controlled devices. The combination of increased functionality and greater reliability should continue to drive revenues in this product category.

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Adding additional functionality to motion control devices increases demand

Motion control ICs sell better when they are protected from power transients. Transient protection takes place at the board level rather than the chip level. Transient protection is not a motion control-specific driver; however, transient protection boosts product demand by increasing the probability of a longer IC life in harsh electrical environments. Motion control power ICs are increasingly being designed to the specific requirements of end-user industries. This trend is driving the quality and range of technical innovation in motion control ICs. Market Restraints Motion control ICs generate unwanted heat during their operating cycle, which negatively affects the overall operating characteristics of the circuit. The effects of too much heat include interference with other circuits, which could in the worst case cause the failure of the circuit. A second restraint is that there is a void in motion control ICs targeting high voltage and high current markets. Demand for circuits that can handle 1,200 volts and over 30 amps is high, but there are no products addressing this need. This market is still handled by discrete devices. The application of motion control power ICs only to motion control functions limits market opportunities. Companies are adding extra functionality to motion control devices as a means to extend their utility beyond motor control and boost revenues. Power Conversion/Management ICs Power conversion/management ICs convert, adjust, power. Specific products that are grouped in power drop-out regulators (LDOs), switching regulators, converters, and controller ICs. Specific functions include: and/or control electrical management include low linear regulators, power performed by these ICs

Power management ICs are used to convert and adjust electrical power

Ac to dc conversion Dc to dc conversion Level translation Voltage regulation Interfacing high voltages with small-signal logic devices

In 1999, power conversion/management ICs sales amounted to an estimated $910.0 million. By year-end 2006, the North American power management IC market is forecast to be approximately $1.9 billion (see Chart 15). The CAGR for this market is expected to be 11.1% from 1999 to 2006.

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Chart 15 North American Power Conversion/Management IC Market

Revenues (M illions) $2,000.0 $1,800.0 Units (M illions) 1,200 1,000 800 600 400 200 0

Power management ICs are one of the fastest growing segments, with a CAGR estimate through 2006 of 11%

$1,600.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0

2000E

2001E

2002E

2003E

2004E

2005E

Source: Frost & Sullivan

Due to the wide range of applications, the power management market is highly fragmented

The North American power conversion/management IC market is highly fragmented due primarily to the wide range of product applications. Some of the main players include Texas Instruments, National Semiconductor, and ON Semiconductor. Collectively, these three account for around 45% of the market. Other players include Linear Technology, ST Microelectronics, Toshiba, Semtech and TelCom Semiconductor. Market Trends Table 10 shows Frost & Sullivans forecast of the percent of revenue by industry category.

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1996

1997

1998

1999

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Table 10 North American Power Conversion/Management IC Market (Percent of Revenues by End-User Industry)
Year Automotive (%) Computers & Peripherals (%) Consumer CommuniElectronics cations (%) (%) Industrial Machinery (%)

1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

23.0 22.7 23.2 22.9 22.6 22.2 21.4 21.1 21.0 21.0 21.5

20.0 19.9 19.3 19.0 18.8 18.5 18.2 18.0 17.7 17.3 16.7

14.0 13.8 13.2 13.1 12.9 12.7 12.5 12.4 12.3 11.9 11.5

24.0 24.8 25.3 26.6 28.0 29.5 31.0 31.6 32.2 32.8 33.4

19.0 18.8 18.9 18.4 17.7 17.2 16.9 16.9 16.9 16.9 16.9

Source: Frost & Sullivan

The communications market is the largest end-market for power-management ICs, accounting for 26.6% of sales in 1999. Demand for power management ICs should remain strong through 2002 in every market segment. However, the communications end-market should continue to grow fastest because of the increased demand for mobile phones, pagers and cordless phones that require more sophisticated battery management devices. The communications market is expected to account for approximately 33.4% of total market sales by 2006, thus companies serving this market should experience faster growth rates than other market participants. Consequently, we have built our power semiconductor research coverage list with companies that target one or more of the fastest growing segments of the communications industry. Power conversion/management IC vendors are pursuing efforts to reduce the size of their chip packages. These efforts are driven by the need to save board space (especially in small portable electronic devices such as cellular phones). Additionally, power conversion/management ICs are developing numerous product varieties as manufacturers seek market niches by differentiating their products. TelCom Semiconductor and Semtech are examples of companies that are devoting the vast majority of their R&D efforts to unique, proprietary ICs for mobile handsets and portable electronics.
The desire to extend the battery life in portable electronics is driving the need for efficient power regulation and control

In 1999, the weighted average unit-selling price for power management ICs was $1.65 per unit, an increase from $1.50 in 1996. The increasing price was due to the strong demand exhibited. Looking forward through 2002, pricing should continue to improve. The strong demand could cause component shortages, most likely in communication and portable device applications. However, prices should stabilize after 2002 as ample capacity is brought on-line. Frost & Sullivan forecasts power management ICs to have a sales price of around $1.93 per unit in 2006.

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Market Drivers Portable electronics, including laptop computers, cellular telephones, and personal digital assistants (PDAs), should fuel demand for power conversion/management ICs. Portable electronics have limited power sources that need more efficient power regulation and control. Power management ICs offer advantages including higher levels of integration and smaller footprints. The increasing electrical content in automobiles should also help to drive demand for power management ICs. Besides being useful in body electronics and power train applications, power management ICs are also used in airbags, antilock brakes, and collision prevention systems. Market Restraints At this time, there is a supply shortage for power management ICs due to the strong demand from the communication and portable electronic market segments. Although manufacturers are in the process of expanding capacity, meaningful capacity is not expected to hit the market until the end of 2001. As a result, supply shortages will likely occur between now and 2002, which will constrain the growth rate of power management ICs.
Additional costs are often incurred to dissipate excess heat

Advantages of power management ICs include smaller footprints and increased integration

Power management ICs produce unwanted heat during their operating cycle. This heat may interfere with other circuit components, negatively impacting their performance and/or generating circuit failure. Smart Power ICs (Low Voltage) Smart Power ICs are defined as ICs that combine mixed-signal power drivers with mixed signal and logic control circuitry on a monolithic wafer or chip. Smart Power ICs have traditionally been devices that integrate low-voltage (up to 100V) power MOSFETs with control circuitry. This definition has been changed since the early 1990s because it limited the market to a few select applications, such as motor drives and power supplies. Today, smart power ICs contain complex circuitry such as motor control systems, solenoid drivers, step-up converters, microprocessor interfaces, and voice circuits. Other possible applications include office equipment, portable electronics, telecommunications, white goods, and automotive applications. In 1999, smart power ICs sales totaled an estimated $908.0 million. In 2006, the North American smart power IC market is forecast to be $2.1 billion (see Chart 16). Frost & Sullivan expects the CAGR for this market to be 12.9% from 1999 to 2006.

The definition of smart power ICs continues to evolve

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Chart 16 North American Smart Power IC Market

Revenues (M illions) $2,500.0 $2,000.0
Texas Instruments, ON Semiconductor, and ST Microelectronics are the three main players in the smart power IC market, controlling 37% of the market

Units (M illions) 700 600 500

$1,500.0 $1,000.0 $500.0 $0.0 2000E 2001E 2002E 2003E 2004E 2005E 2006E 1996 1997 1998 1999

400 300 200 100 0

Source: Frost & Sullivan

The companies participating in this market range from the very large, previously mentioned multinational companies to smaller participants. The defining competitive criterion is the product itself. Quality products are available from both large and small manufacturers. However, currently, 37% of the market is controlled by Texas Instruments, ON Semiconductor, and ST Microelectronics. Growing from a smaller base, International Rectifier is one of the fastest growing smart power IC manufacturers today.

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Market Trends Table 11 depicts the smart power IC market by end-user industry in 1999.

Table 11 North American Smart Power IC Market (Percent of Revenues by End-User Industry)
Year Automotive (%) 28.0 27.5 28.2 27.5 26.7 25.9 25.0 24.8 24.9 25.1 25.3 Computers & Peripherals (%) 20.0 19.7 18.9 18.5 18.1 17.6 17.0 16.5 16.1 15.9 15.8 Consumer Electronics (%) 15.0 14.7 14.2 13.9 13.5 13.2 12.8 12.5 12.1 12.0 11.9 Communications (%) 32.0 33.1 33.7 35.3 37.1 39.0 41.0 42.1 42.9 42.9 42.9 Industrial Machinery (%) 5.0 5.0 5.0 4.8 4.6 4.4 4.2 4.1 4.1 4.1 4.1

1996 1997 1998 1999 2000E 2001E 2002E 2003E 2004E 2005E 2006E

Source: Frost & Sullivan

Like other power IC markets, the growth in the smart power IC market should be derived mainly from the communications market. Communications, which accounted for approximately 35% of the smart power market in 1999, is scheduled to grow to approximately 43% in 2006. During 1999, the growth in smart ICs was also helped by the automotive market and power supplies market. Customer demand for increased portability will drive the growth going forward, as the move towards portability will result in IC replacement of discrete alternatives based on improving performance of ICs and increasing economies of scales. The trend in smart power pricing, like other Power ICs, is upward. During 1999, we found that prices increased between 3% and 5%. We would expect prices to continue to trend higher over the coming years but at a slower rate than was experienced in 1999. This market will no doubt follow the lead of other more established power semiconductor markets. As the power IC market begins to mature, market share should be gained through aggressive pricing, and margins will likely be maintained by cost cutting efforts. Market Drivers
Price is the number one issue with smart power ICs

Price is the number one factor driving sales of smart power ICs. When a cost advantage can be gained using a smart power IC over discretes, OEMs typically choose the IC. Standard smart power ICs offer end-users an off-the-shelf solution that shortens the time to market for their product. Vendors providing a wide range of standard

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smart power ICs enable their customers to get their final product to market quickly by reducing the need for customized solutions or board level designs. Smart power ICs have typically targeted space-conscious applications. Smart power ICs have been used widely for dc/dc conversion in portable electronics. However, recent IC designs that do not integrate MOSFETs are finding markets in PC, telecommunications, consumer electronics, automotive and industrial applications. Market Restraints Integration brings together many components capable of crosstalk. Crosstalk is defined as extraneous signals from an adjacent ac circuit interfering with system performance. Dealing with the issue of crosstalk means physically isolating ac components. This solution increases costs and die size. Many electrical engineers develop a preference for using discrete devices. This preference limits the smart power IC in applications not under space constraints. Applications for which there is no pressure to reduce device size have no urgent need to move toward an IC solution, and thus discretes typically prevail. High-Voltage Smart Power ICs With the patented technology developed by Power Integrations, a high-voltage power MOSFET (350V - 700V) can now be integrated cost effectively along with standard CMOS and BiPolar processes. This high-voltage smart power capability can now provide the benefits of integration to applications historically served by discrete designs. A good example is the ac/dc conversion market where ac voltages from 85V to 265V previously required discrete MOSFETs. Existing linear and switch mode power supply designs can utilize a smart power IC that integrates the high-voltage power MOSFET, PWM control circuitry, the switching oscillator and other active and passive components, thus cutting the part count in half and reducing the size and weight of the system by a fourth. All this can occur with no cost compromise, and even cost improvement in many cases. This emerging high-voltage market has a potential of 1.5 billion units ($1.1 million) in 2000 on a worldwide basis for ac/dc converters in the 0.5 watt to 150 watt segment. We estimate that this market is growing at approximately 15% per year. The high-voltage smart power IC market alone should provide for considerable expansion of the overall smart power IC category going forward.

Many design engineers have yet to get comfortable with smart power IC technology

Recent technological breakthroughs enable smart power ICs to cost effectively compete with discrete designs that convert high voltage ac to dc

POWER SEMICONDUCTORS CONCLUSION This report has painted a rosy outlook for power semiconductors. Over the longer term, the trend line is definitely moving up. However, for all of its attractive characteristics, the power semiconductor sector in general is not immune to inventory corrections and broad semiconductor downturns. The group of companies that comprise the power semiconductor industry are very diverse, both in terms of product offerings and served markets. Because of this, some companies will do better than others when the inevitable semiconductor cycle downturn hits. On the other hand, other companies do better during the growth phase of a cyclical upturn. We intend to use our experience in following this unique market to help our clients take advantage of these cyclical changes.

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We believe that end markets influence power semiconductor companies more than the overall semiconductor cycle

We watch manufacturing capacity levels, which in our opinion drive the overall semiconductor cycles, because of their strong influence on the more pricesensitive companies on our coverage list. However, the majority of the power semiconductor companies on our coverage list are more dependent on the health of the end-markets that they serve than the state of the overall semiconductor market. We have intentionally built our coverage list with companies that realize a significant percentage of their revenues from the fastest growing segment of our economy, the communications market. As we stated in the opening of this section, the power semiconductor has truly come of age. These devices interface with the various technologies that are required to deliver reliable power, and they are capable of dramatically reducing the worlds energy consumption. There is a precedent to the kind of change and opportunity that we are talking about. Generations of regulatory and technological change created new opportunities in the telecommunications industry and transformed a sleepy utility sector of Grandma stocks into a vibrant investment sector. Similar dynamics are at work in the electricity sector, and the power semiconductor is at the heart of the action. Finally, the power semiconductor industry is not unlike other industries; those companies that best understand their customer needs and design and deliver products that meet those needs will be the most successful.

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Power Semiconductors Company Profiles

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Advanced Power Technology, Inc. (APTI-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): $34.81 $49.63 - $15.50 $285.4 million 8.2 million 0% 70% 425,460 $42
ADVANCED POWER TECHNOL INC
APTI
8/8/00 to 9/15/00 High: Low: Last: 49.63 15.50 34.81 USD 50

40

30

20

Thousands

839 420

Rating:

BUY

Aug

Sep

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A 1999A 2000E 2001E

1Q $0.00 ($0.00) $0.08A $0.16

Earnings Per Share 2Q 3Q 4Q ($0.04) ($0.02) $0.00 $0.04 $0.13 ($0.00) $0.11A $0.12 $0.14 $0.17 $0.18 $0.19

DecFY ($0.06) $0.16 $0.46 $0.70

% Chg. NA 380% 187% 52%

P/E Ratio NA 217.6X 75.7X 49.7X

Revs. $ Mil $24.9 27.5 42.5 57.0

EBITDA $ Mil $1.4 3.1 6.8 10.8

Enter./ Sales 10.0X 9.1X 5.9X 4.4X

Company Description
APTI manufactures high power and high frequency power semiconductors

Advanced Power Technology, Inc., headquartered in Bend, Oregon, is a leading designer, manufacturer and marketer of high performance power semiconductors. The Company focuses primarily on the high power, high frequency segment of the power semiconductor market. Targeted end-markets are communications and Internet infrastructure, semiconductor capital equipment, medical, industrial, and military/aerospace. Investment Highlights and Summary Advanced Power Technology (APT) is experiencing strong revenue growth and earnings momentum. Beginning in 1999, demand for APTs power semiconductors began to accelerate dramatically. Since its inception in 1984, APT has focused on a niche markethigh power, high frequency power semiconductors. The demand for these products is expanding as a result of the rapid proliferation of sophisticated electronics that require higher power that is more precisely regulated. A large, fast-growing market is moving in APTs direction. We are projecting APTs revenues to grow at a compound annual rate of 44.0% and earnings at a compound annual rate of 209.2% from 1999 to 2001.

Advanced Powers intellectual property is protected by 17 U.S. and 8 foreign patents

APT is an industry leader in high power, high frequency power semiconductors. APTs products are based on its proprietary interdigitated structure and self-aligned manufacturing process. This structure and process, which are protected by 17 U.S. patents and 8 foreign patents, allow APTs products to operate more efficiently and at higher frequencies than competing products. When an application calls for high power and extremely fast switching speeds, APT has the solution.

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Through acquisitions and/or increased R&D efforts, we expect APT to increase its exposure in fast-growing, high power radio frequency (RF) applications. RF MOSFET (metal oxide silicon field effect transistor) refers to a specialized type of device that operates at very high switching speeds. APTs existing RF MOSFET product offering already addresses the semiconductor capital equipment, medical imaging and CO2 laser markets. The Company would like to expand into the communications RF band market. The RF market is currently being addressed primarily by low voltage RF devices or RF tubes. APTs high voltage RF MOSFETs allow for a lower overall system cost when designing RF components and electronics. A large portion of APTs business is immune to the cyclicality in the semiconductor industry. Historically, the classic semiconductor cycle has been driven by capacity issues, not lack of demand. When manufacturing capacity is tight, lead times stretch out, prices go up and the semiconductor cycle heats up. As manufacturers add capacity, and inevitably too much capacity, lead times begin to shorten, prices drop and the semiconductor cycle heads into a downturn. This cycle has the greatest impact on those manufacturers that are price sensitive. Or said another way, it affects those semiconductor companies with the most competition. APT is a single-source supplier for approximately 35% of its revenues. There is only one other headto-head competitor in APTs niche space. Therefore, we look more at the health of the end-markets it serves rather than the overall semiconductor market to determine the outlook for the Company. APT has a strong, tenured management team. APTs six senior officers purchased controlling interest in the Company in 1995; in 1998, they acquired the balance. We think management had the right idea to purchase the Company, but its timing was bad. Following a period of strong sequential growth, demand softened and revenue growth slowed from 1995 to 1999. During this period, management focused on cash flows and kept the Company afloat. Today, with the demand picture improved dramatically and APT armed with the proceeds from the recent IPO, we believe that management is poised to take the Company to new heights. Led by Chairman, CEO and President, Patrick Sireta, the senior management team has an average of 14 years experience at APT. Mr. Sireta has 31 years of experience in the semiconductor industry. With the completion of the IPO, management owns approximately 50% of the outstanding shares.

The Company is not as exposed to the semiconductor cycle as other manufacturers

Stephens Inc. maintains a market in the common stock of Advanced Power and may act as principal in these transactions. Stephens Inc. has managed or co-managed an underwriting for Advanced Power within the past three years.

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Advanced Power Technology

Historical Earnings Summary & Projections
$ in millions, except per share amounts

1999 1Q* Revenues Cost of Goods Sold Gross Profit Research & Development SG&A Operating Income Net Interest Income (Expense) Other Income (Expense) Pretax Income Taxes Net Income Average Shares (Diluted) EPS (Diluted) Depreciation & Amortization EBITDA Margins Gross Profit Research & Development SG&A Operating Income Pretax Income Net Income Tax Rate EBITDA % Change Over Prior Year Revenues Gross Profit Operating Income Pretax Income Taxes Net Income EPS (Diluted) *Pro Forma
Does not include the effects of pushdown accounting and warrants associated with a $2.5 million bank loan. Source: Company reports and Stephens Inc. estimates

2000 3Q* 4Q* $ 7.8 4.8 2.9 0.2 2.0 0.7 (0.3) 0.0 0.4 0.4 (0.0) 5.0 $ (0.00) 0.2 0.9 $ $ 1Q* 9.6 6.2 3.4 0.2 2.2 1.0 (0.1) 0.0 0.8 0.3 0.5 6.3 0.08 0.3 1.2 $ $ 2Q* 10.1 6.3 3.7 0.2 2.2 1.3 (0.2) 0.0 1.1 0.4 0.7 6.3 0.11 0.3 1.6 $ $ 3QE 11.0 6.8 4.2 0.3 2.4 1.5 0.0 0.0 1.5 0.6 0.9 7.8 0.12 0.3 1.8 $ $ 4QE 11.9 7.3 4.6 0.3 2.5 1.8 0.4 0.0 2.2 0.8 1.3 9.3 0.14 0.3 2.1 $ $ 1QE 12.8 7.8 5.0 0.4 2.6 2.0 0.4 0.0 2.4 0.9 1.5 9.3 0.16 0.4 2.4 $ $ 2QE

2001 3QE $ 14.8 9.0 5.8 0.6 2.8 2.4 0.4 0.0 2.8 1.1 1.7 9.5 $ 0.18 0.4 2.8 $ $ 4QE 15.8 9.6 6.2 0.7 2.9 2.6 0.4 0.0 3.0 1.1 1.9 9.6 0.19 0.4 3.0 $

2Q* $ 6.6 4.2 2.3 0.2 1.8 0.4 (0.1) 0.0 0.3 0.1 0.2 5.0 0.04 0.5 0.8 $ $

Fiscal Year Ending December 1998 1999 2000E 2001E 24.9 17.6 7.2 0.9 6.8 (0.5) (0.7) 0.1 (1.1) (0.8) (0.3) 5.0 $ (0.06) $ 1.9 1.4 $ 27.5 18.0 9.5 0.9 7.0 1.6 (0.7) 0.1 1.0 0.2 0.8 5.0 0.16 1.4 3.1 $ $ 42.5 26.7 15.9 1.0 9.3 5.6 0.0 0.0 5.6 2.2 3.5 7.4 0.46 1.2 6.8 $ $ 57.0 34.6 22.4 2.1 11.1 9.2 1.5 0.0 10.7 4.1 6.6 9.4 0.70 1.6 10.8

5.9 4.0 1.8 0.2 1.6 0.0 (0.2) 0.0 (0.1) (0.1) (0.0) 5.0

7.3 4.9 2.4 0.2 1.6 0.6 (0.1) 0.0 0.4 (0.2) 0.7 5.0 0.13 0.3 0.9

13.6 8.3 5.3 0.5 2.7 2.2 0.4 0.0 2.5 1.0 1.6 9.4 0.17 0.4 2.6

(0.00) $ 0.5 0.5

31.2% 3.4% 27.1% 0.7% NM NM 73.9% 8.5%

35.6% 3.6% 26.6% 5.4% 4.1% 2.9% 30.5% 12.3%

32.6% 2.9% 22.1% 7.6% 6.1% 9.2% -50.3% 12.3%

37.6% 3.0% 25.9% 8.8% 5.0% NM 106.4% 11.3%

35.4% 2.5% 22.9% 10.0% 8.6% 5.2% 39.2% 12.6%

37.2% 2.5% 21.9% 12.8% 11.2% 6.8% 39.5% 16.0%

38.0% 2.4% 21.9% 13.7% 13.7% 8.5% 38.0% 16.5%

38.5% 2.3% 21.0% 15.2% 18.1% 11.2% 38.0% 18.0%

39.0% 3.0% 20.3% 15.7% 18.6% 11.5% 38.0% 18.8%

39.2% 3.4% 19.9% 15.9% 18.7% 11.6% 38.0% 18.9%

39.3% 3.8% 19.1% 16.4% 19.0% 11.8% 38.0% 19.1%

39.5% 4.2% 18.6% 16.7% 18.9% 11.7% 38.0% 19.2%

29.0% 3.7% 27.2% NM NM NM 73.5% 5.8%

34.5% 3.2% 25.3% 5.9% 3.7% 2.9% 20.6% 11.2%

37.4% 2.4% 21.9% 13.1% 13.2% 8.1% 38.5% 15.9%

39.3% 3.6% 19.4% 16.2% 18.8% 11.7% 38.0% 19.0%

-12.3% -22.0% -87.0% -179.3% -197.0% -152.3% -152.3%

-0.8% 17.7% 11.7% 28.3% 471.0% 171.4% 315.9% 1548.1% 10.7% -262.3% 194.0% 702.7% 194.0% 702.7%

44.6% 216.9% 165.4% 135.5% 138.5% -19.0% -19.0%

63.4% 85.1% nm 333.1% 593.8% nm nm

53.1% 59.6% 265.5% 314.3% 436.1% 260.8% 185.3%

51.7% 76.7% 174.0% 239.6% 356.3% 40.0% -10.2%

53.1% 56.6% 165.3% 451.8% 97.1% 5450.6% nm

33.9% 47.6% 110.3% 138.8% 182.0% 197.2% 102.1%

34.9% 42.4% 67.6% 93.7% 117.1% 131.2% 56.4%

34.5% 39.1% 61.2% 60.2% 85.9% 85.9% 52.6%

32.8% 36.2% 46.0% 38.5% 38.5% 38.5% 34.1%

10.5% 31.2% 447.4% 193.6% 126.2% 380.3% 380.3%

54.9% 67.9% 242.3% 450.3% 928.6% 326.4% 186.6%

34.0% 40.9% 66.2% 91.0% 88.6% 92.5% 51.7%

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Cree, Inc. (CREE-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $115.94 $202.00 - $32.13 $4.4 billion 37.6 million 0% 45% 1,028,285 $175 BUY
CREE INC
CREE
9/15/99 to 9/15/00 High: Low: Last: 202.00 32.13 115.94 USD 200 150

100

50

Millions

3.22 1.61

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1999A 2000A 2001E 2002E

1Q $0.09 $0.14 $0.32 $0.41

Cash Earnings Per Share 2Q 3Q 4Q $0.11 $0.12 $0.13 $0.17 $0.25 $0.30 $0.33 $0.35 $0.39 $0.44 $0.47 $0.49

JunFY $0.45 $0.85 $1.39 $1.80

% Chg. 88% 90% 63% 30%

P/E Ratio 257.6X 136.4X 83.4X 64.4X

Revs. $ Mil $60.1 108.6 175.1 250.6

EBITDA $ Mil $21.5 44.1 77.9 111.8

Enter./ Sales 68.2X 37.7X 23.4X 16.5X

Company Description Cree, Inc., headquartered in Durham, North Carolina, is an industry leader in the development, manufacture, and marketing of electronic devices made from silicon carbide (SiC). The Company incorporates its proprietary technology to produce compound semiconductors for use in automotive and liquid crystal display (LCD) backlighting; indicator lamps; full-color light-emitting diode (LED) displays; and other lighting applications. Cree also manufactures SiC crystals used in the production of unique gemstones and SiC wafers for research directed toward opto-electronic, microwave and power applications. (Source: Company Website) Investment Highlights and Summary World leader in silicon carbide (SiC) technology. Cree, Inc. (CREE) was established in 1987 to commercialize silicon carbide (SiC) as a base semiconductor material. Today, Cree is the largest producer of SiC wafers and other silicon carbide-based semiconductor materials. While silicon carbide has been around since 1824, it was extremely difficult to produce in large quantities. Cree developed a way to mass-produce single crystalline SiC, and 70 patents have been issued to the Company for technological breakthroughs and product development. Crees main products include LEDs, SiC wafers, and gemstones/materials. Additionally, Cree receives significant funding from the U.S. government to do research on SiC applications, particularly in radio frequency (RF) and microwave devices. The Companys LED products are used for backlighting applications in mobile phones, automotive dashboards, stereos, and office equipment. These LEDs are also used for large video displays, indicator lamps and stop lights. Additional targeted end-markets for silicon carbide wafers
Stephens Inc. 57

We believe Cree is the undisputed world leader in silicon carbide technology

include microwave products, wireless transmission products, and power devices such as high-power rectifiers and switches. Leadership position in light-emitting diode (LED) market. LEDs are essentially junction semiconductors that emanate a single color light when exposed to an electrical current. The fundamental structure of an LED is made up of the light-emitting semiconductor material, a reflector cup, a transparent lens that houses the semiconductor material, and electrical leads. LEDs made with SiC offer several advantages over LEDs made from traditional materials like sapphire. Crees LEDs are smaller, easier to manufacture, thus cheaper, and produce less static electricity than traditional LEDs. Even though the die size is smaller, Crees new high-brightness LEDs are able to produce enough light to be used in outdoor applications. Large, high-growth end-market opportunities. Crees R&D efforts are focused on commercializing new products in the areas of RF/microwave devices, solid state devices for high-voltage transmission applications, and blue laser diodes. Cree is beginning to receive qualification orders for its microwave/RF transistor products. The Companys blue laser diodes, used in DVDs and CD-Roms, are scheduled for launch in FY02. Silicon carbide is ideal for use in high-voltage power semiconductors because it can tolerate extremely high temperatures. Potential applications include automobiles, factory automation, lamp ballasts, motor control, traction control, and electric power transmission. Cree is working with the Kansai Electric Company in Japan, the fourth-largest electric utility in the world, researching switching systems in power transmission networks. Revenues from power semiconductor products arent expected to be material until CY01. Key for Cree is executing its plan to meet demand. Demand is now visible into the next three to four quarters. Cree must continue to increase capacity and improve yields. This is not a new problem for the Company, and management has proven its ability to execute its strategy in the past. In FY99 and FY00, Cree dropped the average cost of its standard LED by approximately 50%. Going forward, Cree must continue to decrease the cost of producing its highbrightness LEDs to maintain margins. Near-term outlook is good with strong visibility and record backlog. Crees 4Q00 backlog of $76.6 million was the highest in its history. With product demand now visible into the next three to four quarters, the Company is essentially booked for the rest of FY01.

