Earnings Presentation to Investors and Analysts

ARC International’s
1H 2008 Financial Review

Copyright© 2008. ARC International. All rights reserved.
Copyright© 2008 ARC International All rights reserved

Overview of ARC International

Leader in • Unique “vertically integrated” portfolio of
Leader in multimedia products
Multimedia
Multimedia
Solutions • Dual revenue streams from both semiconductor
Solutions
companies and OEMs

• Revenues from contract licenses, maintenance and
engineering services, and royalties
Intellectual Property
Intellectual Property
Business Model • Semiconductor company royalties ~3 years after
Business Model
initial contract license
• OEM royalties ~1 year after initial contract license

• 148 semiconductor customers globally
High Growth Company • Award-winning multimedia products
High Growth Company
• More than 300 million ARC-Based™ chips shipping
annually by customers
2

ARC’s Strategic Goals
Top Line Growth to Outpace the
Top Line Growth to Outpace the
Semiconductor Industry
Semiconductor Industry

Higher Value Products to OEMs which Drive
Higher Value Products to OEMs which Drive
Higher Fees and Royalties
Higher Fees and Royalties

Close Higher Value Consumer Product Design Wins
Close Higher Value Consumer Product Design Wins

Continue to Enhance the Company Brand
Continue to Enhance the Company Brand

Profitability and Beyond
Profitability and Beyond
3

1H 2008 Company Highlights
• Top line revenue up 32%
Solid Financial
Solid Financial • Licensing revenue up 33%
Performance
Performance • Royalty revenue up 53%
• 16 licensing contracts completed

• Adds a new, complementary class of customer and
revenue channel
Strategic Acquisition of
Strategic Acquisition of • Sonic Focus-ready multimedia subsystems already
Sonic Focus Completed
Sonic Focus Completed introduced
• First customer post acquisition shipping higher value
royalty-bearing products

• Chip ASPs declining despite continued increases in
unit shipments; Semi IP industry has been affected
Fundamental Shifts in the
Fundamental Shifts in the
Semiconductor Market • Standalone technologies no longer cost-effective
Semiconductor Market
approach for differentiating end products
• Trends expected to continue into 2009

4

1H 2008 Financial Results


1H 2008 Financial Results
• Revenue up 32% to $18.3 million (£9.3 million)
• Licensing up 33% to $8.4 million (£4.3 million)
Continued Revenue
Continued Revenue • Royalties up 53% to $8.3 million (£4.2 million)
Growth
Growth • Bookings down 30% to $18.5 million
• Total backlog down 17% to $17.2 million
• Cash position at $33.0 million (£16.6 million)

• Operating expenses before acquisition were £10.4
million
Operating Expenses
Operating Expenses • Incremental expense from acquired company was
£0.3 million
• Net loss without acquisition remained flat at £1.5 million
– With acquisition, net loss at £2.0 million

• 16 contracts completed
Ongoing Industry
Ongoing Industry
Adoption • 148 total customers
Adoption
• Fourth consecutive quarter of royalty growth
6

Healthy Bookings and Backlog

$ 10.0 M

Asia
$ 8.0 M
$ 30.0 M
Europe

Contractual $ 25.0 M
$ 6.0 M N.
(in $ Mil.)

Amer.
Other Def. $ 20.0 M

(in $ Mil.)
$ 4.0 M
Maint/Train $ 15.0 M

$ 10.0 M
$ 2.0 M
$ 5.0 M

$ 0.0 M $ 0.0 M
1H 2H 1H 2H 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H 2H 1H 2H 1H
'04 '04 '05 '05 '06 '06 '07 '07 '08
'04 '04 '05 '05 '06 '06 '07 '07 '08

