Q: Please explain the significance of Micrel's tagline "Innovation through Technology." How are these three words a reflection of Micrel's mission, vision and promise?

A: First, Micrel is a very technology-rich company. When compared to our peers, we have more patents per capita. The Company is highly focused on protecting its products through intellectual property (IP). Second, we have our own wafer fabrication facility located in San Jose, California. This allows us to develop the most sophisticated and differentiated processes because we are not required to modify our needs to be compatible with a foundry's process technologies. We can, literally, tweak the process to whatever the product requires. This is difficult to do if you're fabless. Third, with 70 percent of our revenue coming from analog products, this requires a lot of innovation to differentiate oneself. We have developed a very sophisticated analog process technology, and this gives us an edge.

Q: Tell us about some of Micrel's new, innovative analog, Ethernet and high-bandwidth solutions and how these products drive innovation for its customers.

A: Micrel's new family of High-Efficiency Low-DropOut (HELDO) products combines the high power conversion efficiency of a switch mode convertor with the ease of use and superior low output ripple characteristics of linear regulators. Micrel has combined years of experience in developing high-performance linear regulators and innovative approaches to switch mode power conversion to bring to market these innovative products solving unique problems. The HELDO family of products finds applications in a diverse array of equipment, from base stations to mobile handsets.

Micrel's industry-first Automotive Electronics Council (AEC)-Q100 qualified Ethernet product family enables our automotive customers to deploy standard Ethernet protocol inside cars. Initially, customers replace controller area network (CAN) devices with our Ethernet products for diagnostic and software download application at service stations. The download time is reduced by 100 times, saving customers a lot of time and money. Ethernet also finds its way into the infotainment system to replace Media-Oriented Systems Transport (MOST), which is a proprietary protocol. This allows our customers to drive down the cost of ownership with a single IP-based network inside cars. Furthermore, with Ethernet protocol data bandwidth can be further expanded from 100 Mbps to 1 Gbps or even to 10 Gbps to meet increasing IP bandwidth demand in the future.

Micrel's new ClockWorks family of timing devices integrating crystal oscillator, frequency synthesizer and fan-out functions delivers ultra-low phase noise and integrated jitter performance exceeding even the most stringent requirements in networking applications. The ClockWorks family featuring the revolutionary rotary wave voltage-controlled oscillator with programmability enables designers to implement their unique clock trees with the best performance, less components, lower cost and shorter time-to-market. Applications for the ClockWorks family span from set-top boxes to wireless base stations and optical switching and transport systems.

Q: Consumers are demanding enhanced capabilities in a smaller form factor at an increasing rate, therefore shrinking original equipment manufacturers' (OEMs) and chip suppliers' time-to-markets. With time-to-market becoming increasingly important, what best practices implemented by Micrel enable the company to be "fast on its feet"?

A: First, as stated in my response to question number one, the Company has its own local, internal wafer fabrication facility, while most of today's foundries are located thousands of miles away in different time zones. Second, we don't have to compete with other companies for priorities in the Fab. Third, Micrel doesn't just have a bunch of good designers; we're also a well-oiled manufacturing machine. Organizationally, the Company is relatively flat which leads to less bureaucracy and lets the Company move quickly. For example, there are only three layers of management between the line personnel and me. We have organized our fabs through the use of some very sophisticated tracking and monitoring capabilities, and I have the flexibility to move people around to augment areas where there is a bottleneck. All of these organizational elements have helped us reduce our cycle time.

Q: At GSA's Semiconductor Ecosystem Summit, a common reoccurring theme was that the semiconductor industry is not dead and will continue to thrive with new, exciting electronics being introduced into the marketplace and semiconductors being the engines of these electronics. Which electronics markets do you see as rich areas for semiconductor innovation?

A: This is a very good question and highly depends on the core competencies of the company and its operating model. All markets have their pros and cons, and the objectives of the company will highly determine what markets a company goes after. Micrel has a very diverse market portfolio (possibly, too large of a portfolio). In fact, we are virtually in every market served by the semiconductor industry; with tens of thousands of customers and thousands of products. We derive nearly half of our revenue from distribution sales, which tends to favor many customers but with lower volume. This helps to mitigate the risk of any one market fluctuation.

In addition to the consumer market, which has good growth but tends to be a low-margin market with short product cycles, the green power initiative is beginning to get traction and favors power analog companies such as Micrel. While pure-play digital companies look to reduce feature size to incorporate more logic, the power analog space does not rely on expensive wafer fabrication tools to produce the high-power, high-voltage products required by emerging green power markets such as automotive. Furthermore, systems are becoming more complex, requiring numerous power rails to improve the system's efficiency. All of these applications favor companies that have analog high-voltage and power management capability. We also see great opportunity in the microelectromechanical systems (MEMS) market. Micrel receives half of its foundry business from MEMS customers.

Q: Linley Group estimated the Ethernet silicon market to expand to $3.4 billion by 2014 from $2.8 billion in 2010. Describe the expansion of the Ethernet market and how Micrel plans to take advantage of this opportunity.

A: We have seen the Ethernet market grow within the consumer and automotive segments.

In the consumer segment, we have seen more and more consumer products become Internet protocol (IP)-based. For example, the set-top box was a stand-alone product; but now it is an IP set-top box. You can connect your IP set-top box to your home router or computer. Your digital TV, HDTV and 3DTV now have Ethernet connections. IP phones at home are also quite popular now. To improve cellular coverage inside the house, many service providers are offering femtocell to users. They can connect your call to your home router. In addition, the growing demand for Internet connection and bandwidth at homes and offices is driving the deployment of the gigabit Ethernet passive optical network (GEPON). The number of Ethernet ports inside the house has increased dramatically over the years. Micrel has enjoyed success in the consumer segment, especially in China. We have very close relationships with local vendors, which allow us to provide features that customers need for their systems.

Automotive Ethernet is another example of converting a non-IP-based system into an IP-based one. We expect the number of Ethernet ports inside cars to reach the number that we see inside our living rooms today. Innovation beyond the standard is our recipe for success. Micrel was the first automotive Ethernet semiconductor provider. We have been shipping automotive Ethernet products for more than two years. We believe Micrel is in a very good position to capitalize on the expansion of the Ethernet market.

Q: While many chip companies have reported reductions in quarterly revenue, GSA has observed that many leading companies such as Micrel have maintained strong balance sheets. What flexibility does this provide Micrel?

A: Micrel has always maintained a strong balance sheet. You can't be a good company without a strong balance sheet. The benefits of a strong balance sheet are rather obvious:

• Operating costs are reduced as you are not required to borrow money.
• Turnover is reduced as employees prefer a company that is financially sound.
• It allows a company to be shareholder-friendly through stock buybacks and dividends.
• Opportunities to acquire are enhanced, especially since most companies that are looking to be acquired have poor balance sheets.
• Large customers are more willing to do business with you because a strong balance sheet gives them the assurance of continuity of supply.

Q: As a recently joined member of GSA, what issue(s) would you like to see GSA tackle that could help ensure the growth and profitability of Micrel?

A: We're hoping that GSA will enhance the Company's overall image, not only amongst our peers but also with our customers. Consolidating the industry into a family gives the industry more political clout—we hope.

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