Cree decreased the cost of its LEDs by an average of 50% over the past two years

Stephens Inc. maintains a market in the common stock of Cree, Inc. and may act as principal in these transactions.

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58

CREE, INC.
Historical Earnings Summary & Projections
(in millions, except per share amounts) 2000*
Sep Dec Mar Jun Sep Dec

2001
Mar Jun Sep Dec

2002
Mar Jun

Fiscal Year Ending June 3QE 4QE $ 69.7 31.9 37.8 4.3 5.9 27.7 (1.8) 29.5 10.0 $ 19.5 39.4 $ $ $ 0.49 3.6 31.3 $ $ $ $ $ 1999 60.1 31.9 28.1 4.4 6.1 1.0 16.6 (1.1) 17.6 4.9 12.7 28.4 0.45 5.0 21.5 $ $ $ $ 2000* $ 108.6 52.4 56.2 7.1 11.1 36.8 (9.4) 46.2 16.1 30.1 34.7 0.85 7.3 44.1 $ $ $ $ 2001E $ 175.1 80.1 95.1 10.7 17.5 66.8 (14.0) 80.8 27.5 53.4 38.4 1.39 11.1 77.9 $ $ 2002E $ 250.6 114.2 136.4 15.6 22.7 98.1 (9.1) 107.2 36.5 70.8 39.2 1.80

1Q Sales Cost of Sales Gross Profit R&D SG & A Other Expense Operating Income Interest (Income)/Expense Pretax Income Taxes Net Income Average Shares - Diluted EPS - Diluted Depreciation & Amortization EBITDA Margin Analysis Gross Profit R&D SG&A Operating Income Pretax Income Net Income Tax Rate Percent Change Over Prior Year Sales Cost of Sales Gross Profit SG&A R&D Operating Income Pretax Income Taxes Net Income EPS - Diluted 69.9% 71.9% 67.5% 15.5% 68.8% 89.9% 99.5% 114.6% 92.5% 53.8% 45.4% 4.5% 9.9% 30.6% 33.3% 21.8% 34.4% $ $ $ $ $ 20.9 11.4 9.5 0.9 2.1 0.1 6.4 (0.6) 6.9 2.4 4.6 33.2 0.14 1.5 7.9 $ $ $ $ $

2Q 24.8 12.1 12.7 1.9 2.8 (0.0) 8.1 (0.6) 8.6 3.0 5.6 33.5 0.17 1.7 9.8 $ $ $ $ $

3Q 29.5 13.7 15.8 2.2 3.0 1.2 9.4 (3.8) 13.2 4.5 8.7 34.6 0.25 2.0 11.4 $ $ $ $ $

4Q 33.4 15.2 18.2 2.0 3.3 0.0 12.9 (4.5) 17.4 6.2 11.2 37.6 0.30 2.1 15.0 $ $ $ $ $

1QE 37.4 17.1 20.2 2.2 3.7 14.3 (4.0) 18.3 6.2 12.1 37.9 0.32 2.5 16.8 $ $ $ $ $

2QE 40.6 18.5 22.0 2.5 4.1 15.5 (3.6) 19.1 6.5 12.6 38.2 0.33 2.7 18.2 $ $ $ $ $

3QE 45.9 21.0 24.9 2.8 4.6 17.4 (3.3) 20.7 7.0 13.7 38.6 0.35 2.9 20.3 $ $ $ $ $

4QE 51.3 23.4 27.9 3.2 5.1 19.7 (3.1) 22.8 7.7 15.0 38.9 0.39 3.0 22.7 $ $ $ $ $

1QE 55.7 25.3 30.4 3.5 5.4 21.4 (2.7) 24.1 8.2 15.9 38.9 0.41 3.2 24.6 $ $ $ $ $

2QE 60.2 27.3 32.8 3.8 5.5 23.5 (2.4) 25.9 8.8 17.1 39.2 0.44 3.4 26.9 $ $ $ $ $

65.1 29.7 35.3 4.0 5.8 25.5 (2.2) 27.7 9.4 18.3 39.3 0.47 3.5 29.0

$ 13.7 $ 111.8

51.3% 7.7% 11.2% 32.5% 34.8% 22.8% 34.6%

53.5% 7.6% 10.1% 31.9% 44.6% 29.5% 34.0%

54.5% 5.9% 9.9% 38.6% 52.1% 33.6% 35.6%

54.2% 6.0% 9.9% 38.3% 49.0% 32.3% 34.0%

54.3% 6.1% 10.0% 38.2% 47.1% 31.1% 34.0%

54.2% 6.2% 10.1% 37.9% 45.1% 29.8% 34.0%

54.4% 6.2% 9.9% 38.3% 44.3% 29.3% 34.0%

54.5% 6.3% 9.7% 38.5% 43.3% 28.6% 34.0%

54.6% 6.3% 9.2% 39.1% 43.1% 28.4% 34.0%

54.3% 6.2% 8.9% 39.2% 42.6% 28.1% 34.0%

54.3% 6.1% 8.5% 39.7% 42.3% 27.9% 34.0%

46.8% 7.4% 10.1% 27.6% 29.3% 21.1% 28.0%

51.8% 6.5% 10.2% 33.9% 42.5% 27.7% 34.8%

54.3% 6.1% 10.0% 38.2% 46.2% 30.5% 34.0%

54.4% 6.2% 9.0% 39.2% 42.8% 28.2% 34.0%

76.8% 62.9% 92.4% 70.5% 90.8% 115.0% 129.1% 225.7% 98.1% 60.3%

84.1% 65.5% 104.2% 48.3% 89.3% 116.7% 181.0% 241.1% 157.6% 118.3%

88.5% 58.3% 124.1% 96.6% 78.3% 152.3% 205.9% 288.2% 173.7% 127.4%

79.1% 50.3% 113.7% 140.8% 79.9% 123.9% 163.7% 160.7% 165.3% 132.2%

63.4% 53.3% 73.0% 29.5% 46.6% 92.3% 121.2% 117.6% 123.1% 95.9%

55.4% 53.0% 57.4% 26.6% 56.1% 84.7% 56.9% 56.9% 56.9% 40.9%

53.9% 54.4% 53.4% 61.9% 54.0% 52.5% 30.8% 24.8% 34.2% 29.7%

49.1% 48.1% 49.9% 56.5% 46.1% 49.9% 31.9% 31.9% 31.9% 28.5%

48.3% 47.4% 49.2% 53.2% 36.5% 51.8% 35.8% 35.8% 35.8% 32.3%

41.8% 41.5% 42.1% 41.8% 25.0% 46.7% 33.9% 33.9% 33.9% 31.5%

35.8% 36.1% 35.5% 33.6% 16.6% 40.8% 29.5% 29.5% 29.5% 27.9%

41.2% 14.1% 93.3% 150.4% 47.3% 103.4% 98.6% 90.0% 102.1% 87.5%

80.8% 64.0% 99.8% 58.8% 82.2% 121.9% 161.9% 224.9% 137.3% 89.9%

61.3% 52.9% 69.1% 52.3% 57.5% 81.9% 75.2% 71.2% 77.3% 62.5%

43.1% 42.7% 43.5% 45.1% 29.7% 46.8% 32.6% 32.6% 32.6% 30.0%

* Restated due to acquisition of Nitres Inc. Source: Company reports and Stephens Inc. estimates

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International Rectifier Corp. (IRF-NYSE)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $59.50 $67.44 - $14.69 $3.9 billion 65.7 million 1% 229% 1,195,896 $90 BUY
INTL RECTIFIER CORP
IRF
9/15/99 to 9/15/00 High: Low: Last: 67.44 14.69 59.50 USD 70 60 50 40

30

20

Millions

2.93 1.46

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1999A 2000A 2001E 2002E

1Q $0.00 $0.10 $0.58 $0.75

Earnings Per Share 2Q 3Q 4Q $0.02 $0.04 $0.06 $0.23 $0.38 $0.52 $0.64 $0.69 $0.74 $0.80 $0.85 $0.90

JunFY $0.12 $1.27 $2.66 $3.30

% Chg. (64%) 982% 110% 24%

P/E Ratio 495.8X 46.9X 22.4X 18.0X

Revs. $ Mil $545.3 753.3 1,070.3 1,345.2

EBITDA $ Mil $66.4 161.8 289.2 373.0

Enter./ Sales 6.2X 4.5X 3.9X 2.5X

Company Description International Rectifier, headquartered in El Segundo, California, was founded in 1947 to manufacture selenium rectifiers. Since its inception, IRF has been considered the technological leader in discrete power semiconductor design. Today, IRF is the only company in the world that produces components that address the entire power conversion process of refining raw electricity into clean, usable power. IRF provides enabling technologies for products that work smarter, run cooler, and raise the world's productivity-per-watt. Investment Highlights and Summary IRFs R&D efforts are focused on designing higher value-added products. As recently as last year, IRF was characterized as a semiconductor company that does well during the upturns in the semiconductor cycle but does poorly when the inevitable downturn comes. This was because the Companys legacy products were basically commodity components. However, to some degree, management has been able to transform the Company. IRF has new proprietary analog power ICs, advanced circuit devices for power systems. These products are highly differentiated products that are targeting the automotive, broadband communications, computing, lighting and industrial markets. During FY00 (June year-end), these products accounted for approximately 25% of revenue, versus 18% during FY99. We predict that in twelve months, IRFs new proprietary products will account for approximately 35% of total revenues. These proprietary products carry higher ASPs, relatively longer product life cycles and substantially greater gross margins than the Companys traditional component business. IRF has developed a lucrative patent portfolio. IRF currently holds over 300 patents. The majority of the MOSFET (metal oxide semiconductor field effect transistor) market is served by International Rectifier and companies that
Stephens Inc. 61

IRF is one of the oldest semiconductor companies in the world

We estimate that in 12 months, new proprietary products will account for 35% of IRFs sales

IRF owns key MOSFET-related patents

license IRFs technology. It has over 20 companies under licensing agreements, some of which include ABB Semiconductor, Hitachi, Mitsubishi Electronics, Motorola, National Semiconductor, NEC, SGS-Thompson, Toshiba, and Unitrode. The Companys strong patent portfolio and extensive licensing agreements yielded $36.4 million in royalty revenue in FY00. The Company has available capacity and lower lead times than the industry average. Currently, IRFs capacity utilization is only 85%, versus the industry average of around 90%. Additionally, International Rectifier is maintaining lead times in the 4- to 18-week range, which is much shorter than the industry average of around 30 weeks. Shorter lead times aid in IRFs ability to gain market share, allowing it to grow faster than the industry average. The current outlook is extremely robust. IRF is clearly hitting on all cylinders at this time, and with the current market strength, we see no reason for a slowdown in the near future. IRF is publicly targeting revenue growth of 40% during the current fiscal year. We are especially encouraged with the growth of its new proprietary products. We believe that the proprietary products will help mitigate the cyclicality of IRFs business, as well as improve margins and increase revenue and earnings.

IRF currently has shorter lead times than the industry average

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International Rectifier Corp.

Historical Earnings Summary & Projections
$ in millions, except per share amounts

2000
Sep Dec Mar Jun Sep Dec

2001
Mar Jun Sep Dec

2002
Mar Jun

Fiscal Year Ending June 4Q02E $ 366.4 211.0 155.4 46.9 25.6 82.8 4.5 87.3 25.3 $ 62.0 69.0 $0.90 $18.9 $101.7 $ $ 1999 $ 545.3 388.2 157.2 98.2 40.5 18.5 (11.1) 1.4 8.7 2.7 6.0 51.3 0.12 $47.9 $66.4 $ $ 2000 $ 753.3 485.2 268.1 114.7 47.2 106.2 (6.0) 1.3 101.5 28.4 73.1 57.7 1.27 $55.6 $161.8 $ $ 2001E $ 1,070.3 636.6 433.8 141.0 68.5 224.2 17.6 241.8 60.5 181.4 68.2 2.66 $65.0 $289.2 $ $ 2002E $ 1,345.2 777.1 568.2 173.5 91.9 302.7 18.0 320.7 93.0 227.7 69.0 3.30 $70.3 $373.0

1Q00 Revenues Cost of Goods Sold Gross Profit Selling & Administrative Research & Development Operating Income Interest Income (Expense) Other Income (Expense) Pretax Income Taxes Net Income Average Shares (Diluted) EPS (Diluted) Depreciation & Amortization EBITDA Margins Gross profit Selling & Administrative Research & Development Operating Income Pretax Income Net Income Tax rate % Change Over Prior Year Revenues Gross Profit Operating Income Pretax Income Taxes Net Income EPS (Diluted) 19.4% 33.2% nm nm nm nm nm $ $

2Q00

3Q00***

4Q00

1Q01E

2Q01E

3Q01E

4Q01E

1Q02E $ 307.4 178.3 129.1 40.0 20.3 68.8 4.5 73.3 21.3 $ 52.1 69.0 $0.75 $17.0 $85.8

2Q02E $ 325.8 188.5 137.3 42.0 22.2 73.1 4.5 77.6 22.5 $ 55.1 69.0 $0.80 $17.4 $90.5

3Q02E $ 345.7 199.3 146.4 44.6 23.9 77.9 4.5 82.4 23.9 $ 58.5 69.0 $0.85 $18.0 $95.9

152.2 $ 171.1 $ 104.0 112.9 48.2 58.2 26.7 27.1 11.1 10.6 11.0 (3.4) 7.5 2.4 5.1 $ 53.1 $0.10 $13.1 $24.1 20.1 (3.9) 0.6 16.8 4.4 12.4 $ 54.1 $0.23 $13.4 $33.5

198.0 $ 232.0 125.5 142.8 72.4 89.2 28.8 32.1 11.8 13.7 31.8 (2.1) 0.5 30.2 8.5 21.7 $ 57.7 $0.38 $14.4 $46.2 43.4 3.4 0.2 47.1 13.2 33.9 65.7 $0.52 $14.7 $58.1

$ 245.5 $ 260.3 $ 274.6 $ 290.0 149.0 155.6 162.3 169.6 96.5 104.6 112.3 120.3 33.0 34.6 35.7 37.7 15.2 16.6 17.8 19.0 48.3 4.2 52.5 13.1 $ 39.4 $ 67.4 $0.58 $15.8 $64.1 53.5 4.4 57.9 14.5 43.4 $ 67.8 $0.64 $16.0 $69.5 58.8 4.4 63.2 15.8 47.4 $ 68.5 $0.69 $16.4 $75.2 63.7 4.6 68.3 17.1 51.2 69.0 $0.74 $16.8 $80.5

31.7% 17.5% 7.0% 7.2% 5.0% 3.4% 32.0%

34.0% 15.8% 6.5% 11.7% 9.8% 7.2% 26.1%

36.6% 14.6% 6.0% 16.1% 15.2% 11.0% 28.1%

38.5% 13.8% 5.9% 18.7% 20.3% 14.6% 28.0%

39.3% 13.4% 6.2% 19.7% 21.4% 16.0% 25.0%

40.2% 13.3% 6.4% 20.5% 22.2% 16.7% 25.0%

40.9% 13.0% 6.5% 21.4% 23.0% 17.3% 25.0%

41.5% 13.0% 6.5% 22.0% 23.5% 17.7% 25.0%

42.0% 13.0% 6.6% 22.4% 23.9% 16.9% 29.0%

42.2% 12.9% 6.8% 22.5% 23.8% 16.9% 29.0%

42.4% 12.9% 6.9% 22.6% 23.9% 16.9% 29.0%

42.4% 12.8% 7.0% 22.6% 23.8% 16.9% 29.0%

28.8% 18.0% 7.4% 3.4% 1.6% 1.1% 31.0%

35.6% 15.2% 6.3% 14.1% 13.5% 9.7% 28.0%

40.5% 13.2% 6.4% 20.9% 22.6% 16.9% 25.0%

42.2% 12.9% 6.8% 22.5% 23.8% 16.9% 29.0%

28.8% 50.8% nm nm nm nm nm

43.9% 81.6% 516.7% 1034.5% 926.7% 1082.9% 961.2%

57.3% 110.1% 477.4% 921.8% 822.9% 966.2% 739.3%

61.3% 100.1% 340.2% 595.7% 443.6% 667.3% 504.4%

52.1% 79.8% 166.6% 245.2% 230.6% 250.4% 179.6%

38.7% 55.1% 84.8% 109.6% 86.8% 118.5% 84.2%

25.0% 34.8% 46.7% 45.0% 29.5% 51.0% 43.8%

25.2% 33.8% 42.6% 39.8% 62.1% 32.3% 29.3%

25.2% 31.3% 36.8% 34.2% 55.7% 27.0% 24.8%

25.9% 30.4% 32.5% 30.4% 51.3% 23.5% 22.6%

26.4% 29.1% 30.0% 27.9% 48.3% 21.1% 21.1%

-1.2% 38.1% -10.8% 70.6% -43.0% 475.6% -64.6% 1065.1% -66.7% 952.5% -63.5% 1115.7% -63.5% 981.8%

42.1% 31.2% 111.0% 138.2% 112.6% 148.1% 109.6%

25.7% 22.1% 35.0% 32.6% 53.9% 25.6% 24.2%

*** Excludes charges associated with the early repayment of debt. Source: Company reports and Stephens Inc. estimates

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Power Integrations Inc. (POWI-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $14.31 $68.00- $14.00 $410.7 million 28.7 million 0% 27% 765,391 $49 BUY
POWER INTEGRATIONS INC
POWI
9/15/99 to 9/15/00 High: Low: Last: 68.00 14.00 14.31 USD 70 60 50 40

30

20

Millions

2.08 1.04

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A* 1999A* 2000E 2001E

1Q $0.07 $0.14 $0.17A $0.24

Earnings Per Share 2Q 3Q 4Q $0.07 $0.12 $0.12 $0.15 $0.20 $0.18 $0.18A $0.24 $0.23 $0.25 $0.30 $0.29

DecFY $0.37 $0.67 $0.82 $1.08

% Chg. 134% 78% 23% 32%

P/E Ratio 38.7X 21.4X 17.5X 13.3X

Revs. $ Mil $70.0 104.0 128.6 165.5

EBITDA $ Mil $17.1 30.4 35.4 47.6

Enter./ Sales 5.0X 3.3X 2.7X 2.1X

* Fully diluted, fully taxed

Company Description Power Integrations, Inc., headquartered in Sunnyvale, California, designs, manufactures, and sells proprietary high-voltage analog integrated circuits (ICs) that convert ac power to dc power. POWI targets high-volume power supply markets, including cellular phone chargers, PC set-top boxes, and other consumer electronics. The Companys TOPSwitch was the first high-voltage power conversion IC to successfully gain widespread market acceptance. The Company now has 25 U.S. patents and 33 foreign patents relating to highvoltage analog design and wafer fabrication processing techniques, which, we believe, underscores Power Integrations high-voltage analog technology leadership. Investment Highlights and Summary Power Integrations stock has been hit because of slowing sales to its number one customer Motorola. In 1Q00, POWI had a disappointing quarter, with lower-than-expected sales to Motorola. The decrease was primarily a result of Motorola selling more of its low-end mobile phones in pre-paid packages, especially in Europe. POWIs products are typically used in phone chargers packaged with MOTs higher-end phones. In POWIs most recent quarter, sales to Motorola were only 11% of total sales, down 40% year-overyear. Motorola has discontinued manufacturing several lower-end phone models and is ramping up production of several higher-end models to compete with Nokia and Ericsson. This is good news for POWI; its proprietary integrated circuits have a much better chance of being designed into a phone charger for higher-end phones. It should be noted that demand from POWIs other customers increase 100% year-over-year. The wireless market represents approximately 33% of POWIs sales.
65

Power Integrations has a strong intellectual property base

The situation at Motorola is trending back in POWIs favor

Stephens Inc.

Customer acceptance of POWIs new TOPSwitch-FX has been better and sooner than initially expected

New product development initiatives. The Company now has three main product lines: the TOPSwitch-FX, targeted at applications from 0 to 75 watts; the TinySwitch for use in applications from 0 to 19 watts; and the TOPSwitch, which is focused on uses in the 0 to 150-watt range. The TOPSwitch-FX line is the latest Company release, introduced to the market in March 2000. This product is targeted for applications such as cellular phone chargers, PC standby power supplies, set-top boxes, DVDs, LCD monitors, and multimedia speakers. Initially, we expected revenue to begin to ramp up for this product in 2Q01. However, customer feedback has been very positive, and POWI began shipments of the new product in the most recent quarter to MOT and other customers. Unlike many other semiconductor companies, capacity is not an issue. During its most recent quarter, POWI signed a new five-year contract with its primary foundry partner Matsushita Electric Corp. The areement with MEC will allow increased exposure to the Japanese IC market, ensure wafer supplies (both for its standard silicon wafers and for POWIs new silicon technology to be announced in 4Q00), and lower wafer costs. Power Integrations has built a better mouse trap. The Companys integrated circuits allow designers of low-end power supplies to build components that are smaller and more efficient than older versions. To date, POWI has no direct competition. We believe that this will change and that competition will be good for POWI. In the electronic component and semiconductor industries, it doesnt always pay to get too far ahead of the technology curve. Customers understandably like to have a second source. While the Company has grown exceptionally well in the past, we think its size and the lack of competition have been hindrances. The removal of one of these (i.e., the addition of a secondsource competitor or the increase in scale of POWIs organization through acquisitions or a merger/buyout) would help to more effectively market POWIs superior technology.

We believe that a second-source competitor would be good for POWI

Stephens Inc. maintains a market in the common stock of Power Integrations and may act as principal in these transactions.

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POWER INTEGRATIONS, INC.

