Wally C. Rhines, CEO Mentor Graphics Merger Mania

Keynote: Merger Mania Wally C. Rhines, CEO Mentor Graphics Merger Mania

Walden C. Rhines Chairman & CEO Mentor Graphics Corporation

April 20, 2016 Merger & Acquisition Activity Transaction Count Is Relatively Flat

34 32 30

23 18 16 Transaction CountTransaction

2010 2011 2012 2013 2014 2015

Source: CapIQ and Mentor Graphics Analysis But the Value of Merger & Acquisition Activity Transactions is Significantly Higher

$102 Transaction Value $B Value Transaction $24 $23 $5 $10 $12

2010 2011 2012 2013 2014 2015

Source: CapIQ and Mentor Graphics Analysis Like a Collapsing Black Hole… AtBy 2020The We’ll Current All Work Rate for the Same Company

$800

$700

$600

$500

$400

$300

$200 Transaction Value $B Value Transaction

$100

$0 2010 2011 2012 2013 2014 2015F 2016 2017 2018 2019 2020

Source: CapIQ and Mentor Graphics Analysis

Three Record-Breaking Deals in 1st Half 2015

 Large companies acquiring Medium companies

“Intel’s $16.7 Billion Altera Deal Is Fueled by Data Centers” - Bloomberg Business

 Large companies acquiring Large companies

“Patience Pays Off For Private Equity In NXP Semi’s $11.8B Takeover Of Freescale” - Forbes

 Large companies acquiring even Larger companies

“Avago to buy Broadcom for US $37bil in biggest-ever chip deal” - Business News

Overall Semiconductor Industry Has Been “DECONSOLIDATING” Since the 1960’s

Semiconductor Concentration of Revenue

100%

80% Others 60% Top 8 Top 3 40%

20%

0% 1965 1972

Source: Gartner/Dataquest Between 1965-1972 29 New Companies Entered the Market

Semiconductor Concentration of Revenue

New Semiconductor Companies 100% American Microsystems Mostek National Semiconductor Signetics Memory Sys. Electronic Arrays Advanced Micro Devices 80% Intersil Spectronics Avantek Four Phase Others Integrated Systems Tech. Litronix 60% Nortec Electronics Corp. Integrated Electronics Top 8 Intel Varadyne Top 3 Computer Microtechnology Caltex 40% Qualidyne Exar Advanced Memory Sys. Micropower Communications Trans. Standard Microsystems 20% Precision Monolithics Antex Monolithic Memories LSI Systems Advanced LSI Systems 0% 1965 1972

Source: Gartner/Dataquest Market Share of the #1 Semiconductor Company Through History

100

50 Market Share (%) Share Market

Source: Gartner/Dataquest, IC Insights Market Share of the #1 Semiconductor Company Through History

100

50 Market Share (%) Share Market

Top Company Source: Gartner/Dataquest, IC Insights Combined Market Share of the Five Largest Semiconductor Companies Through History

100

50 Market Share (%) Share Market

Top Company Top 5 Source: Gartner/Dataquest, IC Insights Combined Market Share of the Five Largest Semiconductor Companies Through History

100

50 Market Share (%) Share Market

Top Company Top 5 Source: Gartner/Dataquest, IC Insights Combined Market Share of the Top Ten Semiconductor Companies Through History

100

50 Market Share (%) Share Market

Top Company Top 5 Top 10 Source: Gartner/Dataquest, IC Insights Combined Market Share of the Top Ten Semiconductor Companies Through History

100

50 Market Share (%) Share Market

Top Company Top 5 Top 10 Source: Gartner/Dataquest, IC Insights Top 50 Semiconductor Company Share of Market Decreased 10 Points in 10 Years

Top 50 Semiconductor Companies Share of Total Semiconductor Revenue 100

Market Share (%) Share Market 40

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: IC Insights Top 50 Semiconductor Company Share of Market Decreased 10 Points in 10 Years

Top 50 Semiconductor Companies Share of Total Semiconductor Revenue 100

Market Share (%) Share Market 40

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: IC Insights 2015 Is the First Real Change in a Long Term Trend Restated for announced acquisitions: Avago/Broadcom, NXP/Freescale, Qualcomm/CSR and Intel/Altera

