Dialog Annual Report and Accounts 2012

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Dialog Semiconductor Plc | Annual report and accounts 2012

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Annual report and accounts | 2012

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P04-05

04 05Dialog Semiconductor Plc| Annualreport and accounts2012 |Section 1 |Overview

...

Consumerstodaywant to be able to use exciting new entertainmentappson their smartphonesand tabletsand interact via high-speed,

4GLTEnetworks. Video streaming, sharing and calls are becomingincreasinglypopular, alongside enhanced gaming, GPS, dataand

voice services.

...

Dialogsinnovative technologyincreasesthe batterylie that a

smartphone or tablet can deliver,enabling consumersto multi-taskand

enjoyhigh-quality multimedia contenton thego. Our power management

chipscan beprogrammed to enableeach o themulticore processorsto be

powered in and out o sleep mode inspecifcsequencesand meet the exact

voltage and current requirementso each sub-system, including the

application and baseband processors,display, audio, graphics, GPS and

memorycomponents.

Udo Kratz

Senior Vice President, GeneralManager,Mobile SystemsBusiness Group

P10-11

P20-21

20

...

Dialog Semiconductor Plc|Annualreport and accounts2012 | Section 2 |Businessreview

TheInternet of Thingsisdependenton having an ultra low energywireless

standard that hasceiling to cellar reachand beyond, sensorsthat can last

a decade with asingle AAAbatterypackand theaddition of voice control

or telephonyif required. Dialog hasdeveloped SmartPulseto deliver this

smart home functionalityand more.

Sean McGrath

VicePresident and GeneralManagerConnectivity, Automotive and IndustrialGroup

21

TheInternet of Things isat last becoming a reality. Consumers desire

for greater comfort, and convenience, to conserve energyin their homesand the advent of thealways-on computing power of the smartphone

and tablet isdriving a new wave of innovation. Wewill start tosee the emergenceof wirelesslight switches and thermostats,

smoke and gasdetectors, home centrallocking systemsandmedicalpenda ntsfor the elderlythat can becontrolled and

monitored from a singlesmartphone or tablet app.

Section 4 | Consolidated nancialstatements and notes54 Independent Auditors report to the

members o Dialog Semiconductor Plc55 Consolidated statement o

nancial position

56 Consolidated income statement57 Consolidated statemento comprehensive income

58 Consolidated statement o cash fows59 Consolidated statement o changes

in equity60 Notes to the consolidated

nancial statements

Section 5 | Company nancial statementsand notes113 Company statement o nancial position114 Company statement o changes in equity115 Company statement o cash fows116 Notes to the Company nancial statements

Section 6 | Additional inormation117 Glossary119 Advisers and corporate inormation120 Group directory

Section 1 | Overview02 Dialog at a glance and our markets06 Chairmans statement07 Dialog Semiconductor shares in 2012

Section 2 | Business review

12 Our business strategy and perormance14 Chie Executives review16 Our products and key customers22 Financial review27 Risks and their management30 Sustainability

Section 3 | Management and governance34 Executive management36 Board o Directors38 Directors report40 Corporate Governance46 Directors remuneration report53 Statement o Directors responsibilities53 Responsibility statement

10 11Dialog Semiconductor Plc|Annualreport and accounts2012 | Section 1 |Overview

Consumer electronicsmanuacturersin personal,

portable, connected marketsbuild products based onstandard application processor platorms. Dialog isa

leader in orging strategicpartnershipsand supplyingcompanion power management ICswith the worlds

leading application processor providersto deliver itscustomersullyoptimised solutions.

Mark Tyndall

Vice President, BusinessDevelopment and Corporate Strategy

Dialogscustomersincreasingly use

our audio CODECsto deliver natural,realisticaudio with a wider sound feld

to the wirelessand wired headphonesand smallorm actor speakersthat

consumersincreasinglywant to use.We also applyour connectivityexpertise

to high-qualitydigital cordlessphonesand next generation wireless

microphonesand headsets.

Andrew Austin

VicePresident, Sales

Dialogsaudio CODECs provide ull-range, high delityaudio

capture and playback to a varietyo portable devicesandaudio accessories. Theyeature programmableDigital Signal

Processors(DSPs) that ofoad audio sotware rom thehost processor and includeadvanced echo cancellation

technologyto lter out extremebackground noise.Theyare complemented byour amplier technology

to provide arich, deep bassand clear highrequenciesto wirelessa nd wired headphones,

speakersand handsets.

...


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..

.Dialog Semiconductor creates highly integrated, mixed signalintegrated circuits (ICs), optimised or personal portable, short-

range wireless, lighting and automotive applications. The Companyprovides its customers with fexible and dynamic support, world-class innovation and the assurance o dealing with an establishedbusiness partner.

With its ocus and expertise in energy-ecient system powermanagement, audio, low energy short-range wireless and VoIPtechnologies, Dialog brings decades o experience to the rapiddevelopment o ICs.

Dialogs power management processor companion chips enhancethe perormance o personal portable devices including smartphones,tablets and Ultrabooks by extending battery play time andsupporting increasingly demanding multimedia applications. Ourshort-range wireless technology provides connectivity to wirelessheadsets, microphones and gaming consoles and is enabling theemergence o innovative new smart home applications.

Dialog Semiconductor Plc is headquartered near Stuttgart,with a global sales, R&D and marketing organisation. In 2012,it had US$774 million in revenue and continues to be one o

the astest growing European public semiconductor companies.At 31 December 2012, the Company had 806 employees.With world-class manuacturing partners, Dialog operatesa abless business model.

The Company is listed on the Frankurt (FWB: DLG) stock exchangeand is a member o the German TecDAX index.


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Dialog Semiconductor Plc | Annual report and accounts 2012 | Section 1 | Overview02

Our markets

Mobile: Power management ICs and audio CODECs or smartphones,

tablets and Ultrabooks

Automotive and industrial: Custom motor control ICs or windscreen wipers and companion

processor integrated power management and clock ICs or automotiveinotainment systems

Electronic ballasts or fuorescent or high-intensity industrial lightingand energy-ecient retrot bulb LED lighting solutions

Connectivity: Single chip transceivers or DECT-based wireless microphones,

headsets and gaming consoles

SmartPulse short-range wireless ICs, based on the Ultra LowEnergy DECT standard, or smart home applications

Energy-ecient multicore Voice-over IP (VoIP) processors, audio codecsand ampliers, interacing with Bluetooth, Wi-Fi and DECT, to enableheadset and handset connectivity

2012 nancial highlights a record year US$774 million revenue in 2012, up 47% over 2011

Full-year 2012 net prot o US$62.5 million or 8.1% o sales,completing ve years o successive protable growth

Full year gross margin o 37.8%

Closing year cash balance o US$312 million

Basic and diluted 2012 IFRS earnings per share (EPS) o 0.97 centsand 0.93 cents respectively

2012 operational highlights Sustained high demand or our power management technologies

rom leading smartphone and tablet customers

Momentum in our connectivity portolio with the selection o ourshort-range wireless audio ICs, VoIP and DECT solutions by leadingmicrophone, gaming and proessional headset and cordless phonecustomers, including VTech and Jabra

Continued success in broadening our Processor Partner Programmewith companies including Intel, NVIDIA and Freescale. This includesthe selection o our Power Management ICs (PMICs) by Freescale

or a reerence board using its i.MX series o multicore applicationprocessors to enable the rapid development o tablets, inotainmentsystems, media hubs and other smart devices

Continuous innovation in our standard and custom product portolios: Our latest PMIC, eaturing an innovative multiphase buck converter

architecture to support the high currents increasingly required inmulticore application processors or smartphones and tablets wassampled to key customers

Dialog continued partnering with TSMC on state-o-the-art 0.13micron bipolar-CMOS-DMOS (BCD) technology to integrate highervoltage components into a smaller orm actor, single-chip powermanagement IC to support next generation smartphonesand tablets

We licensed the ARM Cortex M0 32-bit multicore processor or

use in our next generation PMICs, targeting multicore smartphones,tablets and other embedded devices. The rst o these PMICs wassampled in 2012

Dialog at a glance and our markets

800

600

400

200

008 09 10 11 12

Total revenue(US$m)

* Year-on-year growth 2011-12

+47%*70

60

50

40

30

20

10

008 09 10 11 12

Net proft(US$m)

+9%*100

80

60

40

20

008 09 10 11 12

Operating proft(US$m)

+48%*1.00

0.75

0.50

0.25

008 09 10 11 12

Basic EPS(US$)

+6%*


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03

3,000

2,500

2,000

1,500

1,000

500

012 13 14 15 16

World market or short-rangewireless ICs (million units)

Source: GBI Research 2012

+2,000**350

300

250

200

150

10012 13 14 15 16

Media tablet market(million units)

Source: Gartner/Dialog 2012

+200**1,500

1,300

1,100

900

700

50012 13 14 15 16

Smartphone market(million units)

Source: IDC 2012** Forecast unit growth 2012-2016

+750**

Q2Samsung selected Dialogs power management and audiotechnology or a second smartphone platorm the

Galaxy Pocket S5300 and our audio technology or its ultracompact Pebble MP3 accessory that syncs with the Galaxy SIIIsmartphone to enable runners and sportspeople to enjoy musicon the move.

