Changewave Research: Semiconductor Industry Trends 1St Half 2007

ChangeWave Research: Semiconductor Industry Trends – 1st Half 2007 October 16, 2006

ChangeWave Research Report: Semiconductor Industry Trends Slower Growth Rate Seen for 1st Half 2007 Overview This report presents the latest Alliance survey findings on the semiconductor industry, including the outlook for first half 2007. The survey was conducted during the week of September 20 - 25, 2006, and a total of 161 semiconductor industry members participated. Bottom Line: The current survey points to a slower rate of growth for 1st half 2007, with just 27% of semiconductor industry respondents projecting double-digit growth – 6-pts less than our previous survey (June 2006) and the lowest percentage of the past 15 months. While Communications Chips for Cell Phones is still perceived as the number one performing chip sub-segment – that’s down 11-pts from the record high scored in our June 2006 survey. Going forward, Memory Chips have registered a surprising momentum gain since June (Change in Net Difference Score = +12) and they are showing the greatest signs of an inventory shortage. Microprocessor Chips (+11) also look stronger. Winners and Losers. Industry respondents believe SanDisk (SNDK; Net Difference Score = +18; up 11-pts) and Silicon Image (SIMG; +12; up 8-pts) are the companies with the most momentum. However, Texas Instruments (TXN; +32; down 1-pt) is still seen as the vendor most likely to pick-up market share going forward. Moreover, respondents believe Texas Instruments has the most “in demand” cell phone chip on the market today.

While Intel (INTC; -20; up 3-pts) is again seen as the vendor most likely to lose market share, its score improved for the first time in over a year. On the down side, Broadcom (BRCM; +13; down 7-pts), Analog Devices (ADI; +2; down 7-pts) and National Semiconductor (NSM; +2; down 5-pts) have dropped the most since our June survey. AMD vs. Intel. In a head-to-head match-up, AMD (48%) is still seen as beating Intel (29%) in terms of market share gain over the next 6 months – but it’s down 5-pts since June. Another 19% of respondents say there’s No Clear Winner – nearly double our previous results. Better than two-thirds of industry respondents (67%) expect the price war between Intel and AMD to continue during 2007. Semiconductor Equipment Sector. LCD Manufacturing Equipment (Net Difference Score = +25) is seen as the top performing equipment sub-segment over the next six months. In terms of equipment vendors, Applied Materials (AMAT; Net Difference Score = +47, up 7-pts) is clearly seen as the company best positioned to outperform the semi equipment sector over the next year. Not so for Novellus Systems (NVLS; +5; down 6-pts). Its perceived prospects have weakened the most of any company since our previous survey. Here’s a look at other Key Findings:

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 Market Drivers. The Consumer Market (45%; up 4-pts) is still seen as the key industry driver going forward, but two-in-three respondents believe industry assumptions are for modest (single digit) sales growth in Consumer Electronics for 4Q 2006.  Fab Capacity. Only 31% say fab capacity utilization is tight (90% or more), down 3-pts from June. However, 51% say it is firm (75% to 80%) – up 6-pts since the previous survey.  Capital Spending. A total of 69% say capital spending on new fab capacity will increase over the next year – up 3-pts since June but well below the 86% high registered in March 2006. New 300mm Fab Construction (35%; up 3-pts) is seen as the top area for capital spending.  Hand-Held Devices Seen as Having Big Positive Impact. Hand-Held Devices (35%) are seen as the end user products having the most impact on chip makers over the next year. HDTV (29%) is ranked second, followed by Cell Phones (21%). Summary of Key Findings Slower Semi Growth Winning and Losing Best Performing Rate Now Seen For Companies Sub-Segments 1st Half 2007 Semi Manufacturing Semi Manufacturing  Just 27% of semi industry Biggest Market Share Gaining Momentum: respondents see double- Gainers – Next 6 Months  Memory Chips (Change in digit growth for 1st half  SanDisk (+18; up 11-pts) Net Diff Score = +12) 2007 – 6-pts less than  Silicon Image (+12; up 8-pts)  Microprocessor Chips (+11) previous survey in June But Texas Instruments Still Communication Chips for Market Drivers Seen as Top Vendor Overall Cell Phones  Consumer Market (45%; up  TXN (+32; down 1-pt)  Still seen as number one 4-pts) is still seen as key performing sub-segment – Biggest Market Share Losers industry driver – but 67% but down 11-pts from record – Next 6 Months say assumptions are for high scored in June survey modest single-digit growth  Broadcom (+13; down 7-pts) Semi Equipment Capital Spending  Analog Devices (+2; down  69% say cap spending on 7-pts) Gaining Momentum: new fab capacity will  National Semiconductor (+2;  LCD Manufacturing Equip increase over next year – down 5 pts) (Net Diff Score = +25) up 3-pts since June but Intel (-20; up 3-pts) Seen as Winning Equipment Vendor way below March 86% high Most Likely to Lose Share  Applied Materials (Net Diff Biggest Impact Products  But its score improved for Score = +47; up 7-pts)  Hand-Held Devices (35%) first time in over a year Losing Equipment Vendor  HDTV (29%)  Novellus Systems (+5; down 6-pts)

The ChangeWave Alliance is a group of 9,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

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This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 3 ChangeWave Research: Semiconductor Industry Trends – 1st Half 2007

Table of Contents

Summary of Key Findings...... 2

The Findings...... 4

(A) Overall Industry Trends...... 4

(B) Semiconductor Manufacturing Companies ...... 12

(D) Intel vs. AMD...... 19

(E) Semiconductor Equipment Sector...... 22

ChangeWave Research Methodology...... 27

About ChangeWave Research...... 28

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I. The Findings

Introduction

The Alliance’s latest Quarterly Sales survey (Sep 2006) signaled a downturn for the Semiconductor industry. During the week of September 20 - 25, 2006, we went back to our semi industry members to find out about the outlook for first half 2007.