Rolling 12 Month Backlog Bookings
7

Summary Profit & Loss

(in £ million) H1 '08 H1 '07 Variance % of Variance

Revenue 9.3 7.0 2.3 32%

Gross Margin % 92% 90% 2% 2 ppts

Loss - E B I T D A (1.5) (1.8) 0.3 19%

Loss - E B I T (2.9) (2.4) (0.5) -20%

Net Loss (2.0) (1.5) (0.5) -34%

8

Operating Expenses

% of
(in £ million) H1'08 H1'07 Variance Variance

Cost of Revenue 0.7 0.7 (0.0) -1%

R & D Exp 4.5 3.4 1.1 33%

Sales& Marketing Exp 3.1 2.7 0.4 12%

General & Corporate Exp 2.3 1.8 0.5 25%

Share Option Exp 0.2 0.2 (0.0) -17%

OPER EXP + COS 10.7 8.8 1.9 22%

TOTAL EXPENSES* 12.1 9.4 2.7 29%

* Total expenses include depreciation & amortization expenses and a share of
loss in associated company

9

Net Loss without Sonic Focus

H108 H107 Change
£'000 £'000 £'000 %
Net Loss (2,012) (1,543) (469) -30%

Sonic Focus
Revenue 38 38
Expense
Engineering (314) (314)
Admin & facilities (31) (31)
Dep'n and amort (159) (159)
Net Loss (466) (466)

Net Loss without Sonic Focus (1,546) (1,543) (3) 0%

10

Balance Sheet Summary

June June Dec
(in £ million) 2008 2007 2007
NON- CU RRENT ASSETS
Intangible Assets 5.9 3.9 4.1
Goodwill 5.4 0.0 3.4
Tangible Assets 1.8 1.3 1.5
Trade & Other Receivables 0.4 0.4 0.4
Investments 0.4 0.0 0.4
Total Non-Current Assets 13.9 5.6 9.9

NET C U R R E N T A S S E T S
Inventory 0.0 0.2 0.1
Trade & Other Receivables 6.1 3.6 5.6
Trade Payables (1.2) (0.2) (0.7)
Other Payables (4.3) (2.0) (3.9)
Deferred Revenue (1.4) (2.0) (1.2)
Short Term Provision (0.2) (0.2) (0.2)
Cash & Short Term Investments 16.6 26.0 21.2
Total Net Current Assets 15.6 25.5 20.9
Long Term Provision / Liabilities (1.2) (0.1) (0.5)
NET ASSETS 28.3 30.9 30.2

11

Cash Flow Summary
(in £ million) H1 '08 H1 '07
Opening Cash and Short-term Investments 21.2 31.6

Net Cash Outflow from Ops. (3.0) (2.9)

Net Interest & Taxes 1.8 1.5

Cash from (used by) Operating Activities (1.1) (1.4)

Capital Expenses (1.4) (1.2)

Acquisitions (2.0) (3.4)

Issue of Ord. Share Cap. 0.0 0.4

Exchange (0.1) 0.0

Closing Cash and Short-term Investments 16.6 26.0

CASH INFLOW/(OUTFLOW) (4.7) (5.6)

12

CEO’s Report


“Enabling the YouTube Generation”

Market Opportunity
Consumer demand for audio, video, and graphics in power
efficient devices will drive sales of billions of chips needing
programmable multimedia subsystems.

ARC’s Mission
ARC will be the leading provider of multimedia IP to accelerate
development of personalized media-centric chips by licensing
our patented IP based upon configurable technology.

14

1H ARC Highlights

• New product innovations
– Introduced new Energy PRO™ core family
– Introduced new annual multimedia codec library
subscriptions
– ARC® Video Subsystem family supports RealVideo format

• 16 new customer agreements for high-growth
applications
Mobile & HDTV Multimedia &
Applications Flash Applications Security Applications

15

Customer Spotlight: ViXS Systems

• ViXS taken a new license for ARC® multimedia
solution
• ARC’s acquisitions contributed to winning the new
agreement
• New license enables ViXS chips to deliver multiple
HD video streams
• Analysts predict 200M households to have HDTV
by 2012
• ARC-Based™ XCode™ chip family already adopted
by major OEMs