SmartPulse DECT ULE (Ultra Low Energy) was adopted by aEuropean plug manuacturer or internet-enabled smart plugs,enabling home appliances to be controlled rom a smartphoneor tablet.

Q3Dialog introduced a new PMIC architecture or next generationapplication processors through our Processor Partner Programmeto help drive and support innovation in the smartphone andtablet markets.

Q4Dialogs PMIC was selected by a Processor PartnerProgramme member or a 4G LTE-based chipset platorm

or Asia-based customers.

2012 saw Dialog achieveUS$774 million in revenues.

The customer base was urtherdiversied with additional platorm

wins at Samsung. We laid thegroundwork or our entry into the

4G LTE market with sampling underway o standardised PMICs on

a reerence board or Asia-basedcustomers. Dialog also opened itsnew Asian headquarters in Taipei

to meet increasing demand or ourproducts in Taiwan, China andKorea and issued a convertible

bond oering or corporateunding purposes.

Q1Dialog extended its Green VoIP IC amily with the launcho the new SC14453, incorporating leading audio, security

and graphics unctionality.


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04 Dialog Semiconductor Plc | Annual report and accounts 2012 | Section 1 | Overview

...

Consumers today want to be able to use exciting new entertainmentapps on their smartphones and tablets and interact via high-speed,4G LTE networks. Video streaming, sharing and calls are becomingincreasingly popular, alongside enhanced gaming, GPS, data andvoice services.

...

Dialogs innovative technology

increases the battery lie that asmartphone or tablet can deliver,

enabling consumers to multi-task and

enjoy high-quality multimedia content

on the go. Our power management

chips can be programmed to enable

each o the multicore processors to be

powered in and out o sleep mode in

specifc sequences and meet the exact

voltage and current requirements

o each sub-system, including theapplication and baseband processors,

display, audio, graphics, GPS and

memory components.

Udo Kratz

Senior Vice President, General Manager,Mobile Systems Business Group


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05


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Dialogs management team have aspirations

to achieve a mid-term goal o over US$1 billionin annual revenues. Despite continued economicuncertainty Dialog continues to see strongdemand or its technologies and is makinggood progress to this target.

The Company continues to put in place thenecessary inrastructure to support high levelso growth on a global basis. In this contextthere is considerable competition or the toptalent that Dialog needs to achieve these goals.Accordingly, ever mindul o its needs to becorporate governance compliant, Dialog hasto be best-in-class in perormance-drivenremuneration schemes.

The Board recognises, with the increasing scaleand value o the business, the importance oseeking to achieve best practice in corporategovernance. This has seen a much greater ocusor the Board in 2012 and will continue to be soin 2013. A review o the Corporate Governancestatement and Directors remuneration reportin this annual report, o themselves o greaterdetail and transparency over previous years,set out the enhanced ocus in this area andthe greater proessionalism being broughtto the subject.

Despite the troubled economic environment,I remain condent about the uture growthprospects o the Company in 2013 and thankyou or your continued support.

Greg Reyes

Chairman

2012 has been another greatyear or Dialog SemiconductorPlc, with revenue up 47%year-on-year to US$774 million.

The Company continues its strategy odeepening and broadening relationships withexisting and new customers. Dialog is ocusingon cross-selling a wider range o more complexpower management, audio and wirelesssolutions into a broader range o portablecomputing devices. This includes high-end andlow-end smartphones, tablets and, in the uture,Ultrabooks, which we view as one o the nextgrowth markets or Dialog.

People are doing more and more computing onthe go using smartphones and tablets. Around700 million smartphones are believed to havebeen shipped in 2012, and this is orecast to riseto 1.5 billion by 2016; while tablet purchasesare orecast to continue to snowball with unitshipments likely to be around 300 millionby 2016 according to the analyst rm IDC.Dialog is well positioned to help its customersmeet this market demand.

Dialog remains committed to outpacing itscompetitors not only in terms o the levelo innovation and quality control but alsonancially, where protability has to bemanaged careully, given the competingpressures o the price expectation o volumecustomers and supply constraints.

Chairmans statement

From let:Dialog is ocusing on cross-selling a wider rangeo more complex power management, audio andwireless solutions into a broader range o portablecomputing devices, including tablets.

Dialog views Ultrabooks as one o the nextgrowth markets or its technologies.

Greg ReyesChairman


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07

Dialog continues to expandits investor base, gaining thecondence o the market, bothin Europe and the US, andattracting new long-term orientedinstitutional Shareholders.

Share price developmentThe ollowing graphs chart the cumulativeShareholder return o the Company or the past12 months and or the past ve years, comparedwith selected technical benchmark indices

Germanys TecDAX index which Dialog itselentered in September 2009 and the PhiladelphiaSE Semiconductor index (SOX).

In 2012, Dialogs share price opened at 12.58

and reached a high o 18.74 on 26 March.During the second hal o 2012 the continuingmacro concerns about scal consolidation andlow growth in Europe and the US broughtadditional instability to the nancial markets.The share price trended down, tracking someo our most immediate peers and closing theyear at 13.30 on 31 December.

As can be seen rom the graph below, whichshows the percentage movement in share priceduring the year, in 2012 Dialogs share priceperormance ollowed a similar trend to that oTecDAX and SOX or most o the year. The stockunderperormed the TecDAX and its peer groupduring the last two months o the year, seeingsome recovery in the rst ew days o the NewYear 2013. In the last three years, 20102012,Dialog has continued to show remarkablegrowth, outperorming TecDAX and SOX byapproximately 700%. During these years theshare price grew by around 75%.

Dialog Semiconductor shares in 2012

Note: Peer group Index constituents: Wolson Microelectronics Plc,Texas Instruments Inc., STMicroelectronics NV, Skyworks Solutions Inc.,Nordic Semiconductor ASA, Microsemi Corp., Micrel Inc., Melexis NV,MaxLinear, Inc., Maxim Integrated Products Inc., Linear TechnologyCorp., Intersil Corporation, Inneon Technologies, CSR plc, CirrusLogic Inc., Broadcom Corp., austriamicrosystems AG, Aixtron SE.


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Share undamentals or the nancial year 2012

Total number o shares outstanding and registered as at 31 December 2012 68,068,930Weighted average number o shares during 2012 (basic) 64,680,895Weighted average number o shares during 2012 (diluted) 67,354,071Type Ordinary

Par value (in ) 0.1Bloomberg Symbol DLGReuters Symbol DLGS.DEISIN GB0059822006

Key gures or the nancial year 2012 based on weighted average number o shares (basic)

Revenue per share (in US$) 11.96Operating prot per share (in US$) 1.41Net prot per share (in US$) 0.97Book value per share as at 31 December 2012 (in US$) 5.91Accounting standards IAS/IFRS

Market data 2012

Exchange segment Germany Midcap, Prime All Share,Prime Technology,Technology All Share

Designated sponsor Close BrothersSeydlerCheuvreux(as at 1.1.2013)

Market capitalisation as at 31 December 2012 (in millions o ) 905Turnover o shares during 2012 530,815 shares/day

Dialog Semiconductor shares in 2012 continued

2008-2012 Dialog Semiconductor share price performance (%)

Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013

Dialog Semicon. (XTRA: DLG) German TecDAX (Price Return) Index Philadelphia SE Semiconductor Sector Index

-200

0

200

400

600

800

1,000

1,200


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09

Shares held by X-Fab Semiconductor AG,

as per the share register on 31 December 2012,amounted to 1.8% o discretionary clients.

Since 31 December 2012 and as per the shareregister on 31 January 2013, there has beenone material change to the shares held onbehal o discretionary clients.

Shares held on behal o discretionary clientsas per the share register on 31 January 2013.

The Bank o New YorkMellon SA/NV 4,511,756 6.9%BNP Paribas

Securities Services 4,347,913 6.6%State Street 3,888,040 5.9%CitigroupGlobal Markets 3,658,365 5.6 %ClearstreamBanking S.A. 3,453,092 5.3 %CACEIS Bank 3,197,105 4.9 %Chase Nominees Ltd 2,838,229 4.3 %

Disclosure o interestsThe provisions o the DTR require that anyperson or und acquiring a direct or indirectinterest o 3% or more o a class o sharesissued by the Company with voting rights at

the Companys general meeting must inormthe Company o its interest within two workingdays. I the 3% interest is exceeded, theShareholder must inorm the Company o anyincrease or decrease o one percentage pointin its interest.

In accordance with DTR 5.1.5 with respectto voting rights attached to shares held byinvestment managers (on behal o clients), byscheme operators and ICVCs, the rst thresholdor disclosure is set at 5% with the next levelset at 10% and every percentage above 10%.

Trading in Dialog shares

Dialog shares are traded in Germany on theXETRA and Frankurt regulated ocial markets,and on all other German regional exchangeson the open market.

Dividend policyDialog participates in industries that areconsidered to be global growth engines andprovides its services and products to majorplayers in these industries. Dialogs Board oDirectors is committed to reinvesting all protsinto laying the ramework or uture growthand continues to believe that this policy isin the best interests o all its Shareholders.