Total Respondents (n=161)

(A) Overall Industry Trends

(1) Question Asked: Do you believe there will be double-digit growth for the semiconductor industry in the 1st half of 2007? Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 Yes - Double-Digit Growth in 27% 33% 37% 38% 33% 29% 1st half of 2007 Little Possibility of Double- 57% 53% 53% 49% 54% 57% Digit Growth in 1st half of 2007 Absolutely No Possibility of 7% 7% 3% 5% 5% 8% Double-Digit Growth in 1st half of 2007 Don't Know 9% 6% 6% 9% 8% 5%

*Note: In the current Sep ’06 survey we ask about ‘1st half of 2007,’ while in the previous Jun ’06 and Mar ’06 surveys we ask about ‘2nd half of 2006,’ in the previous Dec ’05 and Oct ’05 surveys we are asking about ‘1st half of 2006,’ in the Jun ‘05 survey we are asking about ‘2nd half of 2005.’

Slower Growth Projected for 1st Half 2007. Only 27% of industry respondents project double-digit growth for the semi industry in the 1st half of 2007 – 6-pts less than our previous survey (June 2006) and the lowest percentage of the past 15 months.

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(2A) Question Asked: Which of the following semiconductor sub-segments do you think will perform the best over the next six months? (Choose No More Than Two) Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 Communications Chips for Cell 44% 53% 43% 38% 43% 34% Phones RFID Chips 27% 25% 23% 26% 34% 29% Flash Memory * NA NA NA NA 37% 16% NAND Flash Memory * 18% 23% 28% 35% NA NA NOR Flash Memory * 1% 1% 2% 6% NA NA Graphics/Video Chips 18% 19% 21% 12% 13% 24% Memory Chips 17% 7% 10% 5% 8% 6% Communications Chips for 15% 18% 25% 23% 16% 26% Telecom and Data Networking Gear Power Management 10% 13% 15% 14% 10% 7% Microprocessor Chips 10% 5% 6% 5% 9% 12% Logic/Programmable Chips 7% 4% 5% 8% 4% 8% Analog Chips 6% 6% 5% 7% 10% 14% MRAM 2% NA NA NA NA NA *Note: In all surveys prior to Dec ‘05, Flash Memory was a single category and was not split into NAND Flash Memory and NOR Flash memory.

(2B) Question Asked: And which of the following semiconductor sub-segments do you think will perform the worst over the next six months? (Choose No More Than Two) Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 Analog Chips 26% 22% 23% 28% 24% 24% Memory Chips 20% 22% 21% 20% 28% 29% Logic/Programmable Chips 19% 22% 19% 28% 22% 18% Microprocessor Chips 18% 24% 24% 12% 24% 16% Communications Chips for 12% 16% 15% 17% 12% 19% Telecom and Data Networking Gear Flash Memory * NA NA NA NA 37% 16% NOR Flash Memory * 12% 13% 12% 11% NA NA NAND Flash Memory * 2% 7% 6% 2% NA NA Graphics/Video Chips 9% 10% 12% 14% 13% 12% MRAM 8% NA NA NA NA NA Power Management 8% 4% 7% 5% 10% 10% Communications Chips for 6% 4% 6% 6% 3% 5% Cell Phones RFID Chips 2% 2% 6% 3% 7% 9% *Note: In all surveys prior to Dec ‘05, Flash Memory was a single category and was not split into NAND Flash Memory and NOR Flash memory.

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Net Difference Score – Current Survey (September 2006)

Net Perform Perform Difference Best Worst Score Communications Chips for Cell Phones 44% 6% +38 RFID Chips 27% 2% +25 NAND Flash Memory 18% 2% +16 Graphics/Video Chips 18% 9% +9 Communications Chips for Telecom and Data 15% 12% +3 Networking Gear Power Management 10% 8% +2 Memory Chips 17% 20% -3 MRAM 2% 8% -6 Microprocessor Chips 10% 18% -8 Logic/Programmable Chips 7% 19% -12 NOR Flash Memory 1% 12% -11 Analog Chips 6% 26% -20

Change in Net Difference Score – Current Survey (September 2006) vs. Previous Survey (June 2006) Net Net Difference Difference Change in Score Score Net Current Previous Difference Survey Survey Score Sep ‘06 Jun ‘06 Memory Chips -3 -15 +12 Microprocessor Chips -8 -19 +11 Logic/Programmable Chips -12 -18 +6 RFID Chips +25 +23 +2 Communications Chips for Telecom and +3 +2 +1 Data Networking Gear NOR Flash Memory -11 -12 +1 NAND Flash Memory +16 +16 0 Graphics/Video Chips +9 +9 0 Analog Chips -20 -16 -4 Power Management +2 +9 -7 Communications Chips for Cell Phones +38 +49 -11 Memory and Microprocessor Chips Show Some Momentum. In terms of better performing sub-segments over the next 6 months, Memory Chips have gained momentum since our June 2006 survey results (Change in Net Difference Score = +12). Microprocessor Chips also look stronger, with a +11 improvement. Cell Phone Chips. While Communications Chips for Cell Phones are still perceived as the number one performing chip sub-segment (Net Difference Score = +38), we note that is down 11-pts from the record high scored in our June 2006 survey.