Historical Earnings Summary & Projections
$ in millions, except per share amounts

1999 1Q Revenues Product sales License fees & royalties Total Revenues Cost of Goods Sold Gross Profit Research & development Sales & marketing General & administrative Operating Income Other Income (Expenses) Pretax Income Taxes Net Income Average Shares (Diluted) EPS reported EPS (Diluted, taxed @ 35%) Depreciation & Amortization EBITDA Margins Gross profit Research & development Sales & marketing General & administrative Operating income Pretax income Net income Tax rate % Change Over Prior Year Product sales License fees & royalties Total revenues Gross profit Operating income Other income (expenses) Pretax income Taxes Net income EPS (Diluted, Fully Taxed) $ $ $ $ $ $ 20.4 0.4 20.8 9.5 11.4 2.3 2.5 1.4 5.2 0.6 5.8 0.9 4.9 27.5 0.18 0.14 1.0 6.2 $ $ $ $ $ $ 2Q 22.7 0.3 23.0 10.5 12.5 2.5 2.7 1.4 5.8 0.4 6.2 0.9 5.3 28.2 0.19 0.15 1.1 6.9 $ $ $ $ $ $ 3Q 29.8 0.3 30.1 12.7 17.5 2.8 2.9 4.3 7.4 0.5 8.0 1.2 6.8 28.6 0.24 0.18 0.8 8.2 $ $ $ $ $ $ 4Q 29.7 0.4 30.1 14.2 15.9 3.1 3.0 1.6 8.2 0.6 8.9 1.3 7.5 28.9 0.26 0.20 0.8 9.0 $ $ 0.9 7.1 $ $ $ $ $ 1Q 27.6 0.4 28.0 13.4 14.6 3.1 3.4 1.9 6.2 0.8 6.9 2.1 4.9 28.9 0.17 $ $ $ 2Q

2000 3QE $ 35.3 0.4 35.7 17.1 18.6 3.7 4.3 1.5 9.1 0.8 9.9 $ 3.0 6.9 29.5 $ 0.23 $ $ $ 4QE 35.5 0.4 35.9 17.2 18.7 3.7 4.3 1.6 9.1 0.9 10.0 3.0 7.0 29.8 0.24 $ $ $ 1QE 36.4 0.4 36.8 17.7 19.1 3.8 4.2 1.7 9.4 0.9 10.3 3.1 7.2 30.0 0.24 $ $ $ 2QE

2001 3QE $ 44.4 0.4 44.8 21.7 23.1 4.5 4.7 2.3 11.6 1.0 12.6 $ 3.8 8.8 30.0 $ 0.29 $ $ $ 4QE 45.5 0.4 45.9 22.3 23.6 4.6 4.9 2.3 11.9 1.0 12.9 3.9 9.0 30.0 0.30 $ $ $ $

Fiscal Year Ending December 1998 1999 2000E 2001E 68.2 1.8 70.0 36.6 33.4 7.2 8.5 3.6 14.0 1.2 15.3 2.6 12.7 26.5 0.48 0.37 3.1 17.1 $ $ $ $ $ $ 102.7 1.4 104.1 46.8 57.3 10.8 11.1 8.8 26.7 2.1 28.8 4.3 24.5 28.3 0.86 0.67 3.7 30.4 $ $ 4.2 35.4 $ $ 5.2 47.6 $ $ $ 127.0 1.6 128.6 61.7 66.9 13.9 15.4 6.5 31.2 3.2 34.3 10.3 24.0 29.2 0.82 $ $ $ 163.8 1.7 165.5 80.0 85.5 16.9 18.1 8.1 42.4 3.9 46.3 13.9 32.4 30.0 1.08

28.6 0.4 29.0 13.9 15.1 3.4 3.4 1.5 6.8 0.7 7.5 2.2 5.2 28.7 0.18

37.5 0.5 38.0 18.3 19.7 4.0 4.3 1.8 9.6 1.0 10.6 3.2 7.4 30.0 0.25

1.0 7.8

$ $

1.1 10.2

$ $

1.2 10.3

$ $

1.2 10.6

$ $

1.3 10.9

$ $

1.3 12.9

$ $

1.4 13.3

$ $

54.5% 11.2% 11.9% 6.6% 24.8% 27.7% 23.5% 15.0%

54.4% 11.0% 11.9% 6.2% 25.3% 27.2% 23.1% 15.1%

58.0% 9.3% 9.6% 14.3% 24.7% 26.4% 22.5% 14.9%

52.9% 10.2% 9.9% 5.4% 27.4% 29.4% 24.9% 15.2%

52.0% 10.9% 12.2% 6.8% 22.1% 24.8% 17.4% 30.0%

52.2% 11.8% 11.9% 5.2% 23.3% 25.7% 18.0% 30.0%

52.0% 10.4% 12.0% 4.2% 25.4% 27.7% 19.4% 30.0%

52.0% 10.3% 11.8% 4.5% 25.4% 27.9% 19.5% 30.0%

51.8% 10.3% 11.4% 4.6% 25.5% 27.9% 19.5% 30.0%

51.8% 10.5% 11.3% 4.7% 25.2% 27.9% 19.5% 30.0%

51.5% 10.0% 10.5% 5.1% 25.8% 28.1% 19.6% 30.0%

51.5% 10.0% 10.7% 5.0% 25.8% 28.0% 19.6% 30.0%

47.7% 10.3% 12.1% 5.2% 20.0% 21.8% 18.1% 17.0%

55.0% 10.3% 10.7% 8.4% 25.6% 27.7% 23.5% 15.0%

52.0% 10.8% 12.0% 5.1% 24.2% 26.7% 18.7% 30.0%

51.6% 10.2% 10.9% 4.9% 25.6% 28.0% 19.6% 30.0%

47.1% -28.4% 44.3% 76.0% 110.8% 212.3% 118.0% 30.3% 147.4% 108.1%

54.7% -30.5% 52.0% 82.2% 116.2% -25.9% 117.1% 30.2% 146.2% 111.3%

49.8% -24.1% 48.3% 80.5% 73.4% 27.8% 69.5% 237.6% 55.9% 55.7%

50.5% 0.0% 49.5% 53.7% 79.2% 21.6% 74.7% 56.1% 78.5% 63.6%

34.9% 12.8% 34.5% 28.3% 19.6% 29.3% 20.6% 141.0% -0.7% 23.7%

26.4% 15.7% 26.3% 21.2% 16.6% -7.8% 19.7% 138.6% -1.4% 21.1%

18.3% 28.6% 18.4% 6.2% 22.0% 56.9% 24.2% 150.1% 2.2% 29.7%

19.4% -0.5% 19.2% 17.0% 10.6% 12.5% 13.0% 123.3% -6.7% 18.1%

31.9% -5.4% 31.4% 30.9% 51.5% 19.2% 48.0% 48.1% 48.0% 42.5%

30.9% 33.3% 31.0% 30.0% 41.5% 43.7% 41.7% 41.8% 41.7% 35.6%

25.8% 0.0% 25.5% 24.3% 27.4% 25.0% 27.2% 27.2% 27.2% 25.1%

28.2% 0.0% 27.9% 26.6% 30.1% 11.1% 28.4% 28.4% 28.4% 27.6%

52.2% 55.1% 52.2% 69.4% 134.8% -282.7% 188.7% 374.8% 167.2% 134.1%

50.5% -21.6% 48.7% 71.6% 90.0% 72.0% 88.6% 66.9% 93.0% 78.0%

23.7% 13.2% 23.6% 16.9% 16.8% 46.8% 19.1% 137.5% -1.9% 23.1%

29.0% 6.4% 28.7% 27.7% 36.1% 23.8% 34.9% 35.0% 34.9% 31.7%

Source: Company reports and Stephens Inc. estimates

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Semtech Corp. (SMTC-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $100.63 $120.11 - $29.75 $3.3 billion 32.6 million 68% 60% 588,746 $135 BUY
SEMTECH CORP
SMTC
9/15/99 to 9/15/00 High: Low: Last: 120.11 29.75 100.63 USD 120 100 80

60

40

Millions

1.84 0.92

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1999A 2000A 2001E 2002E

1Q $0.15 $0.14 $0.32A $0.49

Earnings Per Share 2Q 3Q 4Q $0.08 $0.11 $0.10 $0.18 $0.24 $0.29 $0.36A $0.41 $0.46 $0.53 $0.59 $0.65

JanFY $0.45 $0.85 $1.55 $2.26

% Chg. (13%) 90% 84% 46%

P/E Ratio 223.6X 118.4X 64.9X 44.5X

Revs. $ Mil $114.5 173.8 262.7 360.9

EBITDA $ Mil $23.9 47.4 80.8 124.2

Enter./ Sales 28.5X 18.7X 12.4X 9.0X

Company Description Semtech Corporation (SMTC) was founded in 1960 and went public in 1967. The Company designs and manufactures a broad line of analog and mixedsignal integrated circuits (ICs) used in the computer, communications, industrial, automotive, and military/aerospace industries. Additionally, SMTC provides wafer foundry services to other electronic component manufacturers. Semtech is based in Newbury Park, California, and has manufacturing facilities in California, Texas, Mexico and Scotland and design centers in California, North Carolina, and Scotland. Investment Highlights and Summary Semtech is leveraging its design talent. The most important resource in the analog semiconductor industry is design engineers. Just six years ago, Semtech had only six full-time circuit designers and one design center. Remarkably, today it employs approximately 280 engineers, an impressive number for a company its size. Semtechs aggressive investment in design talent is beginning to pay dividends and is far from being fully leveraged. We expect the Company to introduce 130 to 140 new product families in FY01 (January year-end), up from 88 new product families in FY00. New products are hitting their mark. An important measure in the semiconductor industry is the proportion of revenues being generated by new product families. In FY01, we expect those products SMTC introduced within the last 18 months to account for approximately 30% of new orders. In FY00, new products were 28% of new orders. By the end of FY02, the Company's goal is to have its new products account for 33% to 35% of total new orders. In 2Q01, 22% of Semtechs design wins came from new customers, 65% of which focus on the communications market.
Stephens Inc. 69

We expect Semtech to introduce 75 new product families in the current fiscal year

Semtechs diversified product offerings and customer base will help insulate the Company from the next cyclical downturn

Semtechs strategy of diversifying its applications, products and customers has been successful. Semtechs main strategic product lines are power management, protection, automated test equipment (ATE), ICs and advanced communications ICs. This diversity has evolved over nearly 40 years. Starting with the military/aerospace market, Semtech moved to the commercial computer market, then to the portable systems market, and then to the ATE market. Lately, its focus has been in the high-bandwidth communications market. With design wins in systems that span several industries, Semtechs success is independent of the cycles of any one industry. We believe that, within three years, revenues from new communications products will be $100 million. The most promising product looks to be a highly integrated system synchronization timing device. These devices are about 90% digital and 10% analog in content and go in add/drop multiplexers, ATM switches, routers and base stations. We estimate the size of this market to be approximately $150 million today and growing exponentially. SMTC has successfully sampled this product with about 40 customers. Additionally, the Company recently introduced two transceiver products for SONET/ATM equipment that are capable of integrating 16 T1/E1 channels into a single fiber connection. We dont expect meaningful revenues from these products until the first part of CY01. An exceptional management team has guided Semtech from a sleepy, lowtech analog manufacturer to a company known for its exceptional analog technology. By focusing on design talent, Chairman and CEO Jack Poe and his management team have built a company that is recognized for its technologyimproving solutions for the markets it serves. For example, Semtech sells products that can potentially garner $33 of chip content in a portable PC, $10 in a PDA (personal digital assistant), and $10 in a cell phone handset. Additionally, the Company sees $3.00 to $4.00 in revenue when its chip set is sold with an Intel Pentium microprocessor or an Advanced Micro Devices microprocessor. Semtech is bringing the same superior technology to the fastgrowing high-bandwidth communications market.

Managements focus on attracting and retaining design talent is one of the key reasons for Semtechs success

Stephens Inc. maintains a market in the common stock of Semtech and may act as principal in these transactions.

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SEMTECH CORPORATION
Historical Earnings Summary & Projections
(in millions, except per share amounts) 2000
Apr Jul Oct Jan Apr Jul

2001
Oct Jan Apr Jul

2002
Oct Jan

Fiscal Year Ending January 3QE 4QE 1998 1999 2000 2001E 2002E

1Q Sales Cost of Sales Gross Profit SG & A Development and Engineering Other (Income)/Expense Operating Income Interest (Income)/Expense Pretax Income Taxes Net Income Average Shares - Diluted EPS - Diluted Depreciation & Amortization EBITDA Margin Analysis Gross Profit SG&A Development and Engineering Operating Income Pretax Income Net Income Tax Rate Percent Change Over Prior Year Sales Cost of Sales Gross Profit SG&A R&D Operating Income Pretax Income Taxes Net Income EPS - Diluted 11.9% 9.2% 14.7% 21.8% 39.8% -0.8% 0.4% -0.8% 1.0% -4.5% 50.2% 17.1% 12.5% 20.7% 21.5% 14.4% 33.0% $

2Q

3Q

4Q

1Q

2Q

3QE

4QE

1QE

2QE

$ 33.0 $ 38.3 $ 47.1 $ 55.4 18.6 22.1 25.6 16.4 16.6 5.6 4.1 6.8 (0.3) 7.1 2.3 4.8 $ 33.1 19.6 6.1 4.5 9.1 (0.2) 9.3 3.1 6.2 $ 34.6 25.0 7.2 5.5 12.3 (0.2) 12.5 4.1 29.8 8.3 6.2 15.3 (0.4) 15.7 5.2

$ 57.4 $ 60.6 $ 68.2 $ 76.4 26.2 27.0 30.0 32.9 31.2 8.2 7.0 15.9 (1.3) 17.3 5.1 33.6 8.6 7.7 17.3 (2.3) 19.6 5.9 38.2 9.7 8.7 19.9 (2.4) 22.3 6.7 43.6 10.7 9.7 23.2 (2.4) 25.6 7.7

$ 80.2 $ 84.2 $ 93.5 $ 102.9 34.5 37.4 40.6 33.7 46.5 11.1 10.3 25.2 (2.5) 27.7 8.3 49.7 11.5 10.9 27.3 (2.5) 29.8 8.9 56.1 12.7 12.2 31.2 (2.6) 33.8 10.2 62.2 14.0 13.4 34.9 (2.6) 37.5 11.2

$ 102.8 $ 114.5 $ 173.8 $ 262.7 $ 360.9 53.9 60.2 82.7 116.1 146.3 48.9 16.9 9.2 22.8 (0.3) 23.2 7.7 54.3 20.1 14.0 20.2 (0.8) 20.9 7.0 91.0 27.2 20.3 43.5 (1.1) 44.6 14.7 146.6 37.2 33.1 76.2 (8.4) 84.7 25.3 59.3 $ 38.1 1.55 $ 214.6 49.3 46.7 118.6 (10.2) 128.8 38.6 90.2 39.8 2.26

8.4 $ 10.5 35.5 36.9

$ 12.1 $ 13.7 $ 15.6 $ 17.9 37.4 37.9 38.3 38.8

$ 19.4 $ 20.9 $ 23.7 $ 26.2 39.2 39.6 40.0 40.4

$ 15.4 $ 14.0 $ 29.9 $ 30.1 31.3 35.0

$ 0.14 $ 0.18 $ 0.24 $ 0.29 $ $ 1.1 $ 0.9 $ 1.0 $ 0.9 7.9 $ 10.0 $ 13.3 $ 16.2

$ 0.32 $ 0.36 $ 0.41 $ 0.46 $ 1.0 $ 1.2 $ 1.2 $ 1.2 $ 16.9 $ 18.5 $ 21.1 $ 24.4

$ 0.49 $ 0.53 $ 0.59 $ 0.65 $ 1.3 $ 1.3 $ 1.5 $ 1.5 $ 26.5 $ 28.6 $ 32.7 $ 36.4

$ 0.51 $ 0.45 $ 0.85 $ $ 2.78 $ 3.7 $ 3.9 $ $ 25.6 $ 23.9 $ 47.4 $

4.6 $ 5.6 80.8 $ 124.2

51.4% 15.9% 11.8% 23.7% 24.3% 16.3% 33.0%

53.1% 15.2% 11.8% 26.1% 26.6% 17.8% 33.0%

53.8% 15.0% 11.1% 27.7% 28.4% 19.0% 33.0%

54.3% 14.3% 12.3% 27.7% 30.1% 21.1% 29.7%

55.5% 14.2% 12.7% 28.5% 32.3% 22.6% 30.0%

56.0% 14.2% 12.7% 29.1% 32.6% 22.8% 30.0%

57.0% 14.0% 12.7% 30.3% 33.4% 23.4% 30.0%

58.0% 13.8% 12.8% 31.4% 34.5% 24.2% 30.0%

59.0% 13.7% 12.9% 32.4% 35.4% 24.8% 30.0%

60.0% 13.6% 13.0% 33.4% 36.2% 25.3% 30.0%

60.5% 13.6% 13.0% 33.9% 36.4% 25.5% 30.0%

47.6% 16.5% 8.9% 22.2% 22.5% 15.0% 33.4%

47.4% 17.5% 12.2% 17.6% 18.3% 12.2% 33.4%

52.4% 15.7% 11.7% 25.0% 25.7% 17.2% 33.0%

55.8% 14.2% 12.6% 29.0% 32.2% 22.6% 29.9%

59.5% 13.7% 12.9% 32.9% 35.7% 25.0% 30.0%

49.8% 35.7% 66.1% 22.6% 36.4% 154.1% 146.8% 144.0% 148.3% 122.3%

65.0% 49.8% 81.2% 39.4% 50.0% 148.0% 143.9% 141.0% 145.3% 116.2%

79.2% 53.0% 110.1% 55.2% 51.4% 222.4% 215.6% 211.8% 217.5% 173.8%

73.7% 59.4% 87.9% 45.7% 71.1% 132.9% 143.2% 118.6% 155.4% 126.2%

58.5% 45.1% 71.2% 42.4% 70.6% 91.0% 111.1% 91.9% 120.6% 101.3%

44.9% 35.9% 52.9% 35.1% 56.6% 61.7% 77.7% 61.5% 85.7% 72.4%

37.9% 28.4% 46.1% 28.5% 57.4% 51.1% 62.4% 47.6% 69.7% 61.2%

39.8% 28.5% 49.2% 34.7% 45.8% 58.2% 60.5% 62.4% 59.7% 52.3%

38.9% 27.9% 47.8% 33.6% 40.8% 58.0% 52.1% 52.1% 52.1% 45.7%

37.1% 24.6% 46.9% 31.3% 40.3% 57.3% 52.0% 52.0% 52.0% 45.7%

34.6% 23.7% 42.9% 30.8% 37.8% 50.6% 46.6% 46.6% 46.6% 40.9%

43.6% 31.7% 59.5% 33.3% 72.7% 80.1% 82.1% nm 81.7% -15.4%

11.4% 11.8% 10.9% 18.7% 52.5% -11.6% -9.5% -9.6% -9.5% -12.9%

51.7% 37.3% 67.7% 35.4% 45.0% 115.7% 113.1% 110.5% 114.3% 89.9%

51.2% 40.3% 61.0% 36.9% 62.9% 75.3% 89.7% 72.0% 98.4% 83.9%

37.4% 26.0% 46.4% 32.4% 40.8% 55.6% 52.1% 52.5% 52.0% 45.7%

Source: Company reports and Stephens Inc. estimates

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TelCom Semiconductor (TLCM-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $14.63 $46.88 - $7.88 $298.5 million 20.4 million 0% 60% 737,903 $31 BUY
TELCOM SEMICONDUCTOR INC
TLCM
9/15/99 to 9/15/00 High: Low: Last: 46.88 7.88 14.63 USD 40 30

20

10

Millions

1.95 0.97

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A 1999A 2000E 2001E

1Q $0.12 $0.05 $0.17A $0.23

Earnings Per Share 2Q 3Q 4Q $0.05 $0.02 $0.02 $0.10 $0.14 $0.16 $0.23A $0.21 $0.22 $0.26 $0.28 $0.31

DecFY $0.20 $0.45 $0.83 $1.08

% Chg. (49%) 126% 86% 31%

P/E Ratio 73.2X 32.5X 17.6X 13.5X

Revs. $ Mil $54.3 57.4 76.2 97.7

EBITDA $ Mil $9.5 11.8 18.7 25.1

Enter./ Sales 3.5X 3.3X 2.5X 1.9X

Company Description TelCom Semiconductor, based in Mountain View, California, was founded in June 1993, when a group of managers bought Teledyne Components in an LBO from Teledyne Industries, now a subsidiary of Alleghany Teledyne. TelComs history actually goes back to 1960 as a company called Amelco Semiconductor Company. In 1970, Amelco was acquired by Teledyne and operated as a division of it from 1970 to 1993. TLCM designs and manufactures a diversified portfolio of high-performance analog integrated circuits (ICs) used primarily in the industrial, computing, networking, wireless communications, and medical markets. The Companys products fall into three main families: power management products, thermal management products, and linear/mixed signal products. Within each family, the Company markets proprietary and selected second-source products. Investment Highlights and Summary TelCom is a new product development machine. Its basic strategy is to address an increasing spectrum of customer applications by introducing proprietary and selected second-source products that increase the range of performance and capabilities of its products. A key to TelComs success will be its ability to introduce new proprietary products. In 1999, it introduced a record 72 new products, more than double the previous year. TelCom plans to introduce an additional 65 to 70 new products this year. Additionally, the Company is focused on developing proprietary products. Proprietary products typically generate higher margins versus those that are second-sourced.

TelComs product portfolio consists of power management, thermal management and linear/mixed signal products

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In early 1999, TelCom announced a strategic relationship with ON Semiconductor

The Company has entered into several strategic relationships. In late January 1999, TelCom announced that it had entered into an agreement with Motorolas Semiconductor Components Group, now ON Semiconductor. Under the terms of the agreement, ON and TelCom became authorized sources for many of each companys power and thermal management products. The agreement with ON has quickly added products to TelComs portfolio. Currently, TelCom is marketing 10 of ONs products and ON is selling around 15 to 20 of TLCMs products. We expect that both of these amounts will increase by three to four per quarter going forward. At the end of 2Q00, TLCM had around $8 million in backlog with ON, with $7 million scheduled for shipment in 2H00, versus basically zero in 1H00. The only question for TLCM is how fast it can get the product out the door. Additionally, the relationship should allow both companies to more rapidly identify and respond to target markets. TelCom is also aggressively pursuing strategic acquisitions that would round out its product offerings and/or broaden its customer base. TelComs stock price has been under pressure in the last few months, due to the current weakness being experienced in its wireless handset business, specifically at Motorola. Motorola is TLCMs largest customer, representing 31% of revenues during 2Q00. Due to MOTs de-emphasis of its lower-end cell phones, and the timing difference in its ramp up of high-end phones, TLCMs revenues will be adversely affected. We expect that TLCMs revenues from MOT will be in the $2.0 million to $2.5 million range for the next two quarters. However, the revenue from the ON Semiconductor relationship will help to offset the adverse affects from Motorolas changed strategy.

The transition of Motorolas handset business is negatively impacting TelCom

Stephens Inc. maintains a market in the common stock of TelCom and may act as principal in these transactions. Stephens Inc. has managed or co-managed an underwriting for TelCom within the past three years.

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TELCOM SEMICONDUCTOR, INC.