Investor relationsDialog understands the importance o clearcommunication with investors and analysts,particularly during a period o global economicuncertainty. During 2012, the managementteam continued its eorts to ensure that themarket was kept up to date with the eect thechanging macroenvironment was having onits business, together with the important andexciting changes under way at the Company.Dialogs shares are now ollowed by17 independent nancial analysts, representingboth European and US investment banks.During 2012, we issued trading updates and

quarterly earnings reports, presented at severalinvestor conerences and international roadshows in Europe, the US and Asia, and keptin regular contact with our Shareholders andanalysts. Dialog was named in second place inthe German Investor Relations Award 2012or the TecDAX category by Thomson ReutersExtel (a division o Thomson Reuters),WirtschatsWoche business magazine, andDIRK (the association or Investor Relations (IR)in Germany).

Inormation provided, including presentations,

press releases and reports o the Company,as well as the recommendations o analystscovering the Company, can be downloadedrom the corporate website: www.dialog-semiconductor.com/investor-relations

TecDAX indexDialog was granted entry to the TecDAX indexduring 2009. The TecDAX tracks the 30 largestand most actively traded companies romthe various technology sectors o the PrimeStandard segment, excluding those listedin the German DAX index. It is amongst themost important stock indices in Germany andmembership is decided by a ranking, basedon a companys ree-foat market capitalisationand stock market trading volume.

Free-foatDialogs ree-foat is 65,389,162 or 96.1%o the outstanding shares. The ree-foat iscalculated by excluding the 2,679,768 sharesheld in the Dialog Semiconductor Plc EmployeeBenet Trust.

The ree-foat includes the ollowing sharesheld on behal o discretionary clients as perthe share register on 31 December 2012.

State Street 6,140,555 9.4%BNP ParibasSecurities Services 4,618,079 7.1%The Bank o New YorkMellon SA/NV 4,438,659 6.8%Citigroup Global Markets 3,974,595 6.1%Clearstream Banking S.A. 3,488,399 5.3%CACEIS Bank 3,391,493 5.2%Chase Nominees Ltd 2,865,198 4.4%Brown BrothersHarriman & Co 2,008,765 3.1%
http://www.dialog-semiconductor.com/investor-relationshttp://www.dialog-semiconductor.com/investor-relationshttp://www.dialog-semiconductor.com/investor-relationshttp://www.dialog-semiconductor.com/investor-relationshttp://www.dialog-semiconductor.com/investor-relations


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10 Dialog Semiconductor Plc | Annual report and accounts 2012 | Section 1 | Overview

Dialogs customers increasingly use

our audio CODECs to deliver natural,

realistic audio with a wider sound feldto the wireless and wired headphones

and small orm actor speakers that

consumers increasingly want to use.

We also apply our connectivity expertise

to high-quality digital cordless phones

and next generation wireless

microphones and headsets.

Andrew Austin

Vice President, Sales

Dialogs audio CODECs provide ull-range, high delity audiocapture and playback to a variety o portable devices andaudio accessories. They eature programmable Digital SignalProcessors (DSPs) that ofoad audio sotware rom thehost processor and include advanced echo cancellation

technology to lter out extreme background noise.They are complemented by our amplier technologyto provide a rich, deep bass and clear highrequencies to wireless and wired headphones,speakers and handsets.

...


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11

Consumer electronics manuacturers in personal,

portable, connected markets build products based on

standard application processor platorms. Dialog is a

leader in orging strategic partnerships and supplying

companion power management ICs with the worldsleading application processor providers to deliver its

customers ully optimised solutions.

Mark Tyndall

Vice President, Business Development and Corporate Strategy


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12 Dialog Semiconductor Plc | Annual report and accounts 2012 | Section 2 | Business review

Dialog delivered its sixth successive year o record revenue growth in 2012,urther validating our strategy, and closed the year with a strong balance sheet.

Our strategy is built on our key pillars:

Our business strategy and performance

1. Extending our portolio o highlyintegrated mixed signal, lower powerproducts or portable platorms

Dialog oers custom Application Specic Integrated Circuits (ASICs)or large, high volume customers and standard Application SpecicStandardised Products (ASSPs), which oer high levels ocongurability, to a wider customer base. In 2012, we:

Launched a ourth generation o congurable system powermanagement ICs, designed or multicore applicationprocessor devices.

Enhanced our audio technology portolio, including an integratedDSP to enable echo cancellation and noise suppression usingadvanced algorithms.

Continued to see increased design wins or our SmartPulse

wireless sensor technology, based on DECT Ultra Low Energy.This includes OEMs that are using our chipset to developinternet-enabled plugs or home appliance energy monitoringand management applications via smartphone, tablet andPC apps.

2. Broadening and deepening our globalcustomer base

Dialog continues to extend the range o power and audiomanagement semiconductor content sold into the portable platormso the worlds leading smartphone vendors and the number osmartphone, tablet, Ultrabook, DECT and VoIP platorms andmodels we are able to address. In 2012, Dialog:

Secured more platorm wins with Samsung. Our powermanagement and audio technologies now eature in two Galaxysmartphone platorms and the Pebble MP3 player. This includesthe S-5368 smartphone, which was launched in the ChineseTD-SCDMA market in 2012 and went into volume productionor distribution by China Mobile, which aims to sell over 120 millionTD-SCDMA devices in 2013 and it aims or 80% o these units tobe smartphones.

Extended its Processor Partner Programme, developing companionPMICs with leading and emerging application processor vendorsto address a broader customer base through their sales ecosystems.In 2012, Freescale included our power management technologyin its reerence design or quad-core smartphone devices and wehad success with a key partner sampling our chipset or 4G LTEsmartphones, designed or Asian-based customers.

Won several new short-range wireless customers, including VTechin the enterprise cordless phone market and Jabra in the proessionalheadset market. We also see signicant market interest in themicrophone and console gaming products.

Opened our new Asian headquarters in Taipei to meet the needs

o our growing customer base in the region.


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13

3. Continuous innovation

Dialog has a strategy o continuous innovation, ocusing on newpower-saving solutions and design methodologies in the personalportable device market, while partnering with our oundries onadvanced production processes. This year we have:

Developed new building blocks to drive much higher current thanwas ever possible beore, supporting extended play time betweenbattery charges, aster charging and batteries that do not dischargeas quickly or a wider range o tablet and smartphone devices.

This includes pioneering work on the use o a multiphase buckarchitecture, 0.13 micron BCD technology.

We also licensed the ARM Cortex M0 processor to integrate

a standard 32-bit processor into mixed signal PMICs or the rsttime in the industry.

These technological advances are helping us to provide superior digitalprocessing capabilities and better power management unctions thatcan be produced in exceptionally high volumes at competitive prices.

4. Select acquisitions and strategiccooperations or access to innovativedierentiating technologies

Dialog continues to evaluate select acquisition opportunities insegments that complement our existing core strengths and providedierentiation, building on the successul purchase o SiTel andintegration o its wireless connectivity solutions into our businesslast year. We are also partnering with innovative start-ups on arange o new technologies. This year we have partnered with:

A pioneer in the use o MEMS-based silicon timing solutions thatreplace legacy quartz products to oer unsurpassed perormance,reliability and fexibility with the lowest cost o ownership.

A start-up that is taking an innovative new approach to powerconversion or multiple markets, including smartphones, tablets,Ultrabooks and data centres, based on switch capacitive

techniques. The technology acilitates the use o smallerinductive components, resulting in increased eciency andan overall higher power density actor over and above todayscompeting technologies.


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As such, innovation continues to be the

lieblood o our Company. Our powermanagement IC, eaturing a new multiphasebuck converter or powering quad-coreapplication processors, was sampled to keycustomers in 2012. It meets the more complexpower management needs o next generationsmartphones, tablets and Ultrabooks.

In due course, we believe there will beadditional technical capabilities that Dialog mustdevelop or acquire to ensure it maintains itsstrengths in the mixed signal semiconductormarket or portable devices. This was one o themain reasons or our successul US$201 millionconvertible bond issue in March 2012.

Dialog is also keeping pace with technologyand in 2013, together with our oundrypartners, will start its transition to a smallergeometry, 130 nanometer manuacturingprocess that will yield more chips per waer.As a abless semiconductor company, weveorged close partnerships with a number ooundries to enable us to integrate more analog,digital and high voltage components, includingField Eect Transistors (FETs) into a smaller ormactor, single chip power management solutions.This will help to increase the talk time oportable devices while meeting the consumers

desire o aster charging.

Dialog continues to seek the brightest and thebest and has signicantly increased its employeebase to a total o 806 in Asia, the US andEurope; during the last quarter o 2012 weopened two new design centres in Turkeyand Italy to attract urther talent.

Dear Shareholders,

Dialog continued to perorm very strongly in2012 with top-line growth o 47% year-on-year,against a backdrop o broadly fat globalsemiconductor industry revenue according toindustry analysts. This is our th successiveyear o protable and rapid growth.

At the same time, in 2012, the Company hasimproved its gross operating margin quarter onquarter as a percentage o revenue to 37.8% overthe last our quarters by ocusing on productyield improvements, supply chain negotiationsand material cost reductions. Continued marginimprovement remains a key ocus.