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(2C) Question Asked: Which of the following semiconductor sub-segments - if any - are currently exhibiting signs of an inventory buildup (i.e., oversupply)?

Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Microprocessor Chips 9% 11% 9% 7% 2% Communications Chips 6% 4% 5% 4% 4% for Cell Phones Analog Chips 5% 4% 6% 4% 2% Memory Chips 4% 7% 6% 10% 7% NAND Flash Memory 4% 4% 8% 0% 1% Communications Chips 4% 3% 2% 6% 0% for Telecom and Data Networking Gear Logic/Programmable 3% 4% 4% 4% 6% Chips Graphics/Video Chips 2% 6% 2% 5% 8% NOR Flash Memory 2% 1% 1% 2% 4% Power Management 2% 1% 0% 2% 0% RFID Chips 0% 1% 1% 1% 2% None of the Above 1% 4% 5% 7% 10% Don't Know/No Answer 57% 49% 52% 50% 52%

(2D) Question Asked: And which of the following semiconductor sub-segments - if any - are currently exhibiting signs of a shortage (i.e., in short supply)?

Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Memory Chips 11% 4% 1% 3% 1% NAND Flash Memory 7% 7% 13% 13% 10% Communications Chips 6% 10% 8% 12% 5% for Cell Phones RFID Chips 6% 4% 1% 3% 8% Microprocessor Chips 4% 1% 2% 2% 4% Graphics/Video Chips 2% 4% 7% 6% 3% Communications Chips 2% 3% 3% 4% 1% for Telecom and Data Networking Gear Analog Chips 2% 3% 4% 5% 0% Power Management 2% 2% 3% 5% 5% Logic/Programmable 2% 2% 1% 4% 3% Chips NOR Flash Memory 1% 0% 0% 1% 1% None of the Above 10% 8% 5% 8% 10% Don't Know/No Answer 45% 50% 50% 34% 46%

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Net Difference Score – Current Survey (September 2006)

Net Inventory Inventory Difference Oversupply Shortage Score Memory Chips 3% 11% -8 RFID Chips 0% 6% -6 NAND Flash Memory 4% 7% -3 Power Management 2% 2% 0 Graphics/Video Chips 2% 2% 0 Communications Chips for Cell Phones 6% 6% 0 NOR Flash Memory 2% 1% +1 Logic/Programmable Chips 4% 2% +2 Communications Chips for Telecom and Data 4% 2% +2 Networking Gear Analog Chips 5% 2% +3 Microprocessor Chips 9% 4% +5

Inventory. Memory Chips (11%) is also the sub-segment showing the greatest signs of an inventory shortage.

(2E) Question Asked: MRAM (Magnetoresistive RAM) is now becoming available, and experts are divided on how long - if ever - it will take before MRAM almost completely replaces flash memory. What about you? How long – if ever – do you think it will take for MRAM to almost completely replace flash memory?

1-2 years 3% 3-4 years 20% 5-6 years 15% 7-8 years 7% 9-10 years 2% More than 10 Years 8% MRAM Will Never Replace Flash 14% Memory Don't Know/ No Answer 30%

MRAM as Replacement for Flash Memory. Only 3% of respondents believe MRAM will replace flash memory within the next 2 years, but one-in-five (20%) say it will occur within 3-4 years. Another 15% think MRAM will replace flash in 5-6 years.

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(3) Question Asked: What will be the key driver of the semiconductor industry for the next six months?

Current Previous Previous Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Communications Marketplace (Telecom and Data 24% 30% 25% Networking) Business Marketplace (Computer and Data Storage 9% 5% 13% Hardware) Consumer Marketplace (Electronics) 45% 41% 37% All of the Above 18% 16% 21% Don't Know 4% 7% 4%

Market Drivers. The Consumer Market (45%; up 4-pts) is still seen as the key industry driver going forward, followed by the Communications Marketplace (24%; down 6-pts).

(3A) Question Asked: Based on what you are seeing for 4Q 2006, is the semi industry building components on the assumption of strong consumer electronics sales growth, moderate growth, or no consumer electronics sales growth for 4Q 2006?

Current Previous Previous Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 The industry is assuming strong (double digit) sales 19% 19% 17% growth in Consumer Electronics for 4Q 2006 The industry is assuming modest (single digit) 67% 59% 63% sales growth in Consumer Electronics for 4Q 2006 The industry is assuming little to no sales growth in 4% 6% 4% Consumer Electronics for 4Q 2006 Don't Know 11% 16% 15%

Modest Consumer Electronics Sales Growth Assumptions. Two-in-three respondents (67%) believe industry assumptions are for modest (single digit) sales growth in Consumer Electronics for 4Q 2006 – 8-pts higher than in June 2006. Another 19% say the assumption is for strong (double-digit) sales growth – unchanged from previously.

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(4A) Question Asked: Some analysts claim many fabs are running at 90% of capacity or more. Others question these numbers. Which of the following statements best reflects what you are seeing and/or hearing in terms of fab capacity utilization?

Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Fab Capacity utilization is tight (90% 31% 34% 39% 34% 20% or more) overall Fab Capacity utilization is firm (75% to 51% 45% 43% 47% 58% 89%) overall Fab Capacity utilization is softer than 1% 1% 4% 2% 3% expected (less than 75%) overall Don't Know 17% 19% 13% 16% 18%

Fab Capacity. Only 31% say fab capacity utilization is tight (90% or more), down 3-pts from June. However, 51% say it is firm (75% to 80%) – up 6-pts since the previous survey.