Historical Earnings Summary & Projections
(in millions, except per share amounts) 1999 1Q*** Sales Cost of Sales Gross Profit SG&A R&D Operating Income Interest (Income)/Expense Pretax Income Taxes Net Income Average Shares - Diluted EPS - Diluted Depreciation & Amortization EBITDA Margin Analysis Gross Profit SG&A R&D Operating Income Pretax Income Net Income Tax Rate Percent Change Over Prior Year Sales Cost of Sales Gross Profit SG&A R&D Operating Income Pretax Income Taxes Net Income EPS - Diluted -17.2% -12.6% -23.5% -10.9% 35.9% -63.7% -62.5% -62.5% -62.5% -56.2% -1.1% -17.5% 27.4% -6.3% 37.0% 108.2% 85.9% 86.6% 85.6% 114.7% 17.2% -7.9% 73.6% 20.4% 2.6% 724.0% 552.3% 379.1% 616.3% 611.7% 30.9% 1.2% 96.7% 26.3% 12.8% NM 943.4% 634.2% 1057.7% 909.8% 34.3% 12.1% 68.5% 16.2% 33.0% 251.1% 256.6% 203.8% 276.1% 229.8% 44.3% 32.3% 57.8% 27.9% 38.8% 113.1% 193.9% 150.3% 210.0% 130.5% 27.6% 14.0% 43.8% 23.1% 89.4% 46.0% 100.0% 132.0% 92.1% 53.4% 26.6% 15.7% 39.0% 27.3% 76.4% 29.2% 75.7% 112.7% 67.0% 36.5% 23.2% 17.9% 28.7% 30.0% 30.4% 26.6% 64.2% 64.2% 64.2% 37.0% 17.4% 17.1% 17.7% 9.0% 22.3% 21.5% 19.1% 19.1% 19.1% 15.8% 34.2% 33.9% 34.5% 18.8% 21.4% 57.5% 43.3% 43.3% 43.3% 37.2% 37.5% 37.2% 37.8% 18.2% 24.1% 63.3% 46.9% 46.9% 46.9% 39.4% 46.8% 16.3% 121.3% 23.6% 27.7% NM NM NM NM NM -2.1% 11.9% -20.2% -0.4% 2.4% -53.8% -48.0% -48.1% -48.0% -49.4% 5.7% -9.4% 32.9% 5.6% 21.6% 105.0% 96.1% 59.6% 109.6% 125.5% 32.9% 18.3% 50.8% 23.9% 57.4% 78.8% 130.3% 141.2% 127.2% 85.9% 28.2% 26.7% 29.6% 18.4% 24.4% 42.1% 41.2% 41.2% 41.2% 30.9% 39.3% 17.6% 14.0% 7.8% 8.3% 6.1% 27.0% 47.0% 18.6% 13.6% 14.8% 14.7% 10.8% 27.0% 45.6% 17.5% 9.9% 17.3% 18.4% 14.7% 19.8% 46.8% 16.4% 10.4% 20.0% 21.0% 17.0% 19.0% 49.3% 15.2% 13.8% 20.3% 22.0% 17.0% 23.0% 51.4% 16.5% 13.1% 21.8% 30.0% 23.1% 23.0% 51.4% 16.8% 14.7% 19.8% 28.8% 22.2% 23.0% 51.4% 16.5% 14.5% 20.4% 29.2% 22.4% 23.0% 51.5% 16.0% 14.6% 20.8% 29.3% 22.6% 23.0% 51.5% 15.3% 13.6% 22.6% 30.4% 23.4% 23.0% 51.5% 14.9% 13.3% 23.3% 30.7% 23.7% 23.0% 51.5% 14.2% 13.1% 24.2% 31.1% 24.0% 23.0% 43.8% 17.2% 9.8% 16.7% 16.2% 11.8% 27.0% 35.7% 17.5% 10.3% 7.9% 8.6% 6.3% 27.0% 44.9% 17.5% 11.8% 15.3% 16.0% 12.5% 22.0% 50.9% 16.3% 14.0% 20.6% 27.7% 21.3% 23.0% 51.5% 15.0% 13.6% 22.8% 30.5% 23.5% 23.0% $ $ $ $ $ 12.8 7.8 5.0 2.3 1.8 1.0 (0.1) 1.1 0.3 0.8 15.1 0.05 0.8 1.8 $ $ $ $ $ 2Q 13.9 7.4 6.5 2.6 1.9 2.0 0.0 2.0 0.6 1.5 15.2 0.10 0.8 2.8 $ $ $ $ $ 3Q 14.9 8.1 6.8 2.6 1.5 2.6 (0.2) 2.7 0.5 2.2 16.2 0.14 0.8 3.3 $ $ $ $ $ 4Q 15.8 8.4 7.4 2.6 1.6 3.2 (0.2) 3.3 0.6 2.7 16.8 0.16 0.8 3.9 $ $ $ $ $ 1Q 17.2 8.7 8.5 2.6 2.4 3.5 (0.3) 3.8 0.9 2.9 17.3 0.17 0.8 4.2 $ $ $ $ $ 2000E 2Q 3QE 20.0 9.7 10.3 3.3 2.6 4.4 (1.6) 6.0 1.4 4.6 20.4 0.23 0.8 5.1 $ $ $ $ $ 19.0 9.2 9.8 3.2 2.8 3.8 (1.7) 5.5 1.3 4.2 20.3 0.21 0.8 4.5 $ $ $ $ $ 2001E 2QE 3QE $ 23.5 11.4 12.1 3.6 3.2 5.3 (1.9) 7.2 1.6 $ 5.5 21.0 $ $ $ 0.26 0.7 6.0 $ $ $ $ $ 25.5 12.4 13.1 3.8 3.4 5.9 (1.9) 7.8 1.8 6.0 21.2 0.28 0.7 6.6 $ $ $ $ $ Fiscal Year Ending December 1998** 1999 2000E $ 54.3 34.9 19.4 9.5 5.6 4.3 (0.4) 4.7 1.3 $ 3.4 16.5 $ $ $ 0.20 5.2 9.5 $ $ $ $ $ 57.4 31.6 25.7 10.0 6.8 8.8 (0.4) 9.2 2.0 7.1 15.7 0.45 3.0 11.8 $ $ $ $ $ 76.2 37.4 38.8 12.4 10.7 15.7 (5.4) 21.1 4.9 16.2 19.6 0.83 3.0 18.7 $ $ $ $

4QE 20.0 9.7 10.3 3.3 2.9 4.1 (1.8) 5.8 1.3 4.5 20.5 0.22 0.8 4.8 $ $ $ $ $

1QE 21.2 10.3 10.9 3.4 3.1 4.4 (1.8) 6.2 1.4 4.8 20.7 0.23 0.7 5.1

4QE 27.5 13.3 14.2 3.9 3.6 6.7 (1.9) 8.6 2.0 6.6 21.6 0.31 0.7 7.4

1997* $ 55.4 31.2 24.3 9.5 5.5 9.3 0.3 9.0 2.4 $ 6.6 17.1 $ $ $ 0.39 4.1 13.4

2001E $ 97.7 47.4 50.3 14.7 13.3 22.3 (7.5) 29.8 6.8 22.9 21.1 1.08 2.8 25.1

* Does not include $8.3 million loss on a foundry investment in IC WORKS. ** Does not include restructuring charge of $7.3 million associated with the closing of the Company's fabrication facility in Mountain View, California. *** Does not include a $5.0 million gain associated with the IC WORKS investment and a $0.3 million restructuring charge associated with the closing of the Company's fabrication facility in Mountain View, California. Source: Company reports and Stephens Inc. estimates

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POWER SUPPLY FUNDAMENTALS Basically, every electronic device is powered from a dc (direct current) source. Since utilities deliver electricity in ac (alternating current) form, power converters are needed to transform the power into something that can be used by these electronic devices. In addition to simply transforming ac power to dc power, the power must be processed much in the same way that crude oil is refined to make fuel for automobiles. Power supplies perform this function for the electronics industry. Just as electronic devices are as diverse as personal digital assistants (PDAs) and medical diagnostic equipment, so too are power supplies. The differences range from the technology used in their construction, to the power output that they supply, to the architecture used in their configuration. This diversity has allowed a large number of companies to get into the business and stake a claim on one or more of the many niche markets. The worldwide market for power supplies is large and growing. In 1995 the market was $15.0 billion and reached $26.6 billion in 1999. According to MicroTech Consultants, by 2004, the global power supply market is expected to reach approximately $43.1 billion, a CAGR of 10.2% from 1999 to 2004. Also looking forward through 2004, North America will lead the growth with a CAGR of 11.6%, followed by Europe at 9.3%, Asia at 8.6% and the rest of the world at 9.7%. Within the total market, the communications segment is growing at the fastest pace, fueled by the proliferation in networking and wireless services. The computing market is the largest market segment but is forecasted to grow at a slower pace than the communications market segment. In order to capitalize on this large and growing market, we believe that there are several key market dynamics that companies within the industry and investors should consider: The importance of one-stop turnkey shopping for OEM customers OEM customers seek suppliers that offer one-stop shopping. Size matters. Companies that possess the scale in terms of manufacturing, marketing, management, product offerings, engineering talent and buying power have a clear advantage in the power supply industry. The emergence of a three-tier market the main three markets are now information technology, industrial/instrumentation, and military/aerospace. The information technology market (computers and communications) is the fastest growing, with projected revenue growth between 15% and 20%. The increasing importance of distributed power and point-of-load technology We are forecasting dc/dc converters sold to the communications market to grow at an annual rate of 56% through 2003. This growth is being driven by the adoption of distributed power architecture by communications equipment manufacturers. The merchant market is growing faster than the captive Merchant manufacturers design and manufacture power supplies for others. Captive manufacturers design and manufacture power supplies primarily for use inhouse.

The current worldwide market for power supplies is $26.6 billion. It is estimated to be at $43.1 billion in 2004

There are several key market dynamics in force which companies must understand in order to succeed in the power supplies industry

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The number of North American power supply manufacturers has decreased to 250 from 300 several years ago

The highly fragmented power supply industry is consolidating Currently, there are 1,000 merchant power supply manufacturers worldwide. In 1998, approximately 725 of them generated less than $5 million in revenues. Numerous opportunities exist for consolidators. In the North American market, the number of companies has decreased from 300 to 250 over the past several years. Customers are consolidating their supplier base Suppliers that have broad product offerings and high service capabilities are making the cut. More alliances are being formed Due to the complexity of the business, companies are focusing on their strengths and compensating for weaknesses through alliances.

There is no single strategy to becoming successful in the power supply industry. However, there are trends and market dynamics that cant be ignored. By thoroughly understanding the market and its participants, we plan to identify those companies that are best positioned to prosper in the power electronics marketplace.

PRODUCT PROFILE
This report will focus on ac/dc power supplies, dc/dc converters and telecom power plants

Power supplies are electronic components that deliver the proper voltage and current to various types of electronic equipment or to the various circuits within the electronic equipment. As we define the industry, there are basically five types of power supplies in common use today: 1) ac/dc power supplies, 2) dc/dc converters, 3) telecom power plants, 4) uninterruptible power supplies and 5) ac/dc inverters.

Chart 17 Power Supply Devices

AC/DC Power Supplies

DC/DC Converters

Telecom Power Plants

Uninterruptible Power Supplies

AC/DC Inverters

Source: Stephens Inc.

In this industry report, we will focus on ac/dc power supplies, dc/dc converters, and telecom power plants. Ac/dc power supplies and dc/dc converters are manufactured for electronic OEMs (original equipment manufacturers). Telecom power supplies, manufactured for communications service providers, is a segment enjoying rapid growth. Power supplies have evolved through the years from large, rack-mounted units employing vacuum tubes and dangerously high
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voltages to todays compact solid-state power supplies with their lower, and relatively safe, dc voltages. Electricity Review Before we delve too deeply into our discussion of power supplies, we believe it would be useful to review some basic information regarding electricity and its distribution. There are two forms of electrical current, alternating current (ac) and direct current (dc). With ac power, electrons flow back and forth, from positive to negative several times per second. This flow represents the frequency of the ac current. With dc power, electrons flow in one direction and at a constant flow rate. Current is the movement of electrical charge and is measured in amperes (amps). Voltage is the electrical pressure and is measured in volts. Volts multiplied by amps equals the total power, which is typically referred to as watts. (See Appendix D.) Why Do We Need Power Supplies? There was a great debate when electric power distribution was in its infancy: Should the utility distribution infrastructure be developed to transmit ac power or dc power? Many influential scientists of the day, including Thomas Edison, backed dc power, believing it to be far more utilitarian for consumers. However, most industrialists favored the ac form because it was easier to transform (step voltage up or down) and cheaper to transmit. Today, electric utilities deliver power in ac form because it is indeed cheaper. Ac power can be stepped up and down through the use of transformers to transmit power over long distances. According to the electric utility industry, it is four to five times more expensive to transmit dc power than it is to transmit ac power. The majority of electric ac power used to supply todays sophisticated electronic systems comes from what are termed primary power sources. These primary sources include hydroelectric, coal- and natural gas-fired, and nuclear generators. An electric utilitys chief objective is to produce or procure large quantities of electric power in the most economic fashion possible. The quality of the electricity is a secondary consideration. Additionally, the voltage and frequency at which the ac power is delivered varies depending on the geographic region or country. Consequently, there is a wide range of extremely high voltages available around the world to power the many different types of electronic devices in use today. The following table lists the distribution voltages and frequencies for selected countries.

Electric utilities deliver electricity in ac form because it is cheaper and easier to distribute

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Table 12 AC Line Voltages Selected Countries

Country Argentina Australia Belgium Brazil Canada Denmark Finland France Germany Ireland Italy Japan Mexico Volt 220 220 110/220 110/220 110 220 220 220 220 220 110/220 110 110/220 Freq 50 50 50 60 60 50 50 50 50 50 50 50/60 60 Country The Netherlands Norway P.R. of China Russia South Africa Spain Sweden Switzerland Taiwan U. K. U.S.A. Venezuela Wales Volt 220 230 220 220 220 110/220 220 220 110 220 110 110 220 Freq 50 50 50 50 50 50 50 50 60 50 60 60 50

Ac voltages and frequencies can vary from country to country

Source: Current Solutions, Inc. and Trend-On

In most cases, the voltages identified in Table 12 are far more than most electronic devices can handle. And as has already been stated, electronics are powered by direct current, not alternating current. Therefore, we need power supplies to accept the raw ac power from a power source, usually the electrical wall outlet, process it, then deliver usable dc power to the many electronic devices in use around the world. Types of Power Architecture
The two basic types of power architecture are centralized and distributed

Most modern electronic systems require more than a single operating voltage. In a personal computer, the microprocessor needs 5 volts; semiconductor memories may need 12 volts; analog circuits often operate on 15 volts; and the motors in disk drives require 24 volts. There are two types of power architectures that can be designed to handle these requirements: centralized and distributed. Centralized power architectures are characterized by systems that use a single component to generate the end-use system dc voltages from the electric utilitys ac input. Such systems are widely used in cost-sensitive applications such as personal computers and consumer electronics. In some applications, centralized architecture is easier to use because the components are centralized in one assembly. Chart 18 illustrates the differences between centralized and distributed power architecture.

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Chart 18 Centralized Vs. Distributed Architecture Centralized

120-VAC INPUT

Distributed
120-VAC INPUT

FULLY REGULATED AC/DC CONVERTER

1.8VDC REGULATED OUTPUT 3.3VDC REGULATED OUTPUT

Mounted on System Chassis

SEMIREGULATED AC/DC CONVERTER

REGULATED DC/DC CONVERTER REGULATED DC/DC CONVERTER

Mounted on System Chassis

Mounted on Circuit Boards

1.8VDC REGULATED OUTPUT

3.3VDC REGULATED OUTPUT

Source: Power-One Inc.

Distributed architecture uses two levels of conversion. Primary front-end rectifiers convert the electric utilitys ac power to an intermediate dc voltage level. Secondary downstream dc/dc converters provide the final output voltages required by the load. These downstream dc/dc converters are typically positioned on the consuming circuit board. Even though distributed power architecture design is still relatively new, it does offer one major benefit over centralized power architectures. That is the ability to provide point-of-load regulation. Simply stated, substantial improvements can be realized in electrical performance by moving the dc/dc converter away from the ac/dc power supply and moving it as close to the load as possible. The farther the voltage is bussed to the load, the greater the voltage loss. The benefits of distributed power architecture are numerous. The handicap is usually price. For example, it is not uncommon to see ac/dc centralized power systems selling for $0.15 to $0.30 per watt. Therefore, to be reasonably competitive with the traditional centralized power systems, dc/dc converters would need to be priced at approximately $0.20 per watt, because the cost of the ac/dc front-end rectifier (approximately $0.10 per watt) to complete the total system must be added. Once the $0.20 per watt dc/dc conversion barrier is broken, the market for these converters could expand exponentially. Recent studies, particularly those done on systems that require redundancy, have indicated that the overall cost of the distributed power system is actually less than the traditional architectures. We believe that the number of distributed power architecture systems will grow rapidly in the future. The total dollars spent in North America on distributed power architecture are expected to increase from approximately $1 billion in 1999 to $2.5 billion in 2004, as depicted in Chart 19.

Distributed power architecture is required when voltages drop below 3.3 volts

Distributed power architecture is perceived to be more costly

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Chart 19 North American Consumption of Distributed Power Architecture

CAGR: 19.3% $3.0 $2.5 (BIllions) $2.0 $1.5 $1.0 $0.5 $0.0 1999
Source: Micro-Tech Consultants

2000E 2001E 2002E 2003E 2004E

AC/DC POWER SUPPLIES

Ac/dc power supplies are the most widely used types of power supplies

The ac/dc power supply segment makes up the largest portion of the OEM power supply market and is the most widely used. Most large power supply manufacturers offer multiple ac/dc power supplies in their product mix. Although ac/dc power supplies should remain the largest sector, this sector is not growing as fast as dc/dc converters. There are many growth areas for the ac/dc power supply segment, ranging from personal computers with their associated peripheral equipment to engineering workstation servers and networking equipment. Ac/dc power supplies have benefited from the computer and communications revolution. However, a move to distributed architecture has eroded the growth rates of ac/dc products. No significant new technological advances have been introduced in the last few years. The technology has been more evolutionary in nature than revolutionary. In contrast, over the last 15 years, technology has dramatically increased the speed of personal computers while reducing the size and lowering the cost. This has not been the case for ac/dc power supplies. Advances have been made but at a more evolutionary pace. The immediate future promises more of the same. There does not appear to be a major technological breakthrough on the horizon that will dramatically impact the power electronics industry. In fact, the trend is to less complex ac/dc front-end components that are sold in conjunction with distributed power architectures. Basic technology has not been a big marketing/selling advantage. The focus is on manufacturing efficiencies and the resulting low price. For this reason China and other low-labor-rate countries have emerged as the choice manufacturing locations. As a result, there are several Taiwan-based power supply companies that are prospering, including Delta Electronics, Lite-On, and AcBel. The Asian manufacturers dominate the low-end, commodity-like power supply market segment. This type of low-end power supply goes in electronic equipment ranging in sophistication from a PC on down. Delta is the undisputed leader in this market and remains the company that is responsible for setting pricing benchmarks.

Ac/dc power supply technology has been evolutionary not revolutionary

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Chart 20 Simple AC/DC Power Supply AC Wall Power In Rectifier Filter Voltage Regulator DC Current

Converts AC to DC
Source: Stephens Inc.

Purifies Current

Provides Constant Voltage

As shown in Chart 20 above, a power supply converting ac line voltage to dc power performs several important functions. Voltage transformation - Changing the ac line voltage into another more suitable voltage. As the current flows through a semiconductor rectifier, the rectifier suppresses (chops) one half-cycle of the ac current and allows the other half-cycle to pass. This produces a pulsating direct current. Filtering - Smoothing the pulsating dc current (ripple) of the rectified voltage. Regulation - Controlling the output voltage to give a constant value with line, load, and temperature changes. Isolation - Electrically separating the input and output of a power supply.

The primary function of an ac/dc power supply is to convert ac voltages to dc voltages

An ideal power supply would have several important characteristics: 1) constant output voltage regardless of variations in line voltage, load current, ambient temperature, or time; 2) output impedance of zero for all frequencies; 3) 100% conversion efficiency; and 4) no ripple or noise on the output voltage. Pricing is difficult to judge in ac/dc power supplies because there is a lack of standard products across the market that can be judged on a uniform basis. However, according to Micro-Tech Consultants, ac/dc prices are expected to decrease by a range of 10% to 15% by 2004. Table 13 portrays the expected pricing trends in the ac/dc market in 1999 and 2004.

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Table 13 Pricing Trends In AC/DC Power Suppliers ($/watt) Product Type

Ac/dc pricing is expected to decrease by a range of 10% to 15% by 2004

1999 $0.10 - $0.25 $0.15 - $0.25 $0.50 - $0.75 $0.75 - $1.00 $1.50 - $5.00

2004 $0.08 - $0.15 $0.10 - $0.20 $0.40 - $0.60 $0.70 - $1.00 $1.50 - $4.00

High-volume (200W) Adapters (25W 50W) Medium volume (500W) Low volume (1000W)* Low volume (1000W)**
* industrial applications ** military applications Source: Micro-Tech Consultants

Switching vs. Linear Power Suppliers There are two types of ac/dc power supply technologies in use today: linear and switching. Linear regulation is a mature power supply design technique. While linear power supplies have many desirable characteristics such as simplicity, low noise, excellent line and load regulation, and fast recovery time, they are not particularly noted for their efficiency. Efficiency is the measure of total output power to total input power. Input power that is not converted to output power manifests itself in the form of heat, an undesirable and potentially damaging byproduct. Switching power supplies are made with power semiconductors and are much more complex than linears. They are popular due to their high efficiency and high power density. Table 14 compares some of the features of linear and switching power supplies. Line and load regulation are usually better with linear power supplies, but switching power supplies excel in output regulation.

Switching power supplies incorporate power semiconductors in their design

Table 14 Linear Vs. Switching Power Supplies Specifications Line Regulation Load Regulation Input Voltage Range Efficiency Power Density Hold-Up Time
Source: Artesyn Technologies, Inc.

Linear 0.02% - 0.05% 0.02% - 0.1% + or - 10% 40% - 50% 0.05W/in3 2 msec.

Switching 0.05% - 0.1% 0.1% - 1.0% +15% to -22% 60% - 80% 2.3W/in3 32 msec.

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Switching power supplies were first used in military and aerospace applications

Switching power supplies are not new. They were developed in the 1960s and used primarily in military and aerospace systems. However, in recent years switching technology has improved, and the cost of switching components has come down significantly, leading to practical industrial- and consumer-grade switching power supplies. Switchers began by replacing the large linear units because of size and heat dissipation problems and have been gradually working their way down to lower power levels. Efficiency A linear power supply converts an unregulated dc voltage to a lower regulated voltage by throwing away the difference between the two voltages as heat. Consequently, the linear power supply is inherently inefficienttypically rated at only 45% efficiency for a 5V output regulator. By contrast, a switching power supply converts a similar unregulated dc voltage to a lower regulated voltage by storing the difference in a magnetic field. When the magnetic field grows to a pre-determined level, the unregulated dc is switched off and the output power is provided by the energy stored in the magnetic field. When the field is sufficiently depleted, the unregulated dc is switched on again to deliver power to the output, while the excess voltage is again stored in the magnetic field. Consequently, the switching power supply is more efficienttypically rated at 75% for a 5V output regulator. Size

Switching power supplies offer a greater power-to-size ratio than do linear products

another great advantage of switchers, in addition to high efficiency, is the high power density, or power-to-size ratio. This density of course is the result of the reduction in the size of various components. Mainly, the large power transformers found in linear units are replaced with miniature ferrite core transformers and smaller filter capacitors to produce smaller, more powerful units. EMI and RFI Switching power supplies, unlike linear supplies, can be a source of electromagnetic (EMI) and radio frequency (RFI) interference. There are two basic types of interference conducted and radiated. The source of the interference is a short burst of high frequency-content energy caused by the rapid switching voltage and current transients in a switcher. Internal and external filters can be employed to suppress the radiated EMI/RFI. To summarize the discussion of linear power supplies vs. switching power supplies, linears are not as sensitive to changes in input frequency and provide better regulation, but they are less efficient. Switchers are small, light, and efficient, and can provide constant power through dropouts in the ac input voltage. However, they are complex, have a slower transient response than linears, and can produce high-frequency noise, which requires additional filtering. In general, at lower power levels, linears are the power supply of choice, while switchers are generally employed at high power levels. Three general parameters can be used to compare linears and switchers: relative cost per watt, regulation versus transient response time, and power density (watts per cubic inch).

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Custom, Standard and Modified Standard Products Ac/dc power supplies typically fall into one of three classes: custom, standard, or modified standard. Power supply manufacturers are sometimes identified as being a custom manufacturer or a standard manufacturer. In reality, most of the larger suppliers manufacture both types of components. Custom power supplies, as the name implies, are custom-designed for a specific application. The life of a custom power supply typically matches the life of the product for which it was designed. Custom products tend to sell in higher volumes and generate lower gross margins. Standard power supplies are company-specific, not industry-specific. There are no industry standards relating to ac/dc power supplies. Standard power supplies can be used for multiple applications. Standard products generally sell in lower volumes and generate higher gross margins than do custom products.
Power supplies usually account for 2% to 5% of product costs

Modified standard power supplies are standard products that have been slightly reconfigured. This saves time as compared to waiting for a custom product to be designed and produced. Since a power supply component is only 2%-5% of the cost of a product, reducing time-to-market for an OEM can generate substantial incremental revenue opportunities for the OEM. Output Segmentation Another way to segment the ac/dc power supply product lines is by the output watts. Table 15 summarizes the low, medium and high power ranges.

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Table 15 Output Segmentation Power Range Characteristics

Ac/dc power supplies are further segmented by their energy output

% of No. American Market 30%

End-Users PC applications (computers, desktop printers, etc.) Consumer electronics

LOW

<150 Watts Lower technology Higher volume Lower margin

MEDI UM

150-750 Watts High technology Moderate volume Higher margin

56%

Internet-related companies (routers, hubs, switchers, etc.) Computer workstations Medical applications

HIGH

>750 Watts Higher technology Lower volume Higher margin

14%

Computer mainframes High-end Internet applications Microwave & cellular communications Military radar & satellites Semiconductor testing equipment

Source: Artesyn Technologies and Micro-Tech Consultants

DC/DC CONVERTERS In 1984, Vicor introduced the Brick, a high-density dc/dc converter that changed the future of power system design. When high-density converters were introduced to the market, they made a very large impact. The technology was the most revolutionary thing that had ever happened to the industry. While being technically superior at the time and very popular, the first-generation converters covered a limited segment of the total power supply market. For over a decade, the first-generation converters were forced to fit the needs of popular applications such as telecom, networking, industrial, and mid- to high-end electronic data processing. As new applications expanded into these and other markets, the unsuitability of the original devices became obvious. Consequently, a number of power supply manufacturers, led by Lucent Technologies, have developed product lines that are more suitable to the emerging markets. Along with Vicor and Lucent, companies that participate in the dc/dc converter space are Power-One, Artesyn,
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Vicor invented the highdensity dc/dc converter in 1984

Ericsson, Emerson Electric, Lambda/Invensys, C&D Technologies, and privately owned R.O. Associates, PowerCube, Galaxy, Di/Dt and Syncor.
Dc/dc converters act as transformers to produce the desired voltage

Dc/dc converters are widely used to transform and distribute dc power within electronic devices. Dc power is typically made available to a system by an ac/dc power supply or battery. This power may be in the form of 5V, 24V, 48V or other dc voltages, may be poorly regulated and have a high noise content. A dc/dc converter acts as a transformer to produce the desired output voltage in a usable form. Dc/dc converters are used in four different applications: As a primary converter, where the battery is used as a source and a simple conversion is required. This application serves a high-volume market mainly dominated by semiconductor companies. As equipment gets more portable, we expect the use of converters for this application will increase. As an application-specific converter, where it is used to convert to a specific voltage. In this case, the main power supply is typically telecom power plant. As a component in a distributed power application (DPA). As DPAs become mainstream, dc/dc converters are expected to gain considerable market share in this sector. At present, the communications and military equipment categories are two of its major markets. As a building block component in an ac/dc power supply. This particular category holds true potential for dc/dc converters as a component of a power system. This market is in its infancy and, for the right converter price, can hold a large-volume potential.