Dialogs nancial perormance in 2012 wasdriven by success in the smartphone andtablet sectors. Beyond the boom insmartphones, tablets, e-books and mediaplayers, we expect to see the emergence oother portable devices, such as next generationconvertible Ultrabooks that can be used asa tablet or laptop. Ultrabooks are closer inarchitecture to smartphones and tablets thanPCs, in terms o their battery and energyrequirements, creating opportunities orDialogs power management technologies.

Were also expanding into new sectors. Using

our DECT technology, Dialog is able to supportreliable, intererence-ree wireless signals tocordless phones and headsets, microphonesand gaming controllers in real time with nobuering, achieving ceiling to cellar reach.Additionally our Ultra Low Energy (ULE) DECTICs are increasingly used in home automationapplications that can also be controlled overthe cloud rom your smartphone or tablet. Thisexpertise in short-range wireless connectivity isenabling us to develop new ICs or transmittingdata between personal devices, smartphonesand tablets, and we already have some excitingnew products in development.

Chief Executives review

From let:Dialog has a strategy o continuous innovation,ocusing on new power-saving solutions and designmethodologies in the personal portable devicemarket, while partnering with our oundries onadvanced production processes.

Dr Jalal Bagherli, Dialog Semiconductor CEO, withMaria Marced, President o TSMC Europe, one oDialogs key partners with whom the Company

is co-operating on state-o-the-art 0.13 micronbipolar-CMOS-DMIS (BCD) technology.

Dr Jalal BagherliChie Executive Ofcer


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15

We have also expanded our global ootprint

by establishing an Asian headquarters unctionin Taipei in April 2012. This complements ourexisting manuacturing engineering supportpresence in Taiwan, and is intended to acilitateengagement with major new customerslocally and is a stepping stone or our uturegrowth ambitions to address the ast-growingsmartphone market in China, which we expectto nearly double to more than 450 million unitsin 2013.

Dialog should play its part as good corporatecitizens. We operate with a conscious eye onminimising our impact on the environment andmaking a positive contribution to society. Thisnot only reduces operating costs, by minimisingenergy and raw material wastage, but also helpsus to make Dialog a great place to work.

I look orward to the challenges o 2013,ocusing in particular on the opportunitiesor our technologies in next generationsmartphones, tablets and Ultrabooks,together with the exciting growth opportunityto bring our technology into smartphonesor China. I remain condent o Dialogsprospects or continuing protable growthas we pursue our aspirations to reach andsurpass US$1 billion in annual revenues.

Dr Jalal Bagherli

Chie Executive Ofcer

From let:SmartPulse is Dialogs wireless sensor networkconnectivity solution, based on the Ultra Low EnergyDECT standard or home automation applications.

Dialog opened its new Asian headquartersin Taipei in 2012 to meet the needs o our

growing customer base in the region.

Above:Dialog replaces discrete power managementcomponents with highly integrated, single-chip

solutions that provide design simplicity, reduceenergy usage, save board space or othercomponents and lower the overall bill o materials.


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Our products and key customers

From let:In 2012, Dialog launched a new class o powermanagement product DA9063 our ourth

generation o advanced system powermanagement integrated circuit (PMIC).

Dialog replaces discrete power managementcomponents with highly integrated, single chip

solutions that provide design simplicity, reduce energyusage, save board space or other components

and lower the overall bill o materials.

high-perormance LDOs (low dropout voltage

regulators), high-eciency DC-DC voltageconverters, intelligent battery charging circuits,sotware programmable LED drivers, sensorADCs, USB interaces, and multichannelaudio capabilities.

In 2012, Dialog launched a new class o powermanagement product DA9063 our ourthgeneration o advanced system PMIC andfagship product, targeting high-end multicore-based applications. A second member o theamily DA9021 addresses lower powercost-sensitive applications.

Our congurable PMICs enable late changesin board-level designs as additional unctionalitythat is added into smartphone platorms duringthe R&D process. As a platorm-based PMICcan support multiple phone designs, Dialoghelps its customers reduce inventories andrespond to the consumer markets need orvolume fexibility.

Dialogs Audio CODECs lter out extremebackground noise and increase the delity othe sound through advanced echo cancellationand DSP (Digital Signal Processing) technologythat delivers a rich, deep base and clear highrequencies even in noisy environments.

This is complemented by amplier technologyto improve audio quality through theheadphones and speakers.

Dialog ocuses on threemajor sectors: mobile,connectivity and automotiveand industrial.

Mobile solutionsOur power management, audio and displaysemiconductor solutions are designed orportable devices, including smartphones,tablets, Ultrabooks, ebooks, MP3, MP4and other media players.

Dialog replaces discrete power managementcomponents with highly integrated, singlechip solutions that provide design simplicity,reduce energy usage, save board space orother components and lower the overall billo materials. Dialogs Power ManagementIntegrated Circuits (PMICs) are ully congurable,which means they can be programmed tomeet the exact voltage and current needso every component.

Eective power management in many portabledevices presents an increasingly complex arrayo design challenges. Smartphones, tablets andUltrabooks increasingly need to be able torun high denition video, games, GPS maps

and audio content and connect via high speed4G LTE and legacy 3G networks, Wi-Fi and

short-range wireless stands like Bluetooth.

4G LTE, or example, requires a lot moreprocessing power to decode ar greateramounts o data in the wireless spectrum.At the same time consumers demand displaysthat are brighter, bigger and incorporate touchunctionality and, in the uture, haptic eedback.Each o these eatures is a major batterydrain, creating a need or eective powermanagement technologies.

Multicore devices delegate simple tasks to onecore, while directing more complex, power-hungry tasks to the other core. Each o thequad- or octal-core application processors needsto be powered up and down into and out osleep state in particular sequences. Dialogssolutions excel at handling this powermanagement complexity. Dialogs chargingsolutions or lithium ion battery systems supportaster charging, more saely and rom a widervariety o sources.

With a long legacy o delivering dierent powermanagement designs or world-leading mobilephone manuacturers and portable consumerOEMs, we seek to optimise all aspects o thedesign, including electrical, thermal andmechanical packaging considerations. Thesedesigns oer sophisticated integration with

multiple power management and analogunctions on the chip, including programmable


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17

From let:Dialogs DECT-based transceivers are designedor wireless gaming controllers, microphonesand speakers and provide reliable,intererence-ree connectivity.

By using the DECT ULE (Ultra Low Energy) standard,Dialog is able to provide intererence-ree wirelessconnectivity with the widest reach throughoutconsumers homes and low deployment costs.

Dialog is one o the rst companies to combine

a ully congurable PMIC with a low powerAudio CODEC that is monolithically integrated,or stacked, in a single package to deliversignicant board space and cost savings to itscustomers. This can involve the integration oover 40 dierent high- and low-voltage circuitsand analog unctions on a single chip.

Connectivity and VoIP solutionsDialogs DECT-based transceivers are designedor wireless microphones, speakers, gamingcontrollers as well as proessional headsetsand cordless phones using this secure, reliable,intererence-ree short-range connectivitystandard that oers ceiling to cellar reach andcan also extend out into consumers gardens.

DECT is optimised or the short-range wirelessspectrum, giving audio priority in the home oroce. It is also ideally suited to handling othertypes o signal that require a real-time responsewith no buering. Use o DECT avoids theproblems o co-channel intererence whenmultiple Wi-Fi, Bluetooth, microwave andother proprietary signals compete, slowingresponse times and causing device drop-os.For example, DECT ensures that microphonescapturing voice are perectly in sync with thebacking tracks and musicians and consumers

can enjoy reliable, real-time control when usingtheir gaming consoles.

Dialog has also developed SmartPulse, based

on DECT Ultra Low Energy, to enable consumersto wirelessly monitor and control electric plugs,solar panels, lighting switches, heatingthermostats and other innovative smart homeapplications over the cloud using the always-oncomputing power o a smartphone or tablet.

By enabling voice and data to run over a singlenetwork Voice-over IP (VoIP) technology canenable businesses to increase bandwidtheciencies and reduce costs and migrate awayrom traditional copper wire switched telephonesystems. Dialog engages with the leading globalVoIP phone manuacturers with our energy-ecient Green VoIP solution to address thelarge enterprise, small to medium business(SMB) and hotel markets.

Dialog oers high-perormance, energy-savingVoIP chipsets that integrate the building blocksor best-in-class audio, security and graphicsunctionality. They use acoustic echo cancellationand active noise reduction to deliver crystal clearconversations, with the option o video callingor phone number directories on a high resolution,colour touchscreen LCD, and banking-gradelevels o security authentication.

We are also developing DECT and VoIP

technologies to provide voice control andtelephony unctionality in smart homeappliances, or example medical pendantsor the elderly.


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Our products and key customers continued

From let:Dialogs power management and clock companionICs or the Intel Atom and Freescale i.MX series o

processors provide an optimum solution or nextgeneration inotainment systems.

During 2012, Dialog invested US$127.5 million,or 16.5% o our revenue, in researchand development.