Semiconductor Concentration of Revenue 100

50 Market Share (%) Share Market

Top Company Top 5 Top 10 Others Source: Gartner/Dataquest, IC Insights

Leadership Regularly Changes

1955 1965 1977 1987 1997 2007 2014

Texas Texas Hughes NEC Intel Intel Intel Instruments Instruments

Transitron Fairchild Motorola Toshiba NEC Samsung Samsung

Philco Motorola NEC Hitachi Motorola Toshiba TSMC

General Texas Texas Sylvania Hitachi Motorola Qualcomm Instruments Instruments Instruments Texas Texas GE Philips Toshiba ST Micro Micron + Elpida Instruments Instruments National GE RCA Fujitsu Hitachi Infineon SK Hynix Semiconductor Texas RCA Sprague Toshiba Philips Samsung Hynix Instruments

Westinghouse Philco Fairchild Intel Fujitsu Renesas Toshiba

National Motorola Transitron Intel Philips NXP Broadcom Semiconductor

Clevite Raytheon Siemens Matsushita ST Micro NEC ST Micro

Source: Gartner/Dataquest & History of Semiconductor Engineering 2008 Brings First Fabless Company to Top 10

2008 2009 2010 2011 2012 2013 2014 RANK

Intel Intel Intel Intel Intel Intel Intel 1

Samsung Samsung Samsung Samsung Samsung Samsung Samsung 2 Texas Toshiba TSMC TSMC TSMC TSMC TSMC 3 Instruments Texas Texas Texas TSMC Qualcomm Qualcomm Qualcomm 4 Instruments Instruments Instruments Texas Micron + Micron + Toshiba Renesas Toshiba Toshiba 5 Instruments Elpida Elpida

STMicro TSMC Renesas Renesas Toshiba SK Hynix SK Hynix 6

Texas Renesas STMicro Hynix Qualcomm Renesas Toshiba 7 Instruments Texas Qualcomm Qualcomm STMicro STMicro SK Hynix Toshiba 8 Instruments

Sony Hynix Micron Hynix STMicro Broadcom Broadcom 9

Hynix Micron Qualcomm Micron Micron ST Micro ST Micro 10

Source: IC Insights Over Half of Top 10 in History Are No Longer Top 10

1955 1965 1977 1987 1997 2007 2014

Texas Texas Hughes NEC Intel Intel Intel Instruments Instruments

Transitron Fairchild Motorola Toshiba NEC Samsung Samsung

Philco Motorola NEC Hitachi Motorola Toshiba TSMC

RCA Sprague Toshiba Philips Samsung SK Hynix Texas Instr

Westinghouse Philco Fairchild Intel Fujitsu Renesas Toshiba

National Motorola Transitron Intel Philips NXP Broadcom Semiconductor

Clevite Raytheon Siemens Matsushita ST Micro NEC ST Micro

Source: Gartner/Dataquest Retired from Top 10 Semiconductor Company List Technology and Market Discontinuities Bring New Companies to the Top 10

1955 1965 1977 1987 1997 2007 2014

Texas Texas Hughes NEC Intel Intel Intel Instruments Instruments

Transitron Fairchild Motorola Toshiba NEC Samsung Samsung

Philco Motorola NEC Hitachi Motorola Toshiba TSMC

RCA Sprague Toshiba Philips Samsung SK Hynix Texas Instr

Westinghouse Philco Fairchild Intel Fujitsu Renesas Toshiba

National Motorola Transitron Intel Philips NXP Broadcom Semiconductor

Clevite Raytheon Siemens Matsushita ST Micro NEC ST Micro

Source: Gartner/Dataquest Retired from Top 10 Semiconductor Company List IC Consumption:

Communications and Automotive Expand Share CAGR 2005 – 2015 100% 5% 5% 5% 6% 6% 7% 6% 6% 6% 7% 7% 7% 7% 6.1% 6% 6% 6% 5% 90% 6% 6% 7% 7% 7% 7% 7% 7% 8% 6.7% 13% 80% 16% 13% 12% 11% 11% 18% 18% 18% 16% 13% 11% 10% 2.4% 70%

60% 33% 37% 36% 35% 34% 0.2% 41% 38% 50% 51% 47% 44% 42% 43% 43% 40%

30% 9.1% 20% 37% 38% 39% 40% 41% 32% 35% 25% 26% 26% 27% 27% 10% 24% Percent of Total IC Market Consumption Market IC Total of Percent

