Analyst Conference Summary

conference date: August 7, 2008 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2008 (4th fiscal quarter 2008)

Forward-looking statements

Overview: Revenues are holding up. Still not reporting full financial data due to accounting restatement process.

Basic data (GAAP) :

Revenues were $501.3 million, up 3% sequentially from $487.4 million, and up 2% from $493 million in normalised revenue (same length quarters) year-earlier.

Net income and EPS not reported.

Guidance:

Fiscal Q1 2009 revenues of $500 to $510 million. Gross margins at low end of target range. Annual salary increases will lead to operating expense increase.

$150 to 175 million in total capital expenditures in fiscal 2009.

Conference Highlights:

We are disappointed that our growth has slowed in recent years in line with the industry. Are working to improve on that with new products.

The actual year-earlier revenue was $531.1 million, but that was a 14 week quarter compared to this year's 13 week quarter. Revenue was slightly above midpoint of prior guidance.

Cash and equivalents increased $14.8 million sequentially to $1.22 billion. Capital expense was $37.1 million. $60.1 million was paid in dividends. Inventory increased 2% in quarter, in line with revenue growth.

Bookings and backlog increased sequentially. $326.3 million backlog.

Quarterly dividend will increase 6.7% from $0.1875 per share to $0.20 per share.

Capital expenditures are expected to decrease during fiscal 2009.

Fiscal 1995 to fiscal 2006 will be restated for stock-based compensation expense. Near the end of the accounting process. Fiscal Q1 compensation expense should decline 20% from fiscal Q4 2006 levels.

Revenues by market: 31% computing, 26% consumer, 23% industrial, and 20% communications.

Computing market had strong sequential growth. Driven by a key battery customer's recovery from its plant fire, ongoing storage business ramp, and share gains in notebook display segment; extension of Santa Rosa platform helped (power management). Will be hurt by shift to Montevina design, which won't use our power management. LTD display segment is believed to be a a growth area.

Industrial revenue flat in line with seasonality. Portable ultrasound medical equipment chips are a growth area. Tamper detection and encryption circuits are selling well. Half a dozen design wins with new electric meter chip.

Storage market chips are ramping up for designs won earlier in year.

Expanding presense in consumer market, including for cell phones. Handset revenues grew, but were offset by other weak markets. Audio subsystem is expanding dollar content per handset. Expanding into digital SLR camera chips, expanding beyond power management for cameras.

Communications segment revenue grew due to continued strength in Asian infrastructure market.

60 basis point sequential improvement in gross margin due to a one-time favorable adjustment to our warranty reserve.

$35 million total special items in quarter, with $19.4 million due to restatement.

Our RF products for base stations are showing good growth. Optical transceiver chipsets are benefiting from rollouts.

Q&A:

Impact of notebook transition? About 1 to 2% of revenue impact.

Didn't you expect more seasonality? If you make the adjustment for the notebook power management decline, we are in line with seasonality.

Operating expense plans? We have managed op ex to grow only 1% sequentially each of the last two quarters. We are focused on keeping expenses down, and as revenue accelerates should grow slower than revenue.

Vitesse acquisition (storage products)? We are very happy with that acquisition. Base board management and 3 gig expanders are getting design wins. We are investing in specialized products where we can compete best; not investing as heavily as LSI in the storage area.

Order patterns? Bookings were similar to prior periods. Inventory was flat on the distributor side. Arrow to Avnet conversion was very successful, with no visible dropoff in business. Now focussing on demand creation with Avnet.

Restructuring benefit? Restructuring was in January, so we saw some benefit in March quarter, full benefit in June quarter.

Is 63% low end of range? Yes, we expect to be around the low end in the September quarter.

What is "soon" for restatement? We have made substantial progress. Task at hand is preparing final calculations and SEC filings. We have moved past uncertainties. We hope to not have to talk about this again.

How much cash is needed to run the business? About $500 to $700 million.

Handset content and revenue contribution? Will not specify $ value of content. The new products does drive up dollar content to $2 to $4. Margins may be below our company average, but is acceptible.

In computing area there are many products where it is hard to differentiate our products where the margins are poor so we are pulling back. But some notebook components are highly integrated and have few competitors, so we will continue to pursue those.

Dividend now 4%, is that the limit? We look at dividends annually. Basis for the current increase is confidence in our cash flows and looking forward at revenues.

Hybrid car participation? Mainly is in battery monitoring and management, particularly lithium-ion batteries, with Japanese customers. It amounts to tens of dollars per car. We also participate in automative electronics that are not specific to hybrid cars. But this revenue will take a while to ramp to significant levels.

Current automotive level? Only 2 to 3% of total revenues. Design wins will result in signicant revenues in about 2 years, raising the percentage to 4 to 5%.

Inventories and impact on gross margins? Our factory utilization is lower, at about 75%, in order to proactively manage inventory. We don't have an inventory problem today, and can ramp up as demand ramps up.

Acquisition pipeline? Filling in our road map. Expect 2 to 3 acquisitions per year.

2G versus 3G products? Historically revenues were from power management chips for CDMA. Now chips have more functions and work with UMPS and GSM phones. Customers were so impressed they broke up chip set deals to use our products.

Most capital expenditure for next year will go for EDA expenses and test equipment, not for the fabs.

$44 million deprectiation this last quarter, due to accelerated depreciation from Dallas fab. Normal is $30 million.

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