Manuacture, assembly and testing

Dialog outsources its waer production to selectoundries, principally in Taiwan, Singapore andChina, which provide high-quality productsand have the ability to meet both our stringentqualication requirements and tight deadlines.

The nal assembly o our chips is outsourcedto a number o qualied subcontractors in Asia.Our test programmes, based on our own andindividual customers specications, aredeveloped by our test engineers in parallel withthe design process. All test development isundertaken at our Nabern acility in Germanyusing the same type o test equipment andhandling interaces as our oshore testsubcontractors to speed up the productiontranser process and volume ramp.

All production testing and warehousing o ournal products is outsourced to our Asian testsubcontract partners, enabling direct dropshipments to our end customers. We have alsocreated a specialist oshore operations anda support centre in Taiwan. We have our ownmanuacturing and technical engineers close tooundries and assembly and test subcontractorsin Asia. By being on the spot to resolve anypotential engineering issues quickly, they canorestall potential delays in production.

Automotive and industrial

Dialog supplies motor control ASICs to a leadingEuropean automotive supplier who in turndelivers Dialog-based windscreen wiper motorproducts addressing mid- to high-end Europeancars. Additionally, our rst product or acustomer in Japan went into productionin 2012.

These devices capitalise on Dialogs expertiseand knowledge o technologies ranging rompower management systems and mixed signaldesign, to high voltage circuits and embeddedmicroprocessors on a single integrated circuitin an automotive-qualied CMOS process,including fash memory.

Dialogs power management and clockcompanion ICs or the Intel Atom and Freescalei.MX series o processors provide an optimumsolution or next generation inotainmentsystems. These help to deliver video, high delityaudio and better GPS and other multimediasupport that reacts in real time to the changingexternal environment.

For the industrial market, Dialog developsinnovative control ASICs, both or conventionallight sources, such as fuorescent or High-Intensity Discharge (HID) lamps. Our uture

development ocus is on energy-ecient retrot

bulb LED lighting solutions. These devices seek

to deliver optimal control and regulation olight sources, while maximising their service lie.Through intelligent control, using advanceddigital signal processing, these devices helpto minimise energy consumption.

Design, development and productionWe are justiably proud o the quality andeature-rich unctionality o our mixedsignal integrated circuits, achieving highintegration levels.

Innovation is vital to our continued success.During 2012, we invested US$127.9 million,or 16.5% o our revenue, in research anddevelopment. Our ability to develop mixedsignal Application Specic Integrated Circuits(ASICs) and Application Specic StandardProducts (ASSPs) designs rapidly enables usto respond to customers needs or new, higherperormance solutions while reducing cost.Our strategy o modiying and reusing a wideset o specialised analog building blocks speedsup the design process. In addition, our use oindustry standard design tools increases the levelo automation and the quality o verication inour products. Our commitment to continuouslydeepen our expertise has resulted in increasedlevels o integration and product innovation

in all business sectors.


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From let:Dialog has an uncompromising approach to qualityassurance in every area o our operations and goalo zero ailures o our products in the feld.

Given the rapidly evolving nature o the technologyused in Dialogs target markets, the Company

strives to develop long-term relationships with itsmajor customers and seeks to adopt a partnershipapproach or both standard products and

custom solutions.

Quality and environment control

We have an uncompromising approach toquality assurance in every area o our operationsand goal o zero ailures o our products in theeld. Active employee participation in errorprevention approaches has enabled us to winthe approval o our major customers andto beat their parts per million (ppm) ailurerate expectations. The overall objective o ourquality management system is to provide allour customers with the assurance that ourproducts and services not only ull theircurrent contractual requirements, but willalso meet their uture needs.

We are committed to minimising our impact onthe environment by developing and promotingenvironmentally compatible products, andoperate in accordance with the ISO 14001international environmental quality standard.We continuously promote awareness andknowledge o environmental and socialresponsibility throughout the organisation toensure that they become a natural part o thedecision-making process. As we demand thesame standards rom our suppliers we onlyorm supply partnerships with those who areaccredited to the same international standards.For more detailed inormation on specicproducts, please see our website:

www.dialog-semiconductor.com.

Principal customers

Many o Dialogs principal customers are leadingportable device digital cordless, automotiveand industrial equipment manuacturers thatpurchase both ASIC and ASSP solutions.Customers with a signicant contribution torevenue include (in order o contribution) Apple,Gigaset, Panasonic, Bosch and Samsung. Thesetop ve customers represented 91% o revenuein 2012. Samsung has also become increasinglyimportant or a growing range o our productstargeting smartphone and portable mediaplayer platorms.

Given the rapidly evolving nature o thetechnology used in Dialogs target markets,the Company strives to develop long-termrelationships with its major customers andseeks to adopt a partnership approach orboth standard products and custom solutions.Customers look to Dialog or high integration,innovation and technical expertise, while closeworking relationships with customers provideDialog with an opportunity to develop andrene market-leading products with recognisedindustry leaders.
http://www.dialog-semiconductor.com/http://www.dialog-semiconductor.com/


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...

Dialog Semiconductor Plc | Annual report and accounts 2012 | Section 2 | Business review

The Internet o Things is dependenton having an Ultra Low Energy wirelessstandard that has ceiling to cellar reachand beyond, sensors that can last

a decade with a single AAA batterypack and the addition o voice controlor telephony i required. Dialog hasdeveloped SmartPulse to deliver thissmart home unctionality and more.

Sean McGrath

Vice President and General ManagerConnectivity, Automotive and IndustrialBusiness Group

The Internet o Things is at last becoming a reality. Consumers desireor greater comort, and convenience, to conserve energy in their homesand the advent o the always-on computing power o the smartphoneand tablet is driving a new wave o innovation. We will start tosee the emergence o wireless light switches and thermostats,

smoke and gas detectors, home central locking systems andmedical pendants or the elderly that can be controlled andmonitored rom a single smartphone or tablet app.


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Our rigorous ocus on working capital together with sound fnancialpractices rooted in operational excellence are helping Dialog builda scalable platorm or sustainable proftable growth.

JeanMichel Richard

CFO, Vice President Finance

The ollowing tables detail the historicalconsolidated statements o the operations oDialog or the years ended 31 December 2011and 2012: 2012 20111) Change

US$000 % o revenues US$000 % o revenues %

RevenuesMobile Systems 638,765 82.6 370,926 70.3 72.2Automotive/Industrial 38,686 5.0 45,878 8.7 (15.7)Connectivity 96,133 12.4 108,778 20.7 0.0Corporate Sector (1) 0.0 1,679 0.3 (100.1)

Revenues 773,583 100.0 527,261 100.0 46.7

Cost o sales (480,971) (62.2) (319,073) (60.5) 50.7

Gross proft 292,612 37.8 208,188 39.5 40.6

Selling and marketing expenses (38,669) (5.0) (32,370) (6.1) 19.5General and administrative expenses (33,476) (4.3) (24,442) (4.6) 37.0Research and development expenses (127,886) (16.5) (90,046) (17.1) 42.0Restructuring expenses (1,549) (0.2) 0.0 Other operating income 0.0 303 0.1 0.0

Operating proft 91,032 11.8 61,633 11.7 47.7

Interest income and other nancial income 1,360 0.2 376 0.1 261.7Interest expense and other nancial expense (6,466) (0.8) (235) 0.0 2,651.5Foreign currency exchange gains and losses, net 199 0.0 (352) (0.2) (156.5)

Result beore income taxes 86,125 11.1 61,422 11.6 40.2

Income tax expense (23,612) (3.1) (4,070) (0.8) 480.1

Net proft 62,513 8.1 57,352 10.9 9.0

1) 2011 numbers adjusted or purchase price allocation, please reer to note 4 to the consolidated nancial statements

Financial review

In line with previous years, thekey perormance indicators othe business continue to berevenue growth, protabilityand liquidity. The perormanceagainst these and year-on-yearcomparison is detailed in theollowing section.

Results o operationsSegment reporting

Revenue in the Mobile Systems segmentor the year ended 31 December 2012 wasUS$638.8 million (2011: US$370.9 million),representing 82.6% o our total revenue (2011:70.3%). The 72.2% increase in this sector isprimarily driven by the continuous success oour growing range o highly integrated powermanagement solutions or portable devices,including smartphones, tablets and portablemedia players.

Operating prot in the Mobile Systemssegment (see note 24 to the consolidatednancial statements) grew to US$112.3 millionrom US$59.8 million achieved in 2011, an

increase o 87.7%. This increased protabilitywas primarily driven by higher revenues and

by leveraging operating expenses whilstcontinuing to improve product margins.

Revenues rom our Automotive/IndustrialApplications segment was US$38.7 million(2011: US$45.9 million), representing 5.0%o our total revenues (2011: 8.7%).

This decrease in revenues is mainly the result olower sales volumes in the area o proessionallighting applications, caused by the unavourableeconomic climate in Europe and a decreased levelo investment. Operating prot in the segmentwas US$8.1 million (2011: US$9.8 million). Despitelower revenues, operating prot as a percentageo revenues remained relatively constant(2012: 20.9% compared to 2011: 21.5%),

demonstrating our abilities to control cost.


