SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 425
Pursuant to Rule 425 under the
Securities Act of 1934
TELCOM SEMICONDUCTOR, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-26312 94-3186995
--------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
1300 Terra Bella Avenue
Mountain View, California 94039-7267
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 968-9252
1
<PAGE>
Set forth below is the text of the Speech and Slide Show for the TelCom
Semiconductur, Inc. October 2000 Road Show.
Filed by TelCom Semiconductor, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
And deemed filed pursuant to Rule 14a-12 of the
Securities Exchange Act of 1934
Subject Company: TelCom Semiconductor, Inc.
Commission File No. 0-26312
ON OCTOBER 31, 2000, ROBERT G. GARGUS, PRESIDENT and Chief EXECUTIVE Officer OF
TELCOM SEMICONDUCTOR, INC. AND MARK BROWN CHIEF FINANCIAL OFFICER UTILIZED THE
FOLLOWING SCRIPT AND SLIDES IN CONNECTION WITH A DISCUSSION DURING A
PRESENTATION TO AN INVESTOR CONFERENCE:
Good morning everyone and thank you for giving us this opportunity to tell you
about TelCom Semiconductor. My name is Bob Gargus and I am the CEO and
President. Also here with me today is Mark Brown our CFO. During the course of
this presentation, I will be making projections and other forward-looking
statements regarding future events or the future financial performance of the
Company. Such statements involve predictions and actual events or results may
differ materially. I refer you to the Company's filings with the SEC which
identify important risk factors which may affect TelCom's business.
The Company [Slide 2]
TelCom Semiconductor began as a Management Buy Out of the Components Division of
Teledyne Industries in late 1993. Venture financing for the buyout was provided
by Morgan Stanley Ventures, US Venture Partners (USVP) and Institutional Venture
Partners (IVP).
The Company completed its Initial Public Offering, in July of 1995, at a price
of $8.50 per share.
At the time of our IPO, the Company's product offering primarily consisted of
legacy products from the Teledyne division. Since that time, our product
expansion has been driven by our strategy to become a high performance analog
and mixed signal company.
We have created a broad product portfolio in both Power and Thermal Management
circuits that address today's rapidly growing markets, more importantly, we have
been successful in the marketplace.
Currently, about 85% of our sales come from Power and Thermal Management
products. Customers in the Wireless, Computing and Network markets drive
approximately 70% of our sales.
Last year, we began a substantial upgrade of the legacy product portfolio. The
new products' consist of high performance Data Converters and Linear Building
Blocks. These will enhance our position in the wireless and computing markets
and provide us a new foundation in the Instrumentation and Industrial Control
applications.
<PAGE>
At the time of our separation from Teledyne, sales were primarily made through a
network of small, independent distributors worldwide. A direct sales force was
almost nonexistent and there were essentially no OEM customers.
Today, TelCom has a very capable worldwide sales force and sales to OEM
customers represent over half our total revenue. Our OEM customer base consists
of companies that are household names in almost any language.
Forbes Best 200 Small Cap Stocks [Slide 3]
I just wanted to show that the October 2000 Forbes Magazine picked the top 200
small cap stocks. They rated TelCom number 49. In fact we were rated number
eight on return on equity. We are very proud of this and I believe it reflects
the hard work of our employees and significant progress that the Company has
made over the last 18-24 months.
TelCom: Right Markets = High Growth [Slide 4]
We believe that the end markets we address and the success of our
products in those markets will allow us to out perform the analog business
generally. In the short term we are recovering from declining revenues from
Motorola which will hold down our growth rates a bit in the Communications
sector. In Computing we should follow or exceed industry growth patterns and we
will significantly out pace the industry in the Industrial sector.
As you can see, the analog market is expected to grow about 30% during the
second half of 2000 and approximately 20% in 2001. Based on a consensus of
current estimates, TelCom is expected to grow 29% in the second half and 22%
next year. I might add that we grew by over 40% in the first six months of 2000
and that I am comfortable with these projections.
These results are achievable because of the expansion in demand for
semiconductors generally, the success of our new products and the contribution
to sales of our relation with On Semiconductor, which I will talk about later.