0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016F 2017F Communications Computer Consumer Auto Industrial Gov./Military Source: IC Insights, IC Market Drivers Reports 2007-2015

Semiconductor Industry Consolidation (M&A)

Semiconductor Acquisitions – First Half of 2015* Date Acquired Company Acquiring Company 4/10/151/22/152/3/15 AEntropicAnapurnalpha Imaging Communications, Labs TechnologyLtd Inc. Corp. (GTSM:3538) MstarMAmazon.comaxLinear, Semiconductor, Inc. Inc (NYSE:MXL) (Nasdaq:AMZN) Inc. 1/27/156/1/155/7/15 AMicrelSiliconltera Inc.Corp,Image, (Nasdaq:MRCL) (NasdaqGS:ALTR) Inc. IntelMiLatticecrochip Corporation Semiconductor Technology (NasdaqGS:INTC) CorporationInc. (NasdaqGS:MCHP) (NasdaqGS:LSCC) 1/22/153/18/152/3/15 AVitesseEntropicnapurna Semiconductor Communications, Labs Ltd Corp. Inc. Amazon.comMMaxLinear,icrosemi CorporationInc. Inc (NYSE:MXL) (Nasdaq:AMZN (NasdaqGS:MSCC)) 4/10/156/7/153/1/15 AlphaAFreescaletrenta Imaging Semiconductor, Technology Ltd. Corp. (NYSE:FSL) (GTSM:3538) MSynopsysNXPstar Semiconductors Semiconductor, NV Inc. (NasdaqGS:NXPI) 1/22/154/30/153/18/15 AnapurnaAVitesseudience, Semiconductor LabsInc. (NasdaqGS:ADNC)Ltd Corp. AKnowlesMicrosemimazon.com Corporation Corporation Inc (Nasdaq:AMZN) (NYSE:KN) (NasdaqGS:MSCC) 5/28/153/31/15 BroadcomPhilips Lumileds Corp. Holding(NasdaqGS:BRCM) B.V. AOakAvagovago Investment Technologies Partners; Limited GSR ((Nasdaq:GS:AVGO)Nasdaq:GS:AVGO Ventures Management) 4/30/154/10/152/3/15 OmniVisionAlphaEntropic Imaging Communications, Technologies, Technology Inc. Inc.Corp. (NasdaqGS:OVTI) (GTSM:3538) CMstarMaxLinearITIC Semiconductor,Capital, Inc. Partners; (NYSE:MXL) Inc. Gold Stone Investment Co., 5/13/154/30/153/1/15 OmniVisionIntegratedFreescale Semiconductor, SiliconTechnologies, Solution, Ltd.Inc. Inc. (NYSE:FSL)(NasdaqGS:OVTI) (NasdaqGS:ISSI) CITICCNXPypress Semiconductors Capital Semiconductor Partners; NV GoldCorporation (NasdaqGS:NXPI) Stone Investment (Nasdaq:CY) Co., 5/28/155/13/154/30/15 Audience,NXPIntegrated Semiconductors Inc. Silicon (NasdaqGS:ADNC) Solution, NV, RF Inc. Power (NasdaqGS:ISSI Business ) KnowlesBeijingCypress JianGuang SemiconductorCorporation Asset (NYSE:KN) CorporationManagement (Nasdaq:CY) Co., Ltd. 6/1/155/7/15 MicrelAltera Corp,Inc. (Nasdaq:MRCL) (NasdaqGS:ALTR) MicrochipIntel Corporation Technology (NasdaqGS:INTC) Inc. (NasdaqGS:MCHP)(NasdaqGS:MCHP) 4/30/155/13/155/28/15 IntegratedAudience,NXP Semiconductors Inc. Silicon (NasdaqGS:ADNC) Solution, NV, RF Inc. Power (NasdaqGS:ISSI) Business CypressKnowlesBeijing JianGuang SemiconductorCorporation Asset (NYSE:KN) CorporationManagement (Nasdaq:CY) Co., Ltd. 1/27/155/28/154/30/15 BroadcomSiliconOmniVision Image, Corp. Technologies, Inc. (NasdaqGS:BRCM) Inc. (NasdaqGS:OVTI) AvagoLatticeCITIC Capital TechnologiesSemiconductor Partners; Limited Corporation Gold (Nasdaq:GS:AVGO)Stone (NasdaqGS:LSCC)Investment Co., 5/28/153/31/153/1/15 NXPFreescalePhilips Semiconductors Lumileds Semiconductor, Holding NV, B.V. RFLtd. Power (NYSE:FSL) Business BeijingNXPOak InvestmentSemiconductors JianGuang Partners; Asset NV Management(NasdaqGS:NXPI) GSR Ventures Co., Management Ltd. 3/31/151/27/156/1/15 AlteraPhilipsSilicon Corp,LumiledsImage, (NasdaqGS:ALTR) Inc. Holding B.V. IntelOakLattice InvestmentCorporation Semiconductor Partners; (NasdaqGS:INTC) Corporation GSR Ventures (NasdaqGS:LSCC) Management 3/18/156/7/15 AtrentaVitesse Semiconductor Corp. SynopsysMicrosemi Corporation (NasdaqGS:MSCC) AcquiringAcquired15 Acquisitions Companies: greater than $50M45 MA in CompaniesCompaniesjust six months 21 begin Company with begins A or Cwith, and each: 1 each B, E,with: F, I, B, M, I, N, K, O, L, P,N, S, O, V S *Acquisitions with an Implied Enterprise Value greater than $50M Source: CapIQ and Mentor Analysis Semiconductor Industry Consolidation Odds