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23

Selling and marketing expensesSelling and marketing expenses consist primarilyo salaries, sales commissions, travel expenses,advertising and other marketing costs. In linewith our increased sales volume and continuousgrowth o our business, selling and marketingexpenses increased rom US$32.4 million in2011 to US$38.7 million in 2012. As a percentageo total revenue, selling and marketing expensesdecreased rom 6.1% o total revenue in 2011to 5.0% in 2012, demonstrating the Companysability to control cost.

General and administrative expensesGeneral and administrative expenses consistprimarily o personnel and support costs or ournance, human resources and other managementdepartments and in 2011 the acquisition-relatedcosts in connection with the purchase o SiTel.General and administrative expenses or 2012were up 37.0% at US$33.5 million (2011:US$24.4 million). General and administrativeexpenses as a percentage o total revenue

decreased rom 4.6% in 2011 to 4.3% in 2012.

The Connectivity segment represents our

subsidiary Dialog Semiconductor B.V. (DialogB.V.), which we acquired on 10 February2011, thereore its results are consolidatedrom this date (see note 4 to the consolidatednancial statements).

Revenue rom our Connectivity segment in 2012was US$96.1 million (2011: US$108.8 million).In 2012, the Connectivity segment contributedan operating loss o US$13.1 million, comparedto an operating prot o US$4.9 million or 2011.The decrease in revenue can be mainly attributedto the overall sotening in the cordless DECTmarket, driven by unavourable macroeconomics especially in Europe but also by theCompanys strategy to not take market share atlow margin whilst it reocuses R&D investmentsto address new applications and markets.

Had the Connectivity business been consolidatedrom the beginning o 2011, the total revenuein 2011 would have been US$120.2 million,US$24.1 million above the US$96.1 millionachieved in 2012. The operating prot wouldhave been US$3.6 million, US$16.7 million abovethe operating loss o US$13.1 million in 2012.The revenue decrease translates into a reductiono the operating income o approximatelyUS$9.5 million.

During 2012, urther adverse eects impactedconnectivity; inventory write-downs andrevaluations o US$2.0 million (2011:US$0.2 million); a one-time expense o aboutUS$0.9 million related to the transer o certainlegacy connectivity products to a new assemblysite which will lead to urther cost improvementsonce the transer is completed in Q1 2013 (2011:nil), restructuring expenses o US$1.5 million(2011: nil) please see explanation here belowunder restructuring expenses increasedoutsourced R&D expenses o US$1.7 millioncompared to 2011 to accelerate the developmento new products, government grants or R&D

activities received were US$0.4 million lowerthan in 2011, capitalised R&D and overheadexpenses reduced by US$1.0 million comparedto 2011 and US$0.4 million o overhead costassociated with the Companys share optionprogramme were allocated to Connectivity(2011: nil) this amount related mainly toNational Insurance provisions or UK-basedemployees, associated to share options thathad to be provided or by the Company.

On the other hand, during 2012, other avourableeects were recorded: the operating loss in 2012included an amortisation expense resulting romair value adjustments in connection with the

purchase price allocation o US$5.6 million(2011 US$6.0 million). 2012 also included

US$0.6 million (2011: US$2.7 million) or the

accelerated amortisation o intangible assets inrelation to previously capitalised R&D expensesor close to end o lie products (these productswere ully amortised by the end o Q1 2012) andnally 2011 beneted rom a rst-time inventoryoverhead capitalisation o US$0.5 million to alignthe local accounting procedures to those o theGroup. Furthermore, in 2012 the underlying1)operational loss in 2012 was US$6.3 million,compared to a prot o US$16.8 million in 2011

For urther inormation please reer to notes 4and 24 to the consolidated nancial statements.

RevenuesTotal revenues or 2012 were up 46.7% atUS$773.6 million (2011: US$527.3 million. Theincrease in revenue is mainly a result o highersales volumes in our Mobile Systems segment.

Cost o salesCost o sales consists o material costs, thecosts o outsourced production and assembly,related personnel costs and applicable overheadand depreciation o test and other equipment.Cost o sales or the period ended 31 December2012 was up 50.7% at US$481.0 million(2011: US$319.1 million). The increase in costo sales was mostly in line with the increase in

production volume.

As a percentage o revenue, cost o salesincreased rom 60.5% in 2011 to 62.2% in2012. This increase can largely be attributed tothe product mix, which refects higher volumecustomer contracts together with higher materialcosts against the backdrop o an ongoingconstrained supply chain environment.Additionally, very high volume ramps o newproducts using new manuacturing processes,introduced early last year, continued to drivelower yields through 2012 although measurableimprovements were already visible in the secondhal o 2012.

Gross proftOur gross margin decreased rom 39.5% orevenue in 2011 to 37.8% in 2012. This wasdue to higher cost o sales as a percentageo revenue, as described above.

However, during the course o 2012, our grossmargin improved quarter on quarter to peakat 38.5% o revenues in Q4 2012.

For the most part o 2012, gross marginsremained under pressure due to the reasonsdescribed above and the continuous supplyconstraints, which inhibited expected cost

reductions rom suppliers.

800

600

400

200

02011 2012

Revenue(US$m)

70

60

50

40

30

20

10

02011 2012

Cost o sales

(as % o revenue)


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Net proftFor the reasons described above, net prot in2012 reached US$62.5 million, compared toUS$57.4 million in 2011, with basic earnings pershare at US$0.97 (2011: US$0.91) and dilutedearnings per share at US$0.93 (2011: US$0.86).Applying the 2012 eective tax rate o 27.4%to the 2011 diluted earnings per share would

have reduced it by US$0.19 to US$0.67 thisbetter demonstrates the operational leveragethat the Company achieved in 2012.

2011 included one-time M&A expenses in

connection with the acquisition o Dialog B.V.,totalling US$3.2 million. Excluding these one-time costs, general and administrative expensesin 2011 were US$21.2 million. Comparing theUS$21.2 million with the amount in 2012 wesaw an increase o US$12.3 million or 57.8%over 2011.

US$3.1 million o this increase was due tomovements in the share price aecting theNational Insurance cost associated withshare-based payment charge. During 2012,Dialogs share price increased rom 12.36 at31 December 2011 to an average share priceo 15.85 impacting the National Insuranceassociated with share options exercised in theyear and new options granted during 2012 please reer to note 21 to the consolidatednancial statements.

The remaining increase related to higher costs,mainly personal costs or support unctions,refecting the growth o the Company.Underlying1) general and administrative expensesin 2012 were US$29.2 million or 3.8% orevenue, compared to US$19.9 million or3.8% in 2011. Whilst the percentage remainedfat year-on-year, general and administrativeexpenses as a percentage o revenues continue

to remain amongst best in class in our industry.

Research and development expensesResearch and development expenses consistprincipally o design and engineering-relatedcosts associated with the development o newApplication Specic Integrated Circuits(ASICs) and Application Specic StandardProducts (ASSPs). Research and developmentexpenses (net o customer-unded projects)were US$127.9 million or 2012 (2011:US$90.0 million), an increase o 42.0%.The increase was primarily due to an increasedheadcount o our R&D personnel andinvestments in advanced silicon and packaging

technologies in support o our ongoing growthstrategy. As a percentage o total revenue,research and development expenses decreasedrom 17.1% in 2011 to 16.5% in 2012.

Restructuring expensesIn connection with the acquisition o SiTel in2011, as explained in note 4 to the consolidatednancial statements, the Company carried outsome reorganisation, resulting in restructuringcosts o US$1.5 million.

Operating proft

We reported an operating prot o US$91.0 millionor 2012. This compares to an operating proto US$61.6 million in the previous year.

This increase o 47.7% primarily resulted roma wider revenue base in 2012, underpinnedby our Mobile Systems segment. Underlying1)operating prot in 2012 was US$107.5 million or13.9% o revenue, compared to US$79.8 millionor 15.1% o revenue in 2011.

Interest income and other fnancial incomeInterest income and other nancial income romthe Companys investments (primarily short-termdeposits and securities) was US$1.4 million or2012, compared to US$0.4 million in 2011.The increase is associated with the placemento the proceeds o the convertible bondon interest-bearing accounts. For urtherinormation, please reer to note 18 tothe consolidated nancial statements.

Interest expense and otherfnancial expenseInterest expense and other nancial expenseconsists primarily o expenses rom capital leases,hire purchase agreements, the Groups actoringarrangement and in 2012 also the interestexpense in relation to the convertible bond.

2012 interest and other nancial expenses wereUS$6.5 million (2011: US$0.2 million). The amountin 2012 mainly included two components relatingto the convertible bond: US$1.4 million relatingto a 1% coupon payable on a semi-annualbasis to the bondholders and US$4.0 million,representing the interest expense in connectionwith the measurement o nancial liability romthe bond using the eective interest method.