Personal Video
Personal Video Personal Computers
Personal Computers Advanced DTVs
Advanced DTVs
Recorders
Recorders Copyright© 2008. ARC International. All rights reserved.
16

License-to-Royalty Model

160
148
141 144
140
137
127
No. of Unique Licensees

120 114
106 63 New
100
98 Licensees
85 88
82
78
80 72
60 Current
55
60
Royalties
41 From Legacy
40
26 Customers
20 16

0
'97 - 1H '00 2H '00 1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05 1H '06 2H '06 1H '07 2H '07 1H '08
'99

~3 years from license to royalty
17

1H Sonic Focus Highlights

• Sonic Focus licenses award-winning audio
enhancement software to OEMs globally
• Acquisition of Sonic Focus adds new
complementary class of customers and revenue
channel
• Sonic Focus integrated; strong industry interest
– First Sonic Focus-ready multimedia subsystems introduced
– Significant interest by OEMs creating PCs and laptops,
handsets, and Digital TVs
– Target customers realize Sonic Focus technology is a key
differentiator for consumer electronics products
• Also see how Sonic Focus technology can reduce BOM costs
• OEMs underscoring how Sonic Focus technology
delivers higher quality audio compared to
competitive solutions

18

Customer Spotlight: HP

• New all-in-one TouchSmart PC “redefines
home computing”
• High quality audio enabled by Sonic Focus
enhancement technology
• Higher value royalty revenue
Industry Reviews:
Industry Reviews:
“Opens the door to a new
“Opens the door to a new
way for consumers to
way for consumers to
engage with their content”
engage with their content”

“Good sound quality despite
“Good sound quality despite
not having a subwoofer”
not having a subwoofer”

“I absolutely love
“I absolutely love
this piece of equipment”
this piece of equipment”

19

Market Conditions


New Consumer OEM Requirements

More/New Content
For Consumers

OEMs Offering
Differentiated Devices
Targeting Consumers
“Digital Lifestyle”

Chip Companies
Providing Solutions
Optimized to a
Specific Application

Standalone Technologies No Longer Offer
Cost-Effective Advantages

21

ARC’s IP Approach

Building Integrated Solutions

Application IP
Application IP Audio Restoration Surround Sound
Multi-Channel
Stereo Expansion

Video Encode Imaging Encode Audio Encode

Software IP
Software IP Video Decode Imaging Decode Audio Decode

MPlayer Network Stacks

Compilers Modelers Configuration
Management
Development Tools
Development Tools Debuggers Simulators
Operating
Profilers IDE Systems

128-bit Motion Entropy
SIMD Estimation Encode

Hardware IP
Hardware IP
32-bit
CPU/DSP
16-bit DMA Entropy
CPU/DSP Engines Decode

22

ARC’s IP Approach

Example:
ARC® AM 401V
Multimedia Subsystem

Application Optimized
“Product of the Year”
Enables Differentiation
“Editors Choice” Award
Based Upon Award-
Winning Technology Twice Winner of
“Partner of the Year”

23

Summary and Outlook


Outlook

Challenging Market Trends to Continue into 2009
Challenging Market Trends to Continue into 2009

ARC will Strengthen its Ability to Deliver Higher Value
ARC will Strengthen its Ability to Deliver Higher Value
Multimedia Solutions
Multimedia Solutions

ARC will Look for Additional Cost-Effective Ways
ARC will Look for Additional Cost-Effective Ways
To Realize Acquisition Synergies
To Realize Acquisition Synergies

ARC will Extend its Revenue Growth and
ARC will Extend its Revenue Growth and
Transition to Profitability
Transition to Profitability
25

Disclaimer

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information drawn from public sources does not purport to be comprehensive and has not been independently verified. This presentation does
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securities in ARC International plc (the "Company") in any jurisdiction or any other body corporation or an invitation or an inducement to engage in
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August 2008

26

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