issi corp preso - march 2015

DRAFT

Sustainable Innovation Strong Stockholder Returns

Diversified Growth

Saturday, March 07, 2015 www.issi.com

2 © 2015 ISSI, INC. - ALL RIGHTS RESERVED

This presentation and our related comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Among other things, statements concerning our markets, growth strategy, financial projections, financial trends, financial model and uses of cash are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include supply and demand conditions in the market place (especially in the automotive market and the industrial market), unexpected reductions in average selling prices for our products, our ability to sell our products in our key markets (including automotive and industrial) and the pricing and gross margins achieved on such sales, our ability to continue to control or reduce operating expenses, our ability to obtain a sufficient supply of wafers, wafer pricing, our ability to maintain sufficient inventory of products to satisfy customer orders, our ability to realize the expected benefits of our acquisitions including maintaining relationships with key customers, vendors and employees, changes in manufacturing yields, order cancellations, order rescheduling, product warranty claims, competition, the level and value of inventory held by OEM customers, the outcome of any existing or future litigation involving intellectual property or other matters or other risks listed from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended September 30, 2014. We assume no obligation to update or revise the forward-looking statements in this presentation because of new information, future events, or otherwise.

• High quality specialty memory, flash and analog mixed signal products

• Founded in 1988, IPO in 1995

• Headquarters: Milpitas, CA

• Solid growth: 2009-2014 revenue CAGR 16.4%

• Business model similar to a broad line fabless analog company

Corporate Facts

• FQ1’15 revenue of $80.9M

• Automotive revenue +10.0%, Industrial +8.0% YoY

• 36.0% gross margin in FQ1’15

• $132.1M cash and investments

• Initiated $0.06 per share quarterly dividend in August 2014

Financial Highlights at Dec 31

• High Speed Memory – Synch SRAM, asynch, high performance, legacy, QUAD and DDR & RLDRAM®

• DRAM - Low to high density DRAM, SDRAM, DDR, DDR2, DDR3 for specific applications

• NOR Flash – industry standard NOR Flash products and embedded non-volatile solutions

• Analog - Audio power amplifiers, sensors and LED drivers for backlighting and display

• Automotive

• Industrial

• Communications

• Specialty Consumer


Diverse Products

Growing End Markets

3


• Safety, driver information, clusters, infotainment expanding • Average semiconductor content increased from $142 to $380¹

in past 5 years, projected to double in next 5 years. • Advancing functionality driving the transition to higher

performance products: DDR2, DDR3, LPDDR2 • Adjacent flash and analog market growth opportunities:

lighting, media and intelligent systems

Automotive

• Increasing digital content in core industrial applications significantly increasing demand

• Flash product introductions dramatically increase the TAM • Enhanced strategic account program with expanded

distribution partnerships • New products: Power saver SRAMs, mDDR, LPDDR2,

SRAM’s with ECC

Industrial • Rising connectivity driving memory demand • Exponential growth in data traffic creates need for new

networking memory technology • Increasing advanced network build-out activity for LTE in

China and U.S. • Europe presents future opportunity for infrastructure

investment

Communications

ISSI delivers high-quality, long-lifecycle, specialty memory, flash and analog devices

• Exited low gross margin and commodity lines • Focused on longer life cycle products • New analog HBLED, FXLED, sensor and audio driver product

lines driving revenue from key customers • Ramping lower cost, more diversified flash products to

meet specific customer needs

Consumer

1. Morgan Stanley Blue Paper on Autonomous Cars


Auto 47%

Industrial 23%

Comm’s 15%

Consumer 15%

ISSI Fiscal 2014 Revenue: $329 Million

Automotive

Telematics Infotainment Satellite Radio Engine Control Braking Systems Cluster/ Center Stack Body Electronics Camera Systems

Industrial

Imaging & Diagnostics POS Terminal Bar Code Scanning Medical

Instrumentation Data Acquisition/PLC Energy Meters

Communications

Base Station Switches Routers xDSL, xPON VoIP, WLAN Fiber Channel Storage

Digital Consumer

DTV/LCDTV Set Top Boxes Digital Cameras Gaming/PC Peripherals Portable Media Players Cell Phones/ Camera HDD

Automotive Communications Digital Consumer

© 2015 ISSI, INC. - ALL RIGHTS RESERVED

Industrial

No end customers over 10% of revenue 6

• Target designs requiring multi-year product support • Longer-term pricing arrangements • Support for customers from legacy to next generation applications

World Class Quality Supporting Long Life Cycle Products

• Broad specialty supplier of DRAM, SRAM, Flash and Analog solutions • Focus on stable, high growth markets; avoids exposure to commodity pricing • Gaining share and increasing content across key Tier-1 customers