Income tax expenseFor 2012, a net tax charge o US$23.6 millionwas recorded (2011: US$4.1 million), resultingin an eective tax rate o 27.4% (2011: 6.6%).The main reason or the increase o the eective

tax rate was that in 2012, a lower amounto previously unrecognised deerred tax assetswas recognised. The amount in 2012 wasUS$4.0 million compared to US$14.6 million in2011. Excluding these tax benets, the eectivetax rate in 2012 would have been 32.1%compared to 30.4% in 2011. This increaserelates to higher operational expenses in theUK, or which no tax benet was recorded asa result o not recognising deerred tax assets inthe UK. For urther inormation, please reer tonote 5 to the consolidated nancial statements.

Financial review continued

120

100

80

60

40

20

02011 2012

Operating prot(US$m)

80

60

40

20

02011 2012

Net prot

(US$m)


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With an amount o US$164.6 million, long-term

debt as o 31 December 2012 represents mainlythe air value o the liability rom the convertiblebond (31 December 2011: US$0), please reer tonote 18 to the consolidated nancial statements.

I necessary, we have available or use a multi-currency three-year (20102013) revolving creditline acility o 10.0 million (US$16.2 million)at a rate o LIBOR +150bp and a three-year(20112014) revolving credit acility oUS$35.0 million that bears interest at an averagerate o LIBOR +140bp. At 31 December 2012and 2011, we had no amounts outstandingunder these acilities. In addition, we have twoactoring agreements which provide the Companywith up to US$60.0 million o readily availablecash (a US$30 million increase over 2011).Accordingly, we believe the unding availablerom these and other sources will be sucientto satisy our working capital requirements inthe near- to medium-term i needed.

Liquidity and capital resources

Cash fowsCash fows rom operating activities wereUS$52.4 million or 2012 (2011: US$69.6 million).Cash infows o US$139.7 million (2011:US$97.2 million) resulted rom the Companysnet prot adjusted by depreciation, amortisationand other non-cash eective expenses. This cashinfow was partly oset by investments in theCompanys working capital o US$77.9 million(2011: US$24.8 million), mainly relatingto investments in inventories in support oQ1 2013 backlog and business demand or therst hal o 2013. In addition, tax payments oUS$9.5 million (2011: US$3.1 million) reducednet cash generated rom operating activities.

Cash used or investing activities wasUS$54.3 million or 2012 (2011:US$116.1 million). Cash used or investingactivities in 2012 predominantly consistedo US$35.0 million (2011: US$21.2 million)

or the purchase o advanced test equipment,

tooling (masks), laboratory equipment, probe cardsand load boards. US$7.7 million (2011: nil) werepaid or a new licensing agreement, or urtherinormation please reer to note 12 to theconsolidated nancial statements. US$5.7 million(2011: US$5.4 million) relate to the purchaseo other intangible assets. Payments relatedto capitalised development costs wereUS$6.0 million (2011: US$5.2 million).2011 cash used or investing activities includedUS$84.2 million relating to the acquisitiono SiTel Semiconductor.

Liquidity

At 31 December 2012, we had cash and cashequivalents o US$312.4 million (31 December2011: US$113.6 million). The working capital(dened as current assets minus current liabilities)was US$420.9 million (31 December 2011:US$150.8 million).

Dialog Semiconductors underlying fnancial perormance or 2012 and 2011 is summarised below:

2012 20113)

US$000 IFRS Adjustments Underlying1) IFRS Adjustments Underlying1)

Revenues 773,583 773,583 527,261 527,261Cost o sales (480,971) (1,142) (479,829) (319,073) (3,051) (316,022)

Gross proft 292,612 (1,142) 293,754 208,188 (3,051) 211,239

Selling and marketing expenses (38,669) (6,286) (32,383) (32,370) (6,543) (25,827)General and administrative expenses (33,476) (4,296) (29,180) (24,442) (4,502) (19,940)Research and development expenses (127,886) (4,716) (123,170) (90,046) (4,089) (85,957)Restructuring expenses (1,549) (1,549) Other operating income 303 303

Operating proft 91,032 (16,440) 107,472 61,633 (18,185) 79,818

Interest income and other nancial income 1,360 1,360 376 376Interest expense and other nancial expense (6,466) (4,668) (1,798) (235) (235)Foreign currency exchange gains and losses net 199 199 (352) (352)

Result beore income taxes 86,125 (21,108) 107,233 61,422 (18,185) 79,607

Income tax expense (23,612) 3,659 (27,271) (4,070) 1,489 (5,559)

Net proft 62,513 (17,449) 79,962 57,352 (16,696) 74,048

Earnings per share (in US$)Basic 0.97 (0.27) 1.24 0.91 (0.27) 1.18Diluted 0.93 (0.26) 1.19 0.86 (0.25) 1.10

EBITDA2) 124,352 (10,162) 134,514 87,570 (9,526) 97,096

1) Underlying results in 2012 net o tax eects are based on IFRS, adjusted to exclude share-based compensation charges and related charges or National Insurance o US$8.3 million, excludingUS$4.7 million o amortisation o intangibles associated with the acquisition o Dialog B.V., excluding US$4.0 million non-cash eective interest expense in connection with the convertible bondand excluding US$0.5 million non-cash eective interest expense related to the new licensing agreement (please reer to note 12 to the consolidated nancial statements).

Underlying results in 2011 net o tax eects are based on IFRS, adjusted to exclude share-based compensation charges and related charges or National Insurance o US$6.2 million, excluding one-timetransaction costs o US$3.2 million associated with the acquisition o Dialog B.V., excluding US$7.3 million o amortisation o intangibles associated with the acquisition o Dialog B.V.

The term underlying is not dened in IFRS and thereore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substituteor, or a superior measure to, IFRS measures.

2) EBITDA is dened as operating prot excluding depreciation or property, plant and equipment (2012: US$12.7 million, 2011: US$8.8 million), amortisation or intangible assets (2012: US$19.6 million,2011: US$16.0 million) and losses on disposals and impairment o xed assets (2012: US$1.0 million, 2011: US$1.1 million).

3) 2011 numbers adjusted or the purchase price allocation, please reer to note 4 to the 2012 interim consolidated nancial statements.


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Balance sheet total was US$708.1 million at31 December 2012 (31 December 2011:US$349.4 million). Cash and cash equivalentsincreased by US$198.8 million or 175.1%to US$312.4 million at 31 December 2012(31 December 2011: US$113.6 million).

This increase was mainly caused by the netcash infows rom operating activities oUS$52.4 million rom the convertible bondin the amount o US$196.6 million and cashinfows rom the sale o employee stockpurchase plan shares in the amount oUS$4.1 million. The cash infows were partlyoset by cash outfows or investing activitiesin the amount o US$54.3 million.

Other current assets increased romUS$117.7 million at 31 December 2011by US$133.4 million to US$251.1 million at

31 December 2012. The increase o 113.3%is mainly driven by higher inventory balances(+US$89.8 million) and higher trade receivables(+US$36.2 million).

Total non-current assets increased 22.5%to US$144.6 million; investments into tangibleand intangible assets were US$68.6 million.These were partly oset by depreciation,amortisation and impairment charges in theamount o US$33.3 million. Deerred tax assetsdecreased by US$8.5 million due to the usageo net loss carry orwards.

Statement o fnancial position At 31 December At 31 December

2012 2011 ChangeUS$000 US$000 US$000 %

AssetsCash and cash equivalents and restricted cash 312,435 113,590 198,845 175.1All other current assets 251,067 117,685 133,382 113.3

Total current assets 563,502 231,275 332,227 143.7

Property, plant and equipment, net 50,318 28,404 21,914 77.2Goodwill 32,283 32,283 Intangible assets 51,789 38,361 13,428 35.0All other non-current assets 1,335 1,684 (349) (20.7)Deerred tax assets 8,913 17,382 (8,469) (48.7)

Total non-current assets 144,638 118,114 26,524 22.5

Total assets 708,140 349,389 358,751 102.7

Liabilities and Shareholders equityCurrent liabilities 142,650 80,440 62,210 77.3Non-current liabilities 182,899 4,345 178,554 4,109.4Net Shareholders equity 382,591 264,604 117,987 44.6

Total liabilities and Shareholders equity 708,140 349,389 358,751 102.7

Financial review continued

Current liabilities increased by net US$62.2 milliono which US$55.8 million relate to increasedtrade and other payables, which mainly standin relation to the increased inventory balance.

Non-current liabilities increased byUS$178.6 million. The amount at 31 December2012 mainly includes US$164.6 million(31 December 2011: nil), which representsthe air value o the convertible bond liabilityand US$11.8 million (31 December 2011: nil)nancing costs relating to the new licenceagreement. For urther inormation, pleasereer to note 12 and note 18 to the consolidatednancial statements respectively.

Shareholders equity increased romUS$264.6 million at 31 December 2011by US$118.0 million to US$382.6 millionat 31 December 2012. US$36.6 million

o this increase relates to the convertiblebond. US$69.5 million relate to our netprot (adjusted by expenses or share-basedpayments). The equity ratio was 54.0%(31 December 2011: 75.7%).


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27

Dialogs risk management process ollows a sequence o risk identication,assessment o probability and impact, and assigns an owner to managemitigation activities, liaising with internal and external auditors.

Market environmentDialog operates in the ast-moving, highly competitive consumer electronics market where manuacturers demand the best quality at lowest pricesrom their suppliers. Typical to our market are breakthrough innovations, ast rising leaders, hypes, mass production and global visibility. As a ablesssemiconductor manuacturer, Dialogs position in its segments o operation is maintained by a high degree o innovation and ast time-to-market.