TelCom: Product Portfolio [Slide 5]
This slide is very busy but it serves two purposes. The first is to point out
the significant progress we have achieved since going public in 1995. When we
went public basically all we had were the boxes shown in the Data Acquisition
family.
Secondly, and more importantly it points out the three product families and the
depth of products under each family.
Our product offering now provides a significant market basket of Power
Management products that are used in a variety of applications such as cell
phones and laptop computers.
Thermal Management circuits protects expensive system elements in such products
as file servers and other computer peripherals. This product line has the
highest percentage growth in our product portfolio.
2
<PAGE>
Our Data Converter and Linear products are used in many types of hand held
instruments. For example, our newest Linear Circuits are beginning to find their
way into various battery-operated products. In these applications, there is a
requirement for precision, low voltage CMOS linear circuits. This group of
products is targeted for a wide variety of end markets including Wireless
communication products.
With that lets look quickly at some examples of applications and customers that
use these products.
TelCom New Product Strategy [Slide 6]
The timely introduction of successful new products is the lifeblood of
any successful analog company. In 1999, we introduced, a record, 72 new
products. Sixty of them were developed internally, which doubled the previous
years' output. Twelve were the result of our relationship with ON Semiconductor.
For the year 2000 we expect to release around 70 new products with 15 - 20
coming from On Semiconductor.
The new products scheduled for the second half of 2000 and the year 2001 are
particularly exciting and they follow three themes. First they are aimed at
expanding or adding new products into the existing product families. Second many
of them are aimed at the Networking market space. Third, they move TelCom
significantly down the path to producing and marketing higher value add silicon.
Effectively we have spent the last five years developing our capabilities and IP
in the form of reusable building blocks. We can now take these blocks and begin
to integrate them into higher level designs. These designs should have higher
margins, higher ASPs and higher proprietary content.
I would also add that a significant part of our strategy here is to add remote
design centers such as Mead Electronics in Switzerland. This is a design center
that TelCom acquired during the third quarter and it will add approximately 10
designers to our development team. Lets look at some of the future products that
TelCom is working on:
Exciting New Products [Slide 7]
Battery charges is a new arena for TelCom but it is a logical extension since we
do so much of our business with battery powered applications. The first TelCom
battery charger (one of several planned for this family) was introduced just
last week.
We sell a lot of LDOs and reset and many of our customers have asked us to
integrate these devices together. We will have various combinations if dual and
quad LDOs along with resets in the near future.
Late in Q4 or earlier in Q1 you will see us introduce our first audio amps.
Again a logical extension given our position in hand held devices that often
need to amplify audio signals.
3
<PAGE>
Recently there has been a lot of talk about super power management chips. These
are chips that take many of the power management circuits and integrate them
unto one piece of silicon. Texas Instruments for example has announced that they
are working on such a chip. TelCom expects to introduce its own version of these
in the middle of next year. These circuits will combine LDOs, resets, the
battery charger, charge pumps etc. all into one piece of silicon. To the best of
my knowledge TelCom is the only company with less than a billion in market cap
that is capable of doing these designs.
And last but not least we hope to introduce various interface products such as
hot swap controllers, serial transceivers, and even LVD products.
I might also add that all of these product categories have market potentials to
significantly accelerate TelCom's growth in the year 2001 and beyond.
TelCom's Three Pillar Strategy [Slide 8]
TelCom's growth strategy can be summarized into three major pillars.
The first pillar is "Our Core Business". The emphasis, here, is to develop
innovative products in the market areas we have selected for success.
Financially our model is to grow this portion of our business by at least 25%
annually and to achieve at least 20% operating margins.
The second pillar is Partners and Strategic Relationships. Here we have done
things like make a strategic investment in one of our foundries - CSMC - where
we own a little less than 4% of the company. Another example is our Buy / Resell
program with ON Semiconductor. This relationship is designed to support the Core
Business strategy by allowing each company to have access to complementary
products and markets that might not be available with existing product lines.
For example, ONN Semi is focused on high power analog while TelCom is focused on
low power analog. In addition ONN services markets like the white goods
appliance and auto markets that TelCom is too small to play in. By selling to ON
TelCom gets indirect access to markets it would otherwise take years to
cultivate. In addition TelCom gets access to products that complement our
existing product lines.