High Value Specialty Products for Growing Markets

• QUAD SRAM, DDR3, mDDR and RLDRAM® expand addressable markets • Analog and flash add complementary solutions with targeted key customers • New development efforts for advanced solutions at large global customers

Technology Leadership/ Expanded Product Offerings


• Growing electronic content and more advanced demands in automotive • Increasing mobile data and IP traffic growth in communications • Greater memory use and larger analog product content in industrial

Favorable Market Dynamics

7


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

20 Years celebration on

Nasdaq (Feb. 2015)

Initiated Regular Quarterly Dividend

Recorded $21.2M in investment gains

through FY14

$1.8M (Initial

Dividend)

Introduced DTR Serial NOR Flash, Industry’s First 115C

DRAM & 8Gb DDR3 Solutions

Entered the Automotive LED Lighting Market

Signed HyperRAM Development Agreement

Signed License for Serial and Parallel Flash + HyperBus products

Signed Flash Memory IP License

Launched Analog Class D Audio Amp

Introduced 1Gb LPDDR2 DRAM

SMIC introduced ISSI’s 55nm embedded flash

A Perfect Fit for ISSI • Qualified auto memory supplier since 1999 • High requirement products: temperature,

lifespan, exposure, materials, quality • Only supplier in the industry to offer 115C

DRAM and 125C SRAM • Focus on high quality and long-term support • Analog and Flash expand product portfolio

with HBLED, PA and Flash applications

Telematics, Infotainment, GPS, Camera Systems, Autonomous Driving, Safety Clusters, HBLED,

Audio Amplifiers

9

FY2009-FY2014 CAGR 43%*

Market Dynamics • >$1.0 billion market opportunity and growing ¹ • Long product cycles, high entry barriers • Increased attention to second sourcing • New products and rising semi content driving

growth

$0

$50

$100

$150

$200

$250

2009 2014 2019 Target*

ISSI Auto Market Revenue ($ Millions)

*2019 revenue estimate based on ISSI projections for the Automotive market. Please refer to safe harbor on forward looking statements. 1. Market information from multiple analyst reports and internal estimates

$0

$200

$400

$600

$800

$1,000

$1,200

2008 2009 2010 2011 2012 2013 2014 2015

Body CntlSafetyEngine ControlDISEntertainment


$M ISSI Focus Markets: Safety • US, EU Camera legislation • Increasing radar/ultrasonics • Lane departure, braking

systems Driver Information Systems (DIS) • GPS and HUD enhancements • Large integrated displays • Fast growth in center stack

displays and clusters Entertainment • Software controlled radio • Satellite radio • Increasing video options

1. Market information from Strategy Analytics


$26

$49

$71

$109

$140

$155

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

2009 2010 2011 2012 2013 2014

FY 2009 Business Traction

FY 2014 Business Traction ISSI Fiscal Year Automotive Revenue

Incremental Applications:

Key Applications:

ISSI Automotive Customers

North America Europe Asia

• Engine Control • Satellite Radio • Cruise Control • Telematics • GPS

• Multiple cameras • Heads-up display • Radar Detection • Infotainment • Blind Spot Warning • LDWS • Bluetooth • Collision Avoidance • Integrated Console • Wi-Fi • Internal & external

LED lighting


$0

$200

$400

$600

$800

$1,000

$1,200

2009 2014

SRAM DRAM($ in Millions)

2010 2011 2012 2013 2014 2015

SDRAM DDR mDDR DDR2 DDR3 LPDDR2

DRAM Technology

1. Market information from Strategy Analytics


Growth Drivers • Key memory drivers: safety, driver

information, clusters, infotainment • Average semiconductor content expected to

double in next 5 years¹ • More advanced functionality drives the

transition to higher performance products: DDR2, DDR3, LPDDR2

• Flash and analog expand market growth opportunities at key customers: lighting, media and intelligent systems

The ISSI Advantage

• High industry quality standards • Extended temperature range • Diverse and growing product catalog • Reduced qualification costs • Long-term supply & pricing arrangements • Long-term support capability • Competitive front-end cost and total life cost

ISSI is gaining share through its focus on quality, key suppliers, long-term support, and new products

1. Market information from multiple analyst reports

Market Dynamics • Broad $1.4 billion market ¹, diverse

requirements, primarily legacy driven memory technologies

• Strong penetration in process control, smart meter, medical imaging and home health

Process Control, Imaging & Diagnostics, Smart Meters, POS

Terminal, Instruments

14

A Perfect Fit for ISSI • Energy efficiency and clean energy driving

demand; greater electronic content in medical and industrial products

• High quality legacy products, coupled with long-term stable supply make ISSI a global supplier

• Addition of flash and analog adds value and content for customers – audio, lighting, smart meters, sensors, etc. FY2009-FY2014 CAGR 39%*

$0$20$40$60$80

$100$120$140$160

2009 2014 2019 Target*

ISSI Industrial Revenue ($ Millions)

*2019 revenue estimate based on ISSI projections for the Industrial market. Please refer to safe harbor on forward looking statements.