(4B) Question Asked: Which of the following statements best reflects what you think will occur regarding capital spending on new fab capacity over the next 12 months?

Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Spending will increase significantly 11% 13% 17% 16% 10% over the next 12 months Spending will increase marginally 58% 53% 69% 59% 63% over the next 12 months Spending will not increase over 15% 16% 6% 11% 14% the next 12 months Spending will fall over the next 12 2% 2% 0% 0% 2% months Don't Know 14% 16% 9% 14% 10%

Capital Spending. A total of 69% say capital spending on new fab capacity will increase over the next year – up 3-pts since June but well below the 86% high registered in March 2006.

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(4C) Question Asked: And which one of the following four categories do you see as the number one area for capital spending by chip companies over the next 12 months?

Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 New 300mm Fab Construction 35% 32% 27% 30% 41% New 200mm Fab Construction 4% 4% 4% 8% 5% Fab Upgrades for Shrinking to . 30% 24% 27% 30% 21% 18 Micron or Less Fab Upgrades to Support 11% 13% 13% 12% 11% Increased Shipment Volume Don't Know 20% 26% 29% 21% 21%

Capital Spending Areas. New 300mm Fab Construction (35%) is still seen as the top area for capital spending, 3-pts higher than in June. Fab Upgrades for Shrinking to .18 Micron or Less (30%) ranks second, up 6-pts.

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(B) Semiconductor Manufacturing Companies

(5A) Question Asked: Let's focus on the chip companies themselves. Based on your own knowledge and what you are seeing in the industry, which of the following chip vendors are most likely to pick-up market share over the next six months? (Check All That Apply) Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 AMD 35% 35% 40% 38% 24% Texas Instruments 34% 35% 24% 37% 33% SanDisk 19% 12% 14% 18% 22% Freescale Semiconductor 19% 13% 12% 11% 18% Samsung 19% 16% 17% 17% 30% Marvell Tech 19% 19% 18% NA NA Broadcom 18% 21% 23% 21% 16% Intel 17% 17% 17% 17% 20% Silicon Image 14% 7% 13% 18% 16% Nvidia 12% 13% 16% 12% 17% Taiwan Semi 10% 12% 11% 12% 13% Maxim Integrated Products 9% 6% 3% 4% 10% Analog Devices 7% 10% 3% 4% 2% Micron 7% 8% 8% 9% 8% RF Micro Devices 7% NA NA NA NA ATI Technologies 6% 8% 6% 8% 13% Microchip Technology 6% 3% NA NA NA National Semiconductor 6% 12% 9% 9% 12% Xilinx 6% 6% 8% 3% 9% Altera 5% 4% 4% 3% 5% Infineon Technologies 4% 6% 2% 3% NA LSI Logic 4% 2% 5% 2% 5% Semiconductor Mfg Intern’l 4% 3% 2% 1% 3% Applied Micro 3% 5% 4% 2% 4% Pixelworks 3% 1% 1% 2% 0% Silicon Laboratories 3% NA NA NA NA Vitesse Semiconductor 3% 1% 2% 2% 1% Cirrus Logic 2% 4% 1% 2% 2% Intersil 2% 5% 0% 3% 2% Linear Technology 2% 3% 5% 6% 1% Msystems 2% 4% 4% NA NA PMC-Sierra 2% 1% 5% 3% 4% STMicroelectronics 2% 5% 3% 8% 5% Trident Microsystems 2% 3% 1% 0% 0% Agere Systems 1% 2% 2% 1% NA CSR 1% NA NA NA NA ESS Technology 1% 0% 0% 1% 0% Genesis Microchip 1% 1% 2% 5% 5%

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IBM 1% 3% 2% 6% 4% Sigma Designs 1% 1% 0% 2% 1% United Micro 1% 1% 2% 0% 4% Zoran 1% 4% 6% 4% 3% Catalyst Semiconductor 0% NA NA NA NA Other 4% 4% 8% 7% 5%

(5B) Question Asked: And which of the following chip vendors are most likely to lose market share over the next six months? (Check All That Apply) Current Previous Previous Previous Previous Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Intel 37% 40% 33% 21% 15% AMD 14% 14% 11% 9% 15% IBM 10% 13% 10% 12% 12% LSI Logic 10% 7% 5% 5% 9% Vitesse Semiconductor 10% 8% 6% 1% 4% Micron 9% 6% 6% 1% 5% Agere Systems 6% 8% 8% 6% NA Altera 6% 7% 4% 2% 5% ATI Technologies 6% 7% 4% 7% 8% Freescale Semiconductor 6% 3% 8% 5% 5% Infineon Technologies 6% 6% 7% 10% NA Xilinx 6% 7% 3% 6% 3% Analog Devices 5% 1% 2% 4% 8% Broadcom 5% 1% 2% 3% 3% STMicroelectronics 5% 5% 2% 5% 9% United Micro 5% 3% 6% 8% 2% Cirrus Logic 4% 4% 6% 4% 7% ESS Technology 4% 1% 3% 2% 4% Genesis Microchip 4% 5% 2% 4% 2% National Semiconductor 4% 5% 2% 9% 9% Nvidia 4% 4% 4% 5% 4% Intersil 3% 5% 2% 2% 3% PMC-Sierra 3% 3% 2% 9% 7% Taiwan Semi 3% 4% 4% 2% 3% Applied Micro 2% 2% 2% 4% 7% Maxim Integrated Products 2% 4% 0% 5% 1% Pixelworks 2% 6% 1% 2% 3% RF Micro Devices 2% NA NA NA NA Samsung 2% 2% 2% 4% 3% Semiconductor Mfg Intern’l 2% 1% 2% 2% 2% Silicon Image 2% 3% 0% 0% 2% Silicon Laboratories 2% NA NA NA NA Texas Instruments 2% 2% 8% 8% 4% Catalyst Semiconductor 1% 0% 3% 3% 1% Linear Technology 1% 4% 2% 2% 4%