The relationship enhances our growth and profitability in the core business and
it should contribute approximately $7 million to year 2000 revenues.
Additionally, the companies are currently discussing an expansion of the
agreement to include joint product development and manufacturing collaboration.
The manufacturing collaboration is particularly important as TelCom moves to
higher levels of integration on its products. With this higher level of
integration will come higher ASP and the parts will take on more and more
proprietary content. Many customers will feel more comfortable buying from
TelCom if there is also a second source where they can buy these mission
critical products. We are in discussions with ON about creating "friendly second
source arrangements".
4
<PAGE>
The third pillar is to continue to expand our company through mergers and
acquisitions. Here we have acquired a little less than 20% of a memory IP
company called Silicon Aquarius. This company has some exciting potential but it
will not significantly impact operating result until the year 2002. Another
example would be our recent acquisition of MEAD - which is a design center
located in Switzerland. This adds significantly to our design capabilities going
into 2001.
The combination of these three pillars' combined with good old-fashioned
execution should result in growth well above industry averages, solid
profitability, and excellent returns for our shareholders.
TelCom and Microchip Merger [Slide 9]
Last Friday TelCom and Microchip announced a merger to be based on a stock for
stock swap. The deal has a collar where Telcom shareholders get $15 worth of
MCHP stock when the MCHP stock trades between $28.30 and $32.61. Above $32.61 we
get an exchange ratio of .46 and below the $28.30 we get an exchange ratio of
.53.
This deal was not done to achieve any particular premium. It was done for
strategic reasons and for what we feel are the best long term interest of the
shareholders and employees.
Let me start with a quick recap of Microchip and branch into why this is a good
strategic merger.
Microchip Overview [Slide 10]
Microchip has the number two market position in microcontrollers and has
captured market share every year since 1990 when they were number 20. They are
growing sales around 48% this year, 46% last quarter and 46% projected for this
quarter. Even during the recessionary years of 96-98 they were able to grow 23%
while the semi's were down approximately 40%. They are forecasting 32% growth
for fiscal 2002. The EPS numbers as you can see are equally impressive with 66%
projected growth this year and 30% next year. All these numbers exclude TelCom's
contribution or any synergies that may occur.
Microchip is a top tier company and we are pleased with the opportunity to join
with them.
The Universe of Embedded Control Systems [Slide 11]
This slide shows all the analog circuits that surrounds the microcontroller. No
one analog company can supply all the permutations and combinations of these
circuits. But the keys here are that 50% of a MCHP field applications engineer's
5
<PAGE>
time is spent helping the customer design in analog products to work with the
microcontroller. Today these are often Maxim and Linear tech because MCHP does
not care. Once the merger is complete they will stress TelCom and the attach
rate to the microcontroller will increase significantly. Furthermore they have
350 FAE's which is more than TLCM has total employees. Lets now look at how the
combination of TelCom and Microchip fit this block diagram.
Embedded Control Signal Chain [Slide 12]
This slide show with shaded boxes all the areas that Microchip has strength,
those that TelCom has strength in, and those that together we have strength is.
You can clearly see that the strategy of using the dominate position in
microcontrollers and leveraging this to capture a high portion of the analog
input / output has great potential. I will also remind you that for every dollar
of microprocessor sold there is $1.50 of analog surrounding it. So how much
synergy could this create?
Design in Revenue Opportunity [Slide 13]
You can see from this slide that today Microchip has a design opportunity list
of approximately $100M. of this they are looking to realize about $30 million in
analog revenues for next year. The attach rate is about $.05. Combines we
believe we can drive the opportunity list up to $900 million within 18 months
and have attach rates of $.45. The combination of TelCom and Microchip allows
each of us to accelerate revenues beyond what would be accomplishable on a stand
alone basis. It really is a one plus one equals three equation.
Revenue Breakdown by Markets [Slide 14]
This slide shows the revenue breakdown by markets for the two companies. You
will notice that there is very little overlap and the two are quite
complementary. Again this adds to the strategy and synergy.
Why Microchip? [Slide 15]
Basically six reasons. First Microchip is a top tier company. They have a great
design in positions with their microcontrollers that offer significant upside
leverage.
