1. www.instat.com Electronics Market Outlook September 2003

2. Agenda About In-Stat/MDR Economic Conditions Demand Drivers & Application Segments Regional Issues Semiconductor Industry

3. September 2003 About In-Stat/MDR The leading provider of research, assessment and market forecasts of semiconductors and advanced communications equipment and services. A member of the Reed Electronics Group.

4. September 2003 Multimedia Wireless Broadband Cores of Expertise Semiconduct or Markets & Technology US Business Segmentation & Verticals Projections & Outlook Semiconductor Consumer & Residential Networking Service Provider Networks Business & Residential Networks

5. September 2003 $- $20,000 $40,000 2001 Wireless Infrastructure ($M) The Wireless Value Chain Semiconductor /

6. September 2003 Worldwide GDP Growth

7. September 2003 Worldwide Electronics Market ( US$ in Billions)

8. September 2003 US$ in Billions Distribution of IT Spending in the US Market by Size of Business, 2003 IT Spending US Business Market

9. September 2003 N = 854 % of Respondents Question: Which factors have significantly impacted your IT spending in the last 12 months? Factors Impacting IT Spending Distribution of Responses by Size of Business

10. September 2003 Constrained Worldwide Carrier CapEx In-Stat/MDR forecasts CapEx decline of 7% in 2003 Decline primarily due to heavy debt load and weak economy Forecasting weak market rebound in 2004, with 2% growth $310 $280 $205 $191 $195 $0 $50 $100 $150 $200 $250 $300 $350 20002001200220032004 US$ Billions Source: In-Stat/MDR, 05/03

11. September 2003 IP Services Growing Worldwide Worldwide IP Services grow 40% in 2003 and 34% in 2004 Hosting (Web, Application, Storage) represents largest IP service Highest growth IP services are VoIP and IP VPN $0 $10 $20 $30 $40 $50 $60 200220032004 Other Content Delivery Unified Messaging IP VPNs VoIP Hosting US$ Billions Source: In-Stat/MDR, 02/03

12. September 2003 Computer Market PC units experiencing single digit CAGR PC ASP has dropped to about $1,200 Most users have more than enough power Many users want new features Business replacement cycle 2H 2003 47% of Semiconductor consumption

13. September 2003 LAN Priorities 2003

14. September 2003 Worldwide DSL Growth Remains Strong 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 200220032004 ROW (MEA, SA) Asia Pacific Europe N. America Lines in Thousands Source: In-Stat/MDR, 02/03 Worldwide DSL subs grow 47% in 2003 and 37% in 2004 S. Korea has highest installed lines in Asia, but growth favors China and Japan US still lags rest of the world in growth due to regulatory uncertainty

15. September 2003 Worldwide Wireless Market Update Major demand drivers: Mobile communications & the Internet The combination will be the major driver for this decade. More than $100B spent for 3G licenses. Billions more required for infrastructure hardware. Mobile text messaging is truly a “Killer App,” with over 100 million messages per day being sent. Western Europe closed 2002: 77.2% penetration, AND 7.2% annual growth! AsiaPac has 13% penetration and 31.5% annual growth rate. China 206.6M subscribers end 2002. Fourth quarter growth was almost 6.7 million net new adds. India next major growth market, 1% penetration and 91% annual growth rate. (700k new subscribers / quarter!)

16. September 2003 Hot Spots & WLAN 0 50 100 150 200 250 200220032004200520062007 Locations (K) & Connects (M) Aggregate Worldwide Deployments (K) Worldwide Connects/Year (M )

17. September 2003 (All Revenue in US$M) 200120022003200420052006 Total WLAN Chipsets Revenue Total All Chipsets $229.9$403.9$421.7$527.4$575.2$566.8 % Change75.7%4.4%25.1%9.1%-1.5% Total Cellular Base Station Chipsets Revenue Total All Chipsets $2,587$2,483$2,161$2,044$1,698$1,414 % Change-4.0%-13.0%-5.4%-16.9%-16.7% Total Handset Chipsets Revenue Total All Chipsets $19,975$19,948$18,491$19,169$18,890$18,464 % Change-0.1%-7.3%3.7%-1.5%-2.2% Component manufacturers continue to embrace cellular technology and 802.11. Intel major push via “Centrino” family, supported by $300 million advertising spend over 3 months. In 2000, 4 companies making WLAN chipsets; 2003, more than 35 25, while ASPs dropped from ~$30 to ~$6. Worldwide Wireless Chipsets Source: In-Stat/MDR