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Marvell Tech 1% 1% 2% NA NA Microchip Technology 1% 2% NA NA NA SanDisk 1% 5% 6% 5% 6% Sigma Designs 1% 2% 2% 1% 1% Trident Microsystems 1% 2% 1% 3% 4% Zoran 1% 1% 2% 3% 6% CSR 0% NA NA NA NA Msystems 0% 2% 0% NA NA Other 1% 1% 2% 2% 3%

Net Difference Score – Current Survey (September 2006) Pick-up Lose Net Difference Market Market Score Share Share Texas Instruments 34% 2% +32 AMD 35% 14% +21 Marvell Tech 19% 1% +18 SanDisk 19% 1% +18 Samsung 19% 2% +17 Freescale Semiconductor 19% 6% +13 Broadcom 18% 5% +13 Silicon Image 14% 2% +12 Nvidia 12% 4% +8 Taiwan Semi 10% 3% +7 Maxim Integrated Products 9% 2% +7 RF Micro Devices 7% 2% +5 Microchip Technology 6% 1% +5 Analog Devices 7% 5% +2 National Semiconductor 6% 4% +2 Semiconductor Mfg Intern’l 4% 2% +2 Msystems 2% 0% +2 Applied Micro 3% 2% +1 Pixelworks 3% 2% +1 Silicon Laboratories 3% 2% +1 Linear Technology 2% 1% +1 Trident Microsystems 2% 1% +1 CSR 1% 0% +1 ATI Technologies 6% 6% 0 Xilinx 6% 6% 0 Sigma Designs 1% 1% 0 Zoran 1% 1% 0 Altera 5% 6% -1 Intersil 2% 3% -1 PMC-Sierra 2% 3% -1 Catalyst Semiconductor 0% 1% -1 Micron 7% 9% -2 Infineon Technologies 4% 6% -2 Cirrus Logic 2% 4% -2 This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 15 ChangeWave Research: Semiconductor Industry Trends – 1st Half 2007

STMicroelectronics 2% 5% -3 ESS Technology 1% 4% -3 Genesis Microchip 1% 4% -3 United Micro 1% 5% -4 Agere Systems 1% 6% -5 LSI Logic 4% 10% -6 Vitesse Semiconductor 3% 10% -7 IBM 1% 10% -9 Intel 17% 37% -20

Change in Net Difference Score – Current Survey (September 2006) vs. Previous Survey (June 2006) Current Previous Survey Survey Change in Net Net Net Differenc Differenc Difference e Score e Score Score Sep ‘06 Jun ‘06 SanDisk +18 +7 +11 Silicon Image +12 +4 +8 Pixelworks +1 -5 +6 Maxim Integrated Products +7 +2 +5 Microchip Technology +5 +1 +4 Samsung +17 +14 +3 Freescale Semiconductor +13 +10 +3 Linear Technology +1 -1 +2 Altera -1 -3 +2 Sigma Designs 0 -1 +1 Xilinx 0 -1 +1 PMC-Sierra -1 -2 +1 Genesis Microchip -3 -4 +1 Agere Systems -5 -6 +1 IBM -9 -10 +1 AMD +21 +21 0 Marvell Tech +18 +18 0 Msystems +2 +2 0 Semiconductor Manufacturing International +2 +2 0 Trident Microsystems +1 +1 0 Vitesse Semiconductor -7 -7 0 Texas Instruments +32 +33 -1 Nvidia +8 +9 -1 Taiwan Semi +7 +8 -1 ATI Technologies 0 +1 -1 Catalyst Semiconductor -1 0 -1 Intersil -1 0 -1 LSI Logic -6 -5 -1 Applied Micro +1 +3 -2 Cirrus Logic -2 0 -2

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Infineon Technologies -2 0 -2 ESS Technology -3 -1 -2 United Micro -4 -2 -2 Zoran 0 +3 -3 STMicroelectronics -3 0 -3 Intel -20 -23 -3 Micron -2 +2 -4 National Semiconductor +2 +7 -5 Analog Devices +2 +9 -7 Broadcom +13 +20 -7

Market Share Gainers. Industry respondents believe SanDisk (SNDK; Net Difference Score = +18; up 11-pts) and Silicon Image (SIMG; +12; up 8-pts) are the companies with the most momentum. However, Texas Instruments (TXN; +32; down 1-pt) is still seen as the vendor most likely to pick-up market share going forward.

Market Share Losers. While Intel (-20) is still considered the vendor most likely to lose market share, for the first time in more than a year its overall score has improved (+3 pts). On the down side, Broadcom (+13) and Analog Devices (+2) both registered a significant 7-pt drop since our June survey, while National Semiconductor (+2) declined 5-pts.