Several new start-ups are focusing exclusively on dc/dc converters

The dc/dc converter can be defined by its power density (watts per cubic inch) and within power electronics is perceived as high-tech. In the last few years, more companies making ac/dc power supplies have successfully entered the dc/dc converter market. Additionally, several new start-up companies like Di/Dt and Syncor focus exclusively on the dc/dc market. Reliability, now as always, is an extremely important factor for power supply companies. However, customers now expect reliability as a given rather than an enhancement. As a result, for most large volume customers, reliability is not as much of a marketable/discriminating parameter. While prices are expected to decline in the dc/dc market, we do not expect them to decline as much as they have in the ac/dc market. The following Table illustrates dc/dc converter price ranges for 1999 and the estimated ranges in 2004.

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Table 16 DC/DCConverter Pricing Trends ($/Watt, 500-Piece Quantity)

Watts 50 75 100 150 200 300 400 500
Source: Micro-Tech Consultants

1999 $1.50 - $1.75 $0.85 - $1.15 $0.80 - $1.00 $0.60 - $0.80 $0.50 - $0.75 $0.40 - $0.65 $0.35 - $0.60 $0.30 - $0.55

2004 $1.00 - $1.55 $0.75 - $1.00 $0.75 - $0.90 $0.50 - $0.70 $0.40 - $0.65 $0.30 - $0.55 $0.25 - $0.50 $0.25 - $0.50

Dc/dc converters are growing approximately twice as fast as ac/dc power supplies. Reasons for the higher growth rate include: A move to distributed power architecture brought about by digital semiconductors operating at lower voltages. A significant price reduction in almost all applications requiring high- to medium-volume shipments.

TELECOM POWER PLANTS Telecom power plants are components that are external to the equipment that they power. Telecom power plants include ac/dc rectifiers/battery chargers, dc/dc converters, power distribution panels, and monitoring and control systems. Telecom power plants are also called energy systems or battery power plants. The products are used in traditional wireline installations to power the equipment in central offices, in fiber-optic networks to power regeneration sites and in wireless applications to power mobile phone switching offices and antenna sites. These products are an extremely critical component of the communications infrastructure. As stated previously, the service providers that operate the communications infrastructure need electricity that is both pure and reliable, and they need a lot of it. The electric utility grid delivers dirty power that is reliable 99.9% of the time, which equates to about eight hours of outage a year for a typical consumer. Eight hours worth of power outages over the course of a year is an inconvenience for you and me but a financial nightmare for communications service providers. With some of the larger telecom companies billing customers at a rate of over $4 million per minute, no expense is spared by the telecom companies to keep the electricity flowing. Additionally, minute fluctuations in the quality of the electricity can have disastrous effects on the sensitive equipment that routes the voice and data traffic around the world. A description of a typical central office is a good way to introduce a few of the dynamics at play in the communications high-voltage power systems market. A central office is a physical location housing equipment that routes, switches, multiplexes, and demultiplexes communications traffic. For example, voice and
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Telecom power plants power the communications infrastructure

data traffic from telephones, PCs, pagers, personal digital assistants (PDAs) and wireless phones is carried through the air and over copper lines, coaxial cables and glass fibers and converges at the central office. In other words, there is a lot of power hungry equipment in a central office. To ensure that this equipment is up and running around the clock, service providers install an uninterruptible power supply (UPS) system. This UPS system usually consists of a telecom power plant, generators and batteries. The power plant is the brain of the UPS system. It rectifies the electric utilitys alternating current to a 48-volt direct current that is used to power all of the communications equipment at the site. In addition to powering the equipment, the telecom power supply system keeps the batteries charged and, in the event of a power outage, draws electricity from the batteries until the back-up generators can come on line. Once on line these generators act as the primary power source, which still needs to be rectified by the power supply rack before being bussed to the communications equipment. All this switching takes place without the microprocessors in a router ever knowing its power source was compromised. With all this equipment competing for floor space in a building that was probably originally designed to handle only voice traffic, size matters. The power plants that have dominated these installations in the past are called ferro-resonant power plants. We estimate that ferro-resonant power plants still power over 50% of the telecom market. However, as space availability becomes more critical, telecom switch-mode power plants have become much more attractive. Telecom switchmode power plants use one-fifth of the space required by ferro-resonant power plants. Although it will not happen overnight, we expect switch-mode power plants to be the power plant of choice going forward for these backbone companies. A second advantage is that repairs can be made to switch-mode power supplies much faster rate than to ferro-resonant power supplies.

Switch-mode telecom power supplies take up less space than ferroresonant power supplies

POWER SUPPLY INDUSTRY OVERVIEW

The growth of the power supply industry will be driven by strong demand for communications applications

The growth of the power supplies industry has paralleled that of the general electronics industry. The proliferation of electronic equipment within the past 15 years has created greater demand for power supplies. Going forward, growth prospects remain bright due to increasing demand from end-uses such as servers, storage devices, networking equipment for Internet services and telecommunication equipment for wireless applications. An extensive survey of power supply manufacturers conducted by Micro-Tech Consultants (July 2000) revealed that most believe that today can be characterized as the best of times for the power supply industry. There were reasons given for the optimism: General economic growth Almost insatiable demand for networking equipment, wireless communications, and optical switching Continued shift from in-house, captive manufacturing to merchant buying Continued improvement in power supply manufacturing

We believe that the power supply industry is in the midst of major change. The evolving nature of the industry is summarized in Table 17.

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Table 17 Power Supply Industry

Yesterday
There are no real standards in the power supply industry

Tomorrow

No industry standards

Some de facto industry standards in ac/dc and dc/dc have evolved; low power dc/dc is standardized Expected to continue Expected to increase A few large companies have dedicated resources

Significant diversity Complex competition Lack of capital resources No real large volumes

Personal computer applications have large volumes; network computers and communications applications will have larger volumes
Older industry that still hasnt reached maturity

Old industry which has not yet reached maturity

Source: Micro-Tech Consultants

Intense Industry Fragmentation

There are over 1,000 power supply manufacturers worldwide and 250 in the North American market

The power supply industry is extremely fragmented, consisting of around 1,000 manufacturers worldwide. No one manufacturer holds more than five percent of the total market. Most manufacturers concentrate on niche markets, whether power ranges or industry segments. Although consolidation has been an issue, there are still more than 250 merchant power supply companies in the U. S. market with no one company dominating the industry. Following is a list of the top ten 1999 power supply manufacturers in North America in terms of revenue.

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Table 18 Ten Largest North American Power Supply Companies* - 1999 Sales
($ in millions)

Manufacturers
The Company with the most revenue derived in North America in 1999 was Taiwanese-based Delta

1999 North American Sales $550 460 340 335 210 170 - 190 150 - 155 143 130 125

Delta Electronics Astec/APS/Emerson Electric Lucent Technologies Artesyn Technologies Lite-On Celestica Power Systems Power-One Vicor Cherokee International Lambda Electronics/Invensys
*(Ac/dc power supplies, dc/dc converters and telecom power plants) Source: Micro-Tech Consultants

The worldwide power supply market is even more fragmented than the U.S. market. A list of the top 15 power electronics companies in the world along with their worldwide sales figures for 1999 is provided below. Table 19 Largest Worldwide Power Supply Companies* - 1999 Sales
($ in millions)

Company

Base

1999 Sales

In 1999, Lucent was the largest power supply manufacturer in the world. Lucent is currently in the process of selling its power supply division

Lucent Technologies Products Delta Electronics Astec/APS/Emerson Electric Lambda Electronics/Invensys Siemens Ericsson Artesyn Marconi Shindengen Lite-On Ascom Energy AcBel Polytech FRIWO EMC Tamura Corp. NMB Technologies

U.S. Taiwan U.S. U.K. Germany Sweden U.S. U.K. Japan Taiwan Switzerland Taiwan Germany Japan Japan

$1,200 850 830 830 600-700 560 517 360 357 320 309 260 250 250 222

*(Ac/dc power supplies, dc/dc converters and telecom power plants) Source: Micro-Tech Consultants

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Barriers to Entry Even though the industry is mature, few barriers to entry exist. The expertise required to construct a low-power-range power supply is relatively low. However, just having a working power supply does not necessarily lead to a profitable business. With no industry standards for power supplies, it is very difficult to design out an existing power component, which prevents large companies from quickly gaining market share. Foreign Competition
Taiwan is home to more power supply manufacturers than any other country

Foreign competition has become difficult to define in the power supply industry because many U.S. companies are owned by foreign ones. Moreover, many U.S. companies have manufacturing locations in low-labor-rate countries like Mexico and China, making it possible for them to manufacture products as competitively as a foreign supplier. This capability is especially important for ac/dc manufacturers, but not as key for dc/dc converter makers. Taiwan has the largest number of power supply manufacturers, with more than 100 that sell either directly or indirectly to U.S. companies. The Asian manufacturers have historically dominated the low end of the power supply market. By low end, we are talking about commodity-like power supplies that are found in consumer electronics and PCs. The line dividing the low end of the market and the mid to high end is moving up. A case study of the computer workstation and enterprise-level file server markets is an excellent way to convey whats happening at this critical delineation point in the market. Advances in microprocessor technologies are enabling a wider range of power supply manufacturers to enter the workstation and enterprise level server markets. In the past, a relatively large number of small, high-end power supply manufacturers had a stranglehold on these markets. The personal computer market was the exclusive domain of the larger, low-end power supply manufacturers. These manufacturers developed strategic strengths in order to survive and meet the needs of the fast-growing personal computer market. They utilized low-cost labor and increased material purchases to dramatically lower product costs. High volume manufacturing processes were developed to meet the growing demand for quality, reasonably reliable products. Since personal computer architectures were relegated to desktop applications, the impact of power supply failure, while unwanted, was relatively minimal. Consequently, price was the key driver in making the sale. For the enterprise-level servers and engineering workstations, high-end proprietary architectures ruled. These systems required power supplies that were as individual and unique as the computer systems they powered. Manufacturers that supplied this market could command higher margins for their highly engineered, reliable power supplies. Cost was not the primary consideration. With advances in microprocessor technology and software, personal computer architectures have evolved to the point that they are now penetrating the workstation and server markets. Companies that previously dominated this market are migrating their architectures to an Intel and Windows NT platform, and the traditional PC suppliers are becoming formidable competitors in the high-end computer market segment. Most important to power supply manufacturers is the fact that these new PC competitors also bring their entire supply chain up into the workstation and enterprise-level server markets.

The line dividing the low end of the market and the mid to high end also divides the commodity power supply manufacturers from the higher-end manufacturers

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Traditionally, mid- to high-end power supply manufacturers have not had to worry about the competitive antics that typify the huge electronics manufacturers. The emergence of the more cost-conscious, low-end power supply manufacturers is changing the playing field. Continued Industry Growth
Annual growth is forecast at 10.2% from 1999 through 2004 for the power supply industry

As indicated earlier, the power supply industry has experienced exceptional growth on the back of the general electronics industry. The growth is expected to continue with some minor shifts between markets and products. As reflected in Chart 21, the worldwide market for ac/dc power supplies and dc/dc converters was approximately $26.6 billion in 1999 and is expected to grow to $43.2 billion by the year 2004. Of the worldwide total, the North American market was $11.4 billion in 1999 and is expected to grow to $19.7 billion by 2004.

Chart 21 Global Power Electronics Market* ($ in Billions)

1999
$15.2
Foreign

$11.4

North America

In 1999, the North American market accounted for approximately 43% of the overall market. It is expected to increase to 46% of the total market by 2004
Foreign

2004 $23.5 $19.7

North America

(Ac/dc power supplies and dc/dc converters) Source: Micro-Tech Consultants

Global consumption of ac/dc power supplies is expected to increase from $11.1 billion in 1999 to $14.5 billion in 2004. This increase represents an average annual growth rate of 5.5% (see Chart 22). Dc/dc converters are an important component in an ac/dc power supply and, as such, will benefit from the growth in that market. Additionally, dc/dc converters will benefit as distributed power architecture continues to gain in popularity. Global consumption of dc/dc converters is forecast to increase from $6.2 billion in 1999 to $11.3 billion in 2004, an average annual growth rate of 12.8%. The telecommunications market is expected to drive dc/dc converter growth. We
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Dc/dc converters are expected to grow at a CAGR from 1999 through 2004 of almost 13%

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estimate that, in 1999, the telecom high-density dc/dc converter market was around $1 billion. However, by 2003, the market is expected to reach approximately $6 billion, making it the fastest growing segment of the power supply business.

Chart 22 Global Power Supplies Consumption

$30.0 $25.0 $20.0

$Billions

$15.0 $10.0 $5.0 $0.0

1999 2000E 2001E 2002E 2003E 2004E

AC/DC
(Ac/dc power supplies and dc/dc converters) Source: Micro-Tech Consultants

DC/DC

Dc/dc converters are forecasted to grow faster than ac/dc power supplies

The third segment, telecom power plants, is expected to grow at a rapid pace (see Chart 23). Telecom power plants include ac/dc rectifiers/battery chargers, dc/dc converters, power distribution panels, and monitoring and control systems. Telecom power supplies can also be called energy systems or battery power plants.

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Chart 23 Global Telecom Power Plant Consumption

$10.0 $8.0 (Billions) $6.0 $4.0 $2.0 $0.0 1999 2000E 2001E 2002E 2003E 2004E

Source: Micro-Tech Consultants

Market Segments In the last few years, the communications segment has emerged as the fastestgrowing segment, mainly due to the demands of the networking equipment and portable communications devices. Add to that the increasing growth of telecommunications in underdeveloped nations as well as upgrades to current systems, and its easy to predict that this sector will continue to grow. According to Standard & Poors, the global communications equipment industry will grow at a 15% clip in 2000 and 2001, with certain segments growing much faster. Some of the exceptionally high-growth segments are served by companies under our coverage list, including optical networking, wireless, and Internet access. The computing market segment is the largest of the power electronics markets. With continued improvements in PCs and peripheral devices, along with growth in the sale of minicomputers and supercomputers, this market is expected to continue to show steady growth. According to eTForecasts, worldwide PC revenues in 1999 were $226.3 billion (we are grouping servers, desktop PCs, and mobile PCs under the term PC). By 2005, PC revenues should reach around $356.9 billion, for a CAGR of approximately 8%. The CAGR for unit shipments will be much higher over the same time frame, around 12.5%, due to significant price declines. For many companies, the products and services for this segment are not significantly different than those for the communications segment.
The industrial market has improved as a result of the increase in demand for semiconductor capital equipment

Communications is the fastest-growing market segment

The industrial market segment has remained a lucrative segment for the participants, but it is not a high-growth segment. However, due to a rebound in the semiconductor capital equipment market beginning in 1999, the growth rate has increased somewhat. Capital spending has also increased in this market within the last year, signifying further growth prospects. This is the only segment that has not gone through a fundamental change like computers and telecommunications. The market is smaller, and the participants are entrenched. Most ac/dc power supply manufacturers serving the military have had declining sales for many years, while dc/dc converter manufacturers have grown modestly. Though this market is not expected to grow dramatically over the next several years, the steep decline may be behind us. Most experts believe that the period

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of massive downsizing in defense spending has ended, and there might be increased military spending going forward as new platforms come to the market. Additionally, the retrofit business has been increasing as well as the commercial aerospace business, mainly from increasing airplane production by Boeing and Airbus. Our defense forces are expected to increase purchases of electronic components as they upgrade their current systems. An upside of the downsizing that has occurred in the military is the decrease in captive defense power electronics manufacturers. With fewer contracts being awarded, defense contractors must cut back on departments, often cutting the power supply division. These cuts have led to an increase in military purchases of power electronics from the merchant market.

The decline in military power electronics sales appears to have bottomed out

Chart 24 North American Power Supplies Consumption by Market Segment

$12.0 $11.0 $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 1999 2000E 2001E 2002E 2003E 2004E

($ in billions)

The networking/ telecom segment is projected to be the fastest growing market in North America

Computers & Peripherals (7.1% CAGR) Indust rial (5.6% CAGR)

Net working/T elecom (14.2% CAGR) Military (5.7% CAGR)

Source: Micro-Tech Consultants

Growth Opportunities by Power Supply Category

The merchant market should grow at around 12% through 2004, much faster than the captive market

There are two main categories which power supplies manufacturers fall under, merchant and captive. A merchant manufacturer is an independent entity that sells power supplies to various vendors. A captive manufacturer, also called inhouse manufacturer, is a manufacturer that makes power supplies for its own use and does not sell to outside vendors. The merchant market has been experiencing strong growth the past year and is expected to remain strong going forward, with a 1999 to 2004 CAGR of 12.1%. The chart on the following page illustrates the demand for merchant switching power supplies in the North American market.

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Chart 25 North American Merchant Power Supplies Consumption

$9.0 $8.0 $7.0 ($ in billions) $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 1999 2000E 2001E 2002E 2003E 2004E

Source: Micro-Tech Consultants

When breaking down the merchant market by product (ac/dc power supplies and dc/dc converters), the dc/dc side is growing at a much faster rate. In 1999, dc/dc merchant sales totaled approximately $1.2 billion. Dc/dc merchant sales are expected to grow to $3.1 billion by 2004, a CAGR of 21.0%. On the other hand, ac/dc sales in 1999 were $3.6 billion and are expected to reach $5.4 billion by 2004, representing a CAGR of 8.4%. Increased Outsourcing For North American power supply companies, the merchant opportunity is forecasted to grow from 65.6% of the total North American market in 1999 to 74.5% in 2004. The merchant market will have a CAGR over that time of 12.1%, versus the captive market of 3.0%.

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Chart 26 North American Power Supplies Consumption (Merchant vs. Captive) Total: $7.4B $8.2B $9.1B $9.9B $10.7B $11.5B

34.4%

30.0%

28.4%

26.9%

25.8%

1999

65.6%

2000E

70.0%

2001E Merchant

71.6%

2002E Captive

73.1%

2003E

74.2%

2004E

Source: Micro-Tech Consultants

The pending sale of Lucent Technologys captive power supply division is a perfect example of the trend towards increasing merchant sales. Some of the primary reasons for the increased outsourcing are: The general growth in the electronic equipment industry. Companies continue to move from linear power supplies to switching power supplies, which are more difficult to design and manufacture. The emergence of a new type of electronic equipment manufacturer: one that is a systems integrator as compared to a vertical company manufacturer and integrator. These new companies typically do not have power electronics expertise. Overall marketplace changes. Movement from mainframes to personal computers and from wired telecommunications to wireless cellular and digital. These changes have created more opportunities for the merchant power electronics companies.

Consolidating Industry There is a widening gap between large and small companies. The recent growth in the industry has created a few large companies for the first time in the industrys history (see Chart 27). The lack of standards and the possibility of niche markets are making it possible for hundreds of smaller manufacturers to survive in the industry but, at the same time, the technology development, financial strength, and marketing expertise required to participate in this industry warrant a larger organization. This dichotomy will influence the evolution towards an industry with a few large companies supplying a generic product
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The power supply industry continues to be ripe for consolidation

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74.5%

25.5%

and many smaller companies supplying products for niche markets. There are now around 250 power supply companies in North America, down from 300 a few years ago.

Chart 27 Fragmented Merchant Power Supply Industry (1998 Sales In Millions)

Over 1,000 worldwide merchant suppliers in the industry, ranked by revenues

13 Companies $300 + 30 Companies $100 - 299

101 Companies $20 - 100

133 Companies $5 - 20

723 Companies UNDER $5

Source: Micro-Tech Consultants and Power-One, Inc.

Merger and acquisition activity is almost commonplace in the power supply industry

The power supply industry is moving from one that was made up of small private companies to one that is composed principally of either public companies or divisions of larger companies. We feel that acquisition and merger activity, is driving this trend. Over the last several years, a significant amount of consolidation has taken place in the industry. Table 20 highlights a few of the most recent deals.

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Table 20 Recent Consolidation in the Power Electronics Industry Date 6/00 4/00 2/00 11/99 10/99 10/99 10/99 8/99 7/99 5/99 1/99 1/99 Acquirer Cherokee Power-One Power-One Converter Concepts Celestica Texas Instruments Xantrex Ascom Energy Unipower SL Industries Emerson Electric Power-One Target Mitra Power Powec HC Power MicroEnergy VXI Power-Trends Statpower ABB PS Inc. Power Micro Todd Products Ericsson Energy System IPD

Emerson Electric and Power-One have been the two most active consolidators

Source: Micro-Tech Consultants

Chart 28 illustrates the expected consolidation in the power supply industry. The amount of the merchant power supply market held by the top ten OEM companies is projected to grow significantly from 1999 to 2004.

Chart 28 North American Market Share Held by Top 10 Merchant Power Supply Manufacturers
1999
2004
Rest 30.8%

Rest 45.6%

Top 10 54.4%

Top 10 69.2%

Source: Micro-Tech Consultants

Other Market Dynamics Consolidation of supplier base Like many other industries, electronics, communications and computer OEMs are reducing the number of suppliers with which they do business. Typically, suppliers that have broad product offerings and high service capabilities fare better. Accelerated new product introduction by OEMs Users of power electronics, especially computer and communications companies, are themselves highly competitive, making time-to-market a critical variable in determining success in these industries. Product life cycles are shortening within the electronic equipment industry. Since a power system typically
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represents only 2% - 5% of the total cost of an OEMs product, shortening the time-to-market is a critical variable in the success of power electronics manufacturers. Alliances are being formed Due to the business complexity of this industrys sales channels, there are alliances being formed by various companies to either sell each others products or license each others technologies. Companies are focusing on their strengths and compensating for weaknesses through alliances. Potential of the Internet as a sales tool At this time, power supply companies are not taking full advantage of the Internet. Currently, the Internet is being used primarily as an information tool rather than a sales tool. The main portion of high-volume sales are done in a direct face-to-face manner with familiar customers. The Internet offers smaller companies the ability to garner nice, low-volume sales. Using company stock to attract engineers As mentioned earlier, the lifeblood of power supply companies is the ability to attract and maintain a strong engineering base. Offering stock compensation is an important factor in this effort.

POWER SUPPLY SECTION CONCLUSION There is no single strategy to becoming successful in the power supply industry. Companies have to make compromises between high growth versus high profits, standard products versus custom, local versus global markets, distribution versus direct sales, and many other strategic choices. However, we believe that there are a few key industry dynamics that successful companies will understand and profit from in the future. In our opinion, the industry will most certainly continue its consolidation trend. The larger companies will look to broaden their product lines and sales channels by acquiring smaller, niche players. Additionally, size, and the attributes that normally accompany it, such as greater financial leverage, larger customer service departments, larger R & D budgets, broader product lines, and greater distributor influence, will become more and more important as competitors battle for market share. Power supply companies must continue to improve manufacturing efficiencies. While product quality will continue to be the number one factor influencing buying decisions, price will become more of a consideration as competition for the high-margin business intensifies. Those companies that have quality internal tracking systems and manufacturing facilities in low-cost, strategic areas will probably have the advantage. Finally, the power supply industry is not unlike other industries; those companies that best understand their customers needs and design and deliver products that meet those needs will likely be the most successful.

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Power Supply Company Profiles

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Artesyn Technologies Inc. (ATSN-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $37.50 $43.13 - $15.00 $1.4 billion 37.4 million 23.8% 25% 493,845 $52 BUY
ARTESYN TECHNOLOGIES INC
ATSN
9/15/99 to 9/15/00 High: Low: Last: 43.13 15.00 37.50 USD 40 35 30

25

20

15 Millions 1.46 0.73

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A 1999A 2000E 2001E

1Q $0.24 $0.20 $0.29A $0.37

Cash Earnings Per Share 2Q 3Q 4Q $0.16 $0.21 $0.25 $0.28 $0.33 $0.35 $0.32A $0.35 $0.40 $0.42 $0.46 $0.50

DecFY $0.86 $1.16 $1.36 $1.75

% Chg. NA 35% 17% 29%

P/E Ratio 43.6X 32.3X 27.6X 21.4X

Revs. $ Mil $532.4 594.2 695.9 829.9

EBITDA $ Mil $68.5 85.0 98.3 125.4

Enter./ Sales 2.7X 2.4X 2.1X 1.7X

Company Description
Artesyn has three main product divisions: power conversion, communications, and repair and logistics

Headquartered in Boca Raton, Florida, Artesyn Technologies is a leading supplier of power conversion products, communication subsystems and repair services. It employs more than 6,500 people worldwide, with operations in 14 countries. Artesyns products include power conversion products for electronic equipment used in commercial and industrial applications and also for singleboard computers, systems, and sub-systems for real-time applications. Investment Highlights and Summary Despite component shortages, Artesyn has provided upside earnings surprises over the last two quarters. After lowering earnings expectations for FY00 during 4Q99s conference call, Artesyn Technologies turned in a first quarter that provided a nice upside surprise for investors, $0.32 cash EPS versus our estimate of $0.30. Artesyns 2Q00 EPS results also came in above our expectations. For the quarter, the Company recorded $0.27 GAAP EPS and $0.32 cash EPS, one cent and two cents ahead of our expectations, respectively. Demand has been strong for ATSN's products across all its divisions. However, industry-wide component shortages, particularly of tantalum capacitors, plagued Artesyn during the second quarter and caused the Company to push approximately $15 million in expected sales from 2Q00 to 3Q00. Despite the fact that the $15 million in expected sales was pushed to 3Q00, ATSN only missed our revenue expectation by approximately $3 million in 2Q00. For the quarter, ATSN generated $164.3 million in total sales. Demand for Artesyns products continues to remain strong across the board, and we remain comfortable with the Companys ability to meet our EPS projections going forward.