18. September 2003 State of Consumer Equipment Growing Opportunities DVI/HDMI-enabled devices: over 200% CAGR 2002 – 2006 Digital Imaging: image sensor market growing over 23% per year through 2006, with cameras in mobile phones driving the market USB-enabled devices to rise 18% CAGR through 2007 Integrated DTV sets will grow 61% CAGR due to FCC mandate PVR unit shipments to double in 2003 to 3M units, then again double in 2004 PDAs to see 18% CAGR 2002-2007, strategies to grow market include device variety, pricing, multimedia, and connectivity

19. September 2003 State of Consumer Equipment Slowing/Declining Segments DVD growth has slowed as market matures Smart Displays slow getting off the ground in 2003 – too expensive Smart appliances, although appearing in greater numbers, will have slow adoption due to pricing, broadband and home networking penetration rates Decline in maturing DBS set top box market; stability for digital cable set top boxes Nascent Markets Network-ready DVD Players will begin to appear in late 2003, portend a huge market for consumers with broadband Internet services, especially those with Cable Modem or DSL service to their networked home PC

20. September 2003 Consumer Product Growth - 50 100 150 200 250 200120022003200420052006 Video Game Consoles DVD Players & Recorders PVRs (Stand-Alone) DTT STBs IP/DSL STBs DBS STBs Cable STBs M Units Source: In-Stat/MDR, 6/03

21. September 2003 Home Networking/Digital Domicile $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 200220032004200520062007 Worldwide Home Networking Revenues by Product Segment (US$K) Includes: Media Networks, Residential Gateways, Infrastructure, NICs/LOM

22. September 2003 Other Markets Automotive Steady end product unit volumes Increased electronic content Only 7% of total semiconductor market Industrial & Military Under 10% of total semiconductor market Declining, with some recent stabilization Highly fragmented

23. September 2003 Semiconductor Markets No new killer apps, no new $XX billion semi markets. 1970s - Mainframe 1980s - Mini Computer early 1990s - PC / Web late 1990s - Mobile Phone / Communications 2000s - ????? Recovery will depend on a wide range of end products.

24. September 2003 Regional GDP Growth -4% -2% 0% 2% 4% 6% 8% 10% 19931994199519961997199819992000200120022003*2004* United StatesEuropean UnionJapan Asian TigersAsia Developing

25. September 2003 Semiconductors - Consumption

26. September 2003 Regional Shifts Americas, once first is now last as end product manufacture moved from US (and Mexico) to China. Western Europe expected to decline next, but more slowly due to social structure. Long term SARS impact? Too soon to tell Everything moves toward the lowest cost

27. September 2003 Semiconductor Revenue

28. September 2003 Semiconductor Unit Shipments

29. September 2003 Semiconductor ASP

30. September 2003 Since the Crash - Unit shipments have grown from their pre run-up levels Average Selling Price has further declined Revenue has returned to pre 1999 levels The primary cause of today’s semiconductor revenue problem is NOT demand, it is over-capacity

31. September 2003 Capacity Outlook Commoditization of the CMOS process Speculative foundry fab building to capture market share Commoditization of the design process has also begun - ODMs DRAM revenue peaked at $40B in 1995 and was $16B in 2002. Revenue now tracks ASP. What happens to commodities?

32. September 2003 Implications for Semis overall Demand will continue to increase, although the rate of growth may slow. Price will become more volatile as semi industry becomes more commoditized and over-capacity becomes more prevalent Revenue will increase, but slowly, and with more short term perturbations Profitability will decline

33. September 2003 Semiconductor Forecast

34. September 2003 Summary Worldwide economy remains uncertain, but 2H 2003 remains poised for stronger growth. In the Electronics and Semiconductor Industries, prices are under strong downward pressures which is limiting revenue growth despite respectable growth in unit shipments. Consumer products, Handsets, and select LAN products are showing the strongest growth. Telecommunications infrastructure capex remains weak through 2003 and 2004.

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