(5C) Question Asked: Focusing specifically on Communication Chips for Cell Phones, which of the following semi manufacturers do you think has the most “in demand” brand of Cell Phone Chips on the market today? Texas Instruments 32% Qualcomm 16% Broadcom 7% Freescale Semiconductor 7% Samsung 7% Marvell Tech 4% PMC-Sierra 1% Toshiba 0% Don't Know/No Answer 26% Other 1%

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(5D) Question Asked: And which of the following semi manufacturers do you think has the least “in demand” brand of of Cell Phone Chips on the market today? Toshiba 17% PMC-Sierra 12% Marvell Tech 6% Broadcom 3% Freescale Semiconductor 3% Texas Instruments 2% Qualcomm 1% Samsung 1% Don't Know/No Answer 55% Other 0%

Net Difference Score – Current Survey (September 2006) Most “in Least “in demand” demand” Brand of Brand of Net Difference Cell Cell Score Phone Phone Chips Chips Texas Instruments 32% 2% +30 Qualcomm 16% 1% +15 Samsung 7% 1% +6 Freescale Semiconductor 7% 3% +4 Broadcom 7% 3% +4 Marvell Tech 4% 6% -2 PMC-Sierra 1% 12% -11 Toshiba 0% 17% -17

Texas Instruments Leads in Cell Phone Chips. By a wide margin, industry respondents say Texas Instruments (Net Difference Score = +30) has the most “in demand” cell phone chip on the market today. Toshiba (-17) and PMC-Sierra (-11) are seen as having the least “in demand” chips.

(6) Questions Asked: Which of the following end user products do you think will have the most positive impact on chip makers over the next 12 months?

Hand-Held Devices 35% HDTV 29% Cell Phones 21% Personal Computers 7% iPods 6% Other 1%

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Hand-Held Devices Seen as Having Big Positive Impact. Hand-Held Devices (35%) are seen as the end user products having the most impact on chip makers over the next year. HDTV (29%) is ranked second, followed by Cell Phones (21%).

(7) Question Asked: DVI (Digital Video Interface) and HDMI (High Definition Multimedia Interface) are technologies used in digital and high definition TVs. Which of the following semiconductor companies will gain the most DVI/HDMI market share over the next 12 months? (Please Choose No More Than Two) Current Previous Survey Survey Sep ‘06 Jun ‘06 Silicon Image 30% 14% Texas Instruments 15% 13% Sony 9% 7% Broadcom 7% 5% Philips Electronics 6% 5% Matsushita (Panasonic) 5% 2% Toshiba 4% 4% Analog Devices 3% 2% Genesis 3% 2% ATI Technologies 2% 4% Hitachi 2% 2% Trident Microsystems 2% 2% Pixelworks 1% 1% Thomson 1% NA Conexant 0% 1% Don't Know 42% 53% Other 2% 2%

Silicon Image Gains in Digital and High Def TV Markets. Notably, 30% see Silicon Image gaining the most share over the next year in the DVI (Digital Video Interface) and HDMI (High Definition Multimedia Interface) markets – more than doubling the 14% in our previous survey in June. Texas Instruments (15%; up 2 pts) is now a distant second.

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(8) Question Asked: In June 2006, a major enhancement of the High-Definition Multimedia Interface specification (HDMI 1.3) was released. It includes several new features, such as increased bandwidth, “deep color” support, a mini connector for HD camcorders and cameras, and “Lip Sync” synchronized video and audio. Which of the following products do you think will benefit most from HDMI 1.3? (Choose No More Than Two) Hi-Def TVs 40% Hi-Def DVD Players (i.e., HD-DVD & Blu-Ray) 25% Hi-Def Camcorders 12% Video Game Systems 11% Desktops & Laptops 10% DVRs (Digital Video Recorders) 9% Digital Cameras 8% MP3 Players (e.g., iPod) 4% Microsoft Vista 2% Don't Know 30% Other 0%

(8A) Question Asked: Which company(s) most stands to benefit because of HDMI 1.3?

Company(s) that Most Stands to Benefit: (n=34) Silicon Image 47% Texas Instruments 18% Sony 12% Apple 12% Other 29%

Who Benefits from HDMI 1.3? Silicon Image (47%) is seen as the company that most stands to benefit from HDMI 1.3.

(D) Intel vs. AMD

(9) Question Asked: Let's focus on the two biggest U.S. microprocessor manufacturers – Intel and AMD. Which of these two chip companies do you think will gain the most microprocessor market share over the next six months?

Current Previous Survey Survey Sep ‘06 Jun ‘06 No Clear Winner 19% 10% Intel Will Gain the Most Market Share 29% 30% AMD Will Gain the Most Market Share 48% 53% Don't Know/ No Answer 5% 6%

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AMD Still Has Momentum Over Intel, but Uncertainty Rises. In a head-to-head match- up, AMD (48%) is still seen as beating Intel (29%) in terms of market share gain over the next 6 months – but it’s down 5-pts since June. Another 19% of respondents say there’s No Clear Winner – nearly double our previous results.

(9A) Question Asked: In 2006 we've seen a major price war between Intel and AMD. Some analysts believe that this price war will continue through 2007, while others say that Intel and AMD have largely accepted each other as competitors and the price war will soon end. Which of these views is closest to your own? The Price War Will Continue 67% The Price War Will Soon End 20% Don't Know/No Answer 12% Price War to Continue. Better than two-thirds of industry respondents (67%) expect the price war between Intel and AMD to continue during 2007.