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Artesyn focuses exclusively on the fast growing communications and computing industries. Following the arrival of Joseph ODonnell in 1994 as CEO, management immediately began emphasizing the development of products exclusively for this fast-growing market. In addition, ATSN is a leading provider of communication subsystems and repair and logistic services. The chart below depicts our estimates of ATSNs end-market as a percentage of total revenue.

ATSNs End-Market Breakdown

Wireless 6%

Computing/storage and networking make up the bulk of ATSNs revenues. Going forward, we see the wireless and internet access revenues growing the fastest

Internet Access 7%

Other 6% Computing/ Storage 46%

Carrier/ Enterprise/ Networking 35%

Source: Company Information

Artesyn had 57 new program wins during the first six months of FY00

R&D spending has been on the rise. Artesyn has increased its new product introductions through increased spending on R&D. Several quarters ago, management announced its intention to increase spending by approximately $6 million, which reduced our FY00s EPS estimate by ten cents. The reason for the investment increase was to expand ATSNs presence in high-growth Internet applications such as routers, mass-storage, servers, fiber channels, fiber switching, and DSL. Through the first six months of FY00, ATSN recorded 57 new program wins and is well on its way to surpassing its goal of 75 by year-end. The success of Artesyns new products provides us with additional comfort in our earnings projections for FY01. The new non-isolated dc/dc converters designed for the mid- to low-end server market and the new high-voltage products designed for wireless base stations are beginning to gain footing in the marketplace. During ATSNs most recent quarter, the Company had two program wins for low- to mid-range servers that should generate $60 million in annual revenue at full production. We believe shares of Artesyn remain attractively priced. Artesyn is trading at a discount to its peers. The Company is trading at approximately 27.6X and 21.4X our FY00 and FY01 Cash EPS estimates, respectively. Artesyns two closest comparable companies, Power-One and Vicor, trade at an average of 79.3X and 50.4X to their FY00 and FY01 estimates, respectively. While projected revenue growth rates vary significantly between these three companies, in our opinion, the disparity in valuations is too great.
Stephens Inc. maintains a market in the common stock of Artesyn Technologies and may act as principal in these transactions.

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ARTESYN TECHNOLOGIES, INC.

Historical Earnings Summary & Projections
(in millions, except per share amounts) 1999 1Q Sales Cost of Sales Gross Profit SG&A R&D Operating Income Interest (Income)/Expense Other (Income)/Expense Pretax Income Taxes Net Income Average Shares - Diluted GAAP EPS - Diluted Cash EPS - Diluted Depreciation & Amortization EBITDA Margin Analysis Gross Profit SG&A R&D Operating Income Pretax Income Net Income Tax Rate Percent Change Sales Gross Profit SG&A R&D Operating Income Pretax Income Taxes Net Income GAAP EPS - Diluted Cash EPS - Diluted -8.2% -12.2% -5.4% -1.0% -25.6% -25.9% -30.2% -23.6% -18.9% -16.7% 23.5% 17.6% -10.5% 13.1% 62.9% 64.9% 57.7% 68.6% 77.9% 75.0% 22.6% 20.2% -3.6% 9.6% 53.6% 53.4% 48.5% 55.9% 60.2% 57.1% 12.3% 17.9% 5.1% 15.6% 30.0% 32.1% 22.2% 36.7% 39.8% 40.0% 18.1% 22.4% 9.1% 16.1% 43.6% 43.0% 38.5% 45.1% 47.6% 45.0% 9.2% 18.5% 36.8% 15.6% 5.2% 2.3% 3.8% 1.6% 1.7% 14.3% 17.2% 18.1% 37.9% 34.4% -3.5% -6.6% -3.6% -8.0% -6.9% 6.1% 23.9% 26.8% 39.6% 43.0% 10.5% 7.5% 20.0% 2.3% 1.5% 14.3% 20.3% 25.9% 24.9% 27.2% 25.9% 24.1% 32.1% 20.5% 17.4% 27.6% 22.9% 20.7% 6.1% 22.2% 35.2% 36.6% 36.7% 36.5% 34.3% 31.3% 18.4% 19.0% 6.7% 9.7% 37.5% 40.3% 40.3% 40.3% 37.5% 31.4% 16.0% 17.3% 6.0% 8.1% 32.6% 34.9% 34.9% 34.9% 32.1% 25.0% 1.0% -1.6% 5.7% 11.6% -14.3% -12.6% -7.3% -15.1% -16.0% -15.7% 11.6% 10.1% -3.9% 9.0% 25.7% 26.5% 19.7% 29.9% 35.2% 34.9% 17.1% 21.5% 30.6% 27.2% 10.8% 8.2% 12.2% 6.4% 7.0% 17.2% 19.2% 20.5% 10.3% 16.1% 33.0% 34.2% 36.1% 33.3% 30.6% 28.7% 24.8% 10.0% 6.6% 8.2% 8.0% 5.4% 32.0% 25.3% 8.6% 6.2% 10.5% 10.3% 6.9% 32.5% 26.8% 8.4% 6.0% 12.3% 12.0% 8.2% 32.0% 26.4% 8.4% 5.7% 12.3% 12.0% 8.5% 29.6% 25.7% 9.3% 6.4% 10.0% 9.6% 6.6% 31.0% 27.5% 10.7% 6.6% 10.2% 9.6% 6.4% 33.0% 27.0% 9.9% 6.9% 10.1% 9.6% 6.4% 33.0% 27.0% 9.4% 6.6% 10.9% 10.4% 7.0% 33.0% 26.9% 9.6% 6.8% 10.5% 9.9% 6.7% 33.0% 27.0% 9.3% 6.6% 11.2% 10.7% 7.2% 33.0% 27.1% 9.0% 6.4% 11.8% 11.3% 7.6% 33.0% 27.3% 8.6% 6.2% 12.5% 12.1% 8.1% 33.0% 26.2% 10.2% 6.3% 9.7% 9.4% 6.3% 33.2% 25.9% 8.8% 6.1% 10.9% 10.6% 7.3% 31.4% 26.8% 9.8% 6.7% 10.3% 9.8% 6.6% 32.5% 27.1% 9.1% 6.5% 11.5% 11.1% 7.4% 33.0% $ $ $ $ $ $ 135.1 101.6 33.5 13.6 8.9 11.1 0.3 10.8 3.4 7.3 39.1 0.19 0.20 4.7 15.8 $ $ $ $ $ 2Q $ 150.4 112.3 38.1 12.9 9.4 15.9 0.4 15.4 5.0 10.4 38.9 0.27 0.28 4.8 20.7 $ $ $ $ $ 3Q $ 152.8 111.9 40.9 12.9 9.2 18.8 0.5 18.3 5.9 12.5 39.3 0.32 0.33 5.6 24.4 $ $ $ $ $ 4Q $ 155.8 114.7 41.1 13.0 8.9 19.1 0.4 18.7 5.5 13.2 38.7 0.34 0.35 5.0 24.1 $ $ $ $ $ 1Q $ 159.6 118.6 41.1 14.8 10.3 15.9 0.6 15.4 4.8 10.6 38.4 0.28 0.29 5.7 21.6 $ $ $ $ $ 2000E 2Q 3QE $ 164.3 119.2 45.2 17.6 10.8 16.7 0.9 15.8 5.2 10.6 38.8 0.27 0.32 6.7 23.4 $ $ $ $ $ $ 179.0 130.7 48.3 17.8 12.4 18.1 1.0 17.1 5.7 11.5 38.9 0.30 0.35 7.0 25.1 $ $ $ $ $ 2001E 2QE 3QE $ 201.9 147.4 54.5 18.7 13.3 22.6 1.0 21.6 7.1 $ 14.4 39.5 $ $ $ $ 0.37 0.42 7.4 30.0 $ $ $ $ $ $ 212.0 154.5 57.5 19.0 13.6 24.9 0.9 24.0 7.9 16.1 39.7 0.41 0.46 7.5 32.4 $ $ $ $ $

4QE $ 193.0 140.9 52.1 18.2 12.8 21.1 1.0 20.1 6.6 13.5 39.0 0.35 0.40 7.1 28.2 $ $ $ $ $

1QE $ 192.1 140.4 51.7 18.5 13.1 20.1 1.0 19.1 6.3 12.8 39.4 0.32 0.37 7.2 27.3

4QE $ 223.9 162.8 61.1 19.3 13.8 28.0 0.9 27.1 9.0 18.2 39.9 0.46 0.50 7.7 35.7

1998* $ 532.4 392.9 139.5 54.5 33.4 51.6 1.6 50.0 16.6 $ 33.4 40.6 $ $ $ $ 0.82 0.86 16.9 68.5 $ $ $ $ $

1999 $ 594.2 440.5 153.7 52.4 36.4 64.9 1.7 63.2 19.8 43.4 39.0 1.11 1.16 20.1 85.0

2000E $ 695.9 509.3 186.7 68.4 46.3 71.9 3.5 68.4 22.3 $ 46.1 38.8 $ $ $ $ 1.19 1.36 26.5 98.3

2001E $ 829.9 605.1 224.8 75.5 53.8 95.6 3.8 91.8 30.3 $ 61.5 39.6 $ $ 1.56 1.75

$ 29.8 $ 125.4

* FY98 figures do not include an after-tax, merger-related charge of $9.6 million.

Source: Company reports and Stephens Inc. estimates

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C&D Technologies (CHP-NYSE)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $52.50 $61.38 - $15.50 $1.4 billion 26.0 million 31% 35% 345,315 $64 BUY
C&D TECHNOLOGIES INC
CHP
9/15/99 to 9/15/00 High: Low: Last: 61.38 15.50 52.50 USD 60 50 40

30

20

Thousands

701 351

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1999A 2000A 2001E 2002E

1Q $0.22 $0.25 $0.41A $0.55

Earnings Per Share 2Q 3Q 4Q $0.23 $0.26 $0.22 $0.27 $0.31 $0.35 $0.49A $0.52 $0.53 $0.57 $0.60 $0.60

JanFY $0.94 $1.18 $1.95 $2.32

% Chg. 21% 26% 65% 19%

P/E Ratio 55.9X 44.5X 26.9X 22.6X

Revs. $ Mil $314.0 465.6 586.0 676.0

EBITDA $ Mil $49.3 80.2 118.8 138.0

Enter./ Sales 5.0X 3.1X 2.5X 2.1X

Company Description C&D Technologies, headquartered in Blue Bell, Pennsylvania, was founded in 1906 by Frank Carlile and Leon Doughty. Through the years, the Company has maintained a focus on industrial power systems. Today, C&D Technologies is composed of four divisions: PowerCom, Dynasty, Power Electronics, and Motive Power. The PowerCom and Dynasty divisions manufacture lead-acid batteries and related electronics that are used to back up the communications infrastructure. C&Ds Power Electronics division manufactures ac/dc power supplies and dc/dc converters. The Motive Power division is a major supplier of batteries and charging electronics for electric material-handling vehicles and other industrial applications. Investment Highlights and Summary C&D Technologies is finally hitting on all cylinders. Throughout calendar 1999, we consistently said that C&D Technologies was growing remarkably well while only hitting on two of its four cylinders. Granted, the two cylinders that were driving the growth accounted for approximately 70% of total revenues. Now, for the first time in several years, the Power Electronics Division is contributing in a meaningful way. The division contributed operating profits of $1.5 million in 2Q01 versus a loss of ($3.5 million) in all of FY00. The improvement in performance can be directly attributed to the divisions line of high-density dc/dc converters.

Seventy percent of CHPs revenues come from energy storage systems that back up the nations communications infrastructure

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We estimate that CHP will spend approximately $50 million in capital expenditures this year in order to meet demand

Demand is outpacing C&D Technologies manufacturing capacity. Because of the huge demand for CHPs energy storage sytems that are used to back up the communications infrastructure, the Companys lead-times have stretched to over three months. Management believes that CHP is on track to hit its capital expenditures target of $50.0 million this year. This level of spending is much higher than the $15.0 million the Company has spent each of the last two years. Approximately $40 million of this is earmarked for the battery divisions, and $5.0 million will go towards the power electronics division. The capacity expansion program should provide an additional $100.0 million in revenue capacity. With manufacturing capacity tight at all four of the major suppliers of industrial batteries, CHP is the only supplier that is aggressively expanding capacity. Going forward, we believe that CHPs industrial battery business will be better positioned than its competitors. The Company primarily competes with East Penn Manufacturing, Yuasa and GNB (a division of Pacific Dunlap). The outlook for CHPs Power Electronics Division has improved dramatically. Over the last year, the Power Electronics Division has been restructured, and its management has been replaced. During that chaos, CHP was working to get its dc/dc bricks qualified at several of the larger communications equipment manufacturers. Those efforts are beginning to pay off. C&Ds Power Electronics Division recorded sales of $24.4 million in the most recent quarter, a sequential increase of approximately 23%. The Power Electronics Division recorded an operating profit of $1.5 million during 2Q01, versus $766,000 in 1Q01. Demand for CHPs dc/dc converters continues to outpace supply. These bricks are targeted at communications equipment manufacturers such as Cisco, Alcatel, Sycamore, and Nortel. During the most recent quarter, this division accounted for approximately 17% of total sales. Dc/dc converters are the fastest growing segment in the power supply industry. There are only a handful of companies that make this product, and all of them have seen sales climb dramatically.

CHPs power electronics division has turned the corner and is now the fastest growing division

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C & D Technologies, Inc. H istorical Earnings Sum m ary & Projections

(in millions, except per share data)
2000* Jul O ct 2Q 3Q $ 111.8 82.1 29.7 14.5 2.2 13.0 1.9 11.1 4.0 $ 7.1 26.3 $ $ $ 0.27 5.9 18.9 $ $ $ $ $ 126.8 93.6 33.3 15.2 2.2 15.9 2.2 13.7 5.2 0.3 8.2 26.1 0.31 5.8 21.7 $ $ $ $ 2001E Jul O ct 2Q 3Q E $ 146.6 103.4 43.1 16.9 2.5 23.7 1.4 22.287 8.3 0.6 $ 13.4 27.4 $ $ $ 0.49 6.1 29.8 $ $ $ $ $ 152.0 107.2 44.8 17.3 2.7 24.8 1.2 23.6 8.7 0.5 14.4 27.6 0.52 6.3 31.1 $ $ $ $ 2002E Jul O ct 2QE 3Q E $ 167.5 118.1 49.4 18.8 3.2 27.5 0.7 26.8 9.9 0.5 $ 16.4 28.6 $ $ $ 0.57 6.6 34.1 $ $ $ $ $ 173.5 122.3 51.2 19.2 3.3 28.7 0.4 28.3 10.5 0.5 17.3 29.0 0.60 6.7 35.4 $ $ $ $ Fiscal Y ear E nding January Jan 4Q E $ 175.0 123.4 51.6 19.3 3.3 29.0 0.2 28.8 10.7 0.5 17.7 29.4 0.60 6.7 35.7 $ $ $ $ 1999 $ 314.0 227.8 86.2 40.3 8.3 37.6 0.1 0.2 37.2 13.2 24.1 25.7 0.94 11.8 49.3 $ $ $ $ 2000 $ 465.6 340.8 124.7 57.9 9.0 57.8 7.9 49.9 18.3 0.6 30.9 26.2 1.18 22.4 80.2 $ $ $ 2001E $ 586.0 413.5 172.5 68.0 10.6 93.9 5.8 88.1 32.8 1.8 53.5 27.4 1.95 24.9 $ $ $ 2002E $ 676.0 476.6 199.4 75.2 12.9 111.4 2.1 109.3 40.4 2.0 66.8 28.8 2.32 26.6

A pr 1Q Sales Cost of Sales G ross Profit SG& A R& D O perating Incom e Interest Expense Other Expense Pretax Incom e Taxes M inority Interest N et Incom e A verage Shares EPS D epreciation & A mortization EBITDA M argin A nalysis G ross Profit SG& A R& D O perating Incom e Pretax Incom e N et Incom e Tax R ate D epreciation & A mortization EBITDA Percent C hange Sales Cost of Sales G ross Profit SG& A R& D O perating Incom e Pretax Incom e Taxes N et Incom e EPS 26.2% 24.9% 30.0% 36.7% 13.0% 27.0% 9.9% 8.8% 10.8% 10.7% 27.0% 13.1% 2.3% 11.7% 10.0% 6.4% 36.1% 4.9% 16.6% $ $ $ $ $ 99.6 72.7 26.9 13.0 2.3 11.6 1.6 10.0 3.6 6.4 25.7 0.25 4.9 16.5

Jan** 4Q $ 127.3 92.4 34.9 15.3 2.2 17.3 2.1 15.2 5.6 0.3 9.3 26.5 0.35 5.8 23.1 $ $ $ $

A pr 1Q $ 133.5 94.4 39.1 16.4 2.5 20.3 2.2 18.1 6.8 0.3 11.1 26.8 0.41 5.9 26.2

Jan 4Q E $ 154.0 108.6 45.4 17.4 2.9 25.1 1.0 24.1 8.9 0.5 14.7 27.8 0.53 6.6 31.7 $ $ $ $

Apr 1Q E $ 160.0 112.8 47.2 17.9 3.1 26.2 0.8 25.4 9.4 0.5 15.5 28.0 0.55 6.6 32.8

$ 118.8

$ 138.0

26.6% 12.9% 2.0% 11.6% 9.9% 6.4% 35.8% 5.3% 16.9%

26.2% 11.9% 1.8% 12.5% 10.8% 6.5% 38.0% 4.6% 17.1%

27.4% 12.1% 1.7% 13.6% 11.9% 7.3% 36.8% 4.6% 18.2%

29.3% 12.3% 1.9% 15.2% 13.6% 8.3% 37.4% 4.4% 19.6%

29.4% 11.5% 1.7% 16.2% 15.2% 9.1% 37.4% 4.2% 20.4%

29.5% 11.4% 1.8% 16.3% 15.5% 9.5% 37.0% 4.1% 20.5%

29.5% 11.3% 1.9% 16.3% 15.7% 9.5% 37.0% 4.3% 20.6%

29.5% 11.2% 1.9% 16.4% 15.9% 9.7% 37.0% 4.1% 20.5%

29.5% 11.2% 1.9% 16.4% 16.0% 9.8% 37.0% 3.9% 20.3%

29.5% 11.1% 1.9% 16.5% 16.3% 10.0% 37.0% 3.9% 20.4%

29.5% 11.0% 1.9% 16.6% 16.5% 10.1% 37.0% 3.8% 20.4%

27.4% 12.8% 2.6% 12.0% 11.9% 7.7% 35.3% 3.7% 15.7%

26.8% 12.4% 1.9% 12.4% 10.7% 6.6% 36.8% 4.8% 17.2%

29.4% 11.6% 1.8% 16.0% 15.0% 9.1% 37.2% 4.2% 20.3%

29.5% 11.1% 1.9% 16.5% 16.2% 9.9% 37.0% 3.9% 20.4%

39.6% 40.8% 36.6% 42.7% 9.9% 35.7% 17.3% 14.9% 18.6% 16.0%

55.4% 62.0% 39.5% 34.3% 7.8% 51.3% 31.1% 41.7% 20.9% 18.6%

73.5% 72.8% 75.4% 62.8% 4.7% 107.5% 83.2% 104.4% 66.7% 61.9%

34.0% 29.8% 45.4% 26.0% 8.0% 74.5% 81.7% 88.2% 73.4% 65.9%

31.1% 25.9% 45.3% 16.8% 13.4% 82.4% 101.1% 110.3% 88.2% 80.5%

19.8% 14.5% 34.8% 14.3% 21.0% 56.2% 72.6% 68.2% 75.6% 65.7%

21.0% 17.5% 30.3% 13.4% 30.5% 45.1% 59.0% 59.9% 58.8% 51.3%

19.9% 19.5% 20.7% 9.4% 24.8% 29.3% 40.2% 38.6% 40.1% 34.1%

14.3% 14.2% 14.6% 11.2% 26.0% 15.7% 20.1% 18.8% 22.2% 17.1%

14.1% 14.1% 14.1% 10.8% 22.2% 15.6% 19.8% 19.8% 20.5% 14.7%

13.6% 13.6% 13.6% 10.9% 13.8% 15.5% 19.5% 19.5% 20.1% 13.6%

1.9% 0.4% 6.2% 2.6% -4.1% 13.1% 19.9% 15.8% 22.3% 20.5%

48.3% 49.6% 44.8% 43.6% 8.8% 53.9% 34.0% 39.4% 28.5% 26.0%

25.9% 21.3% 38.3% 17.3% 18.1% 62.4% 76.6% 78.7% 73.0% 65.1%

15.3% 15.2% 15.6% 10.6% 21.4% 18.6% 24.0% 23.3% 24.9% 19.0%

* Includes acquisition of the Industrial Battery business of Johnson Controls Inc. (JC I - $59.58) effective M arch 1, 1999. Excludes restructuring charges. ** D oes not include $2.0 million inventory write-down relating to the Power Electronics D ivision. Source: C ompany reports and Stephens Inc. estim ates

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Power-One, Inc. (PWER-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $84.63 $89.81 - $4.88 $6.0 billion 71.1 million 3.8% 60% 1,672,176 $88 BUY
POWER-ONE INC
PWER
9/15/99 to 9/15/00 High: Low: Last: 89.81 4.88 84.63 USD 80 60 40 30 20

10

Millions

3.88 1.94

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A 1999A 2000E 2001E

1Q $0.06 $0.03 $0.13A $0.28

Cash Earnings Per Share 2Q 3Q 4Q $0.06 $0.03 $0.02 $0.05 $0.10 $0.12 $0.19A $0.23 $0.26 $0.30 $0.33 $0.35

DecFY $0.18 $0.30 $0.80 $1.26

% Chg. NA 67% 168% 57%

P/E Ratio 470.2X 282.1X 105.8X 67.2X

Revs. $ Mil $119.5 237.2 495.9 750.0

EBITDA $ Mil $17.3 38.8 108.4 174.2

Enter./ Sales 54.6X 27.5X 13.2X 8.7X

Company Description
Power-One manufactures ac/dc power supplies, dc/dc converters and telecom dc power plants

Power-One, Inc., located in Camarillo, California, is a designer and manufacturer of more than 2,500 high-quality brand name power supplies. The Company's power supplies are designed to meet the power needs of various subsystems and components within electronic equipment. PWERs customers include industry leaders such as Cisco, Nortel, Teradyne, Lucent Technologies, Alcatel, Nokia, Hewlett-Packard, Siemens and Ericsson. Investment Highlights and Summary We expect PWERs organic revenue growth to be 50% to 60% over the next two years. This type of growth is possible because of a series of four strategic acquisitions that complemented PWERs legacy standard ac/dc power supply product line. The acquisition of International Power Devices allowed PWER to quickly become an industry leader in the fast growing dc/dc converter market. The more recent acquisitions of HC Power and Powec position the Company in the telecom dc power plant business. An earlier acquisition of Melcher significantly expanded Power-Ones sales presence in Europe. We estimate that PWER will earn cash EPS of $0.80 in FY00 and $1.26 in FY01, increases of 168% and 57%, respectively. Revenue is expected to increase 109% in FY00 and 51% in FY01. Backlog at the end of the PWERs most recent quarter stood at $196.0 million, up 81.0% sequentially and further reflecting the strength in PWERs core markets. Power-One is focused on serving the fast growing communications industry. We estimate that by the end of FY00, the communications market will account for approximately 70% of total revenue, versus 50% in FY99 and 25% in FY98. Power-One has a strong communications customer base, which includes, in addition to those mentioned above, companies such as Juniper Networks,

We expect significant earnings leverage on higher revenues

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Sycamore Networks, Extreme Networks, MCI Worldcom, Motorola, and many others. Meeting scheduled demand is now the greatest challenge facing the Company. We estimate that the market for telecom dc/dc converters was approximately $1.0 billion in 1999 and will grow to $6.0 billion 2003. The staggering growth of this market segment should positively impact PWERs two fastest growing product lines: dc/dc converters and telecom dc power plants.
The Company is in the process of expanding capacity and should have 13 SMT lines in place by the end of FY00

Since acquiring International Power Devices (IPD) in January 1999, IPDs dc/dc converter business has grown significantly faster than the market. We believe that this trend will continue over the next three years. In September of last year when we visited PWERs Mexico manufacturing facility where the converters are made, the Company had three surface mount technology (SMT) manufacturing lines. Today, PWER has in place, or on order, thirteen SMT lines. Each line is capable of producing between $40 million and $50 million per year in revenue. Demand for the telecom dc power plant product lines that were recently added with the acquisitions of HC Power and Powec should also grow as a result of the anticipated dc/dc converter growth. The telecom power plants provide the regulated 48 volt dc bus that powers the equipment found in telecom central offices and other telecom installations. This equipment (routers, optical switches, lasers, etc.) that utilizes distributed power architecture is what is driving the demand for the dc/dc converters. As the demand for dc/dc converters grows, so too grows the demand for the telecom dc power plants. Management is in the process of adding an additional 275,000 square feet in manufacturing space to accommodate the expected growth.

Stephens Inc. maintains a market in the common stock of Power-One and may act as principal in these transactions. An officer/director/employee of Stephens Inc. is a director of Power-One. Affiliates of Stephens Inc. also control a substantial percentage of the outstanding common stock of Power-One, Inc. Stephens Inc. has managed or co-managed an underwriting for Power-One within the past three years.