M A Companies Companies MORE MORE 2X Likely 5X Likely To Be ACQUIRING To Be ACQUIRED Than “A” or “C” Than All Other Companies Acquired Companies MORE 4X Likely Than All Other Acquiring Companies Semiconductor Industry Consolidation Odds To List A Few M A Companies Companies MediaTek ARM Microchip AMD Micron ANSYS Microsemi Atmel Maxim Analog Devices Mentor Allwinner Technology Maybe that’s why they call it M&A

Common Motives for Mergers & Acquisitions

 Economies of scale  Financial leverage  Regulation/government mandate Common Motives for Mergers & Acquisitions

 Economies of scale — Increased production Lower marginal costs  Financial leverage  Regulation/government mandate Still True for Analog, Power and RF

 TriQuint and RFMD  International Rectifier and Infineon  IDT and ZMDI  Diodes Inc. and Pericom  Cree and APEI  Tsinghua Unigroup and Powertech Technology  Tsinghua Unigroup and Lattice (6% Stake)  ON Semiconductor and Fairchild (pending) Foundry / Fabless Revolution Marches On

Fabless Company Impact Percent of Worldwide Sales (1999-2015) 32

Percent 12

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: IC Insights Foundry Volume Discount Pricing Provides Minimal Leverage for Two Large Merging Companies

Typical Price Discounts Based on Wafers Per Month

50K WPM

10K WPM

1K WPM

100 WPM

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12%

Source: International Business Strategies, Inc., August 2015

Semiconductor Profitability vs. Size - Economy of Scale Suggests that Larger Companies Should Be More Profitable

Operating Margin vs. Revenue 60% (1-Year) R² = 0.1131

40%

20%

0% $10 $100 $1,000 $10,000 $100,000

-20%

Company size ($Millions) -40%

Source: CapIQ Semiconductor Profitability vs. Size - Economy of Scale Suggests that Larger Companies Should Be More Profitable

Operating Margin vs. Revenue 60% (2-Years) R² = 0.0959

40%

20%

0% $10 $100 $1,000 $10,000 $100,000

-20%

Company size ($Millions) -40%

Source: CapIQ Semiconductor Profitability vs. Size - Economy of Scale Suggests that Larger Companies Should Be More Profitable

Operating Margin vs. Revenue 60% (3-Years) R² = 0.0609

40%

20%

0% $10 $100 $1,000 $10,000 $100,000

-20%

Company size ($Millions) -40%

Source: CapIQ Semiconductor Profitability vs. Size - Economy of Scale Suggests that Larger Companies Are Not More Profitable

Operating Margin vs. Revenue 60% (5-Years)