Second, it is an excellent fit with high synergy and little overlap.
Third, they have foundry capacity that will help TelCom in the future.
Fourth, the size and breadth of Microchip's world wide sales and support
organization will give TelCom a critical mass previously not achieved.
Fifth, the ubiquitous nature of the microcontrollers allows Microchip to grow
nicely even in recessionary years. This greatly adds to the overall stability of
the company, its workforce and its shareholders.
6
<PAGE>
And sixth, this transaction serves the best long term interest of the
shareholders and employees. Bottom line is the merger maximizes top line growth
while adding stability.
Why NOW? [Slide 16]
TelCom has been approached in the past and has evaluated prior offers along with
potential candidates. I can honestly say that of all possible candidates we
would rank Microchip number one. They are absolutely the best fit.
The timing was just chance although I will add that the recent market conditions
did not help expedite getting this deal done.
Before I turn this over to Mark to quickly go through the financials I will add
that this deal was strategic. It is and was not about premiums. It is about the
long term interests of the shareholders and our employees.
Turn Presentation over to Mark Brown [Slide 17]
TelCom's Qtrly Revenue [Slide 18]
Thank you Bob for that introduction. Lets start with revenue. This slide shows
quarterly revenue from Q498 to Q400. The fourth quarter of 2000 is a consensus
of analyst estimates. You can see the pattern of nice steady growth quarter to
quarter from Q199 thru the Q200 time frame. You will also notice that the Q3
revenue drops from $20M to $19M before returning to $20M in the fourth quarter.
You will also note that we grew 40% in the first half of 2000 and even with the
Q3 drop we will still grow approximately 27% year over year.
The real question becomes what caused the revenue to drop in Q3. Lets look at
this:
Q3 Revenue Explanation [Slide 19]
As you can see on this chart we experienced a drop in Motorola revenue
associated with product transitions and excess inventory. As a result we dropped
our revenue forecast associated with Motorola from $6.4M to around $2.8 m for Q3
and we are projecting it to be around $2.4M for Q4. This is around a $3.6M drop
from the Q2 highs.
We have received and evaluated our position with new phones within Motorola. We
are projecting that Motorola will be about 13% of total revenues during 2001
which is about the same as Q3 and Q400. The total available market within
Motorola for our products - existing and planned - is several times the $12M
forecasted for 2001. At this time we are comfortable with the $13M and will
state that that the number could be in excess of $20M.
7
<PAGE>
The Korean government ended subsidies that were being used by several cell phone
manufacturers and as a result we saw Q3 revenues decline about $1M. During
September we began to see orders for the Korean handsets start to strengthen.
Partially offsetting the Motorola and Korean handset issues was the growth of $3
million from revenues to ON Semiconductor. The net is that we just could not
make up a $4.6 million drop in one quarter but we have managed to offset all but
$1.8 million. Again I want to point out that despite the drop we still grew 29%
year over year.
TelCom's Yearly Revenue [Slide 20]
This slide shows the yearly revenues. Again, despite the weakness in Motorola we
expect to achieve almost $74M this year and grow to $90 Million dollars next
year. These are growth rates of 29% and 22% respectively. Both are above average
for analog growth according to SIA projected growth rates.
Lets look at the P&L now:
TelCom Financial - P&L [Slide 21]
We have already covered the top line and what I want to do with this slide is
focus on Net Income and EPS. Looking first at the last three quarters you see
that net income has improved from $2.9M to $4.6 and $4.1 million respectively.
The EPS has improved from $.17 to $.23 and then down to $,20 last quarter. This
is more than a 40% increase in EPS while outstanding fully diluted shares
increased from 16.2 million shares in Q499 to about 20.2 million shares in Q3.
Another way to say this is that EPS increased over 40% despite having over 25%
more shares outstanding. The increase in shares is primarily the result of our
secondary offering in March. I might add that the street is expecting us to be
flat to slightly up in revenues and profits for the fourth quarter. Our fourth
quarter pattern tracks the slowdown in handsets and inventory corrections that
are happening in the market.