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P O W E R -O N E , IN C .
H isto ric a l E a rn in g s S u m m a r y & P ro je c tio n s
$ in m illio n s, ex ce p t p er sh a re a m o u n t 1999 1Q S a les C o st o f G o o d s S o ld G ro ss P ro fit S e llin g A d m in istra tiv e E n g in ee rin g Q u a lity A m o rtiz atio n O p e ra tin g In c o m e O th e r E x p en se s In te re st E x p en se P reta x In c o m e T a x es N e t In co m e A v e ra g e S h ares G AAP EPS C a sh E P S D e p re cia tio n E B IT D A M a r g in A n a ly sis G ro ss P ro fit S e llin g A d m in istra tiv e E n g in ee rin g Q u a lity A m o rtiz atio n O p e ra tin g In c o m e T ax R a te E B IT D A P er c en t C h a n g e S a les G ro ss P ro fit S e llin g A d m in istra tiv e E n g in ee rin g Q u a lity A m o rtiz atio n O p e ra tin g In c o m e N e t In co m e GAAP EPS C a sh E P S $ $ $ $ $ 3 8 .9 2 3 .5 1 5 .4 5 .3 3 .0 3 .4 0 .8 1 .2 1 .7 (0 .4 ) 0 .7 1 .4 0 .5 0 .8 5 7 .9 0 .0 1 0 .0 3 1 .6 4 .5 $ $ $ $ $ 2Q 5 1 .7 3 0 .3 2 1 .4 6 .3 4 .2 4 .0 1 .1 1 .3 4 .3 0 .1 1 .0 3 .3 1 .4 1 .9 5 8 .2 0 .0 3 0 .0 5 2 .0 7 .7 $ $ $ $ $ 3Q 7 2 .6 4 4 .9 2 7 .7 6 .7 4 .6 4 .7 1 .2 1 .4 9 .1 0 .2 1 .1 7 .8 2 .6 5 .2 5 9 .9 0 .0 9 0 .1 0 2 .1 1 2 .6 $ $ $ $ $ 4Q 7 3 .9 4 3 .3 3 0 .6 6 .8 6 .4 4 .9 1 .2 1 .3 1 0 .0 (0 .2 ) (0 .4 ) 1 0 .6 2 .6 8 .0 7 3 .9 0 .1 1 0 .1 2 2 .7 1 4 .1 $ $ $ $ $ 1Q 7 7 .0 4 5 .0 3 2 .1 6 .6 6 .2 4 .7 1 .2 1 .3 1 2 .0 (0 .1 ) (0 .4 ) 1 2 .6 4 .3 8 .3 7 2 .3 0 .1 1 0 .1 3 2 .5 1 5 .8 $ $ $ $ 2000E 2Q 3Q E $ 1 1 3 .8 6 6 .9 4 6 .9 8 .7 7 .5 5 .5 1 .5 2 .8 2 1 .0 1 .4 0 .9 1 8 .7 6 .2 1 2 .5 7 7 .1 0 .1 6 0 .1 9 2 .9 2 6 .6 $ $ $ $ $ 1 4 5 .0 8 6 .3 5 8 .7 1 0 .4 9 .7 8 .7 2 .0 3 .4 2 4 .4 1 .1 2 3 .3 8 .5 1 4 .8 7 7 .8 0 .1 9 0 .2 3 2 .9 3 0 .7 $ $ $ $

4Q E $ 1 6 0 .0 9 4 .7 6 5 .3 1 1 .2 1 0 .4 9 .6 2 .0 3 .4 2 8 .7 1 .1 2 7 .6 1 0 .1 1 7 .5 7 8 .4 0 .2 2 0 .2 6 3 .1 3 5 .2

1Q E $ 1 7 0 .5 1 0 0 .4 7 0 .1 1 1 .6 1 0 .9 1 0 .2 2 .2 3 .4 3 1 .7 1 .1 3 0 .6 1 1 .3 1 9 .3 7 9 .0 $ $ $ $ 0 .2 4 0 .2 8 3 .2 3 8 .3 $ $ $ $

2001E 2Q E 3Q E $ 1 8 2 .0 1 0 6 .7 7 5 .3 1 2 .0 1 1 .5 1 0 .9 2 .4 3 .4 3 5 .2 1 .2 3 4 .0 1 2 .6 2 1 .4 7 9 .4 0 .2 7 0 .3 0 3 .4 4 2 .0 $ $ $ $ $ 1 9 3 .0 1 1 2 .7 8 0 .3 1 2 .5 1 2 .0 1 1 .6 2 .5 3 .4 3 8 .3 1 .3 3 7 .0 1 3 .7 2 3 .3 7 9 .8 0 .2 9 0 .3 3 3 .5 4 5 .2 $ $ $ $

4Q E $ 2 0 4 .5 1 1 8 .8 8 5 .7 1 3 .1 1 2 .7 1 2 .3 2 .7 3 .4 4 1 .6 1 .4 4 0 .2 1 4 .9 2 5 .3 8 0 .0 0 .3 2 0 .3 5 3 .7 4 8 .7 $ $ $ $

F is c a l Y e a r E n d in g D e c e m b e r 1998 1999 2000E 2001E $ 1 1 9 .5 7 2 .9 4 6 .5 1 3 .8 9 .1 8 .1 2 .0 2 .6 1 0 .9 0 .5 (0 .4 ) 1 0 .8 2 .7 8 .1 5 8 .3 0 .1 4 0 .1 8 3 .7 1 7 .3 $ $ $ $ $ 2 3 7 .2 1 4 2 .1 9 5 .1 2 5 .0 1 8 .2 1 7 .1 4 .4 5 .2 2 5 .2 (0 .3 ) 2 .4 2 3 .1 7 .2 1 5 .9 6 2 .5 0 .2 5 0 .3 0 8 .4 3 8 .8 $ $ $ 4 9 5 .9 2 9 2 .9 2 0 3 .0 3 6 .9 3 3 .8 2 8 .5 6 .8 1 0 .9 8 6 .1 1 .3 2 .6 8 3 .5 2 9 .1 5 4 .4 7 6 .4 0 .7 1 0 .8 0 $ $ $ 7 5 0 .0 4 3 8 .6 3 1 1 .4 4 9 .2 4 7 .0 4 5 .0 9 .8 1 3 .6 1 4 6 .8 5 .0 1 4 1 .8 5 2 .5 $ 8 9 .3 7 9 .6 1 .1 2 1 .2 6

$ 1 1 .4 $ 1 0 8 .4

$ 1 3 .8 $ 1 7 4 .2

3 9 .5 % 1 3 .6 % 7 .7 % 8 .7 % 2 .1 % 3 .1 % 4 .4 % 3 9 .3 % 1 1 .5 % 26% 25% 82% 21% 98% 59% 140% -6 0 % -7 4 % -7 4 % -5 3 %

4 1 .3 % 1 2 .1 % 8 .2 % 7 .8 % 2 .2 % 2 .6 % 8 .4 % 4 3 .3 % 1 4 .9 % 91% 99% 143% 169% 166% 95% 164% 10% -3 9 % -3 9 % -2 1 %

3 8 .2 % 9 .2 % 6 .4 % 6 .5 % 1 .7 % 1 .9 % 1 2 .5 % 3 3 .4 % 1 7 .3 % 160% 153% 56% 109% 157% 119% 100% 552% 329% 317% 233%

4 1 .4 % 9 .2 % 8 .6 % 6 .6 % 1 .7 % 1 .8 % 1 3 .5 % 2 4 .5 % 1 9 .0 % 128% 144% 69% 122% 62% 257% 39% 628% 1086% 834% 414%

4 1 .6 % 8 .6 % 8 .0 % 6 .1 % 1 .6 % 1 .7 % 1 5 .6 % 3 4 .0 % 2 0 .6 % 98% 108% 25% 107% 38% 51% 8% 608% 905% 705% 322%

4 1 .2 % 7 .6 % 6 .6 % 4 .8 % 1 .3 % 2 .4 % 1 8 .4 % 3 3 .3 % 2 3 .4 % 120% 120% 39% 77% 36% 32% 105% 382% 569% 405% 283%

4 0 .5 % 7 .2 % 6 .7 % 6 .0 % 1 .4 % 2 .3 % 1 6 .9 % 3 6 .5 % 2 1 .2 % 100% 112% 57% 109% 83% 63% 151% 168% 184% 119% 125%

4 0 .8 % 7 .0 % 6 .5 % 6 .0 % 1 .3 % 2 .1 % 1 7 .9 % 3 6 .5 % 2 2 .0 % 116% 113% 65% 63% 95% 63% 162% 186% 119% 107% 117%

4 1 .1 % 6 .8 % 6 .4 % 6 .0 % 1 .3 % 2 .0 % 1 8 .6 % 3 7 .0 % 2 2 .5 % 121% 119% 76% 76% 119% 79% 157% 164% 132% 112% 120%

4 1 .4 % 6 .6 % 6 .3 % 6 .0 % 1 .3 % 1 .9 % 1 9 .3 % 3 7 .0 % 2 3 .1 % 60% 61% 38% 53% 98% 58% 24% 68% 72% 67% 59%

4 1 .6 % 6 .5 % 6 .2 % 6 .0 % 1 .3 % 1 .8 % 1 9 .8 % 3 7 .0 % 2 3 .4 % 33% 37% 20% 23% 33% 24% 0% 57% 57% 53% 45%

4 1 .9 % 6 .4 % 6 .2 % 6 .0 % 1 .3 % 1 .7 % 2 0 .3 % 3 7 .0 % 2 3 .8 % 28% 31% 17% 22% 28% 33% 0% 45% 45% 42% 35%

3 9 .0 % 1 1 .5 % 7 .6 % 6 .8 % 1 .7 % 2 .2 % 9 .2 % 2 5 .0 % 1 4 .4 % 30% 29% 98% 33% 116% 4% 29% -25 % -2 % -26 %

4 0 .1 % 1 0 .5 % 7 .7 % 7 .2 % 1 .9 % 2 .2 % 1 0 .6 % 3 1 .1 % 1 6 .4 % 99% 104% 82% 100% 111% 120% 99% 130% 96% 83% 67%

4 0 .9 % 7 .5 % 6 .8 % 5 .7 % 1 .4 % 2 .2 % 1 7 .4 % 3 4 .8 % 2 1 .9 % 109% 113% 48% 85% 67% 53% 109% 242% 242% 180% 168%

4 1 .5 % 6 .6 % 6 .3 % 6 .0 % 1 .3 % 1 .8 % 1 9 .6 % 3 7 .0 % 2 3 .2 % 51% 53% 33% 39% 58% 44% 25% 70% 64% 58% 57%

A ll h isto ric a l re su lts a re fro m o p e ra tio n s a n d e x clu d e n o n -re c u rrin g c h a rg e s a n d g a in s. S o u rce : C o m p a n y re p o rts a n d S te p h e n s I n c. estim a tes

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Vicor Corp. (VICR-NASDAQ)

Price (close on 9/15/00): 52-Week Range: Market Capitalization: Shares Outstanding: Debt/Capital: 3-Year Estimated CAGR: Daily Volume (shares): Price Target (12-month): Rating: $42.25 $45.75 - $17.50 $1.8 billion 43.1 million 0% 40% 110,353 $52 BUY
VICOR CORP
VICR
9/15/99 to 9/15/00 High: Low: Last: 45.75 17.50 42.25 USD 45 40 35 30

25

20

Thousands

509 254

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Chart Courtesy of FactSet Research Systems Inc.

Year 1998A 1999A 2000E 2001E

1Q $0.12 $0.09 $0.16A $0.27

Earning Per Share 2Q 3Q 4Q $0.10 $0.07 $0.08 $0.10 $0.13 $0.13 $0.19A $0.21 $0.24 $0.30 $0.33 $0.36

DecFY $0.37 $0.45 $0.80 $1.26

% Chg. (39%) 22% 79% 56%

P/E Ratio 114.2X 93.9X 52.8X 33.5X

Revs. $ Mil $164.6 189.9 259.3 349.9

EBITDA $ Mil $30.0 39.0 63.9 95.2

Enter./ Sales 10.6X 9.2X 6.7X 5.0X

Company Description
Vicor focuses almost exclusively on highdensity dc/dc converters

Headquartered in Andover, Massachusetts, Vicor was initially incorporated in 1981 and began trading as a public company in April 1990. The Company also has locations in Sunnyvale, California; Lombard, Illinois; Germany; the UK; France; Italy; Hong Kong; and Japan. Vicor focuses almost exclusively on highdensity dc/dc converters. Vicor primarily targets original equipment manufacturers (OEMs) in the communications, data processing, industrial control, test equipment, medical, and defense electronics markets. Investment Highlights and Summary Vicor invented the high-density dc/dc converters. In 1984, Vicor introduced the Brick, a high-density dc/dc converter (first-generation product) that changed the future of power system design. When high-density converters were introduced to the market, they made a tremendous impact. The technology was the most revolutionary thing that had ever happened to the industry. Additionally, Vicors high-density component power offered a rapid, flexible approach to design that used modular power system building blocks to meet individual user needs. Today, Vicor is the largest merchant manufacturer of high-density power components, with an installed base of millions of units. It is well entrenched in all market segments. We believe that the Companys foresight and top-notch execution spawned its impressive growth. Increased production and sales of the Companys second-generation product line should be the catalyst for share price appreciation. Since 1991, Vicor has had on the drawing board its second-generation product line. The new design is a complete overhaul and redesign of the first-generation product line. The Companys new products are smaller, more efficient, more flexible and cover a broader section of the market (50 watts to 600 watts) than Vicors mature product
117

Vicors second generation product line covers a broader section of the market

Stephens Inc.

line. The control circuitry in the first-generation power module has been combined into two integrated circuits. The end result is a reduction in parts from a typical range of 115 to 200 to as few as 33 parts. The Company has stated that it ultimately plans to make the modules available in an unlimited variety of standard versions, to the extent that the line between custom and standard modules will become almost indistinguishable. In the Companys most recent quarter, the second-generation book-to-bill ratio was 1.4:1, versus the overall indsutry ratio of 1.09:1.

Product Comparison 1st-Generation Component Power System 10 Watt/in.3 2 months 2nd-Generation Component Power System 20 Watt/in.3 0.5 months

Parameters Size Development time Cost

Custom-Switching Power Supply 3 Watt/in.3 6 months

$0.15 to $1/ watt

$0.50 to $2/ watt

$0.35 to $2/ watt

Source: Electronic Design, September 2, 1997

There is far more competition in the dc/dc converter space today than there was when Vicor invented the product in 1984

We believe that an investment in Vicor is an investment in not only the Companys technology but also an investment in the Companys vision of the future of power system design. This vision is somewhat unique in the industry. We are convinced that if Vicor had introduced its second-generation product four years ago, it would enjoy a commanding market leadership position today. However, taking as long as it has to get the new products to the marketplace has allowed other competitors to close the technology gap and even take the technology in new directions. We continue to maintain that the catalyst for share price appreciation at Vicor will be significantly increased production and sales of its second-generation line of products. Over the long term, we believe that the future is bright for Vicor, as well as for other manufacturers that compete in the dc/dc converter market. The bottom line is that the potential market is big enough for everybody. There is no doubt that today the competition is stiffer than it was in 1984 when Vicor introduced its revolutionary high-density dc/dc converter. However, Vicors second-generation products still have the potential to make a significant technological leap forward and reap the financial rewards that its innovations deserve.

Stephens Inc. maintains a market in the common stock of Vicor and may act as principal in these transactions.

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Vicor Corporation Historical Earnings Summary & Projections

(In millions, except per share amount) 1999A 2Q 3Q $ 44.8 26.0 18.8 8.6 4.9 5.4 (0.8) 6.1 2.0 $4.2 42.2 $ $ $ 0.10 3.9 9.3 $ $ $ $ 49.4 28.0 21.4 9.1 4.9 7.4 (0.8) 8.2 2.6 $5.6 42.4 0.13 3.7 11.1 $ $ $ $ 2000E 2Q 3QE $ 62.8 35.6 27.2 10.6 5.3 11.2 (0.8) 12.0 3.8 $8.2 43.1 $ $ $ 0.19 4.0 15.2 $ $ $ $ 66.7 37.7 29.0 10.9 5.5 12.6 (0.8) 13.4 4.3 $9.1 43.3 0.21 4.2 16.8 $ $ $ $ 2001E 2QE 3QE $ 83.5 46.3 37.2 12.5 6.7 18.0 (1.0) 19.0 6.1 $12.9 43.5 $ $ $ 0.30 4.7 22.7 $ $ $ $ 90.5 49.8 40.7 13.6 7.2 19.9 (1.0) 20.9 6.7 $14.2 43.5 0.33 4.8 24.7 $ $ $ $ Fiscal Year Ending December 1998 1999 2000E 2001E $ 164.6 90.7 73.9 34.9 20.7 18.4 (4.9) 23.3 7.5 $15.8 42.8 $ $ $ 0.37 11.6 30.0 $ $ $ $ 189.9 108.7 81.2 36.8 19.9 24.4 (3.4) 27.9 8.8 $19.1 42.4 0.45 14.6 39.0 $ $ $ $ 259.3 146.9 112.4 43.0 22.0 47.4 (3.7) 51.1 16.2 $34.8 43.3 0.80 16.5 63.9 $ $ $ $ 349.9 193.1 156.8 52.4 28.0 76.3 (4.0) 80.3 25.7 $54.6 43.5 1.26 18.9 95.2

1Q Sales Cost of Goods Sold Gross Profit SG&A R&D Operating Income Interest and Other, Net Pretax Income Taxes Net Income Average Shares EPS - Diluted Depreciation & Amortization EBITDA Margin Analysis Gross Profit SG&A R&D Operating Income Pretax Income Net Income Tax Rate Percent Change Sales Cost of Goods Sold Gross Profit SG&A R&D Operating Income Pretax Income Taxes Net Income EPS 44.5% 21.2% 12.3% 11.1% 12.8% 8.7% 32.0% $ $ $ $ 42.0 23.3 18.7 8.9 5.2 4.6 (0.7) 5.4 1.7 $3.7 41.9 0.09 3.2 7.8

4Q 53.7 31.4 31.4 22.3 10.3 5.0 7.0 (1.2) 8.2 2.5 $5.7 43.2 0.13 3.8 10.8 $ $ $ $

1Q 57.8 33.0 24.8 10.3 5.3 9.2 (1.2) 10.4 3.3 $7.1 43.3 0.16 4.0 13.2

4QE 72.0 40.5 31.5 11.2 5.9 14.4 (0.9) 15.3 4.9 $10.4 43.4 0.24 4.3 18.7 $ $ $ $

1QE 77.5 43.4 34.1 11.6 6.2 16.3 (0.9) 17.2 5.5 $11.7 43.4 0.27 4.5 20.8

4QE 98.4 53.6 44.8 14.7 7.9 22.2 (1.1) 23.3 7.5 $15.8 43.6 0.36 4.9 27.1

42.0% 19.1% 10.9% 12.0% 13.7% 9.3% 32.0%

43.3% 18.3% 10.0% 15.0% 16.6% 11.3% 32.0%

41.5% 19.2% 9.3% 13.1% 15.2% 10.6% 30.3%

42.9% 17.8% 9.1% 16.0% 18.0% 12.3% 31.5%

43.3% 16.9% 8.5% 17.8% 19.1% 13.1% 31.5%

43.5% 16.3% 8.2% 18.9% 20.1% 13.7% 32.0%

43.7% 15.6% 8.2% 20.0% 21.2% 14.4% 32.0%

44.0% 15.0% 8.0% 21.0% 22.2% 15.1% 32.0%

44.5% 15.0% 8.0% 21.5% 22.7% 15.4% 32.0%

45.0% 15.0% 8.0% 22.0% 23.1% 15.7% 32.0%

45.5% 14.9% 8.0% 22.6% 23.7% 16.1% 32.0%

44.9% 21.2% 12.5% 11.2% 14.1% 9.6% 32.0%

42.8% 19.4% 10.5% 12.9% 14.7% 10.1% 31.5%

43.4% 16.6% 8.5% 18.3% 19.7% 13.4% 31.8%

44.8% 15.0% 8.0% 21.8% 23.0% 15.6% 32.0%

-2.8% 3.7% -9.9% 6.9% -6.6% -32.8% -35.3% -40.7% -32.3% -29.5%

7.4% 13.7% -0.2% -0.3% -6.0% 5.7% -4.2% -12.4% 0.3% 2.4%

25.6% 26.8% 24.0% -0.1% 0.7% 125.5% 88.1% 100.8% 82.7% 82.6%

33.0% 35.0% 30.3% 15.0% -1.6% 127.0% 93.6% 148.2% 76.8% 72.3%

37.7% 41.9% 32.5% 15.6% 2.3% 98.4% 92.7% 89.6% 94.2% 87.8%

40.1% 37.0% 44.4% 24.0% 9.8% 108.3% 95.6% 92.5% 97.1% 92.7%

35.2% 34.7% 35.9% 20.4% 11.5% 71.1% 64.4% 64.3% 64.4% 60.8%

34.0% 29.0% 40.9% 8.4% 18.6% 104.8% 86.8% 97.4% 82.2% 81.3%

34.1% 31.4% 37.7% 13.2% 17.6% 76.5% 65.4% 68.0% 64.1% 63.9%

33.0% 30.1% 36.8% 18.1% 24.9% 60.3% 58.0% 60.6% 56.9% 55.5%

35.6% 32.0% 40.3% 24.5% 31.6% 57.6% 55.6% 55.6% 55.6% 54.9%

36.7% 32.3% 42.3% 31.3% 33.4% 54.6% 52.6% 52.6% 52.6% 51.9%

1.5% 15.9% -12.0% 15.2% 16.5% -48.9% -43.1% -49.8% -39.2% -38.5%

15.3% 19.9% 9.8% 5.4% -3.5% 33.0% 19.7% 17.8% 20.5% 21.6%

36.6% 35.1% 38.5% 16.7% 10.5% 94.1% 83.3% 84.9% 82.6% 78.8%

34.9% 31.5% 39.4% 22.0% 27.1% 61.0% 57.3% 58.4% 56.8% 56.0%

Source: Company reports and Stephens Inc. estimates

.
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Appendix A
POWER ELECTRONICS VALUATION ANALYSIS 9/15/00 Ticker Price Advanced Power Tech. (BUY) Analog Devices Artesyn Technologies* (BUY) Burr Brown C&D Technologies (BUY) Cree Inc. (BUY) Elantec Semiconductor Inc. Exar Corp. Fairchild Semiconductors General Semiconductors International Rectifier (BUY) Intersil Corp. Linear Technology Magnetek Maxim Integrated Products Micrel Inc. Microlinear Corp. Microsemi Corp. National Semiconductor Corp. ON Semiconductor Pericom Semiconductor Power Integrations (BUY) Power-One* (BUY) Semtech Corp. (BUY) Siliconix Sipex Corp. ST Microelectronics TelCom Semiconductor (BUY) Vicor Corp. (BUY) APTI ADI ATSN BBRC CHP CREE ELNT EXAR FCS SEM IRF ISIL LLTC MAG MXIM MCRL MLIN MSCC NSM ONNN PSEM POWI PWER SMTC SILI SIPX STM TLCM VICR $34.81 92.06 37.50 89.67 52.50 115.94 77.13 103.31 33.44 14.13 59.50 48.00 63.94 11.25 76.31 65.56 4.75 38.75 42.75 14.88 32.75 14.31 84.63 100.63 50.25 49.67 54.63 14.63 42.25 Ann. FactSet Ent. Value/ LTM EBITDA x x x x x x x x x x x x x x x x x x x x x x x x x x x NA 20.9 9.1 22.7 7.9 78.3 15.3 4.8 NA 9.5 11.5 36.7 31.0 17.3 27.5 30.4 12.2 6.2 14.7 NA 6.9 37.4 24.9 38.1 10.4 61.4 26.8 23.0 37.2 Last Twelve Months ROE NM 25.3% 23.3% 20.8% 25.7% 10.1% 39.0% 6.3% 30.0% 26.4% 11.0% NA NA 0.7% 28.1% 34.0% -8.6% 3.7% 48.8% NA 12.5% 30.9% 17.9% 32.0% 43.5% 5.8% NA 19.4% 11.4% Last Twelve Months ROA NM 18.0% 12.3% 13.1% 12.1% 16.8% 24.6% 6.0% 9.2% 6.3% 7.9% NA NA 0.3% 23.7% 25.7% -7.2% 2.2% 28.0% NA 11.2% 25.4% 10.4% 12.2% 24.1% 5.2% NA 16.6% 10.2%

Shares Out 7.9 353.8 37.3 56.0 26.0 37.6 24.0 21.3 102.0 37.8 61.4 75.0 311.1 23.2 282.7 83.9 11.5 13.1 176.5 165.9 13.6 27.2 38.5 32.6 29.9 23.3 934.5 20.4 42.4

Market Cap. $275.0 32,571.7 1,398.8 5,021.6 1,365.0 4,359.3 1,851.0 2,200.6 3,410.6 533.9 3,653.3 3,600.0 19,891.0 261.0 21,573.5 5,500.7 54.6 507.6 7,545.4 2,467.8 445.4 389.3 3,258.1 3,280.4 1,502.5 1,157.4 51,047.1 298.4 1,791.4

Total L-T Debt $0.0 0.0 69.6 251.5 84.6 0.0 0.0 0.0 720.2 252.5 4.6 116.2 NA 64.0 0.0 7.9 2.7 9.9 48.6 1,228.8 0.0 0.0 11.0 400.0 1.9 0.0 1,051.6 0.0 0.0