Risk Actions

Consumers

Dialog is a market-leading provider o

high-quality IC solutions to innovativeconsumer electronics companies. To maintainthis position and grow our business,we need to convert trends into businessopportunities through eective marketing.

Dialog invests in research and development to anticipate and respond to new market trends, rapidlyimplement new designs to meet customers needs and keep abreast o technological changes.

Dialog invested US$127.9 million, or 16.5% o revenues, in R&D in 2012 across a range o highlytargeted areas.

We also opened our Asian headquarters in Taiwan, complementing our existing manuacturingengineering support presence in the country, to be closer to our customer base in the region.

Economy

Our ambition is to sustain growth, but theslowdown in the semiconductor industryalso aects the segments o our business.

Dialog is broadening its product portolio and investing in new solution areas that targethigh-growth sectors.

In 2012, Dialog raised US$201 million o unds to allow us to respond quickly to acquisitionopportunities and expand our business.

Competition

Other parties in our industry may seek to

yield benets rom our technical innovationsby duplication o our products or parts.

We seek to protect our current business and our IP rom being copied or used by others byappropriate use o patents, copyrights and trademarks on a global basis.

Dialog holds 305 patent amilies, including 47 additional patents led in 2012.

Business relationsDialog seeks to mitigate the cyclical volatility o its market by diversiying into new sectors and broadening its customer base to reduce exposure to thepotential loss o any major customer. We need to seek partnerships that are fexible to the fuctuations in demand but able to ensure the continuityo production. By distributing our supply over multiple partners, we seek to prevent shortages in the event one o our suppliers aces capacity constraints,nancial problems or natural disasters.

Risk Actions

Suppliers

Dialog outsources the capital intensive

production o silicon waers, packagingand testing o integrated circuits to leadingsuppliers, mainly in Asia. Capacity constraintsand business interruption could lead toshortage o supply with various negativeconsequential eects, such as loss orevenue and adverse impact on Dialogsrelationship with its customers.

Dialog has orged close partnerships with its oundries and they have responded by investingin capacity to meet demand rom our expanding customers.

Dialog maintains intense interaction to plan and manage capacity with its suppliers.

Dialog strives to have multiple backend and test sources to mitigate the risk o disruptionto supply. For each supplier, manuacturing quality, continuity o supply and nancial healthare regularly monitored.

Dialog continued to work with a range o oundries in Taiwan, Singapore and China and testand assembly houses in Taiwan and Singapore to mitigate the risk o supply chain disruptionand constraints.

Customers

Since Dialog relies on a relatively smallnumber o customers or a substantialproportion o its revenue, the loss o one

or more o these customers would be likelyto have a material eect.

We are reducing the risk o our revenues, protability and growth being aected by a slowdownin the wireless communications market by winning customers in other sectors.

Dialog continued to expand its customer base. This includes ongoing success in providing multiple

Tier 1 customers with technologies or a growing number o portable device platorms and modelsand the broadening o our range o Application Specic Standardised Products.

Risks and their management


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Operational excellence

Dialog recognises that time-to-market is a critical actor or the success o our customers. The eciency o our internal operation is a relevant actorto our perormance. We run programmes to drive continuous improvement through all acets o the value chain rom design to ullment. We alsotest and evaluate the quality o the supporting business unctions.

Our business model is uelled by the unds trusted to Dialog to run its operations. We realise that our nancial transactions bring the risk o currencyand interest rate fuctuations and bad debts. We seek to have enough ree cash fow to invest in growing our business and select the right nancialservice providers and products.

Risk Actions

Design capacity

Dialog develops both Application SpecicIntegrated Circuits or individual customersas well as Application Specic Standard

Products to address multiple customers ina market sector. Dialog respects that time-to-market is o critical importance to ourcustomers success. With strong demandor new innovations and the limited capacityo design engineers, we must balance theallocation o our resources to both ourbusiness models.

Dialog has selected specialised outsourced agencies to support the rapid recruitment o highlyskilled personnel.

In-house we dedicate human resource managers to drive the urther development o our

personnel and benchmark our employment terms against top industry peers.

In 2012, Dialog expanded its design capacity by 21%. We recruited engineers into our currentdesign centres in the UK, Germany, Austria, Japan, the Netherlands and Greece and set up newdesign centres in Turkey and Italy.

Dialog continues to expand its Technical Ladder, a orum o our top engineers, to shareknowledge, align design technologies and generate ideas or new products.

Supply chain

Dialog runs a abless model and does notparticipate directly in the highly capitalintensive production environment. Themanuacturing o our products run overmultiple stages o production with multiple

suppliers. Each supplier must managecapacity to ensure a healthy nancial return,leading to constraints in times o increasingdemand. Long-term capacity planning andshort-term ne-tuning are crucial to alignproduction cycle time with order lead timesor our customers.

Dialog careully selects its suppliers and regularly audits their quality and perormance. We keepa close relationship with our suppliers and have implemented automated eeds to ensure switturnaround o production orders and to manage the transition o production stages over multiplemanuacturing locations.

We keep inventory buers to respond to unplanned demand fuctuations, but seek to manage

these to consume a minimum o working capital.

In 2012, we have rolled out state-o-the-art Supply Chain Network Planning sotware, basedon SAP, which supports the automated scheduling o production work orders, taking intoaccount the capacity constraints o our suppliers.

Interest rates fuctuations

Interest earned rom bank and moneymarket deposits can vary according tomarket fuctuations and Dialogscash requirements.

Dialog manages its interest income using a matched investment strategy with a mix o xedand variable interest rate acilities in highly liquid unds, which are oered by highly reputableand rated nancial institutions. This includes investing excess unds, even over the short term,once the operating business has been nanced.

During the year, the Group has held cash on deposit with a range o maturities rom one weekto three months.

Risks and their management continued


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Risk Actions

Liquidity levels

As a high growth company, we need tobalance the need or liquidity with theavoidance o short-term overdrats and

bank charges.

We structure the maturity o our current nancial assets in the Group to meet 100% o therespective maturities and liabilities. We monitor our liquidity on a quarterly basis, with theobjective o avoiding interest on short-term bank liabilities or overdrats.

Dialog has no long-term debts except or those associated with the US$201 million convertiblebond launched in March 2012 with a ve-year conversion.

Over a short period in 2012, Dialog used US$10 million in credit acilities to temporary nancea peak in working capital. At the end o the year no overdrat was drawn.

Currency fuctuations

The majority o Dialogs revenue, materialcosts and R&D expenses, to some extent arein US dollar currency. There are, however,oreign exchange risks associated with otherexpenses such as wages and building rent,recognised assets and liabilities in othercurrencies, primarily the euro, the poundsterling and Japanese yen.

We use orward-currency contracts to hedge our exposure associated with the paymento non-US dollar wages, oce rent and other expenses. We maximise the eectiveness o ourcurrency hedges by matching the terms and conditions o the hedge to those o the underlyingobligation. We typically use orward-currency contracts up to a maximum o 12 months out.

During 2012, Dialog continued to eectively hedge the majority o its currency exposure.

Creditworthiness o customers

Dialog trades with selected customerson credit terms and receivable balances,which could create a risk o bad debts.

We view all our customers as having high creditworthiness. However, we have actoringagreements with two reputable nancial institutions who assume all risks associated withthe collection o receivables rom selected customers.


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rom waste and damaged products. We have

increased the quantity o recovered gold by300% and recovered silver by 200%.

Dialog only uses packing material qualied asgreen packing, implementing a non-woodpacking delivery policy in 2012. We believethat reusing and recycling packing materialand waste (including the PET and glass bottlesused in our work areas) can contribute to theeectiveness o our resource management andsustainability. Our ve design locations currentlyrecycle 92% o packing and waste. We arestriving or 95% by 2013.

Suppliers and employeesAs a abless semiconductor company, it isimportant that all o Dialogs manuacturingpartners are equally committed to respectingthe environment. Within our supply chain,we continually emphasis that environmentalissues should be an instinctive part o anydecision-making process, and suppliers should:

Design and manuacture onlyenvironmentally riendly products;

Monitor, reduce and eliminate all typeso waste. This includes waste water, solidwaste, wasted energy, ozone-depleting

CO2 emissions and other volatile organicchemicals (VOC). We work with suppliersrelentlessly to maximise yields, minimisingthe number o chips that ail perormancetests and need to be disposed o, alongsidehazardous substances used during theproduction process;

Dialogs commitment to globalcitizenship is woven into theabric o the Company. Throughinnovative new technologiesand environmental, employeeor supplier policies, we strive tomake a contribution to societyand a dierence in the world.

EnvironmentDialogs environmentally responsible approachto business underpins everything that we do.We aim to minimise our use o natural resourcesand reduce and eliminate all types o waste,ollowing the principles o redesign, reduceand recycle. We are ISO 14001 certicated andrequire all our suppliers to be accredited

Dialog Annual Report and Accounts 2012

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Transcript of Dialog Annual Report and Accounts 2012