1. Market information from multiple analyst reports and internal estimates


Growth Drivers • Key memory drivers: increasing digital content

in core industrial applications • Automation, AC drives/PLC, smart grids, smart

meters increasing demand • Flash product introductions dramatically

increase the TAM • Enhanced strategic account program with

expanded distribution partnerships • New products: Power saver SRAMs, mDDR,

LPDDR2, SRAM’s with ECC

The ISSI Advantage

• High industry quality standards • Expanding product catalog • Long-term support capability & pricing

arrangements • Legacy support plus next generation

products from a single supplier • Analog and flash capabilities increase total

solution opportunity

ISSI is positioned to gain share through a broader product line and expanded distribution capabilities

A Perfect Fit for ISSI • High bandwidth applications driving

communication infrastructure growth • Expanded QUAD SRAM and RLDRAM® 2 & 3

moves ISSI to the forefront of new high performance memory technology platforms

• Tier 1 custom memory support plus development of HBM position ISSI to be a long-term leader

• Flash expands market opportunity in networking solutions

Base Station, Switches, Routers, xDSL, PON, VOIP, Fiber Channel

Storage, WLAN

16

Market Dynamics

• $1.7 billion SRAM and DRAM market¹

• Higher performance memory and long-term support requirements

• Increased infrastructure spending needed to drive revenue growth

$0

$20

$40

$60

$80

$100

$120

2009 2014 2019 Target*

ISSI Comm Revenue ($ Millions)

*2019 revenue estimate based on ISSI projections for the Communications market. Please refer to safe harbor on forward looking statements.

1. Market information from multiple analyst reports and internal estimates


Expanded product offerings and second source needs drive ISSI’s growth as infrastructure investment returns

Growth Drivers • Increasing device connectivity drives

demand for memory solutions • Exponential growth in data traffic creates

need for new networking technology • Rapid increase in bandwidth demand • Increasing advanced network build-out

activity for LTE in China and U.S. • Europe presents future opportunity for

infrastructure investment

The ISSI Advantage

• Strategic supplier relationships with global OEMs

• RLDRAM® second source opportunities provide future growth

• SRAM, DRAM, Flash capability in a single source • Guaranteed legacy support for older designs,

new designs for current products • QUAD and new High Bandwidth Memories

expand addressable market


Flash - $2.0B¹ Market Opportunity

• Auto and Industrial customers requesting long-term NOR and NAND flash product support from ISSI.

• High quality flash a perfect fit to the ISSI specialty model coupled with 0.18u to 55nm Embedded Flash IP licensing programs with multiple foundries.

• Expands content at targeted customers as a broad-based memory supplier. • Sampling various densities up to 128Mb serial and parallel flash now, with densities up

to 8Gb in H2’15 for automotive and industrial applications. • Agreement with Spansion for HyperRam™ and HyperBus™ Flash for future growth

opportunities. • Targeting auto infotainment, navigation, radio, displays, multimedia, STB and

networking.

.

1. Market information from iSupply


Analog – Automotive Analog Market was $6.8B¹ in 2014 • Total automotive analog market is growing >5% per year to $8.5B in 2018¹ • ISSI product SAM currently $400M and growing with new product families • Utilize China engineering and backend for lower cost analog products targeting

automotive plus industrial markets. • Growing revenue outside China with margins >50%. Achieved $1M revenue in 2014. • Product roadmap leverages existing customers and analog technologies to introduce

new products. • Introduced auto qualified LED drivers for map lights, tail lights, head lights, and interior

automotive lighting. • Sampling 20W stereo class D audio amplifiers for consumer with 56W automotive class

D audio amplifiers targeted for H2’15. • Growing industrial lighting solutions based on ISSI FxLED drivers.

1. Market information from TechNavio Insights

20 © 2015 ISSI, INC.

Note: Flash production began with acquisition of Chingis Technology Corporation, which closed in September 2012.

Operating Margin (3.9%) 6.3% 14.5%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

FY 2009 FY 2014 FY 2019 Target Model*

SRAM Specialty DRAM Analog Flash Commodity Memory

Tota

l Rev

enue

($ in

mill

ions

)

~10% of Rev. (Flash + Analog)

~30% of Rev. (Flash + Analog)

Flash and Analog Are Expected to Represent Half of ISSI’s Revenue Growth from FY 2015 to FY 2019

* Please refer to safe harbor on forward looking statements.