R² = 0.0544 40%

20%

0% $10 $100 $1,000 $10,000 $100,000

-20%

Company size ($Millions) -40%

Source: CapIQ Most Profitable Semiconductor Companies in 2014

Top 20 Companies Revenue Operating Margin Product

Inotera Memories Inc. $2,601 53.0% Memory Analog

Linear Technology Corp. $1,437 46.3% Analog/Mixed-Signal 7 ARM Holdings plc $1,239 40.3% SIP – Processor Core TSMC $24,033 38.9% Foundry Memory Nanya Technology Corp. $1,547 38.3% Memory 4 Xilinx IncInc.. $2,428 32.4% FPGA Qualcomm Incorporated $26,964 30.5% ASIC - Wireless MPU Analog Devices, Inc. $3,009 30.1% Analog 2 Texas Instruments Inc. $13,045 29.9% Analog/Mixed-Signal SK Hynix Inc. $15,690 29.8% Memory Foundry Altera Corp. $1,932 28.1% FPGA 3 Intel Corporation $55,870 28.0% MPU Melexis NV $402 27.5% Analog / Sensor FPGA Skyworks Solutions Inc. $2,592 27.2% Analog / RF / Wireless 2 Vanguard International $754 25.9% Foundry - Memory Rambus Inc. $297 23.8% Memory - SiP ASIC WIN Semiconductors Corp. $312 23.4% Foundry - GaAs Foundry Silergy Corp. $103 23.3% Analog 1 ams AG $562 22.8% Analog / Sensor

Source: CapIQ Common Motives for Mergers & Acquisitions

 Economies of scale  Financial leverage  Regulation/government mandate Common Motives for Mergers & Acquisitions

 Economies of scale  Financial leverage — Available cash at low interest rates (i.e. liquidity)  Regulation/government mandate Global Announced M&A Volume

“Record-setting volume breaks the previous record of $4.6 trillion set in 2007, by 9%.” Dealogic $5.0 $4.6

$ In Trillions $3.5 $3.5

$2.3

$1.3

$0.3

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Source: Citi, Dealogic as of 12/28/2015 25 Leading Semiconductor Companies Cash & Short Term Investments Up 8.1%

$120,000

$101,873 $100,000 $96,282

$83,218 $78,650 $80,729 $80,000 $69,015 $69,015 $62,762 $60,000 $55,628

$ Millions $40,000

$20,000

$0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Companies Included: Intel, TSMC, Qualcomm, SK Hynix, Micron, TI, Broadcom, MediaTek, STM, Infineon, Avago, Renesas, NXP, Freescale, UMC, AMD, NVIDIA, On Semi, Marvell, Analog Devices, Rohm, Skyworks, Xilinx, Maxim, Microchip Source: CapIQ 25 Leading Semiconductor Companies Total Liabilities Rising at 10.5%

$160,000 $145,622 $140,000 $134,143 $124,962 $120,000 $112,023 $99,480 $100,000 $93,417 $90,057 $88,510 $84,330 $80,000

$60,000 $ Millions

$40,000

$20,000

 Economies of scale  Financial leverage  Regulation/government mandate China 5 Year Plan for Semiconductors

“… China announced its five-year plan to expand its semiconductor industry by over 20% annually by investing $20 billion in both domestic markets and acquisitions in foreign countries.”

Sheena dela Cerna YIBADA Apr 06, 2015 China 5 Year Plan for Semiconductors

$20 billion $97 billion in Private Equity, in Chinese National Local Governments, Government Money Regional Governments

Source: PWC 2014 China 2015 Semiconductor M&A Activity

Investment Size Transaction Premium 1 week prior Announced Acquirer Target (US$) Multiple to Announcement

National Silicon Industry April - 16 Group $195M 2.0X 29.6%

NXP – Power May - 15 Business $1.8B NA NA

Dec – 15 China Resources Holdings $2.5B 1.8x NM Rejected Co. Jul-15 $23.0 B 1.5x 14.6% (Proposed) Including Apr -15 $1.7 B 0.8x 11.0%

Including Mar-15 $598 M 1.8x 37.6%

Dec-14 $1.9 B N/A 2.4%

Jun-14 v $508 M 4.6x 17.6%

Jul-13 $1.4 B 1.9x 18.5%

Source: Citigroup, Factiva, Mergermarket, news release.