Debt/ Capital 0.0% 0.0% 25.7% 42.7% 34.1% 0.0% 0.0% 0.0% 63.5% 64.6% 0.7% 25.5% NA 24.8% 0.0% 4.8% 4.7% 8.0% 3.7% 89.6% 0.0% 0.0% 5.5% 74.3% 0.8% 0.0% 28.4% 0.0% 0.0%

Calendar EPS 1999A 2000E 2001E $0.16 0.73 1.16 0.78 1.18 0.56 0.33 0.39 0.97 0.66 0.43 NA 0.71 0.15 0.72 0.42 (0.04) 0.47 NA NA 0.79 0.67 0.30 0.85 2.21 0.42 0.62 0.45 0.45 $0.46 1.78 1.36 1.59 1.95 1.20 0.95 1.16 2.70 1.14 2.12 0.64 1.08 0.44 1.09 0.78 0.24 0.85 2.54 0.69 1.48 0.82 0.80 1.55 NA 0.60 1.46 0.83 0.81 $0.70 2.52 1.75 2.16 2.32 1.59 1.33 1.55 3.02 1.41 2.98 1.00 1.37 NA 1.45 1.07 0.48 1.18 3.12 1.19 1.99 1.08 1.26 2.26 NA 1.08 2.12 1.08 1.26

99-01 CAGR 109.2% 85.8% 22.8% 66.4% 40.2% 68.5% 100.8% 99.4% 76.4% 46.2% 163.3% NA 38.9% NA 41.9% 59.6% NA 58.4% NA NA 58.7% 27.0% 104.9% 63.1% NA 60.4% 84.9% 54.9% 67.3%

P/E Multiple 2000 2001 75.7 51.7 27.6 56.4 26.9 96.6 81.2 89.1 12.4 12.4 28.1 75.0 59.2 25.6 70.0 84.1 19.8 45.6 16.8 21.6 22.1 17.5 105.8 64.9 NA 82.8 37.4 17.6 52.2 x x x x x x x x x x x x x x x x x x x x x x x x x x x x 49.7 36.5 21.4 41.5 22.6 72.9 58.0 66.7 11.1 10.0 20.0 48.0 46.7 NA 52.6 61.3 9.9 32.8 13.7 12.5 16.5 13.3 67.2 44.5 NA 46.0 25.8 13.5 33.5

x x x x x x x x x x x x x x x x x x x x x x x x x x

AVERAGE

69.5%

48.8 x

31.1 x

22.8 x

19.5%

12.3%

* EPS estimates are cash EPS (excludes goodwill) January year-end (CHP, SMTC); March year-end (EXAR); May year-end (NSM); June year-end (CREE, IRF, LLTC, MAG, MXIM, PSEM); September year-end (ELNT, MSCC); October year-end (ADI) Source: FactSet Research Systems, Stephens Inc. for those companies with BUY ratings, and First Call for all others

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Appendix B
POWER SEMICONDUCTORS - COMPARATIVE ANALYSIS
Advanced Power Technology (APTI) $34.81 $285.5 75.7 x 49.7 x 5.9 x 4.4 x 36.7 x 23.1 x International Rectifier (IRF)* $59.50 $3,653.3 28.1 x 20.0 x 3.6 x 2.8 x 14.3 x 10.3 x Power Integrations (POWI) $14.31 $389.3 17.5 x 13.3 x 2.7 x 2.1 x 9.8 x 7.3 x TelCom Semiconductor (TLCM) $14.63 $298.4 17.6 x 13.5 x 2.5 x 1.9 x 10.0 x 7.5 x Cree Research (CREE)* $115.94 $4,359.3 96.6 x 72.9 x 29.1 x 19.2 x 66.7 x 43.4 x Semtech Corporation (SMTC)* $100.63 $3,280.4 64.9 44.5 12.4 9.0 40.3 26.2

($ in millions except per share) Price (9/15/00) Market Capitalization P/E - 2000E EPS P/E - 2001E EPS Enterprise Value/2000E Sales Enterprise Value/2001E Sales Enterprise Value/2000E EBITDA Enterprise Value/2001E EBITDA 2000E Gross Margin EBITDA Margin Operating Margin Net Margin Balance LTM Cash Debt Equity Total Assets Goodwill Debt/Capital 2000E Sales 2001E Sales % chg 2000E EBITDA 2001E EBITDA % chg 2000E EPS 2001E EPS % chg 2000E Free Cash 2001E Free Cash % chg Stephens' Rating

37.4% 15.9% 13.1% 8.1%

38.7% 25.4% 18.9% 14.8%

52.0% 27.9% 24.2% 18.7%

50.9% 24.5% 20.6% 21.3%

54.1% 43.3% 36.8% 31.6%

55.8% 30.1% 29.0% 22.6%

$36.0 $0.0 $41.0 $50.0 $0.0 0.0% $42.5 $57.0 34.1% $6.8 $10.8 58.8% $0.46 $0.70 52.2% ($0.9) $3.1 432.3% BUY

$254.3 $4.6 $843.1 $1,026.0 $0.0 0.5% $935.8 $1,197.8 28.0% $237.9 $332.0 39.6% $2.12 $2.98 40.6% $287.4 $389.4 35.5% BUY

$43.1 $0.0 $96.0 $113.0 $0.0 0.0% $127.0 $163.8 29.0% $35.4 $47.6 34.5% $0.82 $1.08 31.7% $23.2 $32.6 40.5% BUY

$111.2 $0.0 $128.1 $143.2 $0.0 0.0% $76.2 $97.7 28.2% $18.7 $25.1 34.2% $0.83 $1.08 30.1% $13.8 $20.7 50.0% BUY

$262.1 $0.0 $463.1 $486.2 $0.0 0.0% $140.9 $213.1 51.2% $61.4 $94.5 53.9% $1.20 $1.59 32.5% $17.9 $38.2 113.4% BUY

$423.0 $400.0 $186.0 $616.1 $0.0 68.3% $262.7 $360.9 37.4% $80.8 $124.2 53.7% $1.55 $2.26 45.8% $48.9 $75.8 55.0% BUY

* Sales, EBITDA, EPS and multiples represent calendar year totals; June year-end for IRF and CREE, January year-end for SMTC Source: Company reports and Stephens Inc. estimates

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Appendix C

POWER SUPPLY MANUFACTURERS - COMPARATIVE ANALYSIS

Artesyn Technologies (ATSN) Price (9/15/00) Market Capitalization P/E - 2000E EPS P/E - 2001E EPS Cash P/E - 2000E EPS** Cash P/E - 2001E EPS** Enterprise Value/2000E Sales Enterprise Value/2001E Sales Enterprise Value/2000E EBITDA Enterprise Value/2001E EBITDA 2000E Gross Margin EBITDA Margin Operating Margin Net Margin Balance LTM Cash Debt Equity Total Assets Goodwill Debt/Capital Book Value Tangible Book Value 2000E Sales 2001E Sales % chg 2000E EBITDA 2001E EBITDA % chg 2000E EPS 2001E EPS % chg Stephens' Rating
* C&D Technology's fiscal year end is in January. ** Cash P/E is calculated using net earnings excluding the impact of goodwill. Source: Company reports and Stephens Inc. estimates

C&D Technology* (CHP) $52.50 $1,365.0 26.9 x 22.6 x 26.9 x 22.6 x 2.5 x 2.1 x 12.2 x 10.5 x

Power-One (PWER) $84.63 $6,524.6 119.2 x 75.6 x 105.8 x 67.2 x 13.2 x 8.7 x 60.2 x 37.4 x

Vicor (VICR) $42.25 $1,791.4 52.2 x 33.5 x 52.2 x 33.5 x 6.6 x 4.9 x 26.8 x 18.1 x

$37.50 $1,398.8 31.5 x 24.0 x 27.6 x 21.4 x 2.1 x 1.7 x 15.1 x 11.7 x

26.8% 13.6% 10.3% 6.6%

29.4% 20.3% 16.0% 9.1%

40.9% 21.9% 17.4% 11.0%

43.3% 24.8% 18.4% 13.5%

$36.6 $69.6 $222.3 $425.7 $61.5 23.8% $5.96 $4.31 $695.9 $829.9 19% $94.9 $122.6 29% $1.19 $1.56 31% BUY

$5.9 $84.6 $186.6 $370.0 $72.2 31.2% $7.18 $4.40 $586.0 $676.0 15% $118.8 $138.0 16% $1.95 $2.32 19% BUY

$12.8 $11.0 $277.3 $457.9 $158.8 3.8% $3.60 $1.54 $495.9 $750.0 51% $108.4 $174.2 61% $0.71 $1.12 58% BUY

$71.3 $0.0 $253.3 $282.4 $0.0 0.0% $5.97 $5.97 $259.7 $350.1 35% $64.3 $95.2 48% $0.81 $1.26 56% BUY

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Appendix D GLOSSARY

Alternating Current (AC) - A periodic electrical current the average value of which over a period is zero. Unless specified otherwise, the term refers to a current that reverses at regularly recurring intervals of time and has alternately positive and negative values. Amps - Short for amperes. The electron or current flow representing the flow of one coulomb per second past a given point in a circuit. Anode - The electron-collecting electrode of an electron tube. Bus - The common primary conductor of power from a power source to two or more separate circuits. Captive Manufacturer - Manufacturers that make products for their own use and do not market them for outside sale. Cathode - The electrode in an electrochemical cell where reduction takes place. During discharge, the positive electrode of the cell is the cathode. During charge, the situation reverses, and the negative electrode of the cell is the cathode. Conductor - A medium that carries a flow of electric current. Coulomb - The meter-kilogram-second unit of electric charge equal to the quantity of electricity transferred by a current of one ampere in one second Current - The rate of transfer of electrical energy measured in amps. Custom Products - Products made according to the specifications on the customers orders. Diode - A two-element device containing a cathode and an anode that permits flow in one direction and blocks flow from the other direction. Direct Current (DC) - The type of electrical power produced by batteries and power supplies. Electrons flow in one direction. Efficiency - The ratio of total output power to total input power, expressed as a percentage, under specified conditions. Electromagnetic Interference (EMI) - Any magnetism produced by an electric charge in motion that interrupts, obstructs, or otherwise impairs the performance of electronic equipment. Frequency - Number of cycles per second measured in Hertz. The U.S. standard is 60 Hz per second. Induction The process by which an electromotive force is produced in a circuit by varying the magnetic field linked with the circuit. Input Voltage Range - The specified range input voltage within which a power supply or device operates. Joule - Unit of work or energy in the International System (SI) of Units; it is equal to the work done by a force of one newton acting through one meter.

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Line Regulation - The percentage change in electrical output due to the input voltage varying over its specified limits, at specified load values, with all other factors constant. Load Regulation - 1) Static: The change in output voltage as the load is changed from the specified minimum to maximum and maximum to minimum, with all other factors held constant. 2) Dynamic: The change in output voltage expressed as a percent for a given step change in load current. Merchant Manufacturer - An independent manufacturer that sells its products to various vendors, including small custom contractors. Modified-Standard Products - A standard product modified to make it suitable for certain applications. Newton - The unit of force in the meter-kilogram-second system equal to the force required to impart an acceleration of one meter per second per second to a mass of one kilogram. Noise - The random component on the power source output, which is unrelated to source and switching frequency. Noise is typically expressed in peak-to-peak units over a specified bandwidth. Power Supply A circuit designed to furnish operating voltages and currents for electronic devices. Radio Frequency Interference (RFI) - An undesired radiated or conducted signal in the radio frequency spectrum. Rectifier - A component that passes current in one direction, e.g., a diode. Standard Products - Products that are made before receiving any orders. Standard does not imply an industry standard, as one does not exist. Switching Power Supplies - Include both AC/DC switchers and DC/DC converters. Transformer - A device that transfers energy from one circuit to another by electromagnetic induction. Uninterruptible Power Supply (UPS) - A circuit that inhibits the power supply when output voltage falls below a specified minimum. Value-Added-Resellers (VARs) - Companies that buy products from manufacturers and then add value to those products before reselling them to end-users. Volt - A unit of measurement of electromotive force or potential difference. Voltage - A derivative electrical quantity, measured in the unit volts and defined in terms of the independently obtained amp, and unit of resistance. Watt - A unit of measurement of power equal to 1 joule/sec. Watts equal volts times amps.
Source: Stephens Inc.

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Appendix E North American Power Semiconductor Manufacturers

Company Web site Transistor Rectifier Thyristors ICs

ABB Semiconductors www.abbsem.com Acumentrics Corp www.acumentrics.com Acutech, Inc. NA Advanced Actuators NA Advanced Power Technology www.advancedpower.com Allegro Microsystems www.allegromicro.com AMC Technologies www.amc.com Analog Devices www.analog.com Apex Microtechnology www.apexmicrotech.com API Electronics www.api-electronics.com/cont.htm BEI Sensors and Systems www.beisensors.com Caleb Systems www.caleb-corp.com Cherry Semiconductor NA Cougar Electronics www.cougarelectronics.com Composite Modules www.cmodules.com Consolidated Electronics www.con-elec.com Crydom www.crydom.com Data Device Corp. www.ddc-web.com Diodes www.diodes.com Directed Energy www.directedenergy.com Dynex Semiconductor www.dynexsemi.com Eupec, Inc. www.eupec.de Fairchild Semiconductors www.fairchildsemi.com Fujitsu Microelectronics www.fcsi.fujitsu.com Galil Motion Control www.galilmc.com General Semiconductor www.gensemi.com HDL Research Lab NA Hitachi America www.hitachi.com/semiconductor IMP www.impweb.com Infineon Technologies www.infineon.com Intelligent Motion Systems www.imshome.com International Rectifier www.irf.com Intersil www.intersil.com Linear Technology www.linear-tech.com LSI Computer Systems www.lsicsi.com Maxim Integrated Products www.maxim-ic.com Methode Electronics www.methode.com Microsemi www.microsemi.com Minarik Automation and Contro www.minarikcorp.com Motorola www.mot.com National Hybrid www.nationalhybrid.com National Semiconductor www.national.com NEC Electronics www.necel.com

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Company

Web site

Transistor Rectifier

Thyristors

ICs

Omnirel ON Semiconductor Performance Motion Devices Philips Semiconductors Power Integrations Powerex Rabun Labs Rohm Electronics SanRex Sanyo Energy Semikron International Sensitron Semiconductor Shindengen America Siemens Components Silicon Power Sipex Solid State Devices Solitron Devices ST Microelectronics Stormin Protection Products Teccor Electronics TelCom Semiconductor Texas Instruments Toko America Toshiba Semiconductors Trace Technologies Tri Source TSC America Vishay Intertechnology Westcode Semiconductors ZAE Research Zetex
Source: Frost & Sullivan

www.omnirel.com www.onsemiconductor.com www.pmdcorp.com www.us.semiconductors.philips.com/ www.powerint.com www.powerex.com www.rabunlabs.com www.rohm.co.jp/overview/america.html www.sanrex.com www.sanyobatteries.net www.semikron.de/semineu/index.html www.sensitron.com www.shindengen.com www.siemens.de www.siliconpower.com www.sipex.com NA www.solitrondevices.com www.st.com www.maxpages.com/stormin/home www.teccor.com www.telcom-semi.com www.ti.com www.ictoko.com www.toshiba.com/taex www.tracetek.com www.trisourceinc.com www.tscus.com www.vishay.com www.westcode.com NA www.zetex.com

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Links to Company web sites are provided for convenience only. Stephens Inc. is not responsible for any information of such web sites. Please view Stephens Inc. web site Important Legal Information.

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Appendix F North American Power Supply Manufacturers

Company Name Web site

Abbott Technologies Absopulse Electronics AcBel Polytech Acme Electric Corp. Acon, Inc. Acopian Corp. Advance Power (American Power Conversion) Advance Power Solutions Aerospace Avionics Arnold Magnetics Artesyn Technologies Ascom Energy Systems Astec (Emerson Electronics) Astrodyne Corp. AULT, Inc. Autec Power Systems Autronics Corp. Avansys Corp. (Huawei Technologies) Broadband TelCom Power C&D Technologies Calex Celestica Power Systems Cherokee International Condor (SL Industries) Converter Concepts Inc. Cosel, USA Datel Dee Van Enterprises Delta Electronics Deltron Digital Power Corp. Eldec Power Systems (Power-One) Elpac Power Systems EOS Corp. (Charterhouse) Ericsson Microelectronics (Emerson Electric) FDK America Fortron/Source FRIWO EMC Inc. Galaxy Power HC Power Systems (Power-One) International Power Devices (Power-One)

www.abbott-tech.com www.absopulse.com www.apitech.com.tw www.acme-electric.com www.acondec-dc.com www.acopian.com www.advancepower.com www.advpower.com www.aerospace-avionics.com www.amcpower.com www.artesyn.com www.ascom.com www.astec.com www.astrodyne.com www.aultinc.com www.autec.com www.autronics.com www.avansys.com www.btcpower.com www.cdtechno.com www.calex.com www.celestica.com www.cherokeellc.com www.condorpower.com www.converterconcepts.com www.coselusa.com www.datel.com www.dveusa.com www.deltaca.com www.deltroninc.com www.digipwr.com www.eldec.com www.elpac.com www.eoscorp.com www.emersonelectric.com www.fdkco.jp.com www.fsusa.com www.friwo.com www.galaxypwr.com www.hcpower.com www.ipdconverters.com

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Interpoint (Crane Co.) Intronics Jasper Electronics Kepco Lambda Advanced Analog (Smiths Industries) Lambda Electronics, Inc. (Invensys) Lambda EMI (Siebe Controls) Lambda Novatronics (Smiths Industries) Lite-On MagneTek Marconi Communications Martek Power Martek Power Abbott Martek Power Boston Martek Power Switch Martek Power Torrance Melcher Inc. (Power-One) Modular Devices, Inc OECO LLC Onan Power Electronics Perkin Elmer Optoelectronics Phihong USA Pico Electronics Pioneer Magnetics Potant Power General Power-One Power Ten (J.F. Lehman/Elgar Corp.) Powercube Corp. (Natel Engineering) Rantec Corp. Reliability, Inc. Resonant Power Technology RO Associates SAE Power, Inc. Shindengen America Sola/Hevi-Duty STC Keltec Switching Power Switching Systems International SynQor Taiyo-Yuden Tamura Corp. of America Tectrol Texas Instruments Transistor Devices Inc. Tri Mag Unipower VARO LLC Vicor Westcor Corp. Wall Industries
Source: Micro-Tech Consultants

www.interpoint-power.com www.intronicspower.com www.jasperelectronics.com www.kepcopower.com www.lambdaaa.com www.lambdapower.com www.emipower.com www.lambdanovatronics.com www.lite-on.com www.magnetek.com www.marconi.com www.martekpower.com www.abbottelectronics.com www.cdipower.com www.powerswitch.com www.moddev.vom www.melcher-power.com www.moddev.com NA www.onancorp.com www.perkinelmer.com/ www.phihongusa.com www.picoelectronics.com www.pioneermag.com www.potant.com www.nidec.com www.power-one.com www.powerten.com www.powercube.com www.rantec.com www.relinc.com www.respwrtech.com www.roassoc.com www.saepower.com www.shindengen.com www.sola-hevi-duty.com www.sigtech.com www.switchpwr.com www.ssi4power.com www.synqor.com www.t-yuden.com www.tamuracorp.com www.tectrol.com www.powertrends.com www.tdipower.com NA www.unipower-corp.com www.varo.com www.vicr.com www.wallind.com

Links to Company web sites are provided for convenience only. Stephens Inc. is not responsible for any information of such web sites. Please view Stephens Inc. web site Important Legal Information.

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Public Companies mentioned in this report:

Company ABB Semiconductors Acme Electric Corp. Advance Power (division of American Power Conv.) Advanced Micro Devices Advanced Power Technology (BUY) ALCATEL Alleghany Teledyne AMC Technologies Analog Devices Artesyn Technologies (BUY) Astec (Emerson Electronics) AULT, Inc. BEI Sensors and Systems Bell Laboratories (division of Lucent Technologies) Boeing Co. Burr Brown (purchased by Texas Instruments) C&D Technologies (BUY) Celestica Power Systems Cherry Semiconductor Cisco Systems Condor (division of SL Industries) Cree Inc. (BUY) Delta Electronics Deltron Electronics Digital Power Corp. Diodes Inc. Elantec Semiconductor Eldec Power Systems (division of Power-One) Emerson Electric Ericcson LM Telephone Ericsson Microelectronics (Emerson Electronics) Eupec, Inc. (division of Infineon Technologies) Exar Corp. Exteme Networks Fairchild Semiconductors General Semiconductor HC Power Systems (division of Power-One) Hewlett-Packard Hitachi America IMP Inc. Infineon Technologies Intel Corp. International Power Devices (division of Power-One) International Rectifier (BUY) Interpoint (division of Crane Co.) Intersil Corp. Invensys Plc/Lambda Juniper Networks Linear Technology Lite-On (division of Arrow Electronics) Lucent Technologies MagneTek Matsushita Electric Maxim Integrated Products MCI Worldcom Melcher Inc. (division of Power-One) Methode Electronics Micrel Inc. (BUY) Microlinear Corp. Microsemi Corp.

Ticker ABLZF ACEE APCC AMD APTI ALA ALT APMC ADI ATSN EMR AULT BEIQ LU BA BBRC CHP CLS ONNN CSCO SL CREE DLEGF DETNF DPW DIOD ELNT PWER EMR ERICY EMR IFX EXAR EXTR FCS SEM PWER HWP HIT IMPX IFX INTC PWER IRF CR ISIL IVNSY JNPR LLTC ARW LU MAG MC MXIM WCOM PWER METHA MCRL MLIN MSCC

9/15/00 Stock Price $117.50 $8.50 $21.69 $27.75 $34.81 $77.13 $2.94 $12.38 $92.06 $37.50 $65.00 $8.63 $42.25 $37.69 $56.88 $89.67 $52.50 $77.56 $14.88 $62.75 $12.00 $115.94 $7.63 $2.30 $7.63 $16.63 $77.13 $84.63 $65.00 $18.00 $65.00 $51.56 $103.31 $90.00 $33.44 $14.13 $84.63 $103.00 $120.25 $1.88 $51.56 $57.52 $84.63 $59.50 $21.31 $48.00 $4.25 $201.69 $62.94 $35.00 $37.69 $11.25 $252.50 $76.31 $29.44 $84.63 $52.63 $65.56 $4.75 $38.75

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Company Mitsubishi Electric Corp. Motorola Inc. National Semiconductor NEC Electronics Nokia Corp. Nortel Networks Omnirel (division of International Rectifier) ON Semiconductor Onan Power Electronics (division of Cummins Engine) Pericom Semiconductor Perkin Elmer Optoelectronics Philips Semiconductors Power Integrations (BUY) Power-One Inc. (BUY) Rantec Corp. (division of Esco Technologies) Reliability, Inc. Rohm Electronics (division of the Rohm Co.) Sanyo Energy (division of Sanyo Electric) Semtech Corp. (BUY) SGS-Thompson Siemens Components Siliconix SIPEX Corp. ST Microelectronics STC Keltec Sycamore Networks Tamura Corp. of America (division of Tamura Corp.) Teccor Electronics (division of Invensys Plc) TelCom Semiconductor (BUY) Teradyne Inc. Texas Instruments Toko America (division of the Toko Co.) Toshiba Semiconductors Vicor Corp. (BUY) Vishay Intertechnology Wall Industries (division of Continental Resources)

Ticker MIELY MOT NSM NIPNY NOK NT IRF ONNN CUM PSEM PKI PHG POWI PWER ESE REAL ROHCF SANYY SMTC SGTMF SMAWY SILI SIPX STM STCO SCMR TMURF IVNSY TLCM TER TXN TKCOF TOSBF VICR VSH CTTI

9/15/00 Stock Price $87.00 $35.00 $42.75 $131.50 $43.75 $72.69 $59.50 $14.88 $33.25 $32.75 $94.25 $46.00 $14.31 $84.63 $18.31 $3.25 $277.00 $43.50 $100.63 $62.00 $153.00 $50.25 $49.67 $54.63 $16.13 $105.50 $4.25 $4.25 $14.63 $51.88 $59.00 $3.25 $9.25 $42.25 $35.50 $7.75

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Private companies mentioned in this report:

Acon, Inc. Acopian Corp. Acumentrics Corp Acutech, Inc. Advance Power Solutions Advanced Actuators Aerospace Avionics Apex Microtechnology API Electronics Arnold Magnetics Astrodyne Corp. Autec Power Systems Autronics Corp. Broadband TelCom Power Caleb Systems Calex Cherokee International Composite Modules Consolidated Electronics Converter Concepts Inc. Cougar Electronics Crydom Data Device Corp. Di/Dt East Penn Manufacturing Elpac Power Systems EOS Corp. (Charterhouse) Fortron/Source Frost & Sullivan Galaxy Power Galil Motion Control HDL Research Lab Intelligent Motion Systems Intronics Jasper Electronics Kepco LSI Computer Systems Minarik Automation and Control National Hybrid OECO LLC PEMA Performance Motion Devices Pico Electronics Pioneer Magnetics Power Ten R.O Associates Rabun Labs Resonant Power Technology RO Associates SAE Power, Inc. Sensitron Semiconductor Silicon Power Sola/Hevi-Duty Solid State Devices SPCO Stormin Protection Products Switching Power SynQor Trace Technologies Transistor Devices Inc. Tri Mag Tri Source Unipower VARO LLC Westcode Semiconductors Xantrex ZAE Research

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