If you look at the full year numbers on the right you see that the street is
expecting us to do Almost $16M in net income this year and almost $21 million
next year. The corresponding EPS numbers are $.80 this year and $1.00 for next
year.
So revenues, net income and EPS look pretty good what about profitability
metrics?
Lets look at those on this chart:
TelCom's Profitability -% of Revenue [Slide 22]
8
<PAGE>
The closure of our Fab during 1998 combined with the contraction of the business
resulted in our gross margins declining. We actually reached a low point of
around 31% in the third and fourth quarter of 1998. Since then our gross margins
have steadily risen to finally cross the 50% threshold in Q2. We actually
achieved 52.4% for the just completed Q3 and have given guidance that we think
gross margins will improve approx. 50 basis points in Q4. Again we are
comfortable with this expectation.
Looking at Pretax profit we see a low of 2.6% in Q498 and steady improvement up
to 31.3% last quarter.
Net income improved from 1.9% in Q498 to 22.5% during Q300. Again it should
range from 21-23 percent of revenue for the next couple of quarters.
Bottom line here is that our profitability is very respectable. Lets look now at
the balance sheet:
Balance Sheet [Slide 23]
TelCom's balance sheet at the end of Q300 showed $150 million in total assets of
which $113.6 million was in cash and $23.4 million was in accounts receivable
and inventory. Our DSO was 65 and our inventory turns were 3.4X.
If you look at the liabilities section you see we have no debt other than normal
trade payables. Also, given our profitability we throw off about $4 to $5
million in cash each quarter.
A very solid balance sheet no matter how you look at it.
Strong Fundamentals [Slide 24]
I want to recap some of the strong fundamentals that you have seen so far.
No debt
$113.6 million in cash and growing 4-5M a quarter
Low capital expenditures - approx. $3 - 4M a year
Revenue Growth of 20% in 2H 00 and 22% for 2001
Gross margins over 52% and sustainable
Pretax profit approximately 31% and sustainable
Net Income around 22% and sustainable
9
<PAGE>
Overall pretty solid performance.
TelCom Summary [Slide 25]
In summary we have solid fundamentals and a strong and growing customer base.
Our management team is very experienced. We have improving profitability trends,
exciting new product introductions planned and the merger with Microchip offers
considerable upside for our shareholders and employees. We truly believe we are
poised for continued success.
Thank you
******************************************************************************
SLIDES:
Analog & Mixed Signal Solutions
[TelCom logo]
TelCom Semiconductor, Inc.
October 2000
-----------------------------------------------------------------------
The Company
Formation: 1993 MBO of Teledyne Components Division
Public: 1995 IPO at $8.50 Per Share
Markets: Wireless Communication
Computing
Networking
Industrial
Products: Power Management Thermal Management
Data Converters and
Linear products
-----------------------------------------------------------------------
Forbes 200 Best Small Companies
10
<PAGE>
[graphical display of Forbes 200 Best Small Companies report published October
30, 2000]
-----------------------------------------------------------------------
TelCom: Right Markets = High Growth
Yearly Growth Rates
Market* TelCom***
Analog Markets 2H 00 2001 2H 00 2001
-------------- ----- ---- ----- -------
Communications ~ 40% 35% ~ 20% 20%
Computing ~ 20% 17% ~ 20% 22%
Industrial/Auto/Other
and Consumer** ~ 20% 14% ~53% 25%
Total Analog ~ 30% 20% ~29% 22%
* Source: IC Insights
** Includes "ON Semi Contribution"
*** Based on Street Estimates
-----------------------------------------------------------------------
Product Portfolio
Thermal Linear/Mixed Power
Management Signal Mangement
Temperature Linear