Semiconductor R&D Has Grown Almost Every Year Through History International Monetary Fund Defined Global Recessions (GDP Growth Lower Than 3%) 80 2018 $67.4B 70

2015 60 $56.4B

10 SemiconductorR&D Expenditures($ Billions) 0

Source: IC Insights – McClean Report, January 2016 & IMF ~25% of Target Company’s Operating Expense Identified as Cost Savings

38% Cost Savings 37% Benchmarking Synergies as a % of LTM OpEx 27% 25% Average 25% 22% 20% 21% 18% 15%

N/A (1) (2)

Altera, Broadcom, Freescale, Spansion, CSR, Wolfson, Triquint, ATMI, LSI, National, Intel(1) Avago NXP Cypress Qualcomm Cirrus RFMD(2) Entegris Avago Texas Logic Instruments

Date Announced 6/1/15 5/28/15 3/2/15 12/1/14 10/15/14 4/29/14 2/24/15 2/4/14 12/16/13 4/4/11

Deal Value $16.7bn $36.6bn $11.8bn $1.6bn $2.5bn $0.5bn $1.6bn $1.2bn $6.6bn $6.5bn

Annual Savings ($MM) N/A $750 $500 $135 $75 $12 $150 $30 $200 $100

Target OpEx ($MM) $735 $2,809 $1,340 $353 $371 $80 $588 $142 $923 $561

Source: Citi Group, Company filings, FactSet. (1) Expected $ synergies not announced, not included in average calculation. (2) Merger of equals, % based on combined LTM opex, not included in average calculation.

Good Ways to Reduce Operating Expenses When Companies Merge : Remove overlap.

Company AB Company B

CEO CFO CIO CxO CEO CFO CIO CxO

Legal Sales & Legal Marketing MarComm Expense MarComm

Financial Bureaucrats Financial Bureaucrats General & HR Administrative HR Expense Investor Relations Investor Relations Good Ways to Reduce Operating Expenses When Companies Merge : Expendable Executives?

500 CEO-to-Worker Compensation Ratio

400 383 351

296 300 278 Should you Maybe hire232 a few keep the CEO OR… (dozen)228 engineers? 200 193 123 100 59 30 20 22

CEO Worker to Compensation Ratio 0 1965 1973 1978 1989 1995 2000 2007 2009 2010 2011 2012 2013

Source: Alyssa Davis & Lawrence Mishel, Economic Policy Institute, June 12, 2014 Based on Compoustat’s ExeuComp database http://www.epi.org/publication/ceo-pay-continues-to-rise/ But if we trade the CEO for those engineers…

Who will go to jail when the company is sued? If Parts of the Acquired Company Are Spun Off, the Revenue and R&D Continue

Accelerated Solutions Division (ASD) Flash Components Division (FCD) $450M Cash – Sept. 2014 - PCIe Products & SSD Controllers

Axxia Networking $650M Cash – August 2014 - Network Processors

Source: Avago to Acquire Broadcom Investor Presentation

Engineering Resource Reduction

If Electronic Engineers Leave One Company, They Quickly Join Another Company or Start a New One Full Employment (Between 5% and 5.5%)

2% UnemployementRate

Source: Bureau of Labor Statistics, Current Population Survey

Can Acquirers Reduce R&D Without Impacting Future Revenue?

Projection Revenue

Reality Dollars R&D Point of Acquisition

Time

Despite Volatility of the Semiconductor Industry, R&D % of Revenue is ~Flat at 14% for 32 Years

($B) 20%

18%

16%

14%

12%

10%

0% 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % R&D to Sales

Source: Semico Research, 7/16/15 Two Possibilities

 Reduced growth rate of the semiconductor industry requiring a lower percentage of R&D spending? — Improved profitability — 3-5% growth — Continuing consolidation OR

 Emergence of the next wave of semiconductor applications? — Acceleration of semiconductor consumption — Creation of new semiconductor industry leaders — Resumption of semiconductor growth Waves of New Product Categories Drives Electronics Industry Revenue ~ $2.5 Trillion in 2018

New Markets Spawn New Leaders

Internet of Things Era

Smart Embedded Era

Mobile Communications Era Notebook PC Era

Networked PC Era Stand-alone Mainframe PC Era Era

Source: Mentor Graphics Analysis and VLSI Research February 2015 www.mentor.com Total EDA Revenue as a Percent of Semiconductor Revenue Is Nearly Constant

3.5% Total EDA/Semiconductor Revenue (% Percent)

3.0%

2.5%

Average

2.0%

1.5%

1.0%

0.5%

0.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: IC Insights, EDA Consortium Market Statistics Service, Mentor Graphics Analysis