(9B) Question Asked: True or False: Going forward, Intel's new products will outperform AMD's, and Intel will take back lost market share. True 35% False 40% Don't Know/No Answer 25% Who Will Outperform Who? A total of 35% say it’s true that Intel’s new products will outperform AMD’s going forward, but another 40% believe that’s false.

(9C) Question Asked: What effect – if any – do you think hybrid silicon laser chips will have on the semiconductor industry over the next six months? Significant Positive Effect 2% Moderate Positive Effect 11% Slight Positive Effect 12% No Effect 42% Negative Effect 1% Don't Know/No Answer 32% Hybrid Silicon Laser Chips. One-in-four (25%) think hybrid silicon laser chips will have a positive effect on the semiconductor industry over the next six months (2% Significant Effect, 11% Moderate Effect and 12% Slight Effect).

(9D) Question Asked: Intel just announced the development of a hybrid silicon laser chip which could be in production within the next 2-5 years. How do you think this technology may reshape the semiconductor industry? (n=72) Improved Speed 10% Revolutionizing Chip-to-Chip Communication 6% Some Impact/Gradual Change for Industry 6% Major Impact 3% Negative Impact for Industry 3% Other 19% Don’t Know/Too Early to Tell 32% No Significant Impact / No Impact Yet 22% This information is from ChangeWave Research, LLC and contains confidential business information. It may not be copied or distributed without permission. ©2006 ChangeWave Research, LLC. All rights reserved. 21 ChangeWave Research: Semiconductor Industry Trends – 1st Half 2007

Reshaping the Industry? When respondents were asked how hybrid silicon laser technology could reshape the semi industry, Improved Speed (10%) and Revolutionizing Chip-to-Chip Communications (6%) were the top changes cited. However, there was plenty of skepticism.

Here is a brief sampling of positive and negative comments from semi industry members:

Positives and Negatives on Hybrid Silicon Laser Technology

 BER24814 writes, "I believe it will eventually drive further growth in the semiconductor industry."

 PET05000 writes, "Real effect is an increase in data bandwidth by using optical bus – thus removing data path bottlenecks."

 ERT43920 writes, "Tera-scale I/O connectivity will become available at affordable prices, driving very high performance cluster connectivity and internal/external storage/ memory subsystems over short distances. Other companies will have to catch up with similar technologies or risk being left behind in technology."

 HAW6132 writes, "It will simplify PCB designs (especially for blades/rack)"

 STE84953 writes, "Semiconductor laser manufacturers will be hurt."

 BRK54794 writes, "This is a sort of "special" technology that will not have "wide" effect on the industry. However, it will lead to less expensive optical "sources" which will in turn enable some new products."

 LUC47392 writes, "It is a step towards chips that use light instead of current circuitry. I think it's just a step, not the technology that eventually will replace the technology we are using now."

 ORT52414 writes, "Reshape is a strong word. The hybrid silicon will solve ‘one’ problem and not the most important one."

 BEC2885 writes, "BAE Systems already has this in production, albeit for military applications mostly. Intel doesn't lead, they follow. Every time they try to lead technologically, they end up with a big loss. They are primarily a manufacturing company. Moving light is not the same thing as moving electrons. To bring this technology online will require a more nimble and less risk adverse company than Intel."

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(E) Semi Equipment Sector

(10A) Question Asked: Turning to Semi Equipment, which one of the following Semi Equipment sub-segments do you think will perform the best over the next six months? (Please Choose Only One)

Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 LCD Manufacturing 33% 29% 30% 26% 23% 30% Equipment Wafer Processing 13% 13% 18% 16% 19% 17% Lithography 11% 12% 7% 12% 13% 5% ATE/Packaging 7% 6% 7% 5% 8% 5% Automation/Materials 6% 5% 3% 9% 4% 8% Handling and Software Specialty 3% 1% 3% 3% 1% 3% Don't Know/No Answer 27% 33% 29% 29% 31% 29% Other 0% 0% 2% 1% 0% 2%

(10B) Question Asked: And which one of the following Semi Equipment sub- segments do you think will perform the worst over the next six months? (Please Choose Only One)

Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 ATE/Packaging 10% 7% 10% 13% 8% 9% Specialty 9% 8% 9% 6% 10% 6% LCD Manufacturing 8% 5% 3% 4% 9% 5% Equipment Automation/Materials 7% 14% 12% 16% 15% 16% Handling and Software Lithography 7% 5% 3% 5% 6% 10% Wafer Processing 6% 3% 6% 4% 7% 3% Don't Know/No Answer 51% 58% 57% 50% 44% 50% Other 1% 0% 1% 1% 0% 1%

Net Difference Score – Current Survey (September 2006) Net Perform Perform Difference Best Worst Score LCD Manufacturing Equipment 33% 8% +25 Wafer Processing 16% 7% +6 Lithography 11% 7% +4 Automation/Materials Handling and Software 6% 7% -1 ATE/Packaging 7% 10% -3 Specialty 3% 9% -6