Sensors Circuits Linear Regulators
Voltage Output Chopper Stabilized Switching
Op Amps Regulators
Logic Output Linear Building Charge Pump
Blocks DC-to-DC
Converters
Serial Data CPU/System
Acquisition Supervisors
Brushless System Power MOSFET
DC Fan A/D Converters Drivers
Controllers
Display Voltage Detectors
A/D Converters
V/F and F/V
Converters
-----------------------------------------------------------------------
11
<PAGE>
TelCom New Product Strategy
1999 - 2000
New Target Markets in Networking & Industrial
Expand Product Breadth in Power & Thermal Mgmt
Expand Linear and Mixed Signal Product Offering
Integrated Functionality Using Core IP Cells
Expand Design Capabilities Via Acquisition (i.e. MEAD)
Bottom Line:
Have Completed IP Building Blocks
Moving Into Higher Value Silicon Via Higher Levels of Integration
-----------------------------------------------------------------------
Exciting New Products thru 2001
Battery Chargers
Integrated Power Management Devices (i.e. LDOs and Resets)
Audio Amplifiers
Power Management ASSP
Interface Products
Hot Swap Controllers
Serial Transceivers
Low Voltage Differential Signaling (LVDs)
-----------------------------------------------------------------------
TelCom Three Pillar Strategy
TelCom Growth & Profitability
Partners, & Core Mergers &
Strategic Business Acquisitions
Relations
$10M Plus/Yr 25% Growth Broaden Customer
20% Op. Margin 20% Op. Margin & Product Base
--------------------------------------------------------------------------------
[graphical display of desert scene with certain high-tech structures present]
TelCom Semiconductor joins hands with Microchip Technology
12
<PAGE>
-----------------------------------------------------------------------
Microchip: Quick Overview
#2 Marketshare in 8-bit Microcontrollers
Improved from #20 in 1990 and has increased market share each year
Sales Growth
48% FY01 (ending March 31, 2001)
46% Gross Margin Sept Qtr. Actual,
46% Dec. Qtr
During `96 - `98 Semi. Recession Grew 23%, while industry was down 40%
FY 99 FY 00 Proj. Proj.
FY01 FY02
Revenue Growth $406M $496M $733M $965M
As a % 23% 23% 48% 32%
EPS Growth 0.59 0.83 1.38 $1.79
As a % 9% 41% 66% 30%
-----------------------------------------------------------------------
The Universe of Embedded Control System
[diagram of Embedded Control System with MCU]
-----------------------------------------------------------------------
The Embedded Control Signal Chain
"The Combined Footprint"
[diagram of Embedded Control Signal Chain with Microcontrollers. The diagram
highlights the areas of Microchip Technology strength and TelCom Semiconductor
strength]
-----------------------------------------------------------------------
Design-in Revenue Opportunity
Available "Attached" Opportunity
--------------------------------
$ Analog per
$100 Total available # of
Microcontroller Opportunity $ Products
Microchip Today - $0.05 $100M 30
Alone
13
<PAGE>
Microchip $0.45 $900M 280
& TelCom (18 mo.)
Top Line Synergy --- 1 + 1 = 3
-----------------------------------------------------------------------
Revenue Breakdown by Market
Microchip TelCom
Consumer 36% 2%
Automotive 19% 0%
Industrial 15% 28%
Communications 15% 52%
Computing 15% 13%
-----------------------------------------------------------------------
Why Microchip?
Top Tier Company With Key Design Positions That Can Be Leveraged Excellent Fit -
High Synergy & Little Overlap Assured Foundry Capacity Improved Critical Mass in
Market Place Recession Resilience Serves Best Long Term Interests of
Shareholders & Employees
Merger Maximizes Top Line Growth and Stability
----------------------------------------------------------------------
Why Now?
TelCom Has Been Approached in the Past & Has Evaluated Prior Offers along with
Potential Candidates.
Microchip is Absolute Best Fit.
Timing: Current Market Conditions Did Not Help Expedite Deal.