Net PriceYear Acquisition Business Paid Revenue Profit Revenue Profit Comment

Fully Integrated Acquisitions

2005Commodity

DRAM $75M $120M $36M Loss $189MHighly

Profitable

Became highly profitable in 2010 after five year transformation to value add

products

2009 Mobile DRAM $3M $9M $3M Loss $21M ProfitableBecame profitable in 2014 after five year

transformation

Expanding Opportunities

2011 Analog $20M $20MMarginally Profitable $7M

Operating Losses

In transition from a commodity consumer focused business to one focused on value

add automotive and industrial markets

2012 NOR Flash $15M $35MMarginally Profitable $27M

Operating Losses

In transition from a commodity consumer focused business to one focused on value

add automotive and industrial markets

At Acquisition Today

Enable Semiconductor

Please refer to safe harbor on forward looking statements.


Established history of growth following four-to-five year period to adapt acquired products and technology to higher value markets

DRAM and mobile DRAM enabling growth in automotive and industrial markets

Ongoing product investment in DRAM and SRAM development: RLDRAM®, QUAD SRAM, Atris, HyperBus®, HBM, etc. all take 4-5 years to achieve volume revenue

Flash and Analog create diversified revenue stream and long-term growth opportunities

– Low cost acquisitions for technology, IP, and engineering talent – Synergistic with DRAM/SRAM customers, markets and applications – Increase ISSI’s long-term revenue and profit growth opportunity by 50% – 0.18u to 55nm embedded flash IP licensing with multiple foundries – Higher margin profiles increase long-term operating margin goals – Legacy consumer revenue offsets investment costs during transition


Continue success in Automotive and Industrial markets with current and new products

Ramp newer, higher performance memory products in Communications market ahead of improving market conditions – QUAD SRAM, Sync SRAM, DDR2/3, RLDRAM® 2 & 3

Gain share as legacy competitors exit target markets

Capitalize on growing market opportunities for NOR flash with existing memory customers in Automotive and Industrial markets

Expand analog product offerings to accelerate growth and profitability through rapid share gains at Automotive and Industrial customers

Leverage strong balance sheet to grow organically and strategically

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

FY09 FY10 FY11 FY12 FY13 FY14Specialty Commodity ASSP Analog Flash



Shift in strategy and product mix drives gross margin improvement & stability

26.5%

38.2%

33.4% 33.2% 33.0% 34.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

FY09 FY10 FY11 FY12 FY13 FY14

*

* Due to Great Recession in 2008 and 2009, ISSI recorded LCM inventory reserves in FY09 that reduced FY09 GM and increased the FY10 GM once inventory was sold.

*


.

5 Years of Strong Cash Flow: $150 Million

$22.6

$13.7

$30.6 $32.4 $33.6

$17.1

$0

$5

$10

$15

$20

$25

$30

$35

$40

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

* Amount excludes impact of $10M advance to foundry

*


Financial Model

GAAP Gross Margin 34-36%

GAAP Operating Margin 7-10%

Cash from Operations 8-12%

Free Cash Flow 6-10%

Please refer to safe harbor on forward looking statements.


Cash & Investments $132M

Working Capital $214M

Total Assets $398M

Long Term Debt $4M

Stockholders’ Equity $311M

• Expand ISSI’s product and market reach within the existing vertical markets • Execute technology and product licenses for new growth opportunities • Recent Activity: Enable Semiconductor, Si En Technologies, Chingis Technology, Spansion IP • Business lines are evaluated regularly for fit with strategic goals and value

IP & Technology Expansion


• Quarterly dividend of $0.06 per share • Tender offer of $70M for 10M shares completed in 2008 • Additional market repurchases of $10.2M from 2009 to 2011 • Board considers repurchases and other strategic uses of cash each quarter

Dividend and Share Repurchases

• Operational support and customer confidence • Foundry advances and Foundry investments (Nanya) to secure DRAM capacity • Test and assembly capacity to maintain longevity and diversity • Inventory and EOL purchases to meet availability guarantees

Operational Support

• 2/3 of $132M of cash is offshore • Offshore cash would be taxed if repatriated in the near-term • Additional $11M of Nanya investment included at cost in long-term assets; current FMV is $45M –

intend to sell in 2016

Cash and Investments


5 year stock chart – ISSI compared to SOX and Russell 2000

Chart from Yahoo! Finance

Long Life Cycle Product Focus

Specialty Products, Stable Markets

Favorable Market Dynamics

High Profit Growth Model

Strong Cash Generation

Expansion into Analog and Flash


Sustainable Innovation Diversified Growth Strong Stockholder

Returns

33

Scott Howarth, President & CEO

– [email protected] – 408-969-4686

John Cobb, Vice President, Finance, and CFO

– [email protected] – 408-969-4631

IR - Shelton Group – Matt Kreps, Managing Director – 214-272-0073 – [email protected]

mailto:[email protected]





issi corp preso - march 2015

Business

flash products

diverse products

industrial market

automotive market

automotive revenue

forwardlooking statements

higher performance products

analog mixed signal