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Change in Net Difference Score – Current Survey (Sept ‘06) vs. Previous (June ‘06) Current Previous Survey Survey Change in Net Net Net Differenc Differenc Difference e Score e Score Score Sep ‘06 Jun ‘06 Automation/Materials Handling and Software -1 -9 +8 LCD Manufacturing Equipment +25 +24 +1 Specialty -6 -7 +1 ATE/Packaging -3 -1 -2 Lithography +4 +7 -3 Wafer Processing +6 +10 -4 Best Performing Equipment Sub-segments. LCD Manufacturing Equipment (Net Difference Score = +25) is seen as the top performing equipment sub-segment over the next six months. We also note that Automation/Materials Handling and Software (-1) has improved 8-pts since June – primarily because of a 7-pt drop in the percentage who believe it will perform worst over the next 6 months. (11) Question Asked: Which company would you choose as best-positioned to outperform the semiconductor equipment industry over the next 12 months? (Choose No More Than Three) Current Previous Previous Previous Previous Previous Survey Survey Survey Survey Survey Survey Sep ‘06 Jun ‘06 Mar ‘06 Dec ‘05 Oct ‘05 Jun ‘05 Applied Materials 47% 40% 40% 45% 38% 38% KLA Tencor 16% 19% 20% 20% 18% 25% Lam Research 10% 11% 12% 7% 5% 6% Varian Semiconductor 9% 5% 11% 9% 9% 9% Equipment ASML Holding 7% 5% 4% 4% 3% 8% Teradyne 7% 7% 4% 7% 4% 5% Novellus Systems 5% 11% 6% 7% 8% 11% Amkor 4% 8% 5% 3% 3% 3% ASM International 4% 2% NA NA 3% 0% Veeco Instruments 4% 4% 7% 4% 4% 4% Advantest 3% 2% 3% 13% 5% 4% Axcelis Technologies 3% 0% 2% 0% 0% 1% Cymer 3% 4% 5% 3% 2% 0% Verigy 3% NA NA NA NA NA ATMI 2% 3% 3% 1% 3% 3% Brooks Automation 2% 1% 2% 1% 0% 1% Credence 2% 3% 2% 4% 2% 3% FEI Company 2% 1% 3% 1% NA NA Kulicke & Soffa 2% 6% 4% 1% 3% 3% Mattson 2% 2% 2% 2% 1% 1% Cognex Corp 1% 0% 3% 4% NA NA Other 3% 4% 4% 6% 1% 3%

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(11A) Question Asked: And which company would you choose as worst-positioned to outperform the semiconductor equipment industry over the next 12 months? (Choose No More Than Three) Novellus Systems 9% Amkor 9% Teradyne 9% Credence 8% Brooks Automation 7% Varian Semiconductor Equipment 7% Kulicke & Soffa 6% Veeco Instruments 6% Mattson 5% KLA Tencor 4% Advantest 3% ASM International 3% Lam Research 3% Cognex Corp 2% Cymer 2% Verigy 2% ASML Holding 1% ATMI 1% Axcelis Technologies 1% FEI Company 1% Applied Materials 0% Other 3%

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Net Difference Score – Current Survey (September 2006) Best Worst Net Difference Positioned Positioned Score Applied Materials 47% 0% +47 KLA Tencor 16% 4% +12 Lam Research 10% 3% +7 ASML Holding 7% 1% +6 Varian Semiconductor Equipment 9% 7% +2 Axcelis Technologies 3% 1% +2 ASM International 4% 3% +1 Cymer 3% 2% +1 Verigy 3% 2% +1 ATMI 2% 1% +1 FEI Company 2% 1% +1 Advantest 3% 3% 0 Cognex Corp 1% 2% -1 Veeco Instruments 4% 6% -2 Teradyne 7% 9% -2 Mattson 2% 5% -3 Kulicke & Soffa 2% 6% -4 Novellus Systems 5% 9% -4 Amkor 4% 9% -5 Brooks Automation 2% 7% -5 Credence 2% 8% -6

Best Positioned Equipment Companies. In terms of equipment vendors, Applied Materials (AMAT; Net Difference Score = +47, up 7-pts) is clearly seen as the company best positioned to outperform the semi equipment sector over the next year. Worst Positioned Equipment Companies. According to industry respondents, the prospects for Novellus Systems (NVLS; +5; down 6-pts) have weakened the most of any company since our previous survey. Moreover, it ranks at the very top among vendors perceived as worst positioned, with 9%.

(12) Question Asked: Finally, new 65nm designs are now coming into production. Some analysts believe this will increase demand for Electronic Design Automation (EDA) Software, while other analysts say this will have little to no effect. Based on what you are seeing in the industry, do you think there will be an increase in demand, a decrease, or no change in demand for EDA Software over the next 6 months?

Significant Increase 7% Moderate Increase 19% Slight Increase 27% No Change 20% Decrease 1% Don't Know/No Answer 25%

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(12A) Question Asked: If yes, what company most stands to benefit, and why?(n=15)

Synopsis 40% Cadence 40% Other 27%

Electronic Design Automation (EDA) Software. Better than half (53%) think new 65nm designs now coming into production will increase demand for EDA Software over the next six months (7% Significant Increase, 19% Moderate Increase and 27% Slight increase). Only 21% see No Change or a Decrease.

When asked which company most stands to benefit, Synopsis (40%) and Cadence (40%) were the clear winners.

As respondent HDL47267 writes, "Synopys because they have a comprehensive set of tools for design and verification." Respondent RHI0103 says Cadence, because of their "wide spectrum of products."

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II. ChangeWave Research Methodology

This report presents the findings of a recent ChangeWave Alliance survey on the Semiconductor Industry. The survey was conducted from September 20 – 25, 2006. A total of 161 Alliance Semiconductor industry members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (56%) have advanced degrees (e.g., Master’s or Ph.D.) and 93% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

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III. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries.

ChangeWave has a very unique asset in its 9,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.

The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change.

This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 9,000 Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at www.ChangeWave.com.

ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

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