Deal Is Strategic - It Is Not About Premiums
----------------------------------------------------------------------
Analog & Mixed Signal Solutions
Financials [graphic of TelCom logo]
-----------------------------------------------------------------------
TelCom's Quarterly Revenues
[graph showing TelCom Quarterly Revenues Q4 '98 to Q4 '00 (including estimates)]
-----------------------------------------------------------------------
Q3 Revenue Explanation
14
<PAGE>
Motorola Revenue -$3.6M
product transitions & excess inventory)
Korean Handsets -$1.0M
ON Semi Sales +$3.0M
Channel Mix -$0.2M
------
Q3 Sequential Growth -$1.8M
Still 22% Growth Year over Year
-----------------------------------------------------------------------
Annual Revenues 1996 - 2001
[graph showing TelCom annual revenues 1996-2001 (including estimates)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
TelCom Financials - P & L
$M Q499 Q100 Q200 Q300 1999 2000 2001
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue 15.8 17.2 20.0 18.2 57.3 74.1 90.0
Gross Margin 7.4 8.5 10.3 9.5 25.7 38.2 41.9
% Rev 46.8% 49.3% 51.4% 52.4% 44.8% 51.8% 53.5%
Oper. Expenses 4.3 5.1 6.0 5.6 16.8 22.7 27.2
% Rev 27.1% 29.5% 29.7% 30.9% 29.4% 30.6% 30.2%
Pretax Profit 3.3 3.8 5.9 5.7 9.3 21.2 28.6
% Rev 21.0% 22.0% 29.7% 31.3% 16.2% 28.6% 31.7%
Net Income 2.6 2.9 4.6 4.1 7.1 15.8 20.6
% Rev 16.2% 17.0% 22.9% 22.5% 22.5% 21.3% 22.9%
EPS (Operational Only) $0.16 $0.17 $0.23 $0.20 $0.45 $0.81 $1.00
Year 2000 and 2001 are Street Estimates
---------------------------------------
</TABLE>
-----------------------------------------------------------------------
TelCom's Profitability - % of Revenue
[graph showing gross margin, pretax profit and net income as a % of revenue, Q4
'98 to Q4 '00 (including estimates)]
-----------------------------------------------------------------------
15
<PAGE>
Balance Sheet
$ Millions 1998 1999 Q3 2000
--------------------------------------------------------------------------------
Cash 14.1 18.4 113.6
A/R & Inventory 13.3 14.2 23.4
PP&E 10.4 6.8 6.0
Investments 1.5 5.3 4.7
Other 1.9 1.2 2.1
----------------------------------------
TOTAL ASSETS 41.2 45.9 149.8
Current Liabilities 11.8 7.3 17.4
Debt 3.5 0.0 0.0
Equity 25.9 38.6 32.4
----------------------------------------
TOTAL LIAB. &
EQUITY 41.2 45.9 149.8
-----------------------------------------------------------------------
Strong Fundamentals
No Debt
$113.6 Million in Cash (Q3 00)
Low Capital Expenditures ($3-4M per year)
Growth of 20% 2H00 over Prior Year
Gross Margins Greater Than 52%
Pretax Profit Approx. 31% of Revenue
Net Income Approx. 22% of Revenue
-----------------------------------------------------------------------
TelCom Summary
Solid Fundamentals: Markets & Performance
Strong Customer Base & High Growth Markets
Exciting New Product Introductions
Microchip Merger Offers Considerable Upside For Shareholders and Employees
TelCom Poised For Success!
-----------------------------------------------------------------------
These communications include certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations and are naturally
subject to uncertainty and changes in circumstances. Actual results may vary
materially from the expectations contained herein. The forward-looking
statements in this documents include statements about future financial and
operating results and the proposed TelCom Semiconductor, Inc./Microchip
Technology Incorporated transaction. The following factors, among others, could
cause actual results to differ materially from those described herein: inability
to obtain, or meet conditions imposed for, governmental approvals for the merger
between stockholders to approve the merger; the risk that the TelCom
16
<PAGE>
Semiconductor, Inc. and Microchip Technology Incorporated business will not be
integrated successfully; the costs related to the merger; and other economic,
business, competitive and/or regulatory factors affecting TelCom Semiconductor,
Inc.'s and Microchip Technology Incorporated's business generally. More detailed
information about those factors is set forth in TelCom Semiconductor, Inc.'s and
Microchip Technology Incorporated's filings with the Securities and Exchange
Commission, including their Annual Reports filed on Form 10-K for the fiscal
year ended 1999, especially in the Management's Discussion and Analysis section,
their most recent quarterly reports on Form 10-Q, and their Current Reports on
Form 8-K. TelCom Semiconductor, Inc. and Microchip Technology Incorporated are
under no obligation to (and expressly disclaim any such obligation to) update or
alter their forward-looking statements whether as a result of new information,
future events or